WASHINGTON The regulator for Fannie Mae and Freddie Mac on Thursday defended their million-dollar executive bonuses which have come under fire given huge losses at the government-owned mortgage firms.
Federal Housing Finance Agency's acting director Edward DeMarco said in a November 10 letter to U.S. lawmakers the salaries and deferred compensation awarded to executives are necessary if the firms are to attract and keep talent required to run operations effectively.
Slammed by losses from the precarious U.S. housing market, Fannie and Freddie have requested new aid on top of hundreds of billions of dollars in government support propping them up, raising questions about the bonuses.
DeMarco was responding to a bipartisan group of 60 U.S. senators that wrote last week and demanded changes to the executive compensation practices that were put in place two years ago.
"I need to ensure that the companies have people with the skills needed to manage the credit and interest rate risks of $5 trillion worth of mortgage assets and $1 trillion of annual new business that the American taxpayer is supporting," DeMarco wrote.
Fannie Mae and Freddie Mac were taken into government control in September 2008 as soured mortgage debt threatened insolvency. The rescues have cost taxpayers about $169 billion.
Changes to these packages "could disrupt the functioning of the companies and thereby add even greater losses on the American taxpayer," DeMarco wrote. He argued that any concerns about compensation will be resolved once Congress and the Obama administration decide on the future for Fannie and Freddie.
Both parties and the Obama administration agree the two firms should eventually be wound down, but there has been little momentum to advance legislation that maps out a future for Fannie and Freddie.
FHFA, which is charged with conserving the assets of Fannie and Freddie on behalf of taxpayers, worked with the Treasury Department to secure pay packages for the two firms' executives in December 2009.
Lawmakers in both chambers and in both parties have recently expressed shock at revelations the firms paid out $12.79 million in bonuses for 10 executives.
DeMarco wrote that pay handed out to top employees keeps those at Fannie and Freddie focused on the mortgage firms' priorities while in conservatorship, "to minimize taxpayer cost and maintain the flow of credit to our troubled housing markets." He said that he plans to fully explain the compensation packages at a November 15 Senate Banking Committee hearing where he will testify.
(Reporting by Margaret Chadbourn; Editing by Andrew Hay)