While DeMarco acknowledged lawmakers' concerns about the spending for the troubled mortgage giants — which have needed more than $170 billion in taxpayer funding to remain solvent — he insisted that the firms need talented employees to manage $5 trillion in mortgage assets and $1 trillion in new business each year.
Pulling back on compensation not only makes it more difficult to attract high-level employees with the necessary skills but makes them harder to retain and could create more taxpayer liability, he said.
"There is my judgment to ensure we have highly competent people because we risk far greater losses without them," he said.
While he testified in the Senate, the House Financial Services Committee voted to support legislation that could nix the bonuses, with Democrats in support.
Sen. Jon Tester (D-Mont.) pressed DeMarco on whether he had considered cutting bonuses or salaries while the economy remains fragile.
While DeMarco agreed that top executives at the firms are being paid large salaries, he said that since the latest pay structure was set in 2009, "with each opening of an executive position I have worked to step down compensation."
Congressional action to unwind Fannie and Freddie will lead to further declines, DeMarco said.
He reminded lawmakers that the executives in place when poorly underwritten and badly priced mortgages infiltrated the system between 2005 and 2008 period are "long gone" and that "you can't undo those problems but can try to limit losses on them and strengthen the businesses going forward."
DeMarco used the hearing to once again press lawmakers to provide more clarity on a plan to wind down the government-sponsored enterprises (GSEs) and argued that Congress is sending him mixed messages, especially on conforming loan limits.
In response to a question from panel ranking member Richard Shelby (R-Ala.), who dissented on the change of the limits included in a minibus spending bill, about how these changes affect future plans of the firms, DeMarco said it sends a different signal to Fannie Mae and Freddie Mac to "step back in after stepping away."
The marketplace and Congress knew the changes were under way and the reversal "could lead to some confusion on what loans limit we're applying and which direction are we moving in regards to mortgage markets" he said.
Sen. Bob Corker (R-Tenn.) suggested that DeMarco should be questioning lawmakers instead of them questioning him in light of the fact that Congress has yet to produce a plan to help the firms draw down their participation in the mortgage market.
DeMarco said the winding down of the firms is dependent on the engagement of private capital in the mortgage market.
Corker asked if a 10-year plan would be enough, and DeMarco said "10 years would be plenty gradual to me."
"Over the course of a few years we can make meaningful progress to be able to recede without damaging the market," DeMarco said.
The toughest questioning came from Democrat Robert Menendez (N.J.), who asked DeMarco why he has a "narrow and cramped view" of his agency's role in the housing market recovery.
"I wouldn't say I have a cramped view, my view is following the law written by Congress," DeMarco said.
"I'm not authorized to spend funds for general uplift of the housing market," he said. "My job is to support the operations of conservatorship and conserve and preserve its assets."
He did add that the agency is continuing to press mortgage servicers to help delinquent borrowers and provide them more options to stay in their homes, a move he said would minimize losses for taxpayers.
"My job is saving taxpayers from greater liability instead of making housing market more robust."