Fannie, Freddie defend big bonuses

The federal regulator of bailed-out mortgage giants Fannie Mae and Freddie Mac defended plans Friday to give $210 million in retention bonuses to employees he said had lost years of savings when the companies’ stock collapsed in 2008.

Bonuses, some as high as $1.5 million, will go to 7,600 employees at the two federally established home mortgage companies that lost more than $100 billion last year. They are needed to restrain the best talent from leaving in the midst of the economic crisis spawned when the housing bubble burst, said James B. Lockhart III of the Federal Housing Finance Agency in a letter to Sen. Charles E. Grassley of Iowa, the Senate Finance Committee’s ranking Republican.

Mr. Lockhart argued that the companies’ previously strong stock prices, now worth less than a $1, were used to woo and pay talent that is now needed more than ever.

Keeping the country’s two biggest mortgage finance companies “operating at full speed was best for the housing markets and best for the economy, which clearly also made it best for the taxpayer. And that would be possible if we retained the Fannie Mae and Freddie Mac teams,” Mr. Lockhart said.

Mr. Grassley wasn’t convinced.

“It is hard to see any common sense in management decisions that award hundreds of millions in bonuses when their organizations lost more than $100 billion in a year. And it is an insult that the bonuses were made with an infusion of cash from taxpayers,” Mr. Grassley said in a fiery statement Friday.

“The elite in Washington and New York need to realize that bonuses for poor performance and at taxpayer expense do a lot of damage to public confidence and support for the economic recovery effort,” Mr. Grassley said.

In the midst of the uproar last month over the bonuses paid to the insurance giant AIG, Rep. Barney Frank of Massachusetts, chairman of the House Financial Services Committee, which oversees both companies, demanded the Fannie and Freddie bonuses be rescinded, but Mr. Lockhart refused.

As public anger mounted over the $165 million in bonuses paid to AIG executives after the company received federal bailout funds, the House passed legislation that would have taxed 90 percent of the payments in an effort to recoup the money.

But the tax legislation died when the Obama administration showed little if any support for the measure, though President Obama had said he would “do everything we can to get those bonuses back.” The Treasury Department was studying ways to do that, but the issue has cooled noticeably on Capitol Hill and in the administration since then.

“Retention bonuses are common when a turnaround company takes over a bankrupt company because otherwise people leave,” said David Wyss, chief economist at Standard and Poor’s, the Wall Street research and equity rating company.

“But you’ve got to look at whether there are good reasons for it, who is getting paid and whether the bonuses are realistic or off the wall,” he told The Washington Times.

In his defense of the bonuses, Mr. Lockhart said: “The collapse in value of the enterprises’ stock had destroyed years of savings for many, and future vesting of previous stock grants no longer provided any retention incentives. For senior executives, salary provided only a tenth to a third of total expected income.”

The companies’ stock has plunged below $1 - down from more than $60 in the fall of 2007 - since the government seized control of the companies in September.

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