Editor’s note: This article previously misreported the executive who received the award, as well as the timeframe for that executive’s departure.
Last March, then-Federal Housing Finance Agency Director Mark Calabria wanted to pay a Fannie Mae executive a $250,000 “bonus,” under the guise of a retention award.
Fannie Mae went along with the award, according to a FHFA Inspector General report, although the amount the enterprise originally proposed for the award was smaller. According to the report, the award was for retention in “name only.” Federal law bars bonuses to GSE executives while they are under conservatorship.
As rationale for the award, the investigation said Calabria pointed to the disparity between the Fannie Mae executive’s pay and that of his counterpart at Freddie Mac. The former FHFA director also cited the executive’s “candor and willingness to carry out policy direction” from FHFA, which he said he “found to be uncommon among Enterprise executives.”
A spokesperson for Fannie Mae referred questions on the report to FHFA. A spokesperson for FHFA declined to comment on the report. Calabria did not return a request to comment.
Around March 2021, Calabria asked Fannie Mae CEO Hugh Frater to “do something extra” and come up with a “special bonus” for the executive, the inspector general report found. Initially, Frater resisted the direction, especially since Fannie Mae planned to give the executive additional duties and a concomitant increase in compensation.
But FHFA insisted, and by May, Fannie Mae came up with a plan to give the executive $100,000 as a retention award. FHFA directed Fannie Mae to increase the award to $250,000, because Calabria found Fannie Mae’s proposal “inadequate in light of other compensation requests proposed by the enterprises,” the report said.
In a letter to FHFA Acting Inspector General Phyllis Fong, responding to the findings, FHFA Acting Director Sandra Thompson said FHFA directed Fannie Mae to not disburse the payment.
“It is of the utmost importance that [FHFA’s] decisions are made consistent with applicable laws and regulations and are documented in a manner that meets the requirements of the Federal Records Act and FHFA policy,” wrote Thompson, in a letter agreeing with the watchdog’s recommendations.
The FHFA will also look into whether the payment would have been a violation of the STOCK Act, a 2012 law prohibiting bonuses for GSE senior executives while the enterprise is in conservatorship.
FHFA does allow Fannie Mae to award retention bonuses. But former Fannie Mae officials, who requested anonymity in order to speak freely, found the proposed award detailed in the IG report “nonsensical.”
The proposed bonus for past performance was not like any retention award former Fannie Mae officials had received, they told HousingWire.
One former official said that, in years past, retention awards were commonplace at Fannie Mae. The official had received a retention award conditioned on staying at the enterprise for two years.
But that award was clearly geared toward retention, the official said. If the official instead decided to leave during the second year, they would have to return the cash.
“So you were really handcuffed,” the person said.
The watchdog report was heavily redacted to conceal the name and title of the executive.The award followed a string of executive exits at Fannie Mae during the second half of 2020 and into 2021, including Fannie Mae’s head of single family, Andrew Bon Salle, and Fannie Mae’s chief customer officer, Desmond Smith.
Limits on executive compensation at Fannie Mae and Freddie Mac have long posed a challenge for retaining talented executives. In June 2021, just weeks before Biden removed Calabria and installed Thompson as acting director, the FHFA said it intended to review compensation at the GSEs.
“Compensation policies must balance the need for FHFA’s regulated entities to attract and retain talent while focusing on and fulfilling their core mission responsibilities,” said Calabria. “This review will be done in a way that emphasizes safety and soundness, protects taxpayers, and enhances financial stability in the housing system.”