FHFA allowed GSEs to circumvent salary cap: Inspector general

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The Federal Housing Finance Agency circumvented its own controls when it allowed the government-sponsored enterprises to pay top executives more in annual salary than a cap set by Congress, the agency's inspector general said in two reports issued this week.

The matter involves the succession plans the GSEs developed for their CEOs, Timothy Mayopoulos at Fannie Mae and Donald Layton at Freddie Mac, after both executives announced last year they were stepping down.

Those plans split the roles of CEO and president at both companies. The president jobs were not covered by a CEO compensation cap of $600,000 passed by Congress in November 2015.

Fannie promoted David Benson, its chief financial officer, to the president's job when Mayopoulos announced his departure. His current compensation is $3.6 million, according to the inspector general report on Fannie. Originally it was $3.5 million, but Benson received a raise after seven weeks on the job.

Hugh Frater was named Fannie's CEO on March 27 after holding the title on an interim basis following Mayopoulos' departure. He is subject to the cap.

Yet "by authorizing Fannie Mae to fill the positions of CEO and president with two separate individuals and transfer substantial responsibilities from the CEO and president to the president position, FHFA permitted Fannie Mae to compensate its president at a level more than five times greater than the statutory cap," the inspector general report said.

Meanwhile, in September, Freddie promoted David Brickman to president and on March 21, said he would succeed Layton starting July 1. As president, Brickman is receiving $3.25 million in compensation, according to the inspector general report on Freddie. But his salary becomes subject to the cap once he becomes CEO.

By allowing Freddie to create the president's job (originally to be called deputy CEO), the FHFA and Mel Watt, its director at the time, "acted to circumvent the congressionally mandated cap of $600,000 on CEO compensation," the inspector general report on Freddie said.

The agency contested the conclusions of both reports.

"The decision to have the positions of CEO and president at each enterprise held by different individuals, whose compensation is set differently depending on their positions, did not — and does not — violate the CEO pay cap … and is consistent with other requirements of the enterprise charter acts and the Safety and Soundness Act," the FHFA's Robert Fishman, deputy director of the division of conservatorship, and Bob Ryan, special adviser to the office of the director, wrote in the agency's common response to the reports.

While at Fannie the split is permanent, Freddie president's position was specifically created for the transition period and is being eliminated once Layton leaves the company, the FHFA said in its written response to the reports.

Regarding Fannie, the inspector general recommended that the FHFA "re-assess the appropriateness of the annual compensation award of $3.6 million to the Fannie Mae president" and "establish a process for maintaining and monitoring sensitive conservator requests in its tracking system."

The FHFA disagreed with the first recommendation and agreed to the second, the inspector general report on Fannie said.

In the case of Freddie, the inspector general called on the regulator to reassess Brickman's compensation as Freddie's president, which the FHFA declined to do.

Freddie disputed the criticism about its succession plan.

"Simply put, the facts do not support the conclusions summarized in the report," a spokesman said. "Freddie Mac created the position of president to ensure a seamless transition to the role of CEO. The president was recently selected as CEO and will begin on July 1 with a salary of $600,000."

Fannie referred to the FHFA's response to the report and did not make any further comments.

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GSEs GSE reform Secondary market Compensation FHFA Freddie Mac Fannie Mae