By Zachary A. Goldfarb
Washington Post Staff Writer
Friday, September 26, 2008
New Fannie Mae chief executive Herbert M. Allison Jr. and Freddie Mac chief executive David M. Moffett will each receive a salary of $900,000 and are likely to get bonuses that put them above the $1 million mark, said James B. Lockhart III, director of the Federal Housing Finance Agency.
The pay packages are far smaller than the annual salary and stock received by Allison and Moffett's predecessors at the mortgage-finance giants. Those packages regularly exceeded $10 million a year and drew fire from critics as being too generous.
Lockhart disclosed the new compensation plans during a hearing yesterday on the government's takeover of Fannie Mae and Freddie Mac before the House Financial Services Committee. He installed Allison and Moffett as chief executives of the companies after the government forced out their predecessors and scaled back their lucrative severance packages. The government also has dismissed members of the companies' boards of directors.
Allison and Moffett testified yesterday that since the takeover they have been reviewing how their companies do business, with an eye toward helping people avoid foreclosures.
The new chief executives said they are working to determine the value of assets on their balance sheets, so they have a better idea of whether they will need to access a Treasury Department lending program to prop them up. Those assets have fallen dramatically over the past year, causing billions in losses.
"The next six months will determine whether we're going to need access to this facility," Moffett said.
Moffett said Freddie Mac is modifying loans and offering financial incentives to lenders who help people avoid foreclosure. He said 124,000 of Freddie Mac loans are delinquent. A third of those mortgages have been modified to become affordable, and another third are expected to be adjusted by year's end.
Allison and Moffett acknowledged that District-based Fannie Mae and McLean-based Freddie Mac still face the kind of tension they did before the government intervention.
In the past, the companies faced government-mandated goals to support affordable housing, which could mean taking on riskier loans, but they also focused on maximizing shareholder profits. Now, they need to support the mortgage market while also protecting taxpayers.
"Today the taxpayers are indirectly shareholders," Allison said.
Responding to lawmakers' questioning, Lockhart said the companies had not managed that balancing act well in the past. "They made some trade-offs over the years, and it turned out those trade-offs were unsuccessful," he said.
Only a sprinkling of lawmakers attended the hearing, which came as Congress rushed to finalize a broad plan to rescue Wall Street. Committee chairman Rep. Barney Frank (D-Mass.) did not make an appearance.
Nonetheless, it was clear that the hearing was kicking off what could amount to a sharp legislative battle over the shape of the companies in the years to come. Rep. Jeb Hensarling (R-Tex.) introduced legislation yesterday to end government control of Fannie Mae and Freddie Mac in two years, directing the Federal Housing Finance Agency to either liquidate them or transition them into fully private companies.
"We have to look at the root cause of the problem that we are in today," Hensarling said. "I believe that is Fannie and Freddie -- creatures born in a government laboratory, not in the competitive environment of a market economy."