OFHEO Seeks to Recoup Freddie Mac, Fannie Mae Executive Bonuses
When the Office of Federal Housing Enterprise Oversight was created in 1992, mortgage guarantee corporations Freddie Mac and Fannie Mae lobbied against the OFHEO having strict control over executive compensation, the Washington Post reported.
Following scandals at both of the federally chartered companies, the oversight agency is now seeking to recoup executive bonuses paid on earnings that are likely to disappear in earnings restatements.
In 2003, Fannie Mae paid $65.1 million in employee bonuses-more than double the $28 million paid to 547 employees in 1998, the Post reported, citing data released Wednesday by Rep. Richard H. Baker (R-LA), chairman of the House Financial Services Committee's capital markets subcommittee.
The 2003 bonuses averaged $86,953 per participant, up from an average of $49,533 in 1998, the Post reported.
Fannie Mae stands accused of manipulating earnings and the company may have to show $9 billion in losses that were left off income statements since the beginning of 2001, when a new accounting rule took effect, the Post reported.
The bonuses are "extremely relevant to the question of fixing a corporate culture so focused on short-term success that it appears to have created the wrong type of incentives that may have played a part in the manipulation of earnings," Baker said in a news release.
The accounting problems led last month to the ouster of Franklin D. Raines as Fannie's chairman and chief executive and J. Timothy Howard as its chief financial officer, the Post reported.
In a Jan. 14 letter to Baker, Armando Falcon Jr., director of the Office of Federal Housing Enterprise Oversight, said his office "will take all actions appropriate to recapture excessive bonus payments, in addition to other amounts, that OFHEO finds were based upon false or misleading financial information or are otherwise excessive."
Fannie's smaller rival Freddie Mac is seeking to halt payments to two former top executives, ousted Freddie chief executive Leland C. Brendsel and chief financial officer Vaughn A. Clarke. The two successfully sued OFHEO in U.S. District Court last year to block the agency from ordering Freddie to freeze their severance packages. The judge ruled that OFHEO could not block or recover payments until it had completed ongoing administrative law proceedings, in which it would have to lay out the reasons it sought such an action and give Brendsel and Clarke a chance to respond, the Post reported.