When Donald Layton takes the reins as Freddie Mac’s new CEO on May 21, he’ll have a lot on his plate. The company’s been under federal conservatorship for almost four years and the job may prove to be the biggest challenge
Like any chief executive, he’ll have a C-suite of executives and army of boots-on-the-ground employees executing his strategy for the McLean, Va.-based company. But while
When the Federal Housing Finance Agency released its 2012 scorecard that guides executive compensation at Freddie Mac and Fannie Mae in March, UMDP timelines were included among a group of metrics that grade “continued progress on, or completion of mortgage market enhancement activities already underway.”
The FHFA-mandated UMDP is an initiative to update and streamline the loan and appraisal data collected by the government-sponsored enterprises. Fannie and Freddie have already met one of the scorecard’s UMDP deadlines—requiring lenders to submit full electronic appraisals to the Uniform Collateral Data Portal for all loans delivered on or after March 19.
At a UMDP panel during the Mortgage Bankers Association’s technology conference in April, GSE officials said that
That milestone came after a
With the UCDP delivery mandatory for all GSE mortgages, the scorecard reveals federal regulators’ next appraisal data objective—
The previously unannounced objective is included in the scorecard, requiring the GSEs to “cooperate with FHA implementation of portal to accept electronic appraisals,” but does not include a deadline or timeframe for implementation.
Currently, the FHA doesn’t have the technology to collect electronic appraisals and database the information in the forms. Similar to the GSEs’ practice before UCDP implementation, the FHA only requires lenders to submit appraisals for mortgages that are selected for Post Endorsement Technical Review and the FHA’s Appraiser Review Process.
The GSEs’ next deadline will be the mandatory submission of the new Uniform Loan Delivery Dataset file, which replaces the proprietary file formats that Fannie and Freddie currently receive from lenders. Like the UCDP/UAD deadlines, the ULDD requirement has also be repeatedly delayed, most recently in December, when the
But even if the new ULDD timeline is met, it won’t be long before changes are made to the file format. The FHFA scorecard requires the GSEs to create a new data point for the ULDD that will facilitate compliance with SEC Rule 15Ga-1, a regulation stemming from the Dodd-Frank Act that requires securitizers of asset-backed securities to disclose fulfilled and unfulfilled repurchase requests. The scorecard requires Fannie and Freddie to deliver the data point by Nov. 30.
There are additional changes to the ULDD that will also come later this year. The current iteration of the file represents a scaled-down version of all the data Fannie and Freddie will eventually require from lenders. The scorecard requires the GSEs to “notify market of optional ULDD data points,” by an unspecified date in 2012.
Other deadlines that have to be met by Dec. 31 include creating a timetable and strategy for the new Uniform Mortgage Servicing Dataset and developing plans for the analysis and risk management activities the GSEs’ will do with the data they’re collecting from the appraisal and loan files.
Combined with cuts in the latest executive pay plan for the government-sponsored enterprises, regulators have reduced compensation for the top five positions at each company by approximately 75% since conservatorship began. The pay plan also eliminates bonuses for the CEOs and chief executives overseeing technology, financials, risk and administration.
Instead, executives receive a small portion of their compensation as a base salary and deferred payments on a quarterly basis after completing one year of service. The deferred salary is equal to 74% to 83% of total compensation, depending on the executive. The majority of the deferred salary is fixed, but 30% of the executives’ total pay is subject to the performance-based reductions—split evenly between the grade that the FHFA gives the enterprises for meeting the scorecard’s objectives and the executives’ individual performance at the GSEs.
The UMDP deadlines, along with goals for developing a new loan-level disclosure template and aligning the GSEs’ seller-servicer contracts, are worth 15% of the overall scorecard-contingent deferred salary, or 2.25% of the executives’ total pay.
For Layton, who will earn an annual salary of $600,000, meeting the UMDP-related goals is worth $13,500—about what a person making minimum wage in Virginia would earn in a year working 35 hours per week.
All told, various components of the UMDP have been delayed four times and the GSEs have so far only met one of the program’s deadlines. Given Fannie and Freddie’s lackluster record, it’s certainly possible that they won’t meet the deadlines outlined in the scorecard, putting at least a portion of Layton and his fellow executives’ salaries at risk.
But a caveat—a footnote in the scorecard—could ensure that the executives get paid, even if any of the deadlines are missed.
“Scoring will be based not only on ultimate accomplishment of results but cooperation, relative contribution, and collaboration with the board, FHFA, the other enterprise and market participants, as appropriate to the particular measure,” the note reads.
