WASHINGTON – Legislation that has cleared the House would curb the pay of the CEOs of government-controlled mortgage giants Fannie Mae and Freddie Mac, overriding regulators’ approval of nearly $4 million yearly pay packages for each.
The bill had strong bipartisan support and passed the House by voice vote Monday. It would cap the total compensation of the Fannie and Freddie CEOs to $600,000 a year each — the level at which it was previously held by the regulators.
The government rescued the two companies with a $170 billion taxpayer bailout at the height of the financial crisis in September 2008, as they veered toward collapse under the weight of losses on risky mortgages. It was one of the largest government bailouts of the crisis.
The bill was authored by Rep. Ed Royce, R-Calif., a member of the House Financial Services Committee. With the Senate having passed a similar bill in September, Royce said Monday he expected legislation to reach President Barack Obama’s desk.
The Federal Housing Finance Agency, which oversees the companies, this year approved annual base salaries of $750,000 each, $2.1 million in deferred compensation and $1.2 million in deferred salary for Fannie CEO Timothy Mayopoulos and Freddie CEO Donald Layton. Bonuses were not included in the package.
That compared with the $600,000 annual salary limit previously in effect. In approving the new packages, the agency said they take CEO performance into account and defer compensation to induce the executives to stay with the companies. Mayopoulos and Layton will be paid less than most CEOs at similar companies, the FHFA said.
The vote for the pay caps by many Democratic lawmakers came despite their longstanding favourable attitude toward Fannie and Freddie, which have been fiercely criticized by Republicans.
The compensation limits were imposed by the regulators in 2012, shortly before Mayopoulos and Layton became CEOs of their companies. At that time, Fannie and Freddie had been under government control for more than three years. Even after the bailout, their top management remained well-compensated, leading to criticism of both the companies and the FHFA.
The gradual recovery of the housing market in recent years has made Fannie and Freddie profitable again, and they have paid quarterly dividends to the U.S. Treasury that exceed the amounts of their bailouts.
Fannie and Freddie own or guarantee about half of all U.S. mortgages, worth about $5 trillion. Along with other federal agencies, they back roughly 90 per cent of new home loans. The companies don’t directly make loans to borrowers. Instead they buy mortgages from lenders, package them as bonds, guarantee them against default and sell them to investors. That helps make loans available.
A plan to phase out Fannie and Freddie and instead use mainly private insurers to backstop home loans advanced in the Senate last year and was endorsed by the White House. The plan would create a new government insurance fund. Investors would pay fees in exchange for insurance on mortgage securities they buy, and the government would become a last-resort loan guarantor.
No work on the proposal has been done this year in the current Congress, however. Royce said the legislation to cap the CEOs’ pay was a victory for taxpayers, but added, “The real battle of winding down (the companies) and ending the government’s domination of the housing market remains.”
Corinne Russell, a spokeswoman for the FHFA, declined to comment on the legislation.