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Industry Analyst Defends Massive Pay Hike for Fannie Mae and Freddie Mac CEOs

american-moneyThe debate continues as to what the compensation level for the CEOs of Fannie Mae and Freddie Mac should be since FHFA Director Mel Watt announced on July 1 that the top executives at the GSEs would each be receiving raises from $600,000 annually to about $4 million.

Last week, the House Financial Services Committee passed HR 2243, the Equity in Government Compensation Act of 2015, by the overwhelming majority of 57 to 1. The bill, introduced by Rep. Ed Royce (R-California) in May, seeks to reinstate the salary caps for the Fannie Mae and Freddie Mac CEOs that Watt eliminated, and is now headed to a full House vote.

At least one analyst disagrees with capping the salaries, however. Tim Rood, chairman of the Washington, D.C.-based business advisory firm the Collingwood Group, wrote on the firm's Voice of Housing blog that he hopes the bill is defeated in the House and that the two CEOs, Donald Layton at Freddie Mac and Timothy Mayopoulos at Fannie Mae, receive the multi-million pay raises granted them by their regulator.

"From my perspective, these CEOs deserve a raise," Rood wrote. "They’ve demonstrated their worth, stabilizing the companies and supporting market recovery. Yet, I understand that my perspective on a rational move to raise their salaries to a level more equitable with those of their industry peers is not perceived by others in the same way. The optics are difficult, so it’s no surprise that this bill has bipartisan support."

The cap eliminated by Watt slightly more than a month ago was put in place three years ago by then-acting FHFA director Ed DeMarco as a compromise between satisfying the demand for a reduction in those executive salaries while the GSEs remained under conservatorship of the FHFA and maintaining adequate pay for line staff, according to Rood. While not ideal, he said, the compromise reached three years ago helped the GSEs to retain high-quality, experienced staff.

Rood said that the salary debate of Fannie Mae and Freddie Mac CEOs was resurrected three years later only because Congress has yet to decide on the future of the two GSEs, another topic on which there has been much debate. While most everyone agrees the FHFA's conservatorship of Fannie Mae and Freddie Mac should end, not everyone agrees on what should replace the GSEs, if anything.

The choice doesn’t have to be polarized, as the political positions suggest – allow the GSEs to accumulate capital and spin them off as private companies or pull them into the Federal government entirely," Rood said. "But, whatever choice is made, the details around salaries and structure of the GSEs will fall in to place. In this bizarre half-human half-horse arrangement, there are no easy answers. However, what is being proposed will not help taxpayers and will not help the housing market – good politics is very often bad policy."

About Author: Brian Honea

Brian Honea's writing and editing career spans nearly two decades across many forms of media. He served as sports editor for two suburban newspaper chains in the DFW area and has freelanced for such publications as the Yahoo! Contributor Network, Dallas Home Improvement magazine, and the Dallas Morning News. He has written four non-fiction sports books, the latest of which, The Life of Coach Chuck Curtis, was published by the TCU Press in December 2014. A lifelong Texan, Brian received his master's degree from Amberton University in Garland.

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