(Updates with Senate passage of bill in second paragraph.)
Feb. 2 (Bloomberg) -- The U.S. Senate passed a prohibition on executive bonuses at Fannie Mae and Freddie Mac, the government-controlled mortgage companies that are dependent on taxpayer aid.
The Senate voted 96-3 to approve a bill including the ban proposed by Republican John McCain of Arizona and Democrat John Rockefeller of West Virginia, which was added by voice vote earlier today. The measure was introduced after the companies’ regulator, the Federal Housing Finance Agency, approved nearly $13 million in bonuses to 10 executives.
McCain, on the Senate floor this week, said he found it “hard to believe” it would be difficult to find people to run the firms “without the incentive of multi-million dollar bonuses.”
“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.
Lawmakers included the prohibition in a bill aimed at reducing conflicts of interest and increasing disclosure on investments by lawmakers and their staffs. The bill now moves to the House, where representatives are scheduled to vote on it next week, Majority Leader Eric Cantor, a Virginia Republican, said in a statement after the Senate vote. House members have been weighing their options on a similar measure that has at least 270 supporters, more than enough for passage.
Fannie Mae and Freddie Mac have been dependent on taxpayer aid since 2008, when failing subprime mortgages pushed them to the brink of collapse. They have required more than $153 billion to fund their operations.
FHFA Acting Director Edward J. DeMarco, who is charged with minimizing the costs to taxpayers, established a program in 2009 that cut senior executive pay by an average of 40 percent. He has since promised “gradual reductions” in compensation while defending the need to attract talent.
“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 in a November letter to senators.
“Given the amount of money at risk here, small mistakes can easily be amplified to losses far greater than the compensation paid,” DeMarco wrote.
The House Financial Services Committee voted to suspend executive compensation packages at the companies and bring their employee pay system in line with one used by the U.S. government.
Representative Spencer Bachus of Alabama, the Republican chairman of the Financial Services panel, said the Senate vote “moves us closer to stopping this outrage.”
--Editors: Dan Reichl, Gregory Mott
To contact the reporter on this story: Lorraine Woellert in Washington at firstname.lastname@example.org.
To contact the editor responsible for this story: Maura Reynolds at email@example.com