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GSE Leaders Address Bonuses, Profits Before Congress

The government-sponsored enterprises are making headlines, with ""Fannie Mae's"":www.fanniemae.com/ CEO appearing before Congress to address the entity's possible profitability and ""Freddie Mac's"":www.freddiemac.com/ CEO providing testimony on the controversial executive bonuses within the organization. Both leaders spoke to the ""House Committee on Oversight and Government Reform"":oversight.house.gov/ to field questions regarding various aspects of Fannie and Freddie's practices and financial standing.


Fannie's CEO, Michael Williams, spoke out about the GSE's successful loss mitigation initiatives stemming from mortgage loans made during the crisis, and Williams stated that finding the right people to fill roles within its the corporate structure of Fannie could put the organization on tract to turn a profit.

Citing the moderation in Fannie's portfolio of distressed loans and the increase in quality loans the GSE has added since 2009, Williams emphasized the positive direction of Fannie's balance sheet, but Williams' commentary isn't bolstered by the enterprise's third-quarter numbers which show a loss of around $5.1 billion, while calling on the government to provide nearly $7.8 billion in funding for Fannie.

Williams went on to add that new business standards may help pave the way for Fannie's ultimate profitability, saying, ""For


example, we are developing new tools and standards to ensure greater visibility into the quality of the loans that are delivered into the secondary market. This loan quality initiative will reduce the risk for the lender, the investor, the borrower, and ultimately the taxpayer.""

Freddie's CEO, Ed Haldeman's prepared testimony indicates statements that are comparable to many of those Williams made, and in particular, both men expressed concerns about bonus limitations hindering the ability of the GSEs to hire of strong employees. Haldeman plans to stand behind competitive salary and bonus structures within the enterprises, and he will likely point to the 40 percent cut in compensation for the top 10 percent of Freddie's management since 2008 to the Congressional committee.

Haldeman's speech will include the concerns of the ""Federal Housing Finance Agency"":www.fhfa.gov/ and the ""U.S. Department of the Treasury"":www.treasury.gov/ over hiring experienced personnel to take over Freddie's leadership following his own departure in the next 12 months. In prepared documents, Haldeman elaborated on the issues raised by the FHFA and Treasury, saying, ""They emphasized that it was absolutely critical that we keep the machinery of the company running smoothly in order to support the recovery of the mortgage market and the national economy.""

His appearance before the House comes on the heels of a 52 to 4 vote by the House Financial Services Committee to suspend bonus programs for the top executives within Fannie and Freddie. Haldeman's statements to Congress will go against the recent decision, noting in pre-testimony papers, ""It was clear that if Freddie Mac suffered an exodus of our most highly experienced and talented employees, our ability to fulfill our top two objectives under conservatorship - making sure mortgage funds remained available and helping financially stressed families avoid foreclosure - would be greatly hindered.""

About Author: Abby Gregory


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