Fannie Mae CEO defends retention bonuses
WASHINGTON -- Mortgage giant Fannie Mae's chief executive warned Friday that canceling bonuses for workers at institutions receiving federal bailout money could undermine efforts to stabilize the U.S. housing market.
Herbert Allison, who was installed by government regulators as CEO of the company last fall, sent a companywide e-mail Friday defending Fannie Mae's bonus program.
"I am deeply concerned that eliminating our retention plan would jeopardize our ability to fulfill the mission the government has given us to address the housing crisis," he wrote, citing President Obama's plan to prevent up to 9 million foreclosures.
The award programs at Fannie fnm and sibling company Freddie Mac fre, enacted shortly after their September federal takeover, initially ruffled few feathers. But now the generous paychecks are proving politically touchy as lawmakers and the public seethe over roughly $165 million in bonuses paid out last weekend by bailed-out insurance giant American International Group aig.
Allison, who is not receiving a salary as CEO, wrote that the bonuses — including more than $1 million each to four top executives — were needed to "ensure we maintain the skills and experience we need to help keep the mortgage market operating."
Employees, he wrote "deserve tremendous credit for staying here and demonstrating unswerving dedication to the public interest despite" uncertainty about the company's long-term future and the stock awards that have become worthless.
But Rep. Barney Frank, chairman of the House Financial Services Committee, urged the government to cancel retention bonuses for hundreds of employees at Fannie Mae and Freddie Mac.
The Massachusetts Democrat asked the Federal Housing Finance Agency, which regulates both firms, to eliminate the bonuses approved for this year and next. Frank also wants employees to repay bonuses from last fall, after the two companies were placed under government control.
The public "rightfully insists that large bonuses such as these awarded by institutions receiving public funds at a time of a serious economic downturn cannot continue," Frank wrote in the letter dated Thursday and released by his office Friday.
A spokesman for Fannie Mae declined comment.
Over two years, Fannie Mae plans to pay at least $1 million apiece in retention bonuses to four key executives as part of a broad plan to keep employees from leaving. Freddie Mac is planning similar awards, but has yet to detail which executives will benefit.
The two companies have been hobbled by skyrocketing loan defaults. Fannie Mae recently requested $15 billion in federal aid, while Freddie Mac has sought a total of almost $45 billion.
The government seized control of the companies in September and installed new chief executives. After the takeover, regulators designed a bonus program designed to encourage workers to stay at their jobs.
"It was critical to retain their most important asset — their employees — who are being asked to play a vital role in the nation's economic recovery," James Lockhart, Federal Housing Finance Agency director, said in a statement earlier this week. "As the previous senior management teams left, it would have been catastrophic to lose the next layers down and other highly experienced employees."
But Frank cast doubt on that argument. "In this troubled economy, and in this job market, it is difficult to imagine that the companies would not be able to find competent and talented replacements for anyone who chooses to leave," he said.
House lawmakers on Thursday voted decisively to impose a 90% tax on millions of dollars in employee bonuses paid by AIG and other bailed-out companies. Similar legislation has been introduced in the Senate and Obama quickly signaled general support for the concept.