The government regulator of Fannie Mae and Freddie Mac said Thursday that million-dollar bonuses paid to executives at the companies were necessary to keep the mortgage giants running.
Edward DeMarco, the acting director of the Federal Housing Finance Agency, sent a letter to U.S. lawmakers that paying a total of $12.8 million in bonuses was a way of keeping talented executives with the companies. Without them, U.S. taxpayers would incur greater losses.
"We will need expert management of those guarantees for years to come," DeMarco wrote in the letter to a bipartisan group of 60 senators who have urged him to stop the bonus payouts. "Given the amount of money at risk here, small mistakes can be easily amplified to losses far greater than the compensation paid to enterprise executives."
The government rescued Washington-based Fannie and McLean, Va.-based Freddie three years ago after they nearly folded because of big losses on risky mortgages they purchased. Taxpayers have spent about $170 billion to rescue the two firms, the most expensive bailout of the 2008 financial crisis. The government estimates the bailout could reach up to $220 billion through 2014.
DeMarco said the executives were hired after the companies were taken over by the government in 2008. After the takeover, the salaries for those positions had been reduced by an average of 40 percent and some senior positions were eliminated.
Fannie and Freddie own or guarantee about half of all mortgages in the U.S., or nearly 31 million home loans. Along with other federal agencies, they backed nearly 90 percent of new mortgages over the past year.
This month, Fannie asked for $7.8 billion and Freddie requested $6 billion in extra aid to cover large quarterly losses, mostly caused by low mortgage rates reducing profits.
The House Financial Services Committee will meet Tuesday to consider a bill to stop the bonuses from being paid. Sens. John McCain (R-Ariz.) and Jay Rockefeller (D-W.Va.) have also proposed ending all bonuses for Fannie and Freddie executives.
DeMarco is slated to testify Tuesday before two congressional committees.