CQ TODAY ONLINE NEWS
Nov. 14, 2011 – 11:11 p.m.
Bonuses at Housing Giants Draw Fire on Hill
By Ben Weyl, CQ Staff
Congress is starting to turn up the heat on the federal overseer for Fannie Mae and Freddie Mac on the issue of whether the two companies’ top executives have received inappropriately outsized bonuses.
Generous compensation packages for top executives of the mortgage finance companies have drawn bipartisan outrage. Whether lawmakers might move to block the bonuses — an extraordinary intervention — remains to be seen. But such a step would not be without precedent, and in a volatile political environment, remains a possibility.
The House Financial Services Committee will consider legislation Tuesday to eliminate the compensation packages for Fannie and Freddie senior executives. Across the Capitol, Edward J. DeMarco, the acting director of the Federal Housing Finance Agency, will testify before the Senate Banking, Housing and Urban Affairs Committee about the issue. Senators may have the chance later in the week to vote to limit the compensation packages.
The issue has been simmering for weeks after reports that 10 Fannie and Freddie executives are set to receive more than $12 million in bonuses. House Republicans, however, took an even earlier interest in the issue. In April, a House Financial Services subcommittee took up legislation (
At the April markup, full committee Chairman
Chartered by the federal government, Fannie and Freddie are so-called government-sponsored enterprises that were created to help finance the mortgage market. Although they were long owned by shareholders, they also have benefited from an implied government guarantee.
That implicit guarantee was made explicit in the summer of 2008, when the growing mortgage crisis threatened the housing giants’ solvency. Faced with huge losses, the administration of President George W. Bush put the companies under federal conservatorship that September.
Since then, the two companies have drawn roughly $169 billion in taxpayer-financed assistance, largely to cover losses related to bad loans made before the companies were seized. With the mortgage market yet to recover, Fannie and Freddie are expected to require additional government aid in coming months.
Defending the Bonuses
In his role as the independent conservator for Fannie and Freddie, which together are responsible for almost half of all outstanding home loans, DeMarco is tasked with protecting the taxpayers’ exposure to $5 trillion in mortgage-related assets.
To adequately do that, he has argued, it is necessary to offer competitive pay packages to the individuals who are effectively running the nation’s mortgage market.
DeMarco has also consistently defended his agency’s handling of compensation packages. In a recent letter to senators, he said those who presided over the companies’ failures left without severance pay and that he established a new executive compensation program that reduced senior executive pay by an average of 40 percent. DeMarco said he worked with the Treasury Department to develop a pay structure similar to that of large companies assisted by the Troubled Asset Relief Program, and that this has been in place since late 2009.
DeMarco is expected to make similar comments in his Senate Banking testimony. Whether he will be able to persuade senators to hold off from taking shots at an easy political target is uncertain.
Bonuses at Housing Giants Draw Fire on Hill
McCain’s amendment might not come to a vote, but if it does, it would probably be difficult for many lawmakers to oppose. Already, 60 senators have signed on to a letter circulated by Alaska Democrat
This is not the first time Congress has threatened to clamp down on what many viewed as inappropriate bonuses. In 2009 and 2010, lawmakers took aim at American International Group Inc., which had been rescued by the federal government and planned to distribute millions of dollars in bonuses. Ultimately, no bill was enacted into law, in part because of the Obama administration’s concerns. So far, the White House has shied away from taking a stance on this latest controversy.
Lawmakers did follow through on a plan to abrogate a multitude of contracts in the aftermath of the savings and loans crisis of the late 1980s, with somewhat damaging results. In the run-up to the crisis, regulators had given some financial institutions large sums through IOUs known as “supervisory goodwill” to pad their capital. Later, Congress rescinded that goodwill, leaving some institutions effectively broke. Many sued the federal government and won compensation in the courts.
If Congress decides to rip up contracts for Fannie and Freddie executives, they might score political points but possibly also might face a long-term financial cost.