WASHINGTON – The government says it will cap pay for Fannie Mae and Freddie Mac chief executives at $500,000 per year and eliminate annual bonuses for all employees. The changes come after Congress pressured the government to stop big payouts at the bailed-out mortgage giants.
The Federal Housing Finance Agency, the government agency that oversees Fannie and Freddie, also said Friday that it would cut pay for roughly 50 other executives at the two companies. Those employees are still eligible to earn salaries above the cap.
The pay and bonus structure of the government-controlled mortgage giants came under fire this fall after it was revealed that 12 executives got $35.4 million in 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.
Republican lawmakers welcomed the cap, noting that pay at mortgage companies should be more in line with government salaries. But administration officials said such limits will make it harder to attract talent because chief executives could earn far more in comparable jobs on Wall Street.
There's no start date in place for when the cap will be instituted. Haldeman and Williams will each be paid $5.4 million this year.
But Haldeman and Williams are leaving their positions this year and officials say the cap will be applied to their replacements' salaries.
Nearly 50 other executives, including 11 of the 13 most senior officials, will also have their salaries reduced by 10 percent starting in 2012. But the cap won't apply to their salaries. They can still earn more in deferred pay and take in multi-million-dollar salaries.
The government rescued Fannie and Freddie three years ago after they nearly folded because of big losses on risky mortgages. Taxpayers have spent about $170 billion to prop up the two companies, the most expensive bailout of the 2008 financial crisis.
The FHFA said the executives were hired after the companies were taken over in 2008. After the takeover, the salaries for those positions were reduced by an average of 40 percent and some senior positions were eliminated.
Fannie and Freddie executives receive salaries, bonuses and other forms of compensation for their work, including deferred salary, which is tied to the company's performance and is usually paid after one year with the companies.
Edward J. DeMarco, the FHFA's acting director, defended the higher salaries and bonuses. He said they were used to retain talented executives and keep the companies running smoothly. Without them, it will be harder to attract talent and taxpayers could incur greater losses, he said.
Under the cap, Fannie and Freddie executives will be paid about 50 percent less than the median salary of comparable positions for big private financial firms, including Bank of America, Citigroup, JPMorgan Chase and Wells Fargo, the government says.
"The employees are subject to extraordinary scrutiny," DeMarco said on a Friday morning conference call with reporters. "And they are being paid less than other employees in their field."
Freddie Mac reported in its quarterly earnings report Friday that it had experienced a higher-than-usual 17 percent turnover of its senior staff last year, citing the anticipated reduced salaries as the chief factor.
Even with the cap, the executives could expect to earn far more that government workers.
DeMarco made roughly $240,000 last year, according to government records. The highest-paid federal worker — a medical officer at the National Institute of Health — earned $350,000.
Congressional leaders say Fannie and Freddie have already turned into pseudo-government agencies and are private companies in name only.
"Fannie and Freddie are government-owned entities that have become more akin to policy tools for this administration than real businesses," said U.S. Rep. Darrell Issa (R-Calif.), who chairs the House Oversight and Government Reform Committee.
One of the mortgage giants' chief critics — U.S. Rep. Spencer Bachus (R-Ala.), who chairs the House Financial Services Committee — said the change in pay for executives at the firms was "long overdue" and a "step in the right direction."
"The taxpayer funded bailout of Fannie Mae and Freddie Mac is the biggest bailout in history," he said. "The lavish compensation packages and million dollar bonuses that have been given to top executives of these two failed companies are an outrage to the taxpayers whose assistance is the only thing keeping Fannie Mae and Freddie Mac afloat."