Category: Economics & Finance

Dedicated to my wife Maria Elena G. Macario (Mar. 26, 1953 – Dec. 10, 2010)

 

PHOTO

“In sorrow we must go, but not in despair. Behold! We are not bound for ever to the circles of the world, and beyond them is more than memory.”  ― J.R.R. Tolkien-  (Did Tolkien believed in reincarnation? BM)

Today is a milestone. It’s time.

High Earners at Fannie, Freddie Draw Scrutiny

POLITICS Updated December 10, 2012, 01:15 a.m. ET

By NICK TIMIRAOS

http://online.wsj.com/article/SB10001424127887323316804578165750660857958.html

=========================

1.) “When kids ask Santa Claus for toys they want and adults pay, it’s Christmas.

When adults ask the government for what they want and the kids pay, it’s a deficit.”

As of 11 May 2010 I, checked the U.S. National Debt Clock link: http://www.usdebtclock.org/#

National Debt stood at $12,946,312,622,325.00
Debt per citizen                             $41,863.00
Debt per taxpayer                        $117,614.00

With a Democrat-dominated US Congress, I won’t be surprised to see Fannie Mae’s request for more funds approved.

Basically, what needs to happen is for Fannie Mae and Freddie Mac to compete with each other.  That is their mandate.”

US Economy: Fannie Mae Seeks $8.4 Billion after First-Quarter Loss (Bienvenido Macario, Philippines/US) Wed, May 12, 2010 at 3:38 AM

Link: http://waisworld.org/go.jsp?id=02a0&objectType=post&objectTypeId=47787&topicId=44

=====================================

2.) “Further I would recommend privatization of Fannie Mae and Freddie Mac, the same as Alan Greenspan recommended; i.e. “look at the RTC (Resolution Trust Corporation) format.”  But I will examine the political landscape in Washington with regards to the timing and lifetime using the RTC experience as a guide.

The basic idea is to get Fannie Mae and Freddie Mac competing against each other whether they are GSEs or private corporations or entities recently taken over (bought) by the government.  The Federal Reserve Bank are giving GSEs and the private sector all the tools available to enable them to do their part in the recovery of our economy.  They have to do their homework.”

re: US Economy: Fannie Mae’s Woes (Bienvenido Macario, Phil./US) May 13, 2010

http://waisworld.org/go.jsp?id=02a4&objectType=post&o=53571&objectTypeId=47821&topicId=44

==============

High Earners at Fannie, Freddie Draw Scrutiny

POLITICS Updated December 10, 2012, 01:15 a.m. ET

By NICK TIMIRAOS

http://online.wsj.com/article/SB10001424127887323316804578165750660857958.html

An inspector general’s report is bringing renewed scrutiny to the pay levels of hundreds of senior managers at Fannie Mae FNMA +1.84% and Freddie Mac FMCC +2.99% who earned more than $200,000 last year, a time when Congress threatened to sharply cut the pay of rank-and-file employees by putting the firms on federal wage scales.

The report from the inspector general for the Federal Housing Finance Agency, slated for release on Monday, looked at the 2011 take-home pay for some 2,000 senior but nonexecutive employees. While executive pay at Fannie and Freddie has received close examination, figures for the next-highest earners haven’t previously been disclosed.

The report found that 333 employees at the “vice president” level had median pay of $388,000, meaning half were paid more and half were paid less. Some 1,650 employees at the “director” level had median pay of $205,300. Those 2,000 employees account for roughly one-sixth of the workforce.

The “vice president” and “director” salaries are on par with comparable private-sector jobs in the financial sector, but they are higher than wages received by most government workers, including those employed at the Federal Reserve Bank.

The report found that median pay to executive vice presidents and senior vice presidents had fallen in 2011 by around 9% and 5%, respectively. But median pay for the vice president and director-level positions had increased by 5% in 2010 and another 4% in 2011, largely the result of one-time retention bonuses approved in 2009 that were paid in installments in 2010 and 2011.

The FHFA said in a written response included in the report that its own compensation measures, which are different from those used by the inspector general, show “significant changes” to compensation levels that weren’t reflected in the report because the inspector general’s analysis included deferred pay from previous years that was collected in 2011.

Representatives for the FHFA and Freddie declined to comment.

A Fannie Mae spokeswoman declined to comment on the report’s specific findings but defended the company’s compensation practices in a statement. “Our employees are managing…significant risk in an operationally complex market,” said Kelli Parsons, Fannie’s chief communications officer. “It is absolutely critical that our compensation is competitive in the market.”

Fannie and Freddie were taken over by the government four years ago through a legal process known as conservatorship. The mortgage giants have cost taxpayers around $137 billion as a result, but both have posted considerable profits this year. In October, the FHFA projected that that total cost could fall to $76 billion by the end of 2015 as the firms’ profits are swept away by the government.

Critics in Congress have said employees should face lean pay days now that their operations have been effectively nationalized. “These companies are owned by taxpayers and their staff should be paid accordingly,” Rep. Spencer Bachus (R., Ala.), the chairman of the House Financial Services Committee, said in a March statement.

Tim Rood, a former Fannie executive and partner at the Collingwood Group, a housing-finance consultancy, said, “The director and vice president level employees are paid more than handsomely.” But as the companies face a steady brain drain with long-tenured veterans leaving, Mr. Rood said the high pay scales could be justified. “If you’re unable to lure the new talent, you do run the risk of the company slowly being hollowed out,” he said.

The top 90 executives at the firms took home a combined $92 million. The median pay to 23 executive vice presidents between both companies stood at $1.7 million while the median pay for 62 senior vice presidents was $723,500.

The FHFA instituted companywide pay freezes two years ago. After an uproar in Congress over bonuses last year, the agency earlier this year also unveiled a new executive compensation program, replacing performance-based pay incentives with deferred pay that is fixed. It also capped pay for incoming chief executives at both companies at $600,000.

The inspector general’s office didn’t offer any judgment about the appropriateness of the compensation but instead recommended that the FHFA develop a “long term plan” to strengthen oversight of nonexecutive compensation. In contrast to executive pay, oversight of nonexecutive pay has been “limited” and the agency hasn’t “reviewed, examined, or tested” the companies pay processes.

The inspector general “has a responsibility to provide continued transparency to the operations of the [companies], including employee compensation, which totaled over $400 million in 2011,” said Steve Linick, the FHFA’s inspector general.

Fannie and Freddie guarantee $5 trillion in outstanding mortgages, including $1.2 trillion that are on their balance sheets, and are responsible for funding around two in three new mortgages.

“Given the amount of money at risk here, small mistakes can easily be amplified to losses far greater than the compensation paid,” said Edward DeMarco, the FHFA’s acting director, in congressional testimony last year.

For years, Fannie and Freddie offered not just attractive pay packages but also a level of stability and prestige that has been eroded as a result of their government control. The inspector general’s report shows that voluntary attrition rates among executives spiked to around 20% in 2009, the year following conservatorship, and again last year, first after the White House proposed winding down the companies and later amid increased calls to cap pay.

Freddie Mac warned in federal filings last month that high employee turnover in its information-technology division late last year created a “material weakness” in its financial reporting.

A congressional committee last year passed a bill on a 52-4 vote to put employees at both companies on a federal pay scale.

If the bill ultimately became law, “I think the management teams at both companies would walk out,” Mr. DeMarco told reporters earlier this year.

Setting pay for senior executives at the companies remains one of the most vexing challenges of the conservatorship, FHFA officials have said, particularly because the job functions required of most employees haven’t changed despite the government takeover. That task has been further tested by the fact that Congress and the Obama administration have offered little direction about how to end the conservatorship, which has no set date.

Write to Nick Timiraos at nick.timiraos@wsj.com