The House Financial Services Committee will take up a bill next week intended to cap the salaries of the top officials at Fannie Mae and Freddie Mac at $255,000 annually, their current level.
The legislation was prompted by concerns that the Federal Housing Finance Agency, which oversees the mortgage buyers, soon may approve salaries as high as $7.2 million for the CEOs.
Rep. Ed Royce, R-Calif., the chief sponsor of the legislation, was prompted to introduce it after Freddie Mac said in its most recent filing to the Securities and Exchange Commission that the finance agency had said it "may not propose compensation for the CEO that is higher than the 25th percentile of the market, using the agreed-upon comparator group for FHFA evaluation of compensation of Freddie Mac's executive officers."
The executives currently receive an estimated $600,000 annually in compensation. Raising that to the 25th percentile would put their compensation packages at about $7.2 million annually, based on current CEO pay levels. Royce's legislation, dubbed the Equity In Government Compensation Act, is set to be marked up by the committee on Thursday.
"Congress needs to put a stop to the planned multi-million dollar paydays at Fannie Mae and Freddie Mac. Holding compensation packages at taxpayer-backed organizations to responsible limits is in the interest of the public trust," Royce said.
A spokesman for Freddie Mac declined to comment. A representative for Fannie Mae did not respond to a request for comment.
The CEOs of Fannie Mae and Freddie Mac are, respectively, Timothy Mayopoulos and Donald Layton. They have previously defended increasing executive pay compensation, saying it was necessary to attract and retain talented managers at the government-sponsored enterprises.
Fannie Mae and Freddie Mac purchase mortgages and resell them as securities. Though founded by the federal government, they were intended to function as private companies with the goal of making housing affordable for lower-income families. Their quasi-private status and the implicit government backing of their securities gives them an edge over their private-sector competitors.
That implicit backing became explicit in 2008 when the entities went bankrupt when the housing bubble burst, helping to spark the 2008 financial crisis and prompting a government bailout estimated at $187.5 billion. Defenders of the companies note that both eventually repaid the bailouts. The government actually netted an estimated $40 billion profit on loans to the agencies.
Royce argues that still doesn't justify the salaries.
"They are still in conservatorship. These are not private companies," said Royce spokesman Saat Alety. "They may have paid back the taxpayers for the bailouts, but not for the broader damage they caused to the economy."
The legislation has four other co-sponsors, all Republicans. Alety conceded that getting Democratic support would be difficult as most of them are ardent supporters of the two institutions. Still, he noted that liberals have made excessive CEO pay a major cause. Rep. Maxine Waters, D-Calif., ranking Democrat on the committee, voted in favor of a measure capping the GSE officials' salaries to their current levels in 2011.
A Treasury Department spokesman told The Wall Street Journal earlier this month that it "does not support FHFA's new approach to CEO compensation at Fannie Mae and Freddie Mac and urged the agency to reject any increase." However, the spokesman also said that "FHFA ultimately has sole authority over executive compensation at both enterprises."
FHFA's director is Mel Watt, formerly a Democratic congressman from North Carolina. He was nominated to the position by President Obama and confirmed by the Senate in 2013.