Federal housing overseer says executive compensation his ‘most vexing’ issue

DeMarco, who acknowledged he will testify before the Senate Banking Committee next week, said any changes to the executive compensation plans could create more problems for the agencies. 

“At that hearing, I will explain more fully the Fannie Mae and Freddie Mac compensation packages and my concern with changes to these packages that could disrupt the functioning of the companies and thereby add even greater losses on the American taxpayer,” he wrote. “I look forward to sharing my detailed testimony with you following the hearing.” 

DeMarco also has been invited to a similar hearing before the House Oversight Committee delving into the bonuses. Charles Haldeman Jr. and Michael Williams, the chief executives of Freddie Mac and Fannie Mae, respectively, are set to appear before the House panel.

The letter sent by the senators on Nov. 4 calls the bonuses “wildly imprudent” and urges the housing finance agency to make “changes to the executive compensation policy to more accurately reflect the mission of the agency and the fiscal reality facing the GSEs and the federal government.” 

DeMarco said he understands lawmakers’ concerns about wasteful spending, especially considering that losses at the troubled mortgage giants have already resulted in more than $170 billion in taxpayer expense.

“As conservator I need to ensure that the companies have people with the skills needed to manage the credit and interest rate risks of $5 trillion worth of mortgage assets and $1 trillion of annual new business that the American taxpayer is supporting,” he wrote. 

“I have concluded that it would be irresponsible of me to risk this enormous contingent taxpayer liability with a rapid turnover of management and staff, replaced with people lacking the institutional, technical, operational, and risk management knowledge requisite to the running of corporations with thousands of employees and more than $2 trillion in financial obligations each.”

Yet while lawmakers put the spotlight on the bonuses, DeMarco shifted it back onto Congress, saying “I respectfully submit that the best assistance Congress could give FHFA on this matter is, after more than three years of conservatorship, to take action to provide a clear path forward to end the conservatorships and reduce the taxpayer exposure to the mortgage market.” 

“That is the only way to truly resolve this matter,” he said.

Fannie and Freddie have been under government control since September 2008. 

The House Financial Services Committee is planning to vote on a bill Tuesday that would suspend the compensation packages and place all other Fannie and Freddie employees on the same pay scale as other federal employees. The bill, offered by Chairman Spencer Bachus (R-Ala.), was approved by a subcommittee in April, garnering bipartisan support.

Still, DeMarco defended the executive pay structure established in 2009 that reduced senior executive pay by an average of 40 percent, and created “a new pay structure similar to that designed for large, special-assistance TARP firms.”  

“Over the past two years, we have reduced the number of top level positions, and as these positions turn over, we have further reduced pay levels,” DeMarco wrote. 

The heads of Fannie and Freddie “are not public employees, and FHFA has used market compensation measures to target executive compensation at or below the median of comparable private sector positions at financial institutions roughly similar in size and/or complexity as the enterprises,” he wrote.