By Zachary A. Goldfarb
Washington Post Staff Writer
Friday, March 20, 2009
Legislation to severely tax bonuses at companies receiving government aid may imperil the Obama administration's housing recovery program by igniting an exodus of employees from Fannie Mae and Freddie Mac, employees at the companies said.
The firms, which own or back half the nation's home loans, are the major players in the administration's efforts to lower mortgage rates and keep struggling borrowers in their homes by modifying distressed mortgages and preventing foreclosures.
Both House and Senate versions of legislation to tax bonuses single out District-based Fannie Mae and McLean-based Freddie Mac by name. The companies, seized by the government last fall, have received about $50 billion in taxpayer assistance.
The legislation was prompted by disclosures that insurance giant American International Group was planning to pay $165 million in bonuses to employees at its most troubled unit despite a massive taxpayer bailout to save the company.
By including Fannie Mae and Freddie Mac in the measure, legislators fueled feelings of fear and betrayal at those two companies, where some employees polished their résumés and began to call headhunters who had tried to recruit them in recent months.
Federal regulators established a retention program at the firms when the government took them over. Under the program instituted by the Federal Housing Finance Agency, employees deemed crucial to the companies' efforts to carry out government housing plans are eligible to receive retention payments, but some may not receive any. A Fannie Mae employee said this sent a message that "said to employees, we want you to stay and help us implement these new initiatives to prevent foreclosures."
The retention program got attention this week after media reports about four of Fannie Mae's top executives receiving $1 million or more in retention payments.
The legislation could affect hundreds of people at the companies, which are among the largest employers in the Washington area. At Fannie Mae and Freddie Mac, where salaries often range from $100,000 and $150,000, retention payments for many people are in the low-to-mid five figures. Many employees lost small fortunes -- in some cases life savings -- when the government seized the firms and wiped out almost all their shares.
Employees put aside work for a time yesterday to attend meetings focused on the potential impact of the legislation, according to several employees at both companies. Workers expressed frustration that they may be penalized for decisions made by derivatives traders at AIG and top executives at banks under some of the legislation being contemplated.
One Fannie Mae employee who is a mother in her 30s said she turned down a job at another firm because of the government's promise and now volunteers her own time to help the housing market. "Several of us were told we had special skills," she said. "We're people who have nothing to do with what brought Fannie down, and now we're getting punished. You can't keep people motivated if you're going to constantly stress them out."
James B. Lockhart III, the head of the Federal Housing Finance Agency, said it had "intensely supervised the compensation practices" at the companies. "We will continue to work with Congress as we try to ensure that Fannie and Freddie fulfill their critical missions."
Others in the Obama administration and Congress were not supportive of Fannie Mae's and Freddie Mac's payments.
Asked about it on CNN last night, Treasury Secretary Timothy F. Geithner said: "This is an enormous problem across the entire financial system. It's just important to recognize that part of what got us into this mess was a set of compensation practices that got completely divorced from reality and bore no resemblance to risk."
Sen. Charles E. Grassley (Iowa), the top Republican on the Senate Finance Committee, sent letters to the chief executives of Fannie Mae and Freddie Mac yesterday asking for details of the retention program and for the names of any employees who will receive $100,000 or more in bonuses in 2009 or 2010.
"Just as with the extravagant bonus pay at AIG, it's important to make sure that taxpayer support isn't enabling unreasonable compensation arrangements that would never have been possible without taxpayer assistance," Grassley said.