FOR IMMEDIATE RELEASE: September 9, 2008
SCHUMER, REED: NO 'GOLDEN PARACHUTES' FOR FANNIE, FREDDIE EXECS
Senators Urge Companies' Overseer To Exercise Power To Revise Severance Packages For Outgoing CEOs
Two Top Execs Set To Reap Combined $24M in Severance Pay Following Gov't Takeover of Companies; Senators Call Payouts 'Way Out of Line' Given Taxpayer Exposure
With the outgoing CEOs of mortgage giants Fannie Mae and Freddie Mac set to reap a combined $24 million in severance pay following the federal government’s takeover of the two companies, U.S. Senators Charles E. Schumer (D-NY) and Jack Reed (D-RI) urged federal officials Tuesday to exercise new authority approved by Congress to trim the executives’ lavish pay.
“We find it way out of line that these two executives will be rewarded with millions of dollars in bonus compensation at a time when taxpayer dollars may have to be deployed to cover any financial losses caused by errors in management.,” the senators wrote in a letter to James Lockhart, Director of the Federal Housing Finance Agency.
Acting out of concern that Fannie and Freddie were insufficiently capitalized, and in order to prevent potentially catastrophic spillover effects to the larger financial markets, Treasury Secretary Henry Paulson announced a plan Sunday to place both companies into conservatorship, making them essentially obligations of the
In response, Schumer and Reed today urged Lockhart to take action to reduce the packages by turning to a provision tucked inside the Housing and Economic Recovery Act of 2008. This bill—the very same one that empowered Paulson to carry out several of the steps contained in the takeover plan announced Sunday—was passed by Congress this past July. Under the provision concerning executive compensation, Lockhart is able to adjust compensation levels for the chief executives if the companies fail. The senators urged Lockhart to review the applicability of the statute in the case of Mudd and Syron, and enforce it if proper.
A copy of the senators’ letter appears below.
September 9, 2008
Federal Housing Finance Agency
Dear Director Lockhart:
In our capacity as members of the Senate Banking Committee, we write today to urge you to exercise your authority as the Director of the Federal Housing Finance Agency, and as the newly assigned conservator of Fannie Mae and Freddie Mac to review the compensation packages awarded to the former CEOs of those companies, Daniel Mudd and Richard Syron. While we understand the rationale for the significant measures that were taken to protect the overall housing mission of Fannie Mae and Freddie Mac and to protect the stability of the financial system generally, we find it way out of line that these two executives will be rewarded with millions of dollars in bonus compensation at a time when taxpayer dollars may have to be deployed to cover any financial losses caused by errors in management. It has been reported that Mr. Mudd and Mr. Syron stand to make more than $24 million in severance payments as a result of your actions over the weekend to place the companies in conservatorship.
The Federal Housing Finance Regulatory Reform Act of 2008 gave the FHFA authority over executive compensation and the ability to limit or fully withhold compensation and golden parachute payments to executives. We urge you to quickly review the compensation packages of the former CEOs, and where appropriate and in accordance with the newly enacted legislation, substantially reduce or eliminate them, so that taxpayer dollars are not utilized to enrich the same individuals who are responsible for preventable financial problems that have weakened Fannie Mae’s and Freddie Mac’s ability to weather the current crisis in the financial markets.
Charles Schumer Jack Reed
United States Senator United States Senator