FHFA Sets Roadmap, Compensation Structure for GSEs

The Federal Housing Finance Agency,rnconservator of Freddie Mac and Fannie Mae has produced a scorecard for the tworngovernment sponsored enterprises (GSEs) which it said will serve as a roadmaprnfor the new FHFA Strategic Plan announced last month.  The Scorecard lists specific objectives andrntimetables for the GSEs to accomplish the plan’s objectives.</p

At the same time FHFA announced therndetails of new executive compensation programs at the GSEs which will reducerntop executive pay by nearly 75 percent from pre-conservatorship levels, eliminaternbonuses, and establishes a target for the CEOs of the two companies atrn$500,000.  FHFA has been in a disputernwith Congress over executive compensation with Congress demanding that GSE payrnlevels be brought into line with those of federal agencies and introducingrnlegislation to that effect.  FHFA hasrnargued that it was necessary to keep senior level pay competitive with that ofrnother large financial institutions and commensurate with the uncertainty,rnstress, and criticism GSE executives encounter in their jobs.  According to FHFA, the compensation for thernfive top executives at each firm is more than 30 percent below the 50^{th</suppercentile for comparable positions and will be 50 percent below the medianrnwith the proposed changes.  </p}

The Scorecard consists of four major weightedrnobjectives, each with sub-objectives and goals, targets and measures, andrndeadlines for each.  </p

1.     rnBuild a New Infrastructure (30 percent).  This includes continued progress on orrncompletion of market enhancement activities, development of a securitizationrnplatform and Pooling and Servicing Agreements.</p

2.     rnContract the Enterprises’ dominant presence in the marketplacernwhile simplifying and shrinking certain operations (30 percent).  This requires working with FHFA to developrnoptions for shifting credit risk to private investors, risk sharing, andrnpricing.</p

3.     rnMaintain foreclosure prevention activities andrncredit available for new and refinanced mortgages (20 percent).  Loss mitigation is to include continuedrnevolution of Servicer Alignment Initiative, enhancement of short sales, deedsrnin lieu, and deeds-for-lease programs, and facilitation of real estate salesrn(REO).</p

4.     rnManage Efficiently in Support of ConservatorshiprnGoalsrn(20 percent).  This includes concludingrnlitigation and loan repurchase claims, prioritizing and managing GSE goals,rnensuring corporate governance procedures are maintained, and seeking andrnconsidering public input.</p

The new compensation package includes arnretention feature and reductions for missed performance and eliminatesrnincentive plans that have been in place for three years.  The new structure consists of base salaryrnpaid in bi-weekly or twice-monthly installments, and deferred salary paid afterrna one year deferral.  Total directrncompensation is being reduced by 10 percent and there are no bonuses.  Deferred salary is equal to 30 percent ofrntotal salary and one-half is subject to a reduction based on the GSE’srnperformance against the Conservatorship Scorecard as determined by FHFA and thernother had is subject to a reduction based on individual performance.</p

In addition to the 75 percent reductionrnin pay that FHFA says has occurred post conservatorship, the GSEs have reducedrnthe number of senior executives at each firm from a pre-conservatorship levelrnof 91.</p

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

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