The inspector general of the Federal Housing Finance Agency (FHFA) released a report on Wednesday criticizing federal regulators’ oversight of top executives’ pay at the beleaguered Fannie Mae and Freddie Mac.
The IG report found that the FHFA approved more than $35 million in annual base salaries and deferred performance pay for FNMA and the Federal Home Loan Mortgage Corp.'s top six officers–their CEOs, COOS and CFOs–in 2009 and 2010. Fannie and Freddie were taken over by the government in September 2008, and FHFA became the conservator for the two GSEs.
The report recommended that FHFA should establish written criteria and procedures for reviewing performance data of the executives, and conduct "independent verification and testing of the basis for executive compensations levels." Once those actions are taken, the report suggest that those factors "may warrant lower compensation" for Fannie and Freddie executives.
Finally, the IG report said FHFA does not provide "sufficient transparency to the public" of the two GSEs' executive compensation packages.
The IG report recommended, instead, that the FHFA look at other federal agencies involved in the housing market to help determine executive compensation levels.
The IG report comes at the same time that House Republicans are trying to put an end to the two mortgage giants. Members of the House Financial Services Subcommittee on Capital Markets and Government Sponsored Enterprises unveiled their plan on March 28 to introduce eight bills over the next few months that will “wind down” Fannie Mae and Freddie Mac.
One of those eight bills is The Equity in Government Compensation Act, sponsored by Rep. Spencer Bachus (left), R-Ala., chairman of the House Financial Services Committee, which would establish a compensation system for employees of Fannie Mae and Freddie Mac that is consistent with other federal government employees.
Bachus said in a statement that “Now that Fannie and Freddie are owned by the government, there is no reason that employees of Fannie and Freddie should not be paid like government employees.” In addition, he said, “the bill expresses the sense of the Congress that the 2010 pay packages for Fannie and Freddie senior executives were excessive and that the money should be returned to taxpayers.”
A Wall Street Journal story on Friday stated that Edward DeMarco, the acting director of the FHFA, warned that the “ 'disruptiveness' ” of changing Fannie and Freddie execs’ salaries to mirror federal workers’ pay “could make it harder for the government to recover the value of its investments in the companies.” The Journal story continued: “The government has enormous exposure here on $5 trillion in mortgage securities,” DeMarco said. “I’d like to make sure we have qualified people managing that … on behalf of the taxpayer.”