REUTERS NEWS AGENCY
The chairman of a key House committee said 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 Rep. Barney Frank, Massachusetts Democrat and chairman of the House Financial Services Committee, was the latest salvo in a growing controversy over bonuses paid out to executives of companies receiving billions of dollars in government bailout funds, sparked by outrage about bonuses paid to employees of insurer American International Group.
Mr. Frank called on the regulator for Fannie Mae and Freddie Mac 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.
In a letter to James Lockhart, director of the Federal Housing Finance Agency, which oversees the two mortgage giants, Mr. Frank 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.”
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.
“You deserve tremendous credit for staying here and demonstrating unswerving dedication to the public interest,” said Mr. Allison, who has not received compensation since he agreed to lead the company.
In a letter to Mr. Frank, Mr. 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,” Mr. Lockhart said. “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.”
He 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.”
But Mr. Frank wasn’t buying it, saying in an interview with CNN that a retention bonus is “a nice word, it turns out, for extortion.”
“If it’s people getting a small salary and some kind of an incentive bonus and it’s a legitimate incentive bonus, that’s not a problem. But retention bonuses where people say, ‘Bribe me or I’m going to quit the company and hurt you,’ should not be allowed,” Mr. Frank told CNN.
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 AIG prompted the House on Thursday to approve a 90 percent tax on bonuses for certain executives at companies getting taxpayer-financed help.