The cuts are in response to reports that leaders had seven-figure paydays last year. | AP, Reuters Fannie, Freddie execs to get pay cut

Executives at Fannie Mae and Freddie Mac are about to get a massive pay cut.

The Federal Housing Finance Agency, overseer of the troubled, government-backed mortgage giants announced Friday a new pay program that slashes CEO pay at Fannie and Freddie by nearly 75 percent, wipes out annual bonuses, and sets a target pay range for their chief executives at $500,000.


FHFA acting director Edward DeMarco calling the changes a product of “rethinking what it means to be the CEO of a company that has been in conservatorship for so long and has a long and uncertain path in front of it,” adding that the new pay is well below what a top executive could earn in the private sector.

DeMarco emphasized that the changes, which also include deferred salary based on a new series of performance goals, were months in the making and tied to new performance goals he’s set for the mortgage companies. But he also acknowledged the pay cuts are in response to Congressional complaints that outgoing Fannie and Freddie executives last year took home seven-figure salaries — plus bonuses — even though both agencies needed more than $100 billion from taxpayers to stay afloat after the housing market collapsed, and are still in conservatorship.

The issue has been a headache for DeMarco since reports last fall that Fannie and Freddie’s top managers were still paid at Wall Street levels despite pledges by FHFA, the office tasked with keeping them solvent, that it would adjust them after news that former Fannie Mae CEO Franklin Raines and others received millions of dollars in pay and bonuses. Corporate records show the FHFA approved a total of $12.79 million in bonus pay for 10 executives who met a list of relatively modest performance targets linked to modifying mortgages in jeopardy of foreclosure.

Meanwhile, most housing analysts say Fannie and Freddie have helped only a portion of the estimated 7 million homeowners at risk of foreclosure.

At a hearing, Republican and Democratic blasted DeMarco for both the bonuses and performance lag. DeMarco’s argument — that private-sector pay would attract badly-needed, top-tier talent — largely fell on deaf ears, and the House Financial Services Committee moved a bill that would put Fannie and Freddie employees on par with other government pay rates.

DeMarco returned to that line in a conference call with reporters Friday morning, saying the companies’ activity, with trillions of dollars at stake, requires a high level of expertise that doesn’t come cheap.

The lack of progress on housing remains a major threat to the economy, despite the upswing of other economic indicators. Even as national unemployment held steady this month, joblessness among home construction workers earlier this year edged toward 18 percent, twice the national average. At the same time, market analysts believe home foreclosures will accelerate through summer, and the influential Case-Shiller economic survey showed home prices in the nation’s biggest markets continued to slide.

Rep. Spencer Bachus (R-Ala.), chair of the House Financial Services Committee, said in a statement that the changes are “long overdue” and “a step in the right direction.” But Bachus stopped short of saying he’d withdraw a bill that would mandate public-sector pay at Fannie and Freddie.

“The lavish compensation packages and million dollar bonuses that have been given to top executives of these two failed companies are an outrage to the taxpayers whose assistance is the only thing keeping Fannie Mae and Freddie Mac afloat,” Bachus said.

Reducing CEO pay risks “a large turnover at the executive level,” DeMarco said, and a revolving door of managers would add to the perception that neither Fannie nor Freddie are stable. That perception, in turn, would add instability to the housing market, further hamstringing a recovery, he said.

Therefore, he said, “we need the right people” at the right salary to keep the executive turnover to a minimum.

Yet DeMarco also acknowledged that other top positions at Fannie and Freddie, such as chief legal officer and chief financial officer, would continue to draw market-level salaries upwards of $1 million. That pay, he said, is justified because they essentially “face risks and liabilities” that accompany high-level work in the securities market and the legal arena.

As for Fannie and Freddie CEOs, DeMarco said, the reduced salary comes with additional costs, including “extraordinary public criticism and scrutiny” as leaders during turbulent times, who could be making more money elsewhere. But they should want to stay on, he added, to be “part of building this structure” and restoring the public trust “even though they know their companies … may not survive.”

CORRECTION: An earlier version of this story misidentified the Federal Housing Finance Agency, and misstated its conservatorship status.

CORRECTION: Corrected by: Zack Hale @ 03/09/2012 04:07 PM CORRECTION: An earlier version of this story misidentified the Federal Housing Finance Agency, and misstated its conservatorship status.