Of Bailouts & Bonuses – Fannie & Freddie To Pay Bonuses – When Will This End

The Wall Street Journal

MARCH 18, 2009, 4:54 P.M. ET

Bonuses Expected at Fannie, Freddie

More financial companies that are being propped up with federal money are facing political heat over bonus payments to executives.

Fannie Mae is due to pay retention bonuses of as much $470,000 to $611,000 this year to some executives despite enormous losses at the government-backed mortgage company. Fannie’s main rival, Freddie Mac, also plans to pay such bonuses but hasn’t yet provided details.

The Fannie bonuses are still considerable and come at a time when Fannie and Freddie are receiving increasing amounts of funding from the Treasury. For 2008, Fannie and Freddie reported combined losses of about $108 billion,  stemming from a surge in home-mortgage defaults. The U.S. Treasury has agreed to provide as much as $200 billion of capital apiece to Fannie and Freddie in exchange for preferred stock.  [By comparison AIG has received $180 Billion total – less than half the Fannie/Freddie payout] The two companies have said they will need a combined $60 billion of that money to cover their losses so far.

James Lockhart, director of the Federal Housing Finance Agency, of FHFA, which regulates Fannie and Freddie, said the bonuses they are paying are “critical” to retain people needed to support the mortgage market and work on foreclosure-prevention efforts. [Haven’t we heard this before? The only people who can fix the problem are the ones who created it!] After the companies’ chief executives were ousted in September, “it would have been catastrophic to lose the next layers down and other highly experienced employees,” he said. Mr. Lockhart added that compensation has declined for many employees because other types of bonuses weren’t paid last year and “past stock grants are virtually worthless.” [Lets not forget that the stock is worthless because Fannie & freddie lost 100’s of billions of dollars – bonuses were not paid as Companies that lose hundreds of billions of dollars are “bankrupt” and have no money to pay bonuses. The problem is obvious – the “entitlement philosophy” that assumes employees deserve bonuses even when they bankrupt the company that employs them] 

A recent Fannie securities filing says that Michael Williams, the company’s chief operating officer, is due to receive cash retention awards of $611,000 this year, atop a similar award of $260,000 in 2008. His base salary is $676,000 a year.

The company also disclosed plans to pay retention awards this year of $517,000 to David Hisey and $470,000 each to Thomas Lund and Kenneth Bacon. All three of them are executive vice presidents.

The bonuses this year are to be paid in two installments, one in April and the second in November. Those installments are to be paid only if the executives remain in their posts at the payment dates.

Hundreds of other Fannie employees also are eligible for retention awards, but the company disclosed only the largest of the bonuses. It said there are no plans for a retention bonus for the chief executive officer, Herbert Allison, who elected to serve without any salary or bonus in 2008.

Freddie has a similar retention-bonus plan but hasn’t yet disclosed the amounts due to be paid to its top executives. That disclosure is due by the end of April.

A Government Regulator seized management control of Fannie and Freddie in September under a legal process called conservatorship. That resulted in a crash of the companies’ stock prices to less than $1 as investors concluded that the companies will be unable to pay dividends to common shareholders again for years, if ever, as they struggle to support preferred-stock dividend payments to the Treasury. Until last year, Fannie and Freddie executives were compensated largely in the form of common stock, no longer an appealing option. [Past Executives received payments in excess of $20 Million Dollars a year plus bonuses – leading some of those very same executives to “cook the books” to maximize their bonus payouts while hiding the true financial results of the sub-prime mortgage crisis, the very crisis that lead to our current financial collapse].

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