The outrage over bonuses paid by companies bailed out by the government has spilled over to the government-sponsored enterprises.
While much of the anger has been directed at AIG, it also came to light last week that Fannie Mae granted COO Michael Williams a $1.3 million retention bonus, while Deputy COO David Hisey received $1.1 million. Ken Bacon, who runs Fannie’s housing and community development division, received $1 million, as did single-family division head Thomas Lund. Freddie Mac is expected to disclose its bonus retention program soon.
The House of Representatives passed a bill March 19 that would tax the bonuses received by certain Troubled Asset Relief Program (TARP) recipients, including Fannie Mae and Freddie Mac, at a 90 percent rate.
House Financial Services Committee Chairman Barney Frank sent a letter to James Lockhart, head of the Federal Housing Finance Agency, urging him to stop the retention bonus programs at Fannie Mae and Freddie Mac.
“I remain very skeptical that retaining and rewarding people who made the mistakes that contributed to the unsatisfactory performance is a good idea,” Frank wrote March 19. “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.”
But Lockhart defended the program as necessary to execute the Obama administration’s vision of injecting more liquidity into the mortgage market. “The loss of key personnel would be devastating to the companies and to the government's efforts to stabilize the housing system,” Lockhart wrote March 20.
In the letter, Lockhart notes that since August, seven of the eight highest compensated executives at Fannie Mae and the four highest compensated executives at Freddie Mac have left the companies.
The House version seemed to have a quick effect: New York’s Attorney General Andrew Cuomo announced late March 23 that nine of the top 10 bonus recipients at AIG had agreed to give the money back to the government.
The Senate may take up its version of the House bill soon. While the House version imposes a 90 percent tax on companies that received $5 billion or more, the Senate version would impose a 35 percent rate on companies that received $100 million or more in TARP funds.
