Fannie Mae and Freddie Mac, the quasi-public mortgage giants, have come a long way since they had to be bailed out by the taxpayers in the real estate crash — so far in fact that their chief operating officers can now have $3.4 million raises.
Welcome to the way the government works.
First, the Congress encourages a policy of lending that is based on the theory that every American deserves to own a house. You know … like a chicken in every pot. To reap the political benefits of this, they encourage Fannie and Freddie to be quite liberal in their approval of loans no matter how unworthy the applicant.
Second, some congressional critics voiced their disapproval of the two institutions because their stock record was among the best and they operated pretty much as private concerns outside of government control despite their federal charters. These geniuses begin carping at the way the system works, bringing pressure counterproductive to letting some air out of the dangerously overinflated housing balloon.
This theory of the right to own a home was based on the belief that one could pay nearly anything for a house and receive instant gratification. The amount one paid meant nothing when one could flip the property a year later for a nice profit. Why it was almost a sure bet. Until it wasn’t.
Suddenly the nation’s financial institutions awoke from the euphoria and found that huge number of Americans not only couldn’t pay their mortgages, the property they owned was below the water line. More was owed than it was worth. The big banks and mortgage institutions were stuck with billions upon billions of losses. There was nothing to do but for the taxpayers — i.e., the U.S. Treasury — to bail them out.
The rest, of course, is history. That’s an oversimplification of the entire mess, but not much of one. Greed probably was the main problem. Actually, since the rescue of Fannie and Freddie, the two behemoths have not only paid back the amount of the bailout but billions above and beyond that.
Now here’s the rub. The federal reorganization, if that is what it can be called, of Fannie and Freddie was chaotic, hanging out to dry talented top flight employees who had nothing to do with what got the two companies into trouble, and turning the stock in which huge numbers of Americans had invested into wallpaper.
In the interest of full disclosure, my daughter — a former Fannie employee who had bought her employer’s stock in good faith during her years there — lost almost half a million dollars, earmarked for the education of her children. It was, needless say, an enormous trauma.
Meanwhile, so many Fannie and Freddie “saviors” came and went from the executive suites it was difficult to tell who was in charge. I knew a specialist at Freddie who was asked to stay and was given a large bonus incentive to do so by his superior. A month or two after receiving the bonus, a new man appeared and said his services were being terminated but he would receive a year’s salary. It would be difficult to estimate the cost of that move or dozens like it as the bureaucrats floundered around trying to get things right.
They ultimately succeeded and now the current choices to run the big institutions are going to reap the benefits. The Federal Housing Finance Agency voted to raise the limit of compensation for the Fannie and Freddie CEOs to $4 million each. This includes a base salary of $750,000, deferred salary of $2.05 million and deferred salary based on performance of another $1.2 million.
And what about the stock still in the hands of thousands of the companies’ pre-crash shareholders? My daughter just shrugs the whole thing off, saying she should have diversified more. But there are continuing efforts to force a readjustment of the old shares, to restore their value. Was the Federal Housing Finance Agency given too much authority, and does the Constitution allow what many see as a disenfranchisement of the shareholders?
The Treasury has reaped the benefits of a much improved housing market and new loan policies to prevent a recurrence. At the same time, should the government not do something for all those who didn’t think they were taking a chance when they bought into Fannie Mae or Freddie Mac in good faith? Or should that be just considered their tough luck?
©2015 Tribune Content Agency, LLC