‘Government Sponsored Moguls:’ Fannie Mae and Freddie Mac

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By on November 17, 2011 in Current Events with 0 Comments

A new report issued by the House Committee on Oversight and Government Reform argues that it is time to cut off Fannie Mae and Freddie Mac from their government provided support for good.

“While taxpayers are saddled with billions in losses, executives at Fannie Mae and Freddie Mac are being rewarded with millions for their efforts to pursue public policy goals of the Obama administration,” said House Oversight Committee Chairman Darrell Issa.  “This report examines and explains fundamental criticisms of executive compensation decisions for Fannie Mae and Freddie Mac – decisions made under an administration that excoriates private companies for big bonuses on the backs of taxpayers but looks the other way when our own federal entities heap cash on their executives for a job left undone.”

The report begins with some brief history on the two entities. It notes that Fannie Mae was initially created as a government agency in 1934 but was then privatized as a “government sponsored enterprise” in 1968 with Freddie Mac following in 1970.

With the implicit backing of the government, the two government sponsored enterprises began to dominate the secondary mortgage market, with borrowers lining up to get mortgages under lower underwriting standards, created by pressure from the federal government to make risker loans, which in turn created a housing bubble as borrowers took on the riskier mortgages.

When the bubble burst, Fannie and Freddie were holding the bad loans and lost billion, ultimately having to be bailed out with taxpayer sponsored government funds which made the two enterprises into “de facto government entities.”

Since this time, the report notes that lavish payment packages have been given to Fannie and Freddie senior executives at the expense of the taxpayer. In 2009 and 2010, the top six officers were given upwards of $35 million in compensation.

According to the report, “Executive pay and bonuses at Freddie and Fannie appear to be just a continuation of the business-as-usual practices that governed them in previous years, even though the entity is now controlled by the federal government. Rather than coming under more oversight and accountability because of its government-owned status, Fannie and Freddie executives are actually benefitting from this unique status and are continuing to profit on the backs of the American taxpayers.”

The report’s conclusion? It is “imperative for Congress to wean Fannie and Freddie off the government payrolls for good.”

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Ian Smith is one of the co-founders of FedSmith.com. He enjoys writing about current topics that affect the federal workforce.