- The Washington Times - Friday, December 25, 2009

NEW YORK | The government has handed its ATM card to beleaguered mortgage giants Fannie Mae and Freddie Mac.

The Treasury Department said Thursday it removed the $400 billion financial cap on the money it will provide to keep the companies afloat. Already, taxpayers have shelled out $111 billion to the pair, and most analysts hadn’t expected the companies to hit the limit.

Department officials said Treasury would now use a flexible formula to ensure the two agencies can stand behind the billions of dollars in mortgage-backed securities they sell to investors. The formula will provide the companies with a sufficient cushion based on projected losses over the next three years.

By making the change before year-end, Treasury sidestepped the need for an OK from a bailout-weary Congress. But the timing of the announcement on a traditionally slow news day raised eyebrows.

“The companies are nowhere close to using the $400 billion they had before, so why do this now?” said Bert Ely, a banking consultant in Alexandria, Va. “It’s possible we may see some horrendous numbers for the fourth quarter and, thus, 2009, and Treasury wants to calm the markets.”

Fannie Mae and Freddie Mac provide vital liquidity to the mortgage industry by purchasing home loans from lenders and selling them to investors. Together, they own or guarantee almost 31 million home loans worth about $5.5 trillion, or about half of all mortgages. Without government aid, the firms would have gone broke, leaving millions of people unable to get a mortgage.

Treasury officials will provide an updated estimate for Fannie and Freddie losses in February when President Obama sends his 2011 budget to Congress. Though the administration has yet to disclose its long-term plans for the two companies, they are unlikely to return to their former power and influence.

The news followed an announcement Thursday that the CEOs of Fannie and Freddie could get paid as much as $6 million for 2009, despite the companies’ dismal performances this year.

Fannie’s CEO, Michael Williams, and Freddie CEO Charles “Ed” Haldeman Jr. each will receive $900,000 in salary, $3.1 million in deferred payments next year and another $2 million if they meet certain performance goals, according to filings with the Securities and Exchange Commission.

The pay packages were approved by Treasury and the Federal Housing Finance Agency, which regulates Fannie and Freddie.

The pay is far less than what their predecessors received. Former Fannie CEO Daniel Mudd received $10.2 million in 2008 and former Freddie CEO Richard Syron pocketed $13.1 million. Both executives were ousted when federal regulators seized the companies in September 2008. The federal government blocked exit packages for the pair worth up to $24 million.

The chief executives’ pay could spark new criticism about the government’s numerous bailouts, but that may be unfounded, said Mark Borges, principal with management consulting firm Compensia.

Mr. Haldeman and Mr. Williams each could command between $5 million and $10 million in a similar position in the private sector, Mr. Borges estimated, and without the notable challenges and public scrutiny they face at these companies.

“I doubt too many people would look at these jobs and say, ‘Gosh, I would love to go there for my next career move,’ ” Mr. Borges said. “The government is getting top-notch executives to solve problems that are not easy to solve.”

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