The Federal Housing Finance Agency (FHFA), whose current acting director is Edward DeMarco, is the regulator and conservator of the Federal National Mortgage Association (FNMA or Fannie Mae) and the Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac). Fannie Mae lost $14 billion in FY2010, while Freddie Mac lost $21.5 billion in FY2009. Fannie Mae says it will seek $7.8 billion in Treasury Department aid. Freddie Mac has requested an additional $6 billion from US taxpayers.
Now that the stage has been set, let’s examine WHY Fannie Mae and Freddie Mac are in the news. On Wednesday, November 16, 2011, Representative Darrell Issa (R-CA) had Fannie Mae CEO Michael Williams and Freddie Mac CEO Charles “Ed” Haldeman Jr. to testify before the House Oversight and Government Reform Committee. They were there to defend their salaries. Each of them could take home as much as $6 million apiece in salary and bonuses in 2011. Fannie and Freddie payed out nearly $13 million in executive bonuses in 2010. “It’s hard for them [taxpayers] to understand how executives get $6 million in pay for a failing entity,” said Rep. Carolyn Maloney (D-NY). The salary and bonuses were defended by Williams, Haldeman and Edward DeMarco. DeMarco, defending the salaries and bonuses, said that it was difficult to find qualified people to help run the companies. The CEOs of Fannie Mae and Freddie Mac argued the compensation structures at the mortgage finance firms were needed to retain and attract qualified staff. (Personal note: how can “qualified staff” lose billions of dollars?)
A House committee approved a suspension of bonus packages for executives at Fannie Mae and Freddie Mac. “Awarding lavish pay packages to the heads of these companies that have accepted $170 billion in taxpayer cash can’t be defended,” said Representative Spencer Bachus (R-AL), chairman of the House Financial Services Committee, and sponsor of the bill to limit bonuses. The committee approved the measure 52-4, sending it to the House floor.
All of this comes amid the Obama administration’s effort to increase mortgage refinancing. White House officials are easing the rules of the Home Affordable Refinance Program (HARP), which allows mortgages backed by Fannie Mae and Freddie Mac to be refinanced at lower rates. (Another personal note: does anyone see any irony here?)