(Updates with DeMarco testimony, Frank comment, starting in seventh paragraph.)
Nov. 15 (Bloomberg) -- A House committee approved a suspension of bonus packages for executives at Fannie Mae and Freddie Mac, the two mortgage firms currently under the control of the U.S. government.
The House Financial Services Committee, responding to lawmaker anger over compensation at Fannie Mae and Freddie Mac, approved a measure that would suspend the compensation packages for executive officers at the companies. The bill also would require employees of the two firms to be moved onto a pay scale that lines up with federal financial regulators including the Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency.
“Awarding lavish pay packages to the heads of these companies that have accepted $170 billion in taxpayer cash can’t be defended,” Representative Spencer Bachus of Alabama, the panel’s chairman and sponsor of the bill, said today.
The panel approved the measure 52-4, sending it to the House floor.
The committee’s approval comes amid heightened criticism of the companies’ bonuses and pay. Edward J. DeMarco, chief regulator of the two firms, approved packages in 2009 that awarded a total of $17 million over two years to chief executive officers Michael J. Williams of Fannie Mae and Ed Haldeman of Freddie Mac.
Compensation for the companies’ top six executives totaled $35 million for 2009 and 2010, according to a report from the FHFA Office of Inspector General.
Pay to Decline
DeMarco, acting director of the Federal Housing Finance Agency, has argued that the compensation is necessary to attract and keep executives and employees with the skills to manage a portfolio of more than $5 trillion in mortgage assets. He told senators today that pay will decline over time.
“My plan for executive compensation is to continue to seek opportunities for gradual reductions, particularly when executives leave,” DeMarco said in written testimony today to the Senate Committee on Banking, Housing and Urban Affairs.
“This approach is consistent with the administration’s notion of a gradual wind down” of Fannie and Freddie, which are now in government conservatorship, DeMarco said.
In response to questions from Senator Richard Shelby of Alabama, the top Republican on the committee, DeMarco said that FHFA had consulted with the Treasury Department on the compensation issues, and that neither Treasury Secretary Timothy F. Geithner nor other officials disapproved.
DeMarco stressed that the discussion were a consultation, not a request for approval from Treasury. “We are ultimately responsible,” DeMarco said.
In his testimony, DeMarco criticized the concept of using government pay scales, noting that the role and time of service for employees of the government-sponsored enterprises differs from that of federal employees.
“If you want to influence the determination of our nation’s financial and economic policies, a job in the government may well be what you want, despite better pay offers elsewhere,” DeMarco said in his prepared remarks. “But if you are working at an Enterprise in conservatorship, you have less say in the direction or outcome of your company than in normal businesses.”
Representative Barney Frank, the top Democrat on the Republican-controlled panel who initially opposed the measure, voted for the bill because of what he described as “insensitivity” by the companies in continuing to award bonuses.
“I had hoped that they would use restraint on their own because I think it’s better that we not intervene,” Frank, of Massachusetts, said today. “But they did not.”
Fannie Mae and Freddie Mac have survived on Treasury Department aid since they were seized by the federal government in 2008. Since then, they’ve drawn more than $170 billion in aid. Both companies reported third-quarter losses.
--With assistance from Lorraine Woellert in Washington. Editors: Maura Reynolds, Gregory Mott
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