FHFA Sets Roadmap, Compensation Structure for GSEs


The Federal Housing Finance Agency,
conservator of Freddie Mac and Fannie Mae has produced a scorecard for the two
government sponsored enterprises (GSEs) which it said will serve as a roadmap
for the new FHFA Strategic Plan announced last month.  The Scorecard lists specific objectives and
timetables for the GSEs to accomplish the plan’s objectives.

At the same time FHFA announced the
details of new executive compensation programs at the GSEs which will reduce
top executive pay by nearly 75 percent from pre-conservatorship levels, eliminate
bonuses, and establishes a target for the CEOs of the two companies at
$500,000.  FHFA has been in a dispute
with Congress over executive compensation with Congress demanding that GSE pay
levels be brought into line with those of federal agencies and introducing
legislation to that effect.  FHFA has
argued that it was necessary to keep senior level pay competitive with that of
other large financial institutions and commensurate with the uncertainty,
stress, and criticism GSE executives encounter in their jobs.  According to FHFA, the compensation for the
five top executives at each firm is more than 30 percent below the 50th
percentile for comparable positions and will be 50 percent below the median
with the proposed changes. 

The Scorecard consists of four major weighted
objectives, each with sub-objectives and goals, targets and measures, and
deadlines for each. 

Build a New Infrastructure (30 percent).  This includes continued progress on or
completion of market enhancement activities, development of a securitization
platform and Pooling and Servicing Agreements.

Contract the Enterprises’ dominant presence in the marketplace
while simplifying and shrinking certain operations (30 percent).  This requires working with FHFA to develop
options for shifting credit risk to private investors, risk sharing, and

Maintain foreclosure prevention activities and
credit available for new and refinanced mortgages (20 percent).  Loss mitigation is to include continued
evolution of Servicer Alignment Initiative, enhancement of short sales, deeds
in lieu, and deeds-for-lease programs, and facilitation of real estate sales

Manage Efficiently in Support of Conservatorship
(20 percent).  This includes concluding
litigation and loan repurchase claims, prioritizing and managing GSE goals,
ensuring corporate governance procedures are maintained, and seeking and
considering public input.

The new compensation package includes a
retention feature and reductions for missed performance and eliminates
incentive plans that have been in place for three years.  The new structure consists of base salary
paid in bi-weekly or twice-monthly installments, and deferred salary paid after
a one year deferral.  Total direct
compensation is being reduced by 10 percent and there are no bonuses.  Deferred salary is equal to 30 percent of
total salary and one-half is subject to a reduction based on the GSE’s
performance against the Conservatorship Scorecard as determined by FHFA and the
other had is subject to a reduction based on individual performance.

In addition to the 75 percent reduction
in pay that FHFA says has occurred post conservatorship, the GSEs have reduced
the number of senior executives at each firm from a pre-conservatorship level
of 91.

In setting the new compensation level,
FHFA said it concluded that any further reductions or uncertainty around
compensation would heighten safety and soundness concerns around the GSEs.

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