Fannie, Freddie Regulator Says Bonuses Needed to Keep Top Talent

Responding to a bipartisan attack on his proposed $12.8 million bonus package for executives at Fannie Mae and Freddie Mac, the regulator of the two financing giants said the bonuses are necessary to keep the caliber of talent needed for managing risks tied to trillions worth of mortgages “that the American taxpayer is supporting.”
Fannie and Freddie, the two government-controlled enterprises that back most U.S. mortgages, are drawing from the Treasury’s open-ended line of credit, which has provided them with $170 billion in bailouts to cover quarterly shortfalls.
In a letter to a group of bipartisan Senators seeking to halt the bonuses, Edward J. DeMarco, acting director of the Federal Housing Finance Agency, said that when the FHFA put Fannie and Freddie into conservatorship in 2008, the failures of former executives left the two firms with no severance or “golden parachutes.”
The regulator said he then established a new executive compensation program, reduced senior executive pay by an average of 40 percent, and developed a new pay structure similar to those designed for large firms that received bailout funds from the Troubled Asset Relief Program, or TARP.
The FHFA announced the executive pay plan in late 2009 and that structure remains in place. Over the past two years, DeMarco said he has reduced the number of top-level positions, and as these positions turn over, he has further reduced pay levels.
“Today, as Conservator 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,” DeMarco wrote.
He goes on to conclude that “it would be irresponsible of me to risk this enormous contingent taxpayer liability with a rapid turnover of management and staff, replaced with people lacking the institutional, technical, operational, and risk management knowledge requisite to the running of corporations with thousands of employees and more than $2 trillion in financial obligations each.”

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