The U.S. Senate in an effort to minimize costs at Fannie Mae (FNMA) and Freddie Mac (FMCC), the government-controlled mortgage companies that are dependent on taxpayer aid, today adopted by voice vote a measure to prohibit executive bonuses at both the companies.
Republican John McCain ofArizonaand Democrat John Rockefeller ofWest Virginiaproposed the Senate amendment, which was introduced after the Federal Housing Finance Agency (FHFA) approved nearly $13 million in bonuses to 10 company executives. This week in Senate, Senator McCain was highly critical of this practice of paying bonuses out of the tax-payers money. “There are many examples of intelligent, well-qualified, patriotic individuals working in our federal government who make significantly less than the top executives at Fannie and Freddie with just as much responsibility,” McCain said.
Since 2008, when the sub-prime crisis pushed them to the brink of collapse, Fannie Mae and Freddie Mac have been dependent on taxpayer aid, and till date, an approximate $153 billion has been pumped into both the companies.
Edward J. DeMarco, FHFA Acting Director, established a program in 2009 that slashed senior executive pay by an average of 40 percent. However, given the technical expertise needed to oversee two companies that guarantee $5 trillion in mortgages and the fact that the executives couldn’t be paid in the companies’ stock, the FHFA has defended the current pay packages as appropriate. In a letter to Senators in November, DeMarco wrote, “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.”
The House Financial Services Committee, that oversees the entire financial services industry, voted to halt executive compensation packages at both the companies and bring their employee pay system at par with one used by theU.S.government. The Republican chairman of the Financial Services panel, Spencer Bachus ofAlabama, said the Senate vote “moves us closer to stopping this outrage.”
In mid-January, Fannie Mae Chief Executive Michael Williams, revealed his plans to step down as soon as the Fannie board finds a successor. Charles E. Haldeman Jr., his counterpart at Freddie Mac, said last autumn that he would leave sometime in 2012. Both of them were appointed in 2009, after the government put the companies under federal control.