The resignation of Fannie Mae CEO Michael Williams on Tuesday brings to the surface a fundamental problem: The federal government's housing policy is in chaos. The confusion over how to fix the housing market and what to do with the mortgage giant, is so deep, some industry observers wonder who would even possibly want to step into Williams' shoes.
Williams' departure comes roughly three months after that of Freddie Mac CEO Charles E. Haldeman Jr. and raises questions about the future of the two mortgage giants, which collectively guarantee more than 70 percent of U.S. real estate loans, according to third quarter filings from the companies.
"These can be difficult jobs to recruit into because it's unclear what, at this point, the position is," said David Stevens, president of the Mortgage Bankers Association. "Are you looking for a wind-down expert? Someone who can bring the company to profitability? A finance expert who can manage a very complex financial portfolio?"
Lawmakers criticized Williams and Halderman last fall when they testified before Congress that they each received a compensation package of more than $1 million in 2009. The compensation had been approved by the boards of both companies and the federal regulator who oversees the mortgage giants. Williams also testified that he was slated to receive a base salary of $900,000 in 2011 plus a combination of deferred and bonus pay that could be worth as much as $6 million.
Frustrated that the same companies that cost taxpayers $151 billion were also offering seven-figure compensation packages, House lawmakers overwhelmingly passed a bill to place the executives on pay scales like those at federal agencies, in turn reducing not only the compensation offered to top executives but also that of many lower-ranking employees.
The reduction could prove problematic in securing new executives, Stevens said. "If the position continues to offer a seven-figure compensation plan, you can draw the expertise of a senior executive. But if it becomes a lower-level, more administrative job, with a smaller compensation package, you're looking at recruiting an academic or a former government official or someone who is altruistic and wants to help Fannie through the process, something more like a government service position."
Fannie and Freddie, along with the Federal Housing Administration, serve as the primary sources of financing for new mortgage loans. Given the high rate of American unemployment, most lenders aren't providing mortgage loans on any scale. In contrast, Fannie, Freddie and the FHA are continuing to insure loans because the agencies have explicit government backing and thus know that the government will cover any losses created by a borrower who falls behind on a mortgage.
In addition to supporting the creation of new mortgages, the agencies sit at the center of the Obama administration's housing assistance programs, which provide services such as loan modifications and refinances, and therefore play a critical role in assisting delinquent borrowers in keeping their homes.
In February 2011, the Obama administration released plans to wind down the two companies, which in 2008 had come under government control as a result of financial problems. In December, Congress voted instead to use revenues from the two behemoths to fund the payroll tax, in effect insuring the companies' survival at least a little longer.
While the companies' collective future hangs in the balance, so does U.S. housing policy in general. Last week, the Federal Reserve released a white paper emphasizing the importance of the housing sector to an overall economic recovery. Though the Fed usually doesn't comment on the subject of housing, the paper identified possible ways to aid the struggling market and and drew supportive comments from three top Fed officials. In response, Sens. Orin Hatch (R-Utah) and Bob Corker (R-Tenn.) spoke out against the Fed, with Corker, claiming it "absolutely egregious" that the Fed would even suggest such remedies which, in Corker's opinion, would result in a "substantial cost to American taxpayers and responsible borrowers everywhere."
The debate over the Fed's white paper is like that over housing policy in general, with elected officials disagreeing over what, if anything, should be done to help struggling homeowners and how. The lack of a cohesive American housing policy is sure to be exacerbated by the loss of leadership at Fannie Mae and Freddie Mac, two agencies whose sheer size and role in the market make them integral to any recovery.