A dispute over pay for the chief executive officers at Fannie Mae and Freddie Mac could put Barack Obama and House Republicans together in an unusual alignment against a housing official appointed by the president.
Mel Watt, who oversees the mortgage giants 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 total compensation rise sixfold to about $4 million. The House Financial Services Committee on Tuesday will consider a bill by Rep. 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.
Royce’s proposal would ensure that no one at Fannie Mae or Freddie Mac gets more than the highest pay level at the FHFA, which was about $260,000 in fiscal 2014. It targets not only the CEO raises, but would limit pay for other employees such as lawyers and finance executives.
The bill 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.
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 the Obama administration, who argue that those running taxpayer-backed, government-sponsored enterprises, shouldn’t be paid like titans of Wall Street.
If it were to be approved by the financial services panel, Royce’s bill would still need to be passed by the full House and Senate. Spokesmen for Fannie Mae, Freddie Mac and the FHFA all declined to comment.
FHFA said earlier this month that the current CEO salaries of $600,000 for each company limit their 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.
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, not Royce’s bill.
“I would be very dubious” about increasing pay for the CEOs, Sen. Jeff Merkley, an Oregon Democrat, told Bloomberg reporters on Monday. “The pay sounds pretty good right now. Really good.”
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.
Watt 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,” he 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 scheduled for consideration by committee Tuesday. Other bills 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.