Rep. Frank Calls for Halt to Freddie, Fannie Bonuses

The top executive at Fannie Mae defended the mortgage finance company's bonus program on Friday as a leader of the U.S. House of Representatives said that the payments should be halted.

Representative Barney Frank, chairman of the House Financial Services Committee, called on the regulator for Fannie Mae and Freddie Mac to "rescind the retention bonus programs" at the two companies.

In a letter to James Lockhart, director of the Federal Housing Finance Agency, Frank said the public "rightfully insists that large bonuses such as these awarded by institutions receiving public funds at a time of a serious economic downturn cannot continue."

Herb Allison, the government-appointed overseer for Fannie Mae, wrote in memo to employees that he was fighting to preserve the pay plan. "You deserve tremendous credit for staying here and demonstrating unswerving dedication to the public interest," he wrote.

Fannie Mae and Freddie Mac were nationalized in September as the mortgage finance companies losses mounted and a national foreclosure crisis deepened.

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Both companies now rely on billions of dollars in government funding and lawmakers have recently attacked bonus and compensation plans at many finance companies that have received government aid.

Public anger over $165 million in bonuses paid to executives of American International Group prompted the House on Thursday to approve a 90 percent tax on bonuses for certain executives at companies that are getting taxpayer-financed help.

Lockhart, though, has defended compensation paid to executives at Fannie Mae and Freddie Mac as a necessary incentive to retain key talent as the companies become important tools in implementing housing policy.

"As the previous senior management teams left, it would have been catastrophic to lose the next layers down and other highly experienced employees," Lockhart said in a statement on Wednesday.

At a hearing before Frank's committee in September, Lockhart explained that he planned to dole out extra pay to keep key executives.

In that testimony, the regulator told the Massachusetts Democrat's committee that he "worked with the new CEOs to establish employee retention programs.

They agree with me that it is very important to work with the current management teams and employees to encourage them to stay." Since Fannie Mae and Freddie Mac were seized, the government-sponsored enterprises have implemented key federal programs meant to stabilize the housing sector.

"I understand your deep feeling that repudiation of the terms of the retention plan...would be a breach of faith," wrote Allison, who has not received compensation since he agreed to lead the company.

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