WASHINGTON: The Obama administration says it is removing the $400 billion financial cap it will provide to Fannie Mae and Freddie Mac to keep the mortgage giants from failing.
Treasury Department officials said the cap will be replaced with a flexible formula to ensure the companies can stand behind the billions of dollars in mortgage-backed securities they sell to investors. Since the financial crisis hit last year, the Fannie and Freddie have received $111 billion in government infusions.
In August, the administration projected the cost for rescuing Fannie and Freddie would total $170 billion. While most analysts believe the companies are unlikely to use the full $400 billion, the administration decided to remove the cap to eliminate any doubts. “The amendments to these agreements announced today (Thursday) should leave no uncertainty about the Treasury’s commitment to support these firms as they continue to play a vital role in the housing market during the current crisis,” Treasury said in a statement.
The formula Treasury will use will provide the institutions with a sufficient cushion based on the losses they may incur over the next three years.
Treasury officials will provide an updated estimate for Fannie and Freddie losses when President Barack Obama sends his 2011 budget to Congress in February.
Meanwhile, the two chief executives of Fannie Mae and Freddie Mac could get paid as much as $6 million each for 2009, despite the companies’ dismal performance this year which cost taxpayers more than $100 billion.
Fannie’s CEO, Michael Williams, and Freddie CEO Charles “Ed” Haldeman Jr. each will receive $900,000 in salary, $3.1 million in deferred payments next year and another $2 million if they meet certain performance goals, according to filings with the Securities and Exchange Commission on Thursday.
The pay packages were approved by the Treasury Department and the Federal Housing Finance Agency, which regulates Fannie and Freddie.
News of the chief executives’ pay could spark new criticism about the government’s numerous bailouts.
Freddie Mac hired Haldeman, a former mutual fund executive, in July. At the time, the company disclosed his annual salary of $900,000 but did not disclose other incentive payments.
In September, the company hired a new chief financial officer, Ross Kari, and said his pay package would be worth up to $5.5 million.
Williams, formerly Fannie Mae’s chief operating officer, took over as CEO in April after the first government-appointed CEO, Herbert Allison, took a job at the Treasury Department. Williams earned a base salary of $676,000 last year, plus a retention award of $260,000.
Fannie Mae and Freddie Mac provide vital liquidity to the mortgage industry by purchasing home loans from lenders and selling them to investors. Together, they own or guarantee almost 31 million home loans worth about $5.5 trillion. That’s about half of all mortgages.