Yesterday, Treasury Secretary Geithner received a letter from House Republicans demanding the restructuring of Fannie Mae and Freddie Mac. The letter criticizes the Treasury Department’s recent decision to uncap the federal credit lines made available to both institutions, which was initially set at $200 billion each and of which a total of $110 billion has already been extended. The letter asserts that “[a]warding millions of dollars in bonuses on the taxpayers’ dime is unconscionable.” The letter also expresses outrage with respect to the Treasury Department and the FHFA’s recent approval of large compensation packages that permit the chief executive officers of the GSEs to receive as much as $6 million each, with other senior executives to receive separately millions in bonus compensation. The letter, which was drafted by Jeb Hensarling (R-TX), was signed by approximately 70 Republican congressmen, including Minority Leader John A. Boehner (R-OH), Republican Conference Chairman Mike Pence (R-ID) and Spencer Bachus (R-AL).
In September 2008, the FHFA placed the GSEs into conservatorship fearing that their deterioration would harm U.S. financial stability. Together the GSEs own or guarantee two-fifth of all U.S. mortgages. The two institutions which are backed by the government, are shielded from the executive compensation restrictions that apply to recipients under the Troubled Asset Relief Program. The letter concludes by urging Secretary Geithner to provide “justification for approving” the compensation packages and his plans to reform the GSEs which “now pose a unlimited risk to the American taxpayer.”
The Senate is presently working on its version of the House financial regulatory bill (H.R. 4173) that was passed in December. Neither piece of draft legislation addresses, nor are they currently expected to address, the restructuring of Fannie Mae or Freddie Mac.