Fannie Mae and Freddie Mac to pay $210 million in bonuses

Employees at government-controlled Fannie Mae and Freddie Mac are slated to collect $210 million in bonuses between 2008 and 2010, in part to keep them from leaving.

James B. Lockhart III, director of the Federal Housing Finance Agency, outlined the bonuses in a letter to Sen. Charles Grassley, a Republican from Iowa who sits on the Senate Finance Committee.

Lockhart said in the letter that the bonus plan was developed with the help of an outside consultant. He said it was designed to keep key employees -- without rewarding poor performance - and to attract new employees to fill vacancies.

With the financial services industry laying off tens of thousands of people and the national unemployment rate at a 25-year high, critics are asking where Fannie Mae and Freddie Mac think that workers who leave their ranks could find jobs.

Fannie Mae and Freddie Mac, which provide financing for the mortgage industry, were placed under federal conservatorship last year to prevent their collapse. The government has allocated $100 billion for each of those organizations.

"It's hard to see any common sense in management decisions that award hundreds of millions in bonuses when their organizations lost more than $100 billion in a year,'' Grassley said in a prepared statement.  "It's an insult that the bonuses were made with an infusion of cash from taxpayers."

A similar bonus plan, at American International Group Inc., sparked outrage last month. That company, which is now owned largely by the federal government, paid out more than $160 million in bonuses, with 73 employees getting $1 million or more each.

The Treasury Department and the Federal Reserve intervened last year to rescue the struggling insurance and investment company, and has provided more than $182 billion in federal aid.

Fannie Mae paid $33.5 million in bonuses last year, Lockhart said in his letter. It is slated to pay an additional $71.9 million in bonuses this year, and $7.2 million in 2010, he said.

Freddie Mac paid $17.3 million bonuses last year, and is slated to pay an additional $74.5 million this year and $5.8 million in 2010.

The most any individual would receive in bonuses from 2008 to 2010 would be $1.5 million, Lockhart said.

In his letter to Grassley, Lockhart noted that the collapse in the value of Fannie Mae and Freddie Mac stock had all but wiped out years of savings for many employees.

He added that the declines had destroyed the value of previously awarded stock grants that will vest in the future, limiting their value as a retention tool.

Lockhart also noted that, for senior executives, salary represented only one-tenth to one-third of expected income, with bonuses and other incentive awards accounting for the rest.