The Federal Housing Finance Agency, the government regulator for Fannie [Mae] and Freddie [Mac], approved $12.79 million in bonus pay after 10 executives from the two government-sponsored corporations last year met modest performance targets tied to modifying mortgages in jeopardy of foreclosure.Freddie chief Charles "Ed" Haldeman, who recently announced plans to leave the housing finance agency next year, received a $2.3 million bonus for 2010, along with a base salary of $900,000. The top five execs at Freddie got a total of $6.5 million in performance-based pay for 2010 -- and they may get more. That figure doesn't include a second round of bonuses the execs may receive. Over at Fannie, CEO Michael Williams's bonus last year came to $2.4 million, while the company's top five officers got combined performance-based pay of $6.3 million.
The executives got the bonuses about two years after the federally backed mortgage giants received nearly $170 billion in taxpayer bailouts -- and despite pledges by FHFA, the office tasked with keeping them solvent, that it would adjust the level of CEO-level pay after critics slammed huge compensation packages paid out to former Fannie Mae CEO Franklin Raines and others.
Why the generous rewards? After all, the government-sponsored enterprises remain under federal "conservatorship" and are already into U.S. taxpayers for $141 billion as a result of their 2008 bailout. A Freddie spokeswoman tells Politico:
"We're providing mortgage funding and continuous liquidity to the market. Together with Fannie Mae, we've funded the large majority of the nation's residential loans. We're insisting on responsible lending."The main reason to oppose such payments is that high pay, especially the kind of "heads-I-win/tails-you-lose" compensation schemes that were so prevalent before the 2008 financial crisis, pervert execs' managerial incentives. Like their brethren on Wall Street, in other words, Fannie and Freddie leaders got gargantuan sums not for prudent lending, but for pushing growth by any means necessary. The only problem with such a system is that it's guaranteed to destroy companies and cause financial fraud.
Pay to play
That's not what appears to be happening here. Rather than peddling dodgy loans, GSE leaders today are getting bonuses simply for showing up at work in the morning. After all, providing mortgage funding and market liquidity is what these firms exist to do. And by other measures, such as helping homeowners lower their mortgage payments, Fannie has hardly excelled.
So why do wards of the state like Fannie and Freddie need to throw money at top execs? The feds seem to think that outsized pay equates with superior performance. In fact, as the housing crash made glaringly clear, it often works the other way around. Studies have shown how soaring executive comp often goes hand-in-hand with companies short-changing other critical corporate functions, like outside audits.
Perhaps it's not by coincidence, as Politico notes, that the FHFA's inspector general found earlier this year that the agency struggles even to keep track of what Fannie and Freddie pay execs. The upshot? Comp on Wall Street and in the housing agencies remains distressingly out of control.
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