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GSE Losses Could Cost Gov Over $400 Billion

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The federal government has committed to cover in excess of $200 billion in losses each at Fannie Mae and Freddie Mac. In addition, compensation packages of $6 million each have been approved for the two companies’ top executives.

In a Securities and Exchange Commission filing Thursday, Fannie said its President and Chief Executive Officer Michael J. Williams will receive a compensation package of as much as $6 million this year. The package includes $0.9 million in base compensation, $3.1 million in deferred pay and as much as $2.0 million in long-term incentive awards.

Fannie Chief Financial Officer David M. Johnson’s total package works out to as much as $3.5 million.

Over at Freddie, a $6 million dollar package was approved for CEO Charles E. Haldeman Jr., according to another SEC filing. Haldeman’s deal also includes an $0.9 million base, $3.1 million in deferred base salary and $2.0 million in “target incentive opportunity.”

Bruce W. Withrell, Freddie’s chief operating officer, received a $4.5 million package, while CFO Ross J. Kari was approved for a $3.5 million package.

“The plans, announced in the enterprises’ 8-K filings today, significantly reduce compensation from the levels in place prior to conservatorship,” the Federal Housing Finance Agency, regulator of the two government-sponsored and -controlled companies, said in an announcement. “On average, total compensation for executive officers at the two Enterprises for 2009 is down 40 percent from pre-conservatorship levels.”

The FHFA noted that the compensation packages were designed using the same general structure as was approved by the special master for TARP executive compensation.

After the compensation packages were disclosed, the U.S. Department of the Treasury announced that the program established under the Housing and Economic Recovery Act to purchase GSE-guaranteed mortgage-backed securities will end on Dec. 31. Around $220 billion in MBS will have been purchased under the program.

The Treasury also said it would amend the preferred stock purchase agreements that were established to ensure both firms maintain a positive net worth are being increased from $200 billion for each firm to whatever is “necessary to accommodate any cumulative reduction in net worth over the next three years.”

So far, $60 billion has been provided to Fannie and $51 billion has been provided to Freddie under the agreements.

“The amendments to these agreements announced today should leave no uncertainty about the Treasury’s commitment to support these firms as they continue to play a vital role in the housing market during this current crisis,” the statement said.

Former Fannie chief credit officer Edward Pinto suggested in commentary that the stepped-up commitment by the government will likely increase the near-term bailout costs to the two companies for the Home Affordable Housing Program. Pinto also speculated that the lack of a common stock component in the executive compensation packages indicates a potential formalization of the two companies as government agencies.

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