Why are top executives at government-backed mortgage giants Fannie Mae and Freddie Mac getting millions in bonuses while struggling homeowners get little or no help?
I've written before about the need for principal reduction to help homeowners fighting to keep their homes. Not only would this aid millions of Americans caught in difficult circumstances they didn't create, it would shore up the weak housing market and boost the whole economy. I'm hardly alone: a large collection of financial experts and officials, including California Attorney General Kamala Harris and a large group of members of Congress have called for principal reduction.
Fannie and Freddie -- bailed out by taxpayers to the tune of $169 billion -- back a large percentage of those troubled mortgages and would need to sign off. But the federal agency that oversees them, the Federal Housing Finance Administration, has refused to go along.
This festering problem got renewed attention recently when the House Financial Services Committee approved a bill by a vote of 52 to 4 that would cap executive pay at Fannie and Freddie -- a rare bit of bipartisan agreement on Capitol Hill.
How big are the paychecks going to top Fannie and Freddie executives? Big. Really, really big. Since the agencies went into conservatorship, Fannie and Freddie's top six executives have received $35 million in compensation, including millions in bonuses, even as borrowers struggled to keep their homes and got no meaningful relief.
At the Financial Services Committee hearing, acting FHFA honcho Edward DeMarco stoutly defended both the seven-figure executive pay and his agency's refusal to recognize financial reality and write down the principal of troubled loans to values that are realistic. Amazingly, he did this just days after Fannie and Freddie asked for another $7.8 billion from taxpayers to cover last quarter's losses.
A message to Director Ed DeMarco: look out your window. This is exactly the sort of thing the Occupy Wall Street protesters are upset about, and they're right. That's why Kamala Harris recently called for DeMarco to "step aside" if he refuses to rethink his policies, saying, "It has become clear to me that the only way to keep distressed California homeowners in their homes is through meaningful principal reduction."
What Harris said applies in every state where recession-battered homeowners, many of whom owe more than they will ever be able to sell their homes for, are trying to keep a roof over their heads. We know what needs to be done, and FHFA should lead, follow, or at least get out of the way.
And, if only for PR purposes, they might want to rethink those salaries and bonuses before the full Congress does it for them.