Fannie-Freddie Pay Pits Obama and Republicans Against Watt

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Melvin Watt
Mel Watt, director of the Federal Housing Finance Agency (FHFA). Photographer: Andrew Harrer/Bloomberg

A dispute over pay for the chief executive officers at Fannie Mae and Freddie Mac puts Barack Obama and House Republicans together in an unusual alignment against a housing official appointed by the president.

Mel Watt, who oversees the mortgage companies as director of the Federal Housing Finance Agency, this month approved plans for Fannie Mae’s Timothy Mayopoulos and Freddie Mac’s Don Layton that could see their compensation rise sixfold to about $4 million each. The House Financial Services Committee on Tuesday discussed a bill by Representative Ed Royce that would impose new limits on pay at the two U.S.-owned companies.

“Holding compensation packages at taxpayer-backed organizations to responsible limits is in the interest of the public trust,” Royce, a California Republican, said last week.

His bill would limit CEO annual pay at Fannie Mae and Freddie Mac to the current level of $600,000. A provision in an earlier version of the bill would’ve ensured that no employee at the companies could get more than the highest pay at the FHFA -- about $260,000 in fiscal 2014. Royce agreed to remove that stipulation after discussion with committee Democrats on Tuesday.

Still, the legislation reignites a debate over appropriate compensation at Fannie Mae and Freddie Mac, which have operated under a conservatorship overseen by the FHFA since they were seized by the federal government during the 2008 credit crisis.

Manage Portfolios

On one side are Watt and industry executives pointing out that the companies must compete with the private sector for executives who can manage portfolios valued at hundreds of billions of dollars. On the other are lawmakers from both parties and Obama administration officials, who argue that those running taxpayer-backed, government-sponsored enterprises shouldn’t be paid like titans of Wall Street.

If the bill were to be approved by the Financial Services committee, it would still need to be passed by the full House and Senate before going to Obama for final approval. Spokesmen for Fannie Mae, Freddie Mac and the FHFA all declined to comment.

The agency said earlier this month that the $600,000 pay ceiling limits the companies’ ability “to promote retention of their CEOs, to develop reliable CEO succession plans, and to ensure continuity of operations and organizational stability.”

The pay issue also has generated an odd political dynamic: Obama on the same side as Republicans against Democrat Watt, a former congressman from North Carolina who was selected by Obama to run FHFA in 2013.

Bipartisan Bill

A bipartisan bill that would have replaced Fannie Mae and Freddie Mac with government insurers taking losses behind private investors almost made it to a vote in the Senate last year. The bill failed after some Democrats said it didn’t give enough support to affordable housing.

“In a sad -- but accurate -- commentary on the state of GSE reform efforts on Capitol Hill, it is possible that the GSE compensation cap bill may be the only meaningful mortgage policy legislation this Congress passes,” Isaac Boltansky, an analyst at Compass Point Research & Trading LLC, wrote in a research note Monday.

The Treasury Department said this month it doesn’t support “the FHFA’s new approach to CEO compensation” and urged the agency to “reject any increase at both GSEs.” In May, White House press secretary Josh Earnest said that because the companies are backed by taxpayers “it is entirely legitimate for the executives at those institutions to be subject to compensation limits.” Both were responding to questions about the CEO pay increases.

“I would be very dubious” about increasing pay for the CEOs, Senator Jeff Merkley, an Oregon Democrat, told Bloomberg reporters on Monday. “The pay sounds pretty good right now. Really good.”

Watt’s Consistency

Watt’s view is consistent with his position when the issue was debated in Congress four years ago.

The Financial Services Committee voted 52-4 in 2011 to suspend bonuses for top executives at Fannie Mae and Freddie Mac. Watt, a member of the committee at the time, was one of the four lawmakers opposing the measure.

He said then he was concerned that limiting pay would undermine the agencies’ ability to manage assets “because we’re going to end up losing the very employees we need.”

“It is kind of like the people who contact my office regularly and say why would you give your staff bonuses when everybody else is in economic hard times,” Watt said. “My response to them is my employees work harder and longer hours and have more stress when other people are in hard economic times.”

The pay bill is one of 14 measures set for consideration by committee starting Tuesday. Others would impose new restrictions on the Federal Reserve and rein in the Consumer Financial Protection Bureau’s policies governing auto lenders.

Royce’s legislation is H.R.2243: Equity in Government Compensation Act of 2015.

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