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The regulator of Fannie Mae and Freddie Mac warned Thursday that congressional proposals to clamp down on the two GSEs could put taxpayers at greater risk.
March 31
WASHINGTON — An inspector general report is raising questions whether Fannie Mae and Freddie Mac's regulator should do more to clip executive compensation packages at both of the companies.
The report released by the Office of Inspector General for the Federal Housing Finance Agency on Thursday said the agency has not weighed factors such as the impact of federal financial support received by both government sponsored enterprises or the performance by executives in evaluating compensation packages.
To date, the Treasury Department has spent $153 billion on the GSEs to stabilize them, according to the IG.
"Given the government's significant financial commitments to the enterprises and the potential for significant additional taxpayer losses, multi-million dollar compensation packages paid to the enterprises' executives will likely continue to generate significant controversy," the report said
The two CEOs received roughly $17 million in combined compensation in 2009 and 2010, which were approved by the FHFA. During that same period, the GSEs' top six officers received a combined compensation package of more than $35 million, according to the report.
The IG recommended the agency perform ongoing reviews, establish criteria and procedures for reviewing performance data, and consider the level of federal support for the GSEs in evaluating compensation packages going forward.
"These factors may warrant lower compensation for enterprise executives," the IG's report said. It also urged the agency to publicly disclose information about executive compensation and links to the GSEs' securities filings.
The agency agreed to most of these recommendations.
Also called into question by the report is FHFA's ability to provide oversight of the compensation packages.
"FHFA lacks key controls necessary to monitor the enterprises' ongoing executive compensation decisions under the approved packages," according to the IG's report.
"Specifically, FHFA has neither developed written procedures to evaluate the enterprises' recommended compensation levels each year, nor required agency staff to verify and test the means by which the enterprises calculate their recommended compensations levels."
The report came on the same day that Edward DeMarco, the acting director for the agency, testified against altering executive compensation packages at the two companies.
DeMarco told lawmakers before the House Financial Services capital markets subcommittee that the agency has worked to reduce compensation at Fannie and Freddie. "Since conservatorship, there has been a 40% decrease in overall executive compensation at the enterprises," he said.
FHFA also directed both of the GSEs to maintain compensation levels from the previous year in line with federal employees.
However, DeMarco cautioned that legislation recently introduced by Chairman Rep. Spencer Bachus, R-Ala. to suspend Fannie and Freddie's current employee compensation system could "increase costs to taxpayers and risk further disruptions in housing market."
"FHFA is very mindful of keeping enterprise compensation costs down, while retaining the talent to carry out the operations of the companies," he said. "I am concerned that legislation to overhaul the compensation levels and programs in place today with the application of a federal pay system to non-federal employees carries great risk for the conservatorship and hence the taxpayer."
However, the FHFA disagreed to assess disparities in compensation among senior officials of the enterprises with those from the Federal Housing Administration and Ginnie Mae, and to test the GSEs' annual salary recommendation for their senior executives.
"No existing government agency comes close to being able, without relying mainly on private sector contractors, to manage a $5.5 trillion mortgage credit portfolio, interest rate risk on $1.5 trillion, simultaneously maintain the structures to handle roughly 70% of all new mortgages and deal with serious delinquencies on an unprecedented scale," the FHFA said in response to the recommendation. "Accordingly, we do not believe that government pay levels are useful benchmarks for evaluating enterprise pay and therefore disagree with including them as a factor in the compensation analysis."
