Report: More oversight needed of salaries at Fannie, Freddie

By Vicki Needham - 12/10/12 02:59 PM ET

A federal housing regulator should further monitor and reduce compensation for senior professionals at mortgage giants Fannie Mae and Freddie Mac to improve their bottom lines, according to a new report.

The inspector general of the Federal Housing Finance Agency (FHFA) concluded in a report released Monday that government-controlled mortgage-finance giants Fannie and Freddie would benefit from implementing a long-term plan to strengthen the oversight of non-executive salaries through reviews and examinations.

"By focusing this increased oversight on senior professional compensation, FHFA could assess the effectiveness of the processes and controls in place for a relatively highly compensated group of employees while mitigating the impact on the agency’s available resources," the report said.

A top House Republican said the report "indicates clear progress after the committee’s calls last year for reform of lavish executive compensation packages at taxpayer-funded Fannie Mae and Freddie Mac."

"Although today’s news shows some meaningful improvements in executive compensation at this taxpayer funded entity, it is clear additional work remains," said House Oversight and Government Reform Committee Chairman Darrell Issa (Calif.).

Issa said he is prepared work with the "FHFA to ensure the implementation of necessary reforms to preserve and conserve taxpayer assets exposed by the enterprises’ conservatorship."

Lawmakers have pressed the FHFA to reduce executive compensation despite arguments from acting director Edward DeMarco that salaries must be competitive to attract the talent and expertise needed to oversee $5 trillion in mortgage assets.

In March, FHFA implemented a revised compensation program that reduces the annual pay of the Fannie's and Freddie's chief executives to about $600,000 each, down from about $5 million.

Total executive compensation runs about $92 million a year, well below the $455 million total for senior professionals last year.

"FHFA’s oversight of senior professional compensation is comparatively limited," the report concluded.

The report examines the salaries of Fannie's and Freddie's 2,100 highest-paid employees.

"Although FHFA has controlled the enterprises’ non-executive compensation levels through the ongoing pay freeze, the agency’s oversight of the related compensation structures, processes and controls has been limited," the report said.

"FHFA has not conducted any reviews or examinations to gain assurance that the enterprises’ non-executive compensation costs are reasonable and justified."

FHFA agreed with the recommendation.