In response to bipartisan criticism about executive compensation at the Federal National Mortgage Association and the Federal Home Loan Mortgage Corp., their regulator said that it wouldn’t be wise to go bargain hunting for executives who will oversee more than $5 trillion in assets.
A joint announcement Wednesday from Sen. John McCain (R-Ariz.)Â and Jay D. Rockefeller (D-W.V.) indicated that they intend to propose an amendment that would prohibit bonus compensation to executives of Fannie Mae and Freddie Mac for as long as the two government-controlled enterprises remain in conservatorship.
Another five Republicans and two Democrats are co-sponsoring the legislation.
The statement criticized how Fannie’s and Freddie’s conservator and regulator — the Federal Housing Finance Agency — recently approved $12.8 million in bonuses to 10 executives at the companies.
“It’s outrageous that Fannie Mae and Freddie Mac executives would expect multi-million dollar bonuses after $170 billion in taxpayer bailouts and one in every four homeowners’ mortgage underwater,” McCain said in the announcement.
“It’s inexcusable that anyone would think it’s okay to hand out these bonuses,” Rockefeller — the great grandson of oil tycoon John D. Rockefeller — stated in the news release.
McCain called on President Obama to help with the cause.
“President Obama has previously opposed huge bonuses for Fannie and Freddie executives and denounced such windfalls for leaders of companies bailed out by taxpayers as an ‘outrage’ and a violation of ‘our fundamental values,'” the senator said. “We hope the administration will live up to its rhetoric and join our effort to stop these absurd and outrageous bonuses.”
In response, FHFAÂ Acting Director Edward J. DeMarco issued a letter Thursday to the senators explaining his decision.
DeMarco said that an executive compensation program put in place when the two companies were seized in 2008 cut senior executive pay by 40 percent. Since 2009, the number of top-level positions have been reduced and pay levels has been further reduced.
The acting director noted that FHFA has used market compensation measures to ensure the executives are paid at or below the median rate earned by comparable private-sector executives. He noted that a third of the top executives’ target compensation is based on a combination of individual and corporate performance, and deferred compensation is a “significant component” of the bonuses.
“Today, 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,” DeMarco said. “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.”
He went on to explain that job security doesn’t exist at the companies, which the Obama administration has already indicated will be wound down. In addition, the executives frequently face harsh public scrutiny.
In addition, even though “almost everyone expects the enterprises to cease to exist, at least in their current form, in the future,” financial commitments will continue for 30 years. Expert management will be needed for many years to oversee a liquidation.
“Given the amount of money at risk here, small mistakes can easily be amplified to losses far greater than the compensation paid to enterprise executives,” he said.
