Congress Floats Fannie, Freddie Salary Caps

July 22, 2008 — -- WASHINGTON (AP) -- Democrats and Republicans queasy about a federal rescue of mortgage giants Fannie Mae and Freddie Mac are coalescing around the idea of letting the government slap limits on the multimillion-dollar pay packages of their executives.

Key lawmakers -- puzzling over how to explain to constituents why they voted to bail out the troubled government-sponsored firms -- see new curbs on compensation for the top officers as a crucial measure to cut down on the cringe factor.

At a time when Fannie Mae's and Freddie Mac's troubles have investors worried and the government ready to jump in with untold sums of cash, the lavish pay of the two companies' executives is increasingly difficult to defend, they say.

Sen. Bob Casey, D-Pa., says Fannie and Freddie "have had their hard-won credibility undermined in recent weeks," on the heels of major accounting scandals at the firms in 2003 and 2004.

"While the subprime mortgage crisis is hardly the fault of these companies, past practices of awarding huge bonuses and higher executive salaries calls into question the prudence of extending an unlimited credit line of taxpayer money to the companies whose management practices have been questionable over recent years," Casey said in a letter to Treasury Secretary Henry M. Paulson.

Casey called for capping the companies' executive pay "at reasonable levels" if they used the line of credit or need Treasury to step in and buy their stock. Casey also said their boards should sue to recover recent bonuses.

Last year, Freddie Mac paid Chairman and Chief Executive Richard Syron nearly $19.8 million in compensation even though the mortgage company's stock lost half its value. During the same period, Fannie Mae President and Chief Executive Daniel Mudd got compensation valued by the company at $12.2 million, including a $2.2 million bonus.

"I would like to know why taxpayers should extend Fannie and Freddie an unlimited line of credit at a time when their stock and investor confidence has fallen precipitously and their CEOs continue to make multimillion-dollar salaries and bonuses," Sen. Chuck Hagel, R-Neb., told Paulson in a letter last week.