Pay Cap Lifted For Fannie, Freddie CEOs

The CEOs of Fannie Mae and Freddie Mac will be eligible for compensation of up to $6 million each next year. The pay packages have been blessed by the Treasury Department even though Fannie and Freddie have received more than $100 billion in bailout assistance over the past year. The companies, which provide financing for home mortgages, are still losing money. But regulators said the companies play an essential role in the mortgage business, and executive pay at Fannie and Freddie is significantly lower than it was before the government takeover.

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From NPR News, this is ALL THINGS CONSIDERED. I'm Robert Siegel.

The chief executives of Fannie Mae and Freddie Mac are getting a little extra something this holiday season. Fannie Mae and Freddie Mac are the two big mortgage giants that own or control well over half the mortgages in the country. Federal regulators have agreed for next year to give the two men annual compensation of up to $6 million. That, despite the fact that the government has had to pump more than $100 billion into Fannie and Freddie to keep them alive.

NPR's Jim Zarroli joins me now. And, Jim, can you explain how these pay packages work?

JIM ZARROLI: Well, Robert, these pay packages were approved by the Treasury Department and by the Federal Housing Finance Agency, which regulates the companies. And the compensation goes to Charles Haldeman who heads Freddie Mac and Michael Williams who heads Fannie Mae.

They'll both get $900,000 in base salary and $3.1 million in deferred pay which will be in the form of cash, an incentive pay of up to $2 million. The regulators also approved seven-figure pay packages for some of the other various executives at the two companies. The chief operating officer of Freddie Mac, for instance, will get up to four-and-a-half million dollars.

Now, I should stress these are contingent on these companies meeting certain performance goals, so these guys may actually get less than that.

SIEGEL: These seem like big pay packages for companies, each of whose stock was up around $60, say, in mid-2007. And they're down well under $2 today. They've been flat lining almost for the past year. Are they as generous as they appear?

ZARROLI: Well, let me put it this way. They are more than these men have been making, but they are a lot less than the heads of Fannie and Freddie used to make. I mean the head of Fannie Mae, Franklin Raines, made about $20 million in 2003. Of course, he later had to give a lot of that back because of accounting irregularities at the firm.

But clearly, the current management of Fannie and Freddie is making a lot less than its predecessors. They're also making a lot less than people make on Wall Street. I mean the average bonus at Goldman Sachs this year is expected to be $7 million.

Now, on the other hand, Fannie and Freddie have essentially been taken over by the government. So some people would say, you know, they're really just government agencies at this point. And a lot of people would say you can't give them Wall Street salaries anymore. And also, of course, unlike Goldman Sachs, you know, Fannie and Freddie are still losing a lot of money.

SIEGEL: Well, considering that if they were civil servants running the companies, they'd be making well under $200,000 a year. How do the regulators explain approving these big pay packages for the Fannie and Freddie officers?

ZARROLI: Well, the thing to keep in mind with Fannie and Freddie is, you know, they're in kind of a transitional phase. They lost huge amounts of money in the subprime crisis. You know, right now they've been placed in conservatorship, which essentially means they're wards of the state. The Federal Reserve is having to pour millions of dollars into them to keep them going. You know, everyone agrees that sooner or later, Congress is going to have to sit down and figure out what to do with these companies. They can't be on the dole forever.

But right now, the economy is still very weak. We're getting out of a recession that was caused in large part by the collapse of the housing market, and these companies are playing a very important role in propping the housing market up. So regulators are saying, you know, we need good people to keep Fannie and Freddie going. We need to pay them good salaries or they'll leave. Of course, that is, you know, a very hard message to sell politically right now.

SIEGEL: Could this be seen as a green light at, say, GM or at Citi, saying if Washington approved big pay packages for the directors of the big mortgage giants, they'll do it for us?

ZARROLI: You know, I'm sure companies are going to make that argument. You know, they have to compete in the marketplace, they need to pay the people at the head of the companies' good salaries. The problem for Ken Feinberg, who is the pay czar of the Obama administration who sets these salaries, is this stuff is political dynamite. A lot of people are furious about the bailouts right now. And if he approves packages that are too big, there's going to be a political backlash.

SIEGEL: NPR's Jim Zarroli in New York. Thank you, Jim.

ZARROLI: You're welcome.

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