WASHINGTON — Mortgage giant Fannie Mae's chief executive and a top government regulator warned Friday that canceling bonuses for workers at institutions receiving federal bailout money could undermine efforts to stabilize the U.S. housing market.
Herbert Allison, who was installed by government regulators as CEO of the Washington-based company last fall, sent a companywide e-mail Friday defending Fannie Mae's bonus program for thousands of workers.
"I am deeply concerned that eliminating our retention plan would jeopardize our ability to fulfill the mission the government has given us to address the housing crisis," he wrote, citing President Barack Obama's plan to prevent up to 9 million foreclosures.
The awards for roughly 9,000 workers at Fannie and sibling company Freddie Mac, enacted shortly after their federal takeover last fall, initially ruffled few feathers. But now the generous paychecks are proving politically touchy as lawmakers and the public seethe over roughly $165 million in bonuses paid out last weekend by bailed-out insurance giant American International Group.
Allison, who is not receiving a salary as CEO, wrote that the bonuses _ including at least $1 million each to four top executives _ were needed to "ensure we maintain the skills and experience we need to help keep the mortgage market operating."
Employees, he wrote, "deserve tremendous credit for staying here and demonstrating unswerving dedication to the public interest despite" uncertainty about the company's long-term future and the stock awards that have become worthless.
But Rep. Barney Frank, chairman of the House Financial Services Committee, urged the government to cancel the retention bonuses.
The Massachusetts Democrat asked the Federal Housing Finance Agency, which regulates both firms, to eliminate the bonuses approved for this year and next. Frank also wants employees to repay bonuses from last fall, after the two companies were placed under government control.
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," Frank wrote in the letter dated Thursday and released by his office Friday.
The government seized control of the companies in September and installed new chief executives. After the takeover, regulators designed a bonus program designed to encourage workers to stay at their jobs.
"Many employees at all levels at each company have been working far more hours, with far less compensation," James Lockhart, director of the housing agency, wrote Friday in a letter to Frank. "We run a great risk of these same employees deciding this is the last straw and walking away."
More than 5,000 Fannie Mae employees are receiving retention payments over 18 months, with an average of $21,000 per employee, Lockhart wrote. At Freddie Mac, about 4,000 workers are getting an average of $19,000 in payments.
Fannie Mae disclosed last month that four top executives will receive retention bonuses totaling at least $1 million apiece. Freddie Mac has yet to detail which executives will benefit.
The two companies have been hobbled by skyrocketing loan defaults. Fannie Mae recently requested $15 billion in federal aid, while Freddie Mac has sought a total of almost $45 billion.
But Frank cast doubt on that argument. "In this troubled economy, and in this job market, it is difficult to imagine that the companies would not be able to find competent and talented replacements for anyone who chooses to leave," he said.
House lawmakers on Thursday voted decisively to impose a 90 percent tax on millions of dollars in employee bonuses paid by AIG and other bailed-out companies. But Senate Republicans are applying the brakes, arguing that Democrats were letting populist outrage trump informed decision making in the Senate.