The Obama administration’s efforts to fix the housing crisis may have fallen well short of helping millions of distressed mortgage holders, but they have led to seven-figure paydays for some top executives at troubled mortgage giants Fannie Mae and Freddie Mac.
The Federal Housing Finance Agency, the government regulator for Fannie and Freddie, approved $12.79 million in bonus pay after 10 executives from the two government-sponsored corporations last year met modest performance targets tied to modifying mortgages in jeopardy of foreclosure.
The executives got the bonuses about two years after the federally backed mortgage giants received nearly $170 billion in taxpayer bailouts — and despite pledges by FHFA, the office tasked with keeping them solvent, that it would adjust the level of CEO-level pay after critics slammed huge compensation packages paid out to former Fannie Mae CEO Franklin Raines and others.
Securities and Exchange Commission documents show that Ed Haldeman, who announced last week that he is stepping down as Freddie Mac’s CEO, received a base salary of $900,000 last year yet took home an additional $2.3 million in bonus pay. Records show other Fannie and Freddie executives got similar Wall Street-style compensation packages; Fannie Mae CEO Michael Williams, for example, got $2.37 million in performance bonuses.
Including Haldeman, the top five officers at Freddie banked a combined $6.46 million in performance pay alone last year, though a second bonus installment for 2010 has yet to be reported to the SEC, according to agency records. Williams and others at Fannie pocketed $6.33 million in incentives for what SEC records describe as meeting the primary goal of providing “liquidity, stability and affordability” to the national market.
“Freddie Mac has done a considerable amount on behalf of the American taxpayers to support the housing finance market since entering into conservatorship,” Freddie spokesman Michael Cosgrove, told POLITICO on Monday. “We’re providing mortgage funding and continuous liquidity to the market. Together with Fannie Mae, we’ve funded the large majority of the nation’s residential loans. We’re insisting on responsible lending.”
A Fannie Mae spokesman said it is currently in a “quiet period” in advance of its third-quarter earnings report and declined to comment.
Most analysts believe the financial implosion of 2008 was fueled in part by Fannie Mae and Freddie Mac’s zeal in promoting homeownership and their backing of risky loans. And critics say that the mortgage giants’ deep backlog of repossessed homes, and their struggle through government conservatorship, is a staggering weight on a weak economy and puts even more downward pressure on home values.
“Fannie and Freddie executives are being paid millions to manage losses,” Rep. Patrick McHenry (R-N.C.), a longtime critic of the administration’s programs to rescue the housing market, told POLITICO. “By these same standards, I should be the starting forward for the Lakers. It’s completely absurd.”
“It is outrageous that senior executives at Fannie and Freddie are receiving multimillion-dollar compensation packages when they now rely on funding from U.S. taxpayers, many of whom face foreclosure or whose homes are underwater,” Rep. Elijah Cummings of Maryland, who has led House Democrats in efforts to ease Fannie and Freddie’s restrictions on restructuring loans or lowering payments for mortgage holders who owe more than their homes are worth, wrote in an email.
Compensation at Fannie and Freddie is, in fact, 40 percent below pre-government takeover levels, according to the FHFA, though those pay packages before conservatorship involved stock awards, while the current payments are exclusively cash. But compensation at both corporations, in particular Fannie Mae, has been a contentious issue since long before the 2008 financial meltdown, thanks to executives like Daniel Mudd, who earned $12.2 million in base pay and bonuses while heading Fannie, and Richard Syron, Freddie’s CEO, who pocketed $19.8 million in total compensation the year before the organization went into conservatorship.
- «Both Fannie and Freddie have long argued that they have to offer Wall Street-size paychecks to compete for the best private-sector talent. House Financial Services Committee Chairman Spencer Bachus (R-Ala.) introduced a bill in April to place the executives on a government pay scale, but it has yet to move out of committee.
FHFA’s acting director, Edward J. DeMarco, told Congress last year that the managers who were at the helms of the mortgage companies during the market collapse were dismissed but also argued that generous pay helps lure “experienced, qualified” executives able to manage upward of $5 trillion in mortgage holdings amid market turmoil.
DeMarco told lawmakers he’s concerned that suggestions to apply “a federal pay system to nonfederal employees” could put the companies in jeopardy of mismanagement and result in another taxpayer bailout. He said the compensation packages at Fannie and Freddie are part of the plan to return them to solvency while reducing costs to taxpayers.
A March report by FHFA’s inspector general, however, found the agency “lacks key controls necessary to monitor” executive compensation, nor has it developed written procedures for evaluating those packages.
An FHFA representative said the agency is installing pay package recommendations outlined in the report. Currently, she wrote, the agency “carefully reviews all executive officer pay requests and considers suitability and comparability with market practice, after consulting with the Treasury Department in certain circumstances.”
Since both companies’ stock is worthless, bonuses are paid in cash, deferred bonuses and incentive pay rather than stock options. A key factor in determining those bonuses is how Fannie and Freddie performed in the loan modification program created by the administration, in addition to measures tied to financial and accounting objectives.
For example, Freddie Mac helped a mere 160,000 homeowners change their mortgages “in support” of the president’s Home Affordable Modification Programand contacted only 45 percent of eligible borrowers, according to SEC filings. The company itself has modified 134,282 of its own loans since the start of the program. Those measures determined a significant share — 35 percent — of deferred bonus salary and, to a lesser extent, “target incentives” for Freddie executives.
Fannie, which was involved in modifying 400,000 mortgages last year, also assessed executive payments based in part on how it administered HAMP.
President Barack Obama in the past has derided Wall Street “fat cats” for raking in seven-figure bonuses even though their banks and finance companies needed billions of dollars in government bailouts just to stay in business. Yet the White House so far has remained largely silent about comparable bonuses at Fannie Mae and Freddie Mac.
The congressional criticism over compensation follows other charges that DeMarco has been unwilling to throw a lifeline to homeowners plunged underwater when the market collapsed.
The government-sponsored firms have essentially filled the vacuum caused by an exodus from private lenders. But critics want the FHFA to embrace “principal write-downs,” in which lenders and, by extension, Fannie and Freddie, would have to forgive a significant portion of homeowners’ outstanding mortgages; the move, they argue, would be a major step toward restoring housing market stability and boosting the economy but would force the two companies to accept red ink on their balance sheets.
DeMarco has resisted plans to modify troubled mortgages, insisting it wasn’t part of his legal mandate to bring Fannie and Freddie to fiscal stability.
Both HAMP and a similar program, Home Affordable Refinance Program, were seen as having the potential to modify at least 3 million government-backed mortgages and refinance 4 million others. The results were disappointing, however: Just 1.7 million borrowers have been helped since the programs were launched two years ago.
Last week, the White House announced a plan to relax restrictions for the HARP refinance program, which lets homeowners in good standing refinance their mortgages at current rock-bottom interest rates. DeMarco, whom aides say had been studying a similar proposal, gave the plan his blessing — a rare point of agreement between him and the Obama administration.
CORRECTION: An earlier version of this story incorrectly described the process by which the federal government took over Fannie Mae and Freddie Mac. They were both placed in conservatorship under the supervision of the Federal Housing Finance Agency.