Fannie Mae, Freddie Mac CEOs could each earn $6 million a year
The chief executives of Fannie Mae and Freddie Mac each could earn as much as $6 million this year and next, despite huge continued losses at the seized mortgage giants and a government bailout tab of more than $100 billion that the Obama administration said could rise even higher.
Fannie Mae Chief Executive Michael Williams will earn a base salary of $900,000 in 2009 and 2010, with a deferred base salary of $3.1 million each year to be paid “only if the enterprise meets performance metrics” set by its board and subject to government review, according to filings Thursday with the Securities and Exchange Commission. An additional $2 million is possible annually, identified as “target incentive opportunity.” Freddie Mac Chief Executive Charles E. Haldeman Jr. will get the same compensation package.
Four additional Fannie Mae executives will earn base salaries above $500,000 and have compensation packages for 2009 and 2010 that could pay each of them at least $2.7 million annually. One other Freddie Mac executive will receive a base salary over $500,000 and could earn as much as $1.15 million a year.
Also on Thursday, the administration said it was prepared to increase the maximum amount it would pay to bail out the troubled institutions
The announcements are likely to provoke outrage in Congress, particularly among Republicans, who have charged that Fannie Mae and Freddie Mac caused the housing boom and financial crisis with lax mortgage standards. Senators headed home for the holidays Thursday, and House members were already out of town, limiting the initial reaction.
“The Obama administration’s decision to write a blank check with taxpayer dollars for the continued bailout of Fannie Mae and Freddie Mac is appalling,” Rep. Scott Garrett (R-N.J.) said. “Not only is this a continued bailout of failed entities that need to be privatized to protect the taxpayer, the timing of the announcement is clearly designed to try and sneak the bailout by the taxpayers.”
The Treasury Department has pumped $60 billion into Fannie Mae and $51 billion into Freddie Mac in exchange for stock since federal officials seized them in September 2008 in one of the largest and most complex federal bailouts. Each company has a lifeline of as much as $200 billion, which administration officials said Thursday they would “increase as necessary” over the next three years as the companies continue to struggle.
The promise of additional money “should leave no uncertainty about the Treasury’s commitment to support these firms as they continue to play a vital role in the housing market during this current crisis,” the department said. Fannie Mae lost $18.9 billion from July through September, and a total of $56.9 billion for the first nine months of this year. Freddie Mac lost $5 billion in the third quarter and $14.1 billion in the first nine months of 2009.
The nonpartisan Congressional Budget Office in March estimated that the total cost to taxpayers of the takeover of Fannie Mae and Freddie Mac would be $389 billion.
Garrett and other Republican critics have pushed for major reforms at the two companies, which were created as private, government-sponsored enterprises to provide liquidity to the mortgage industry by purchasing loans. Fannie Mae and Freddie Mac are vitally important to the housing market, with the companies playing a role in funding about 75% of all new residential mortgages.
Republicans have complained that the Obama administration’s proposed overhaul of financial regulations moving through Congress does not address Fannie Mae and Freddie Mac. The administration said Thursday that it was “reviewing issues around longer-term reform of the federal government’s role in the housing market.” It expects to issue a preliminary report around the time Obama releases his 2011 budget in February.
The pay packages at Fannie Mae and Freddie Mac were designed in consultation with the Treasury Department and follow the compensation guidelines set out by Kenneth Feinberg, the administration’s special master for executive compensation under the $700-billion Troubled Asset Relief Program, said the Federal Housing Finance Agency, which has overseen the companies since federal officials seized them in September 2008.
Those guidelines limit base salary and move more compensation into deferred stock and other incentives tied to a company’s longer-term performance. But the guidelines do not apply to Fannie Mae and Freddie Mac, whose bailout is not funded through TARP.
The housing finance agency said total compensation for executives at the two firms was down 40% in 2009 from the levels before the companies were seized.
In 2007, then-Freddie Mac CEO Richard F. Syron had a base salary of $1.2 million and total compensation of $18.3 million, according to SEC filings. In the same year, Daniel Mudd, the chief executive of Fannie Mae, had a base salary of $987,000 and total compensation of $11.7 million.
Although seven executives at the companies have base salaries over $500,000 in 2009 and 2010, there were 16 executives with such salaries in 2008, the housing finance agency said.
“Policymakers ultimately will need to determine the future of the enterprises and the future structure of our housing finance system. As this debate progresses, it will be essential that the enterprises continue to perform their current role,” said the agency’s acting director, Edward J. DeMarco. “The enterprises must attract and retain the talent needed to accomplish these objectives.”
Treasury officials said the pay packages marked “a clear break” from past practices at Fannie Mae and Freddie Mac by limiting cash salary in most cases to $500,000 and making most compensation payable over time. The deferred compensation could be recouped, or “clawed back,” if the companies do not achieve performance targets.
Feinberg has made exceptions to the $500,000 base salary limit for some executives at companies that received TARP money and has allowed large total compensation packages. On Wednesday, for example, he approved up to $9.5 million in 2010 compensation for GMAC Chief Executive Michael A. Carpenter and up to $6.2 million for General Motors Co. Chief Financial Officer Christopher Liddell.
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