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Bill on Obama’s desk overrides pay hike for CEOs of mortgage giants Fannie Mae and Freddie Mac

Bill on Obama’s desk overrides pay hike for CEOs of mortgage giants Fannie Mae and Freddie Mac

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Mel Watt, a former Democratic congressman from North Carolina, who is Director of the Federal Housing Finance Authority. In May, he authorized a multimillion dollar pay hike to the CEOs of Fannie Mae and Freddie Mac. Three days later, Rep. Edward Royce (R-Fullerton) sponsored legislation to override Watt’s decision. That bill is now headed to the desk of President Obama, who has indicated he will sign it. JACQUELYN MARTIN , JACQUELYN MARTIN AP

Congress this week slashed the annual pay of the chief executive officers of mortgage giants Fannie Mae and Freddie Mac from $ 4 million to $ 600,000 in a bill it sent to President Barack Obama.

Rep. Edward Royce (R- Fullerton) introduced The Equity in Government Compensation Act in May, three days after Federal Housing Finance Agency (FHFA) Director Melvin Watt authorized a multimillion dollar pay boost for the two executives, eliminating an earlier cap of $ 600,000.

Watt had argued that the pay hike for Fannie Mae CEO Timothy Mayopoulos, a former Bank of America official, and Freddie Mac CEO Donald Layton, a former JPMorgan Chase & Co. executive, was necessary to attract high-quality executives.

But critics said the government-backed entities have no need to match Wall Street’s stratospheric compensation.

The high pay “does not pass the smell test; it doesn’t pass the laugh test,” Rep. Jeb Hensarling (R-Texas), chairman of the House Financial Services Committee, said Tuesday as the House passed the bill on a voice vote.

Royce called the bill “a victory for taxpayers,” but added that “the real battle of…ending the government’s domination of the housing market remains.”

The legislation is a rare bipartisan effort in a Congress which has been bitterly divided. A companion Senate bill, modeled on Royce’s legislation, was sponsored by Sen. Elizabeth Warren (D-Mass.) and Sen. David Vitter (R-La).

Although Watt, a former North Carolina congressman, is a Democrat, the Obama administration opposed the pay boost, which required Congressional action before it could be rolled back.

Fannie Mae and Freddie Mac are private firms created by Congress to buy mortgages from lenders as a way to stabilize markets. They repackage some loans as bonds, guarantee them against default and sell them to investors.

The two companies own or guarantee about half of all U.S. mortgages, worth about $ 5 trillion. Along with other federal agencies, they back roughly 90 percent of new home loans.

But in 2008, after the two entities lost $ 187 billion on risky loans, the federal government was forced to bail them out. They were placed under the care of a conservator – the Federal Housing Finance Agency.

Historically, CEO pay at Fannie and Freddie had been comparable to Wall Street’s, but in 2012, Watts predecessor Edward DeMarco capped it at $ 600,000 under pressure from Congressional critics.

As the housing market has recovered, Freddie and Fannie have become profitable again. They remain under conservatorship but have paid back to the Treasury Department far more than they received in federal aid to stay afloat during the crisis. That, some argued, justifies a return to historic pay levels.

Still, the two entities “benefit significantly from a backstop that is provided by the taxpayer,” White House spokesman Josh Earnest noted in endorsing the roll-back in pay.

In a statement after the bill’s final passage, Royce said, “My ultimate goal is still comprehensive housing finance reform that brings private capital into the system to eliminate the boom-and-bust cycle that wreaked havoc on the American economy.”

The fear, he noted is that Fannie and Freddie could in the future “slip into the red, and invite new taxpayer bailouts.”

Consumer groups, however, say that a robust federal involvement in the mortgage market is necessary to promote affordable housing, since private banks are less willing to lend to low-income families.

Under a Senate amendment to Royce’s bill, the CEO salary cap would only remain in place so long as Fannie and Freddie are in government conservatorship.

Peter Garuccio, an FHFA spokesman, declined to comment on the pay cap bill.

Contact the writer: mroosevelt@ocregister.com; Twitter @MargotRoosevelt

The Orange County Register – News Headlines : Real Estate News