Fannie Mae: Was it just enrichment?
House Financial Services Committee chairman Richard H. Baker has called for Fannie Mae’s executives to return any bonuses received since 2001:that were based on faulty bookkeeping, a congressional overseer of the housing finance company has told its regulator. “I request your office take action to recapture all bonus payments from executives that were awarded based upon the faulty and deeply flawed earnings statements of the enterprise,” Rep. Richard H. Baker (R-La.), chairman of the House Financial Services subcommittee that monitors government-chartered Fannie Mae, wrote in a Dec. 16 letter to Armando Falcon Jr., director of the Office of Federal Housing Enterprise Oversight.
The issue will apply not just to past bonuses but also future compensation and whether the COO and CFO resigned or were fired, a decision that involves not just Fannie Mae but its regulator, OFHEO:
Spokesmen for the regulator have said the agency is reviewing the termination packages of Raines and Howard “and should it be determined that they have been unjustly enriched, we have enforcement tools at our disposal to seek recovery.”
While this splashy focus on executive compensation is understandable — unjust enrichment is a well established doctrine, and big pay packets are readily comprehensible and personalize the issues into handy political sound bites — it is fundamentally a sideshow. The real issues are, as they always have been:
- Do
US - Given the moral hazard and implicit Federal guarantees, are the GSEs safely and soundly run?
These issues are much tougher, and not everyone is entitled to an opinion. Chairman Baker is, and it seems clear he has his eye on the big picture:
“Moving forward, I hope Fannie’s board will take a long hard look at changing the corporate culture to one that makes a greater effort at managing financial risk than it does at fighting political risk. It’s up to the board to find a management team at Fannie that believes it serves shareholders, homebuyers, and taxpayers better to have more CPAs on staff than lobbyists, and a management team that can be trusted as a real partner in regulatory reform.”
