EDITORIAL COMMENT: Has anybody asked exactly what Fannie, Freddie and Ginny do? I have. From what I see, read and hear, they are essentially the same as the REMICS that Wall Street created — in fact, it is highly probably that they were created at the instigation of Wall Street. They were never capitalized with an investment, they have no status as a depository or lending institution, they don’t lend money and they don’t actually buy mortgages although supposedly they are buying mortgage bonds.
On the one hand we are told that buying mortgage bonds is the same as buying the mortgages and on the other, we are confronted in court with the argument, that the owner of the mortgage bonds have nothing to do with the foreclosure. Which is it?
Meanwhile we are told that the U.S. treasury and/or the Federal Reserve own or have as collateral nearly all the mortgage bonds whose value is, on paper solely derived from receivables expected from payments on loans given to homeowners. The problem is that the homeowners signed papers that were prepared by and executed in favor of an entity that even if it was bank, was NOT using its own money to fund the mortgage. In fact, many times the funds for the loan were wired in to the closing agent from a remote entity that is mentioned in neither the closing papers with the homeowner or the securitization papers with the investor.
Back to F&F. What do they do? As far as I can tell they have one function in their charter — to put the stamp of approval on a mortgage so that it qualifies to be guaranteed by the U.S. taxpayer. What happens when the mortgage is declared in default? Who makes that declaration? Is it true? who is the creditor? IS the creditor or the creditor’s agent still getting payments? If they are getting payments, from whom are they receiving these payments and why? If they are still receiving payments, how could the loan be in default? If the loan is not in default, how can anyone, with or without standing, initiate a foreclosure sale?
So basically F&F are merely “bookkeepers” without any accountability and nothing really at stake, but they receive fees for processing the loans, which is to say they get paid for allowing their stamp and their standard documents, rigged with changes, to be passed around, sold into the secondary market and then supposedly securitized — all without a single piece of paper ever being written, executed or delivered. Using that logic we would be giving up evidence of title and if you agreed to pay for a car, you might get the car but the evidence of title would be “private” (like MERS) and there would be no way for anyone to be sure if you had conveyed title to the car to 10 people.
Many of the mortgages didn’t go bad. Many of them are still performing. And yet they are part of the group of failed mortgage bonds whose terms were rigged to be able to declare a “default” on the mortgage bond even though most of the loans were performing. Those seem to be what the Federal Reserve bought 100 cents on the dollar. It was kind of NO DOC purchase by the Federal Reserve based upon the credibility and good faith of the thieves who got us into this mess. That there was nothing in the bond, nothing in the pool, no trust, no trust assets, and no trustee doesn’t seem to matter.
And for all of this the executives of F&F were paid millions of dollars in executive compensation. And somehow people are mildly surprised to find out that the executives came from hedge funds and other places on Wall Street. So we have this guy from Putnam making millions for doing nothing while somebody else is counted amongst the “employed, breaking his or her back, for a wage that won’t even put enough food on the table to feed the family. AND now we have the inspector general saying everything that I just did, but do you think it will make any difference? I don’t — not unless as a nation we rise up and start exercising the power we have in the constitution. These people ought to be afraid of us, not the other way around.
I’m talking to lawyers who have investigators and research people working round the clock on this. It looks like the only people who really made out well are the few people in management through whose hands the tens of trillions of dollars passed. There is a growing recognition that the off-shore money trail leads all over the world and may just be controlled by literally a handful of people. So they are thinking that they might name the executives of the various entities involved in securitization as defendants and state that those defendants were actually acting outside the scope of their employment, diverting corporate opportunity from the stockholders, who so far have been too stupid to bring derivative actions, and piercing through into the personal finances of these people — and we all know their names.
Regulators have approved generous executive compensation at Fannie Mae and Freddie Mac, the taxpayer-backed mortgage finance giants, with little scrutiny or analysis, according to a report published Thursday by the inspector general of the Federal Housing Finance Agency.
The companies, whose fates are to be decided by Congress this year, paid a combined $17 million to their chief executives in 2009 and 2010, the two full years when Fannie Mae and Freddie Mac were wards of the state, the report found. The top six executives at the companies received $35.4 million over the two years. Since Fannie Mae and Freddie Mac were taken over in September 2008, the companies’ mounting mortgage losses have required a $153 billion infusion from taxpayers. Total losses may reach $363 billion through 2013, according to government estimates.
Charles E. Haldeman Jr., a former head of Putnam Investments, the giant fund management concern, joined Freddie Mac as its chief executive in 2009. He made $7.8 million for 2009 and 2010. Fannie Mae’s chief is Michael J. Williams, who has worked at the company since 1991. He received $9.3 million for the two years. Company officials declined to comment.
With hundreds of billions in government support necessary to keep the companies running, questions are arising about the nature of the pay packages and how performance goals are determined. The pay was approved by the housing finance agency, which is charged with conserving the assets of Fannie and Freddie on behalf of taxpayers.
“F.H.F.A. has a responsibility to Congress and taxpayers to efficiently, consistently, and reliably ensure that the compensation paid to Fannie Mae’s and Freddie Mac’s senior executives is reasonable,” ’said Steve A. Linick, the newly appointed inspector general of the agency, in a statement. “This is especially true when you realize that the U.S. Treasury has invested close to $154 billion to stabilize Fannie Mae and Freddie Mac,” and they “are spending tens of millions of dollars for executive compensation.”
The report cited a “lack of standardized evaluation criteria, documentation of management procedures and internal controls” at the oversight agency, missing steps that may have led to overpayments.
For example, the inspector general said that taxpayer support of the companies may have made performance benchmarks easier to meet for executives. In 2009, Fannie Mae issued 47 percent of new mortgage-backed securities, far exceeding its goal of 37.5 percent. But, as the report noted, this hurdle was almost certainly cleared because the Federal Reserve purchased almost all the mortgage securities issued by Fannie and Freddie in 2009.
In response to the report, the housing agency said that it would “institute a more formal and systematic approach” to its review of the performance benchmarks and the assessment of whether they were reached by the companies’ executives. A spokeswoman for the agency said its officials declined to comment.
Lavish executive pay that does not track a company’s performance has led to anger among shareholders in recent years. When the government stepped in to support some of the nation’s biggest financial institutions in 2008, compensation became an issue of concern to taxpayers. Executive pay at institutions receiving support under the Troubled Asset Relief Program, for example, was subject to approval by an overseer, the special master for TARP. Fannie and Freddie were not required to submit to this process because their assistance did not come from TARP.
As the primary regulator and conservator of both companies, the housing agency has broad powers to direct the companies’ activities; it has replaced board members and senior officers, for example. And it can bar the companies from making golden parachute payments to executives. It consulted with the TARP special master on executive pay at Fannie and Freddie after they were rescued by the government.
Nevertheless, the agency delegates pay decisions to the companies’ boards, accepting their recommendations “unless there is an observed reason to do otherwise,” according to the inspector general’s report. The F.H.F.A. receives advice from its own compensation consultant as well as the work of those hired by Fannie and Freddie.
The inspector general’s report noted that the executives at Fannie and Freddie received far more than their counterparts at other federal housing agencies. The top executive at Ginnie Mae, for example, received an annual salary of less than $200,000. The inspector general suggested that the agency review the discrepancy and account for it to taxpayers.
Agency officials say the salaries and deferred compensation awarded to executives at Fannie and Freddie are necessary if they are to attract and keep talent required to run those operations effectively. They say that current pay at Fannie and Freddie is roughly 40 percent less than it was before the bailout and maintain that the compensation plans are based on the companies’ ability to meet financial and performance targets, like providing liquidity and affordability to the mortgage market.
Edward J. DeMarco, acting director of the Federal Housing Finance Agency, testified before Congress on Thursday about proposals to overhaul Fannie and Freddie. “I am concerned that legislation to overhaul the compensation levels and programs in place today with the application of a federal pay system to nonfederal employees carries great risk for the conservatorships and hence the taxpayer,” he said.
Last year, Mr. DeMarco testified that the executive compensation plans at Fannie and Freddie were designed to achieve the goals of the conservatorship and “align executive decision-making with the long-term financial prospects of the enterprises, and minimize costs to the taxpayer.”
Because shares of both Fannie and Freddie have little value, the companies’ executive compensation consists solely of cash paid out in base salary, deferred salary and long-term incentive pay.
But Brian Foley, a compensation consultant in White Plains questioned the characterization of the companies’ incentive pay as long term, given that it is paid entirely within two years. “One hundred percent of the compensation is paid for two-year performance and a fair portion of that is without regard to performance,” he said. “I understand the stock is worthless, but that doesn’t mean you can’t have cash on the table for a long period. If anybody needs to have good long-term performance, isn’t it Fannie Mae and Freddie Mac?”
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