Fannie, Freddie bonuses derided

Congress moves toward a ban

November 16, 2011|By Derek Kravitz, Associated Press

Spencer Bachus says lavish compensation packages and bonuses are unfair,…

WASHINGTON - Congress is seeking to end the practice of paying million-dollar bonuses to executives at the government-controlled mortgage giants Fannie Mae and Freddie Mac.

Yesterday, the House Financial Services Committee approved a bill that would suspend tens of millions in executive compensation packages, stop future bonuses, and align the salaries with those of other federal employees, who make much less. The vote was 52 to 4, with strong support from both parties.

The Senate is expected to take up a similar measure; legislation limiting pay at the bailed-out companies could be sent to President Obama by year’s end.

Twelve executives got roughly $35.4 million in total salary and bonuses in 2009 and 2010. Fannie’s chief executive, Michael J. Williams, received about $9.3 million for the two years. Freddie’s chief executive, Edward Haldeman Jr., was paid $7.8 million.

The government rescued Fannie and Freddie three years ago after they nearly folded because of big losses on risky mortgages they had purchased. Taxpayers have spent about $170 billion to rescue the two companies, the most expensive bailout of the 2008 financial crisis.

The government estimates the cost of the bailout could reach $220 billion through 2014.

“These lavish compensation packages and bonuses are unfair, unreasonable, and unjust to the taxpayers, whose assistance is the only thing keeping Fannie and Freddie afloat,’’ said Representative Spencer Bachus, the Alabama Republican who chairs the House committee.

Edward DeMarco, acting director of the Federal Housing Finance Agency, said the executives were hired after the companies were taken over by the government in 2008. After the takeover, the salaries for those positions were reduced by an average of 40 percent and some senior positions were eliminated.

DeMarco told the Senate Banking Committee that bonuses are being used to retain talented executives. Without them, taxpayers would incur greater losses, he said.

“The people who are there now did not choose government jobs,’’ he said. “A sudden and sharp change in pay would certainly risk a substantial exodus of talent, the best leaving first, in many instances.’’

Fannie and Freddie own or guarantee about half of all mortgages in the United States.

This month, Fannie asked for $7.8 billion and Freddie requested $6 billion in extra aid to cover large quarterly losses, mostly caused by low mortgage rates.