Big bonuses at Fannie and Freddie draw fire

Fannie Mae and Freddie Mac, the two troubled companies at the heart of the nation's mortgage market, are set to pay their employees "retention bonuses" totaling $210 million, despite calls from lawmakers to cancel the payments. The bonuses, which were made public on Friday, were defended by the companies' federal regulator, James B. Lockhart, who said he intended to let them proceed. In a letter sent last week to Senator Charles E. Grassley, an Iowa Republican, Mr. Lockhart disclosed that 7,600 Fannie and Freddie workers were scheduled to receive payouts aimed at retaining those "employees most critical to keep and difficult to replace." Under the plan, 213 employees will receive retention bonuses worth more than $100,000 this year, and one Freddie Mac executive will receive $1.3 million. Those figures drew sharp rebukes from Mr. Grassley and other lawmakers, who noted that Fannie and Freddie had received pledges of $400 billion from taxpayers to offset huge losses since they were seized by the government in September. Similar bonuses paid by the American International Group, which was also bailed out by taxpayers, incited fiery attacks from the White House and legislators when they were revealed last month. "It's hard to see any common sense in management decisions that award hundreds of millions in bonuses when their organizations lost more than $100 billion in a year," Mr. Grassley said in a statement. "It's an insult that the bonuses were made with an infusion of cash from taxpayers." Fannie Mae and Freddie Mac own or guarantee more than half of the nation's mortgages, and are essentially the only firms currently lubricating the nation's mortgage marketplace. Last month, Representative Barney Frank, Democrat of Massachusetts and chairman of the House Financial Services Committee, demanded that the companies rescind $4.4 million in retention bonuses paid to Fannie's four top executives last year. Such bonuses are often offered to keep executives from leaving a company. "I'm skeptical that these people have job offers to go elsewhere," Mr. Frank said in an interview. "And in this economy, I don't think it would be hard to find talented replacements for anyone who leaves." Mr. Lockhart, the companies' regulator, rebuffed Mr. Frank's suggestion. "These payments send a signal that we think people are important and we want to keep them," said Mr. Lockhart, adding that employees' holdings of company stock became nearly worthless when the government seized the firms. "If the bonuses are rescinded, it sends the exact opposite signal, and it would be extremely dangerous for the American economy to lose these workers at this point." Representatives for both Fannie and Freddie declined to comment or detail how many employees had left the company, or had threatened to leave if their bonuses were rescinded. In an interview, Mr. Lockhart said he had heard that Fannie and Freddie workers were getting other offers, but did not have specific figures. He added that there was no way to know if the companies could have retained workers with smaller bonuses. The government has become increasingly reliant on Fannie Mae and Freddie Mac to put into effect federal programs seeking to improve the housing market and the economy. The companies have recently been ordered to oversee a vast new mortgage modification program, to buy greater numbers of loans, to refinance millions of at-risk homeowners and to loosen internal policies so they can work with more questionable borrowers. The company has increased its staff and has asked employees to work longer hours to make sure those new and expanded programs are operating. Mr. Lockhart's defense of Fannie and Freddie's bonuses has made him a lightning rod for legislative criticisms. It is also beginning to draw questions about why President Obama has not replaced the regulator, who was appointed by President Bush. The law creating Mr. Lockhart's office, the Federal Housing Finance Agency, established him as the lead regulator until his successor is named by the president and confirmed by Congress. By failing to name a successor, say observers, the White House is implicitly backing Mr. Lockhart's stance on the Fannie Mae and Freddie Mac bonuses, which stands in stark contrast to President Obama's criticisms of the A.I.G. payments. Mr. Lockhart declined to discuss his conversations with the White House, which declined to comment on Friday. "This is a de facto White House endorsement of these payments, which is a little odd considering that everyone spent days talking about how they were shocked by the bonuses given to A.I.G.," said Karen Shaw Petrou, a managing partner at Federal Financial Analytics, a consulting firm in Washington and a longtime observer of the companies. "It's also a tempest in a teapot. We should worry less about $210 million in bonuses, and more about the fact that these companies are sitting atop $5 trillion of risks, and if they stumble, the American economy could disappear."