BLOG VIEW: At what point did the Federal Housing Finance Agency (FHFA) make the transition from being merely inefficient to being blatantly incompetent? And will it be possible to stop the FHFA before it makes the transition from being blatantly incompetent to being a complete catastrophe?
In all fairness, the FHFA may be a mess, but at least it is a transparent mess: It recently openly acknowledged that the heads of Fannie Mae and Freddie Mac were paid a total of $17.1 million during the past two years. Even worse, the top six executives at the government-sponsored enterprises (GSEs) were paid a total of $35.4 million over the past two years.
And in case you forgot how much profit Fannie Mae and Freddie Mac generated since they've been in conservatorship, I will remind you: zero dollars.
In comparison to the GSE chiefs, President Obama has an annual salary of $400,000. If you are wondering why the leadership of Fannie Mae and Freddie Mac are receiving higher salaries than our nation's head of state, it is because the FHFA never bothered to create written procedures to evaluate annual executive compensation levels.
One might imagine that someone in the FHFA could have taken a few minutes to at least create a rough draft of these procedures. After all, the GSEs have been under federal control since fall 2008. However, there are other financial matters that preoccupied the FHFA's accounts-payable department – most notably, paying the legal bills for the former GSE executives who are the subject of multiple lawsuits.
In January, Rep. Randy Neugebauer, R-Texas, chairman of the oversight subcommittee of the House Financial Services Committee, publicized the sorry fact that $410.7 million in taxpayer money was spent on legal expenses incurred by Fannie Mae and Freddie Mac since they were put into conservatorship. This figure includes $162.4 million spent on securities-related lawsuits and indemnification agreements for former executives of Fannie Mae and Freddie Mac.
Okay, now why is the FHFA footing the legal fees for the former executives who were responsible for running the GSEs off the road? Edward J. DeMarco, acting director of the FHFA, told The New York Times that he felt that ‘the advancement of such fees is in the best interest of the conservatorship.’
For the record, an ‘acting’ director has overseen FHFA operations since August 2009. President Obama never got around to nominating a genuine director until November 2010, but his choice – North Carolina Commissioner of the Banks Joseph A. Smith Jr.- never received Senate confirmation and withdrew his candidacy in January. Three months after the Smith departure, the director's chair is still vacant and there is no signal that a replacement will be named in the immediate future.
With all of the talk in Washington about cutting federally funded waste, it would seem that the FHFA is ripe for the chopping block. Clearly, the FHFA is continuing the example of its predecessor agency, the Office of Federal Housing Enterprise Oversight, in being completely incapable of getting a handle on the Fannie and Freddie fiasco.
My advice is fairly simple: Shut down the FHFA immediately and transfer the regulatory oversight of Fannie Mae and Freddie Mac to the Office of the Comptroller of the Currency (OCC). This is not being suggested as a tribute to the OCC's history of perspicacity and hands-on leadership – for starters, an ‘acting’ director is also overseeing that agency. But until such time that the fate of Fannie and Freddie is determined, I have more confidence in the OCC at the helm than I have in the FHFA.
As for the other GSE that is under the FHFA's watch, the Federal Home Loan Banks, I would transfer the regulatory responsibility over to the Federal Reserve – if only to spare the OCC from having too much work (it also inherited the workload of another failed regulator, the Office of Thrift Supervision).
And while these changes are going on, I would urge Congress to put Fannie Mae and Freddie Mac back into the federal budget, which would enable proper oversight of their funding and operations.
As an aside, I find it fascinating that the Consumer Financial Protection Bureau's Elizabeth Warren has yet to raise a peep about this situation. After all, U.S. taxpayers are being ripped off by a broken housing finance system that is running up billions in losses while enriching the bank accounts of a select few. Or does Warren feel that corruption is excusable when it occurs outside of the private sector?
– Phil Hall, editor, Secondary Marketing Executive
(Please address all comments regarding this opinion column to hallp@sme-online.com.)
