UPDATE 3-House panel moves to curb Fannie, Freddie pay

Tue Nov 15, 2011 4:07pm EST

* Regulator sees pushing pay lower as executives leave

* Lawmakers seek to block million-dollar pay packages

* Fannie, Freddie have received $169 bln in taxpayer aid

By Margaret Chadbourn and Dave Clarke

WASHINGTON, Nov 15 (Reuters) - A bill to block multimillion-dollar executive pay packages at Fannie Mae and Freddie Mac moved forward on Tuesday even as their regulator defended them as necessary to retain top talent and limit taxpayer losses at the bailed-out companies.

The U.S. House of Representatives Financial Services Committee approved the legislation 52-4, clearing it for a vote in the full House. A similar measure has been introduced in the Senate.

Lawmakers from both parties have expressed shock at revelations the two government-owned mortgage finance firms, which have been propped up with about $169 billion in federal aid, were paying out $12.79 million in bonuses for 10 executives.

"The taxpayer-funded bailout of Fannie Mae and Freddie Mac is the biggest bailout in history," said Representative Spencer Bachus of Alabama, chairman of the House panel. "Adding insult to injury, the top executives of these failed companies receive multi-million-dollar pay packages."

Edward DeMarco, acting director of the Federal Housing Finance Agency, tried to parry the congressional critics.

"At the present, my plan for executive compensation is to continue to seek opportunities for gradual reductions, particularly when executives leave," he told a Senate Banking Committee hearing.

DeMarco said the firms, the top two providers of funding for U.S. mortgages, need to be able to compete with other financial service companies for highly skilled executives.

"We have an entire competitive marketplace in the industry that suggests compensation is an important factor in attracting and retaining top talent," he said.

As the regulator, DeMarco has broad authority to direct the companies' activities, and he approved the pay in consultation with the Treasury Department. The pay packages have followed the same pattern over the last few years; the structure was set in 2009.

He said one of the "biggest concerns that has driven" the the executive compensation packages is an apprehension that the two companies will lose key staff if they are not fully compensated for their marketable skills. As employees leave, DeMarco has tried to reduce pay levels for their replacements.

PUTTING A CAP ON IT

The House bill would suspend the 2011 pay packages for Fannie Mae and Freddie Mac executives and force FHFA to come up with a compensation system for executives that is based on a government pay scale.

The committee adopted an amendment that would use the pay scale that applies to independent financial regulators, such as the Federal Deposit Insurance Corp, which allows for higher pay than at most federal agencies. Representative Al Green, who offered the amendment, said this would have the effect of limiting the highest salaries to about $260,000 per year.

Senate Banking Committee Chairman Tim Johnson, a South Dakota Democrat, expressed concern that tying pay to a government scale could do more harm than good.

"I fear that the federal pay scale will chase away the knowledgeable people we have and rely on to do a great job in a highly complex situation," he told Reuters.

Fannie Mae and Freddie Mac were seized by the government and placed in conservatorship in 2008 as soured home loans threatened their solvency. Given the central role they play in the U.S. mortgage system, the Treasury offered them an unlimited credit line through next year to protect the already battered housing sector.

Some Republicans said it was unfair for the Obama administration to expand the bailout without moving forward on a plan to wind down the government's role.

Lawmakers in the Republican-led House have debated bills to shutter the firms at the committee level, but the Democrat-led Senate has yet to take up any legislation, even though both Democrats and Republicans largely agree the companies will eventually need to be closed down.

"We have done nothing," said Republican Senator Bob Corker of Tennessee, who has sponsored legislation to put a new housing finance structure in place. "Unless Congress comes forward, and gives concrete direction, we're going to end up in a permanent conservatorship."

DeMarco told the Senate committee any changes in pay should not be a "sudden shock" and said the best way to reduce compensation would be for lawmakers and the Obama administration to agree on a future course.

"Then we could have a final resolution of Fannie Mae and Freddie Mac in conservatorship, which would resolve the compensation issue once and for all," he said.

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