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WASHINGTON, March 20 (Reuters) - A key U.S. House of Representatives committee chairman said on Friday that employee bonus programs at Fannie Mae and Freddie Mac should be halted, while the regulator who oversees the two government-controlled housing finance companies defended the programs.
The move by Representative Barney Frank, who heads the House Financial Services Committee, was the latest salvo in a growing controversy over large bonuses paid out to executives of companies receiving billions of dollars in government bailout funds, sparked by outrage over bonuses paid to employees of insurer American International Group.
Frank called on the regulator for FNM.N FNM.P Fannie Mae and Freddie Mac FRE.N FRE.P to “rescind the retention bonus programs” at the two companies, which were seized by the federal government in early September over fears that their possible failure would reverberate throughout the global economy.
Meanwhile, Herb Allison, the government-appointed overseer for Fannie Mae, wrote in a memo to employees that he was fighting to preserve the pay plan.
Frank, in a letter to James Lockhart, director of the Federal Housing Finance Agency, said the public “rightfully insists that large bonuses such as these awarded by institutions receiving public funds at a time of a serious economic downturn cannot continue.”
Lockhart said the retention bonuses are necessary to ensure that key personnel do not leave.
“The loss of key personnel would be devastating to the companies and to the government’s efforts to stabilize the housing system,” Lockhart said in a letter to Frank.
“If we don’t provide the existing employees incentives to stay, we will have a serious problem. Remaining corporate executives are receiving much less in compensation than they received in recent years,” Lockhart added.
“They received no bonuses for their 2008 performance. The value of their stock holdings and options are worthless. We are taking actions to ensure that these retention payments are not excessive,” Lockhart wrote.
Meanwhile, Allison, said in his memo to employees: “You deserve tremendous credit for staying here and demonstrating unswerving dedication to the public interest.”
Fannie Mae and Freddie Mac were nationalized in September as the mortgage finance companies losses mounted and a national foreclosure crisis deepened.
Both companies now rely on billions of dollars in government funding, and lawmakers have recently attacked bonus and compensation plans at many finance companies that have received government aid.
Public anger over $165 million in bonuses paid to executives of American International Group Inc (AIG.N) prompted the House on Thursday to approve a 90 percent tax on bonuses for certain executives at companies that are getting taxpayer-financed help.
And Frank on Thursday said his panel will consider legislation on Tuesday to prohibit bonus payments by companies that have received government bailout funds, until investments are repaid in full.
At a hearing before Frank’s committee in September, Lockhart had said that he planned to dole out extra pay to keep key executives.
In that testimony, the regulator told the Massachusetts Democrat’s committee that he “worked with the new CEOs to establish employee retention programs. They agree with me that it is very important to work with the current management teams and employees to encourage them to stay.”
Since Fannie Mae and Freddie Mac were seized, the government-sponsored enterprises have implemented key federal programs meant to stabilize the housing sector.
“I understand your deep feeling that repudiation of the terms of the retention plan... would be a breach of faith,” wrote Allison, who has not received compensation since he agreed to lead the company. (Reporting by Patrick Rucker and Will Dunham; Editing by Leslie Adler)