By Megan R. Wilson - 05/13/13 05:45 PM EDT
Documents scheduled to appear in Tuesday’s Federal Register would renew regulations originating in 2009 that allowed the Federal Housing Finance Agency (FHFA) and the Office of Federal Housing Enterprise Oversight to review and withhold bonuses and salaries of leaders of government-sponsored banks and enterprises.
The FHFA wrote in the rule that it “acknowledges widespread public concern that executive compensation is unreasonably high.”
The salaries at Fannie Mae and Freddie Mac have been under scrutiny since 2008, when the government seized control of the two mortgage giants after a bailout. Last year, the FHFA implemented a revised compensation program that reduced the annual pay of the Fannie and Freddie's chief executives to about $600,000 each, down from about $5 million.
The new rules for salary reviews would apply to all Federal Home Loan Banks, which lend money to facilitate low-cost consumer lending at private institutions.
Under the review process, the finance agency would compare the salaries of executives at the federally sponsored banks to the leaders of “comparable” financial institutions of “similar size and function” with related responsibilities.
The proposed rule received critical comment from various financial representatives, including the 12 Federal Home Loan Banks and “a number of state bankers associations and state community bankers associations.”
The compensation review would take into account the different size and structures of Fannie Mae, Freddie Mac and the federally sponsored banks — with the latter being considerably smaller.
“FHFA recognizes that executive compensation oversight mandated by [the Housing and Economic Recovery Act of 2008] HERA has resulted in a new area of regulatory compliance for the banks,” acting FHFA director Edward J. DeMarco wrote.
DeMarco promised to worth with the banks’ boards and committees “to ensure a structured, well-understood review process.”
In conjunction with HUD’s salary rule, FHFA also wants to re-propose a “golden parachute” rule for executives at the government-sponsored entities.
So-called golden parachute payments — often totaling in the millions of dollars — are made to senior officials when they lose their jobs.
Under the proposed rules, a government-sponsored bank must have severance plans approved by federal regulators.
“Among factors that must be addressed in the filing seeking approval of the payment are the cost of the payment and the effect that the payment will have on the capital and earnings of the regulated entity,” according to the Federal Register document.
The FHFA would also “determine the degree to which the proposed payment represents a reasonable payment for services rendered over the period of employment.”