[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]





PAY FOR PERFORMANCE: SHOULD FANNIE AND FREDDIE EXECUTIVES BE RECEIVING 
                          MILLIONS IN BONUSES?

=======================================================================

                                HEARING

                               before the

                         COMMITTEE ON OVERSIGHT
                         AND GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

                           NOVEMBER 16, 2011

                               __________

                           Serial No. 112-94

                               __________

Printed for the use of the Committee on Oversight and Government Reform









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                      http://www.house.gov/reform


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              COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

                 DARRELL E. ISSA, California, Chairman
DAN BURTON, Indiana                  ELIJAH E. CUMMINGS, Maryland, 
JOHN L. MICA, Florida                    Ranking Minority Member
TODD RUSSELL PLATTS, Pennsylvania    EDOLPHUS TOWNS, New York
MICHAEL R. TURNER, Ohio              CAROLYN B. MALONEY, New York
PATRICK T. McHENRY, North Carolina   ELEANOR HOLMES NORTON, District of 
JIM JORDAN, Ohio                         Columbia
JASON CHAFFETZ, Utah                 DENNIS J. KUCINICH, Ohio
CONNIE MACK, Florida                 JOHN F. TIERNEY, Massachusetts
TIM WALBERG, Michigan                WM. LACY CLAY, Missouri
JAMES LANKFORD, Oklahoma             STEPHEN F. LYNCH, Massachusetts
JUSTIN AMASH, Michigan               JIM COOPER, Tennessee
ANN MARIE BUERKLE, New York          GERALD E. CONNOLLY, Virginia
PAUL A. GOSAR, Arizona               MIKE QUIGLEY, Illinois
RAUL R. LABRADOR, Idaho              DANNY K. DAVIS, Illinois
PATRICK MEEHAN, Pennsylvania         BRUCE L. BRALEY, Iowa
SCOTT DesJARLAIS, Tennessee          PETER WELCH, Vermont
JOE WALSH, Illinois                  JOHN A. YARMUTH, Kentucky
TREY GOWDY, South Carolina           CHRISTOPHER S. MURPHY, Connecticut
DENNIS A. ROSS, Florida              JACKIE SPEIER, California
FRANK C. GUINTA, New Hampshire
BLAKE FARENTHOLD, Texas
MIKE KELLY, Pennsylvania

                   Lawrence J. Brady, Staff Director
                John D. Cuaderes, Deputy Staff Director
                     Robert Borden, General Counsel
                       Linda A. Good, Chief Clerk
                 David Rapallo, Minority Staff Director











                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on November 16, 2011................................     1
Statement of:
    Williams, Michael J., president and chief executive officer, 
      Fannie Mae; Charles E. ``Ed'' Haldeman, Jr., chief 
      executive officer, Freddie Mac; and Edward J. DeMarco, 
      Acting Director, Federal Housing Finance Agency............     9
        DeMarco, Edward J........................................    28
        Haldeman, Charles E. ``Ed'', Jr..........................    17
        Williams, Michael J......................................     9
Letters, statements, etc., submitted for the record by:
    Cummings, Hon. Elijah E., a Representative in Congress from 
      the State of Maryland, prepared statement of...............     7
    DeMarco, Edward J., Acting Director, Federal Housing Finance 
      Agency, prepared statement of..............................    30
    Haldeman, Charles E. ``Ed'', Jr., chief executive officer, 
      Freddie Mac, prepared statement of.........................    19
    Issa, Chairman Darrell E., a Representative in Congress from 
      the State of California:
        Association of Corporate Counsels study..................    70
        Bloomberg News article...................................    42
        Committee report.........................................    46
        H.R. 3221................................................    66
        Information concerning salaries..........................    40
        Prepared statement of....................................     4
    McHenry, Hon. Patrick T., a Representative in Congress from 
      the State of North Carolina, Politico article dated August 
      31st.......................................................   108
    Williams, Michael J., president and chief executive officer, 
      Fannie Mae, prepared statement of..........................    11

 
PAY FOR PERFORMANCE: SHOULD FANNIE AND FREDDIE EXECUTIVES BE RECEIVING 
                          MILLIONS IN BONUSES?

                              ----------                              


                      WEDNESDAY, NOVEMBER 16, 2011

                          House of Representatives,
              Committee on Oversight and Government Reform,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 10 a.m., in room 
2154, Rayburn House Office Building, Hon. Darrell E. Issa 
(chairman of the committee) presiding.
    Present: Representatives Issa, Burton, Mica, Platts, 
McHenry, Walberg, Lankford, Amash, Buerkle, DesJarlais, Guinta, 
Farenthold, Cummings, Towns, Maloney, Norton, Kucinich, 
Tierney, Clay, Connolly, Quigley, Davis, Welch, Murphy, and 
Speier.
    Staff present: Alexia Ardolina, staff assistant; Kurt 
Bardella, senior policy advisor; Michael R. Bebeau and Gwen 
D'Luzansky, assistant clerks; Robert Borden, general counsel; 
Molly Boyl, parliamentarian; Lawrence J. Brady, staff director; 
David Brewer, counsel; Katelyn E. Christ, research analyst; 
John Cuaderes, deputy staff director; Adam P. Fromm, director 
of Member services and floor operations; Linda Good, chief 
clerk; Ryan M. Hambleton, professional staff member; Frederick 
Hill, director of communications and senior policy advisor; 
Christopher Hixon, deputy chief counsel, oversight; Mark D. 
Marin, director of oversight; Rebecca Watkins, press secretary; 
Peter Warren, legislative policy director; Jeff Wease, deputy 
CIO; Kevin Corbin, minority deputy clerk; Ashley Etienne, 
minority director of communications; Jennifer Hoffman, minority 
press secretary; Carla Hultberg, minority chief clerk; Paul 
Kincaid, minority press secretary; Adam Koshkin, minority staff 
assistant; Lucinda Lessley, minority policy director; Leah 
Perry, minority chief oversight counsel; and Dave Rapallo, 
minority staff director.
    Chairman Issa. Good morning. The committee will come to 
order.
    The Oversight Committee's mission statement is that we 
exist to secure two fundamental principles: first, Americans 
have a right to know the money Washington takes from them is 
well spent; and, second, Americans deserve an efficient, 
effective Government that works for them. Our duty on the 
Oversight and Government Reform Committee is to protect these 
rights.
    Our solemn responsibility is to hold Government accountable 
to taxpayers, because taxpayers have a right to know what they 
get from the Government. We will work tirelessly in partnership 
with citizen watchdogs to deliver the facts to the American 
people and bring genuine reform to the Federal bureaucracy. 
This is our mission statement.
    Go ahead and roll the President.
    [Videotape played.]
    Chairman Issa. I now recognize myself for an opening 
statement.
    In March 2009, reports revealed that after receiving $170 
billion taxpayer-funded bailout, AIG executives had awarded 
$121 million in bonuses to top executives. As we have just 
seen, President Obama called this obscene and shameful. He 
believed the taxpayers should be paid back in full before 
millions of dollars in bonuses were paid out.
    Freddie and Fannie have become de facto arms of the 
Government and have received $169 billion from the Treasury 
Department. To this day, they still owe approximately $141 
billion. Despite this outstanding balance, Freddie and Fannie's 
top six executives received $35 million in compensation. Of 
that, $12.79 million were bonuses awarded to Freddie and 
Fannie's top 10 executives. They have even gone as far as to 
pay someone a $1.7 million signing bonus. We certainly 
understand that signing bonus could be partially because they 
left compensation elsewhere, but we also understand that there 
are plenty of talented people looking for jobs off Wall Street 
here today.
    The signing bonus was given with no correlation to 
performance, but simply a recruiting tool financed by the 
American taxpayers. These bonuses have come just as Freddie and 
Fannie have asked for an additional $13 billion in handouts 
from the taxpayers. This as they reported a third quarter loss 
of more than $10 billion. So I think we all understand that we 
are not paying bonuses for profit.
    Bonuses, under current law, to be tax deductible, in excess 
of $1 million compensation, must be tied to performance. Our 
committee has asked for and received scant documents about 
performance required. None of the documents received to date 
would have qualified, when I was on the board of a public 
company, for a due diligence by the compensation committee. 
Vague assertions of what one needs to do that can be met simply 
because you were there does not pass the sniff test.
    We are here today to ask simple questions on behalf of the 
American taxpayers, who are footing the bill for Freddie and 
Fannie.
    Do you agree with President Obama's sentiments that bonuses 
should not be paid out to anyone until the American people have 
been paid back in full?
    Do you believe in the concept of pay for performance?
    Do you believe your performance warrants this type of 
bonus?
    Should you profit while the taxpayer is paying the bill?
    Are there any measurable standards to even evaluate the 
performance within the documents we have received or do you 
have other documents we have been denied pursuant to our 
request?
    Are you any closer to unwinding Freddie and Fannie than you 
were 3 years ago?
    Are these bonuses being awarded for the efforts to minimize 
losses to taxpayers or are they payouts to--I won't read the 
rest of that. Are they in fact payouts for other reasons? And 
if so, whose agenda are they on? Are they on the American 
taxpayers' agenda or are they political agendas that you are 
using taxpayer dollars to achieve?
    Let me make it clear. This committee believes that 2008 law 
requires you to minimize losses to the taxpayers. Business as 
usual of simply taking more money from the taxpayers or 
underwritten by the taxpayers fully and causing an agenda of 
getting more people into homes they cannot afford in fact has 
not been authorized by Congress.
    I now recognize the ranking member for his opening 
statement.
    [The prepared statement of Chairman Darrell E. Issa 
follows:]




    Mr. Cummings. Thank you very much, Mr. Chairman, for 
calling today's hearing and thank you for agreeing to my 
request to invite Mr. DeMarco. Mr. DeMarco and I have been 
engaged in a series of high level meetings over the past 
several months. Some of these meetings have been heated, but 
others have been very constructive. I appreciate his 
willingness to appear before us today and I look forward to our 
continuing discussions.
    Executive compensation is a worthwhile topic for this 
committee to address. In my opinion, we should examine not only 
the compensation of executives at Fannie Mae and Freddie Mac, 
but also at Wall Street firms that put the short-term financial 
interests of their executives ahead of the long-term interests 
of company shareholders and the public.
    In reviewing the compensation packages of Fannie Mae and 
Freddie Mac executives, we will have tough questions for our 
witnesses about how they can claim credit and receive bonuses 
for achieving performance goals they had nothing to do with, 
such as supposedly increasing affordability in a housing market 
that has been tanking for several years. More importantly, we 
will examine why FHFA, Fannie Mae, and Freddie Mac have done so 
little to fulfill the key goal of assisting homeowners in need.
    In 2008, Congress passed the Emergency Economic 
Stabilization Act and the President signed it on October 3, 
2008. The act states clearly that among other objectives, FHFA, 
Fannie Mae, and Freddie Mac shall implement a plan that seeks 
to maximize assistance to homeowners. Chairman Issa and I do 
not agree on much, but we do agree that, to date, efforts to 
assist homeowners have been woefully inadequate.
    The Home Affordable Modification Program, HAMP, was 
supposed to help up to 4 million homeowners modify their loans, 
but to date it has helped fewer than 800,000. The Home 
Affordable Refinance Program, HARP, was supposed to help up to 
5 million borrowers refinance at lower rates, but fewer than 
900,000 have refinanced to date.
    Where Chairman Issa and I part ways, however, is how we 
respond to this problem. The chairman and other Republicans, 
and even Republican Presidential candidates, believe we should 
stop assisting homeowners, abandon efforts to address the 
housing crisis, and allow millions of additional foreclosures 
so we can simply hit bottom.
    I come from a fundamentally different place. I believe that 
we must redouble our efforts. We need to buckle down and do the 
hard work necessary to develop solutions that will address this 
crisis effectively, comprehensively, efficiently, and 
definitively.
    It is too easy to throw up our hands and blame this entire 
crisis on individual homeowners who took out loans they could 
not afford. Those individuals are certainly out there, but 
there are many more who did absolutely nothing wrong; they paid 
their mortgages faithfully every month, but now they are under 
water through no fault of their own. They owe more on their 
houses than they are worth, and they cannot sell their homes 
and they cannot move to a new city for a new job. They are in 
limbo, along with our entire economy.
    The foreclosure crisis does not affect only the individual 
foreclosed upon; it reduces the value of homes across entire 
neighborhoods; it lowers taxes, tax revenues for whole 
municipalities, resulting in the loss of more jobs; it degrades 
multiple levels of commerce across the country; and it affects 
each and every one of us, whether we want to admit it or not.
    Addressing the housing crisis is the key to our economic 
recovery as a Nation. Mark Zandi, the chief economist at 
Moody's Analytics, agrees. He has stated that housing is ground 
zero for the economy's problems, high unemployment, and loss of 
jobs.
    As Federal Reserve Chairman Ben Bernanke recently 
testified, it will be almost impossible to resolve our economic 
situation when people are losing their homes at the rate they 
are losing them.
    Mr. Chairman, let me conclude by returning to the subject 
of today's hearing. In 2008, Congress and the President passed 
the law directing the FHFA, Fannie Mae, and Freddie Mac to 
maximize assistance to homeowners. This has not happened. I 
believe that we are mired in a culture of mediocrity, and 
nobody should be receiving million dollar bonuses by claiming 
it has.
    With that, Mr. Chairman, I yield back.
    [The prepared statement of Hon. Elijah E. Cummings 
follows:]




    Chairman Issa. I thank the gentleman.
    All Members will have 5 days to include their opening 
statements and additional extraneous remarks.
    We now recognize our first panel of witnesses. Mr. Michael 
J. Williams is president and chief executive officer of Fannie 
Mae; Mr. Charles E. Haldeman, Jr., is chief executive officer 
of Freddie Mac; and Mr. Edward DeMarco is Acting Director of 
the Federal Housing Finance Agency.
    Pursuant to the rules of the committee, I would ask you all 
to rise to take the oath. Please raise your right hands.
    [Witnesses sworn.]
    Chairman Issa. Let the record indicate all witnesses 
answered in the affirmative.
    Please be seated.
    I won't have the heaviest gavel in the world today, but I 
will tell you that when the green light comes on you go; yellow 
light goes on, try to summarize; and don't let the red be on 
too long before you conclude.
    With that, I recognize Mr. Williams for 5 minutes.

    STATEMENTS OF MICHAEL J. WILLIAMS, PRESIDENT AND CHIEF 
EXECUTIVE OFFICER, FANNIE MAE; CHARLES E. ``ED'' HALDEMAN, JR., 
 CHIEF EXECUTIVE OFFICER, FREDDIE MAC; AND EDWARD J. DEMARCO, 
        ACTING DIRECTOR, FEDERAL HOUSING FINANCE AGENCY

                STATEMENT OF MICHAEL J. WILLIAMS

    Mr. Williams. Chairman Issa, Ranking Minority Member 
Cummings, members of the committee, I appreciate the 
opportunity to speak with you today about the important work 
that Fannie Mae is undertaking and the compensation program 
that was put in place for this executive team.
    Fannie Mae has a dedicated team of talented professionals 
working to carry out the critical work that the company plays 
in the housing finance market. We have immense 
responsibilities. The complexity of the challenges we confront 
each day requires deep experience and expertise and seasoned 
leaders.
    The executive management team in place today is different 
than the team that ran the company prior to conservatorship. We 
are working to fix the company and achieve the goals of 
conservatorship. Our employees are committed to Fannie Mae's 
mission to provide funding to the market, help struggling 
homeowners, and reduce losses on loans originated prior to 
2009.
    Fannie Mae is the largest source of funding for the U.S. 
housing market. Since January 2009, with the support of the 
Federal Government, the company has provided more than $2 
trillion of funding to the market. The funding has enabled 
nearly 6 million households to refinance into safer, lower cost 
mortgages. We have helped approximately 1.7 million homeowners 
purchase a home and we have provided financing for nearly 1 
million units of quality affordable rental housing.
    Fannie Mae is also acquiring new loans with appropriately 
conservative underwriting standards to promote sustainable home 
ownership. The mortgages purchased or guaranteed since 2009 
have strong credit quality and are performing well. The new 
loans account for almost 50 percent of the loans owned or 
guaranteed by Fannie Mae. These will be a valuable asset that 
we expect will reduce taxpayers losses.
    Every day Fannie Mae employees work to mitigate losses on 
the company's 2005 through 2008 book of business. This book is 
significantly affected by continued weakness in the housing and 
mortgage markets, which remain under pressure from high levels 
of unemployment and prolonged decline in home prices.
    For distressed homeowners, home retention solutions keep 
families in their homes. We expect this will reduce Fannie 
Mae's credit losses over the long term. Since 2009, Fannie Mae 
employees have helped approximately 1 million homeowners avoid 
foreclosure through modifications and other work-out solutions.
    Unfortunately, foreclosures are not always avoidable. When 
foreclosure is the only option, we help stabilize communities 
by properly maintaining and improving properties we acquire, 
and selling them to new owners, giving preference to families 
who will live in them.
    Our employees believe in our mission and we are proud of 
the work we are doing to serve the housing market. However, 
there is great uncertainty for this company and its employees. 
As we know, there will be GSE reform, but we don't know when or 
what form it will take. This uncertainty makes it very 
difficult to attract and retain employees with highly 
specialized skills and experience.
    This is particularly true as other financial institutions 
can offer long-term career opportunities and, in many cases, 
substantially more compensation. Attrition at our company this 
year has already doubled our historical experience. If we are 
to continue to provide the stability our housing finance system 
needs and protect the taxpayers' investment in our company, we 
must retain and recruit qualified executives and employees.
    As CEO, I am responsible for ensuring that we effectively 
manage the resources we have received. To accomplish this, we 
have employed talented professionals. These employees 
effectively manage 18 million loans.
    In 2009, FHFA worked with our leadership, Fannie Mae's 
board, and the Treasury Department to develop a compensation 
program for the company. Under this structure, compensation has 
been substantially reduced from pre-conservatorship levels. 
Target total compensation for our executive management is down 
50 percent or more from levels prior to conservatorship, and we 
have reduced our senior managers at the company by 30 percent.
    In closing, I am proud of our team and of their dedication 
to our important work serving the Nation's housing market. Our 
ability to attract and retain top talent remains a critical 
priority as we continue to strengthen our business and deliver 
value to American taxpayers.
    Thank you, and I look forward to your questions.
    [The prepared statement of Mr. Williams follows:]



    
    Chairman Issa. Thank you, Mr. Williams.
    Mr. Haldeman.

          STATEMENT OF CHARLES E. ``ED'' HALDEMAN, JR.

    Mr. Haldeman. Chairman Issa, Ranking Member Cummings, and 
members of this committee, thank you for inviting me to appear 
today. My name is Ed Haldeman and I am CEO of Freddie Mac. I 
joined Freddie Mac in August 2009, almost a year after the 
company was placed into conservatorship by the Federal Housing 
Finance Agency. I welcome the opportunity to be here today to 
address your questions and concerns about compensation for our 
executive team.
    Let me begin by saying I understand why this hearing is 
necessary. I understand why the American people are outraged 
about executive compensation in general. I understand totally 
why Congress and the American people are outraged about 
executive compensation at companies that have received Federal 
support, including Fannie and Freddie.
    We have 9 percent unemployment in our country and there are 
millions of families at risk of losing their homes. I 
understand the outrage.
    How, then, do I reconcile the compensation system at 
Freddie Mac, given the suffering that so many families are 
living with? Let me see if I can explain the dilemma I face.
    My number one objective, since taking the job in the summer 
of 2009, was to keep the company functioning. I concluded that 
there would be more families hurt, and the pain would last 
longer, if there was a breakdown at Freddie Mac. So my focus 
was on keeping the machinery functioning well in order to do 
two things: first, provide liquidity to the housing market and, 
second, help to implement programs that would keep more of our 
struggling families in their homes.
    With this guiding philosophy, it seemed to me that gradual 
change would be preferable to radical change in the operations 
of the company. So here is the strategy we followed with regard 
to compensation and overall corporate expenses.
    First, we eliminated some senior executive positions. For 
example, we no longer have a chief operating officer, which was 
the second highest paid position in our company.
    Second, we consolidated some senior executive positions, 
which allowed us to reduce the number of senior executives. For 
example, we consolidated the credit and enterprise risk 
functions at the company.
    Third, when a senior executive leaves the company, we try 
hard in every instance to bring in a new executive at a lower 
compensation than their predecessor. As a result, the 15 
highest paid people at our company today receive about the same 
compensation as the top 15 received a decade ago.
    Another way to look at the reduction in executive 
compensation is the reduction from peak levels. The 
compensation of our senior team is down 40 percent from peak 
levels pre-conservatorship.
    While we have sought to achieve major reductions in 
executive compensation without disrupting the functions of the 
company, we have put a big emphasis on bringing down overall 
expenses at our company. Our overall general and administrative 
spending in the past year is down more than $120 million as 
compared to our spending levels of 2009.
    Let me summarize. I understand the reason for this hearing. 
I understand the outrage. We have significantly reduced 
executive compensation and overall spending at Freddie Mac, but 
we have tried to do it in a way that does not risk disrupting 
the functioning of the company. My belief is that disrupting 
the functioning of the company would put those families who are 
suffering at even greater risk of deeper and more prolonged 
difficulty.
    Thank you again for this opportunity to testify, and I look 
forward to addressing your questions.
    [The prepared statement of Mr. Haldeman follows:]



    
    Chairman Issa. Thank you.
    Mr. DeMarco.

                 STATEMENT OF EDWARD J. DEMARCO

    Mr. DeMarco. Chairman Issa, Ranking Member Cummings, 
members of the committee, I am pleased to be here today to 
discuss the Federal Housing Finance Agency's oversight of the 
executive compensation structure for Fannie Mae and Freddie 
Mac, or the Enterprises, as I will refer to them.
    My written statement explains how the Enterprises' 
executive compensation program supports the statutory mandates 
of the Enterprises in conservatorship; how it was developed and 
how it is structured.
    In the few minutes I have, I would like to focus on two 
matters. First, Fannie Mae and Freddie Mac have been in 
conservatorship for more than 3 years. Draws from the Treasury 
now exceed $180 billion, reflecting the losses from mortgages 
originated during the years leading up to conservatorship. 
Minimizing those losses as much as possible, while maximizing 
assistance to homeowners, is a key focus of FHFA and the 
Enterprises.
    Since conservatorship, the Enterprises have completed more 
than 1.9 million foreclosure prevention actions, including 
nearly 1 million permanent loan modifications.
    While in conservatorship, we are also seeking to ensure the 
country continues to have a reliable supply of mortgage 
finance. The Enterprises have guaranteed roughly three out of 
four conforming mortgages since conservatorship.
    While we await congressional action on the future of 
housing finance, FHFA has initiated several projects to prepare 
for the future system of housing finance. These include 
standards for mortgage servicing, reconsideration of mortgage 
service and compensation, and establishing loan level 
disclosure for mortgage-backed securities.
    Second, I recognize that there is a great deal of concern 
today with the executive compensation at the Enterprises. I 
would like to make just three observations here.
    First, the executives most responsible for the poor 
business decisions that led the Enterprises into 
conservatorship and that led to these taxpayer losses are long 
gone from the companies.
    Second, the best way to address concerns with executive 
compensation is action by Congress to restructure the Nation's 
housing finance system and dissolve the conservatorships. 
Conservatorship is not designed to be a multi-year holding 
state.
    Third, as conservator, I need to ensure that the 
Enterprises have people with the skills needed to manage $5 
trillion worth of mortgage assets and $1 trillion of annual new 
business that the American taxpayer is supporting. Others may 
believe that this sort of talent is easily and quickly hired at 
compensation far below that of competing private firms, but I 
do not. Bottom line, this is a question of judgment, judgment 
exercised by balancing the need to limit compensation as much 
as possible, while ensuring stable, continuous operations at 
the Enterprises in support of America's housing finance system.
    It has been FHFA's judgment that taxpayers, who are 
providing financial support to the Enterprises and their 
guarantees on $5 trillion of mortgages, would not be better off 
if we provoke a rapid turnover of senior management by further 
slashing compensation. Indeed, such pay cuts would increase the 
risk of higher losses in the future. Executive compensation was 
already reduced by 40 percent, on average, when the 
compensation program was put into place.
    I would also note the continued employment in an Enterprise 
risks substantial career uncertainty. By working at Fannie Mae 
and Freddie Mac, your work comes under a much higher degree of 
scrutiny and criticism that exists at other private firms. 
Executives who have spent a career developing their reputations 
risk tarnish to their reputations under the highly charged 
environment in which these companies operate today. This is 
true regardless of how well they perform their duties or how 
great a financial sacrifice they may have made by forsaking 
other private sector opportunities in order to assist the 
country's housing finance system.
    There has been intense criticism launched at corporate 
executives not even employed by the companies when the bad 
loans leading to the majority of today's losses were booked; 
people who arrived after conservatorship to try and make things 
better. I am trying to encourage these people to stay and 
continue to mitigate losses and keep the current infrastructure 
of the country's housing finance system operating.
    To repeat myself on one point, the only way to finally 
resolve this question is for Congress to act to end the 
conservatorships and chart a new course for the country's 
housing finance system.
    Mr. Chairman, thank you again for this opportunity, and I 
look forward to responding to the committee's questions.
    [The prepared statement of Mr. DeMarco follows:]



    
    Chairman Issa. Thank you, Mr. DeMarco.
    I now ask unanimous consent that the salaries of the U.S. 
Government officials, various officials, going from the 
President of the United States and Vice President down to 
yourself, Mr. DeMarco, Mr. Haldeman, and Mr. Williams, be 
admitted in the record. Without objection, so ordered.
    [The information referred to follows:]



    
    Chairman Issa. Additionally, I would ask unanimous consent 
that the article of yesterday in Bloomberg Newsweek, entitled 
Uncle Sam Is A Reluctant Landlord of Foreclosed Homes, be 
placed in the record. Without objection, so ordered.
    [The information referred to follows:]



    Chairman Issa. Last, and definitely not least, I would ask 
that the committee report be placed in the record. Without 
objection, so ordered.
    [The information referred to follows:]



    Chairman Issa. I now recognize myself for a first round of 
questioning.
    Mr. Williams, you are a career employee, right? You came up 
through the ranks?
    Mr. Williams. Right.
    Chairman Issa. And what did you make in 2002, if you 
recall?
    Mr. Williams. What did I make in 2002? I don't know off the 
top of my head. I would have to follow up with you.
    Chairman Issa. Give me a year more than 5 years ago what 
you made.
    Mr. Williams. Again, Congressman, off the top of my head, I 
don't have that.
    Chairman Issa. What was your starting pay when you came?
    Mr. Williams. Congressman, I would imagine it was probably 
around $115,000.
    Chairman Issa. Would you speak up a little, please?
    Mr. Williams. Congressman, I would imagine it was around 
$115,000 when I joined the company over 20 years ago.
    Chairman Issa. Okay. So 20 years ago you came with an 
organization that paid you $15,000 right?
    Mr. Williams. I came----
    Chairman Issa. $115,000?
    Mr. Williams. $115,000.
    Chairman Issa. $115,000. So they paid you more then than 
they paid Congressmen. That hasn't changed.
    Mr. Williams. I would assume so.
    Chairman Issa. But less than the president; he was still 
making $400,000 or $200,000, perhaps, back then. Let's sort of 
go through the numbers. You don't remember what you made 10 
years ago, but you remember roughly $115,000 when you started. 
When did you first make over $1 million? Everybody--let me 
rephrase that. I had the luxury of making over $1 million. I 
exactly remember the year I made over a million dollars. I am 
sure you do. What year did you first have compensation, 
including bonus, that put you over a million dollars?
    Mr. Williams. Congressman, I am not sure what year that 
was.
    Chairman Issa. So money is not that important to you?
    Mr. Williams. No, money is important to all of us who are 
here today, sir, and it is important----
    Chairman Issa. Okay. But you are a career Government agency 
employee. GSE is a Government agency, effectively.
    Mr. Williams. Congressman, I have been an employee at 
Fannie Mae for 20 years serving in a vast array of roles, 
beginning in technology all the way through to chief operating 
officer.
    Chairman Issa. Okay. Well, I don't want to beat a dead 
horse, but you came out at $115,000 to an organization backed 
by the Government that had a pay scale. Did you ever have an 
expectation that you were going to make not just seven figures, 
but several of them, that you would make $8 million or $9 
million every 2 years?
    Mr. Williams. Congressman, I think we all hope to aspire to 
advance in our careers and advance our compensation as we do.
    Chairman Issa. Okay, but you made $9.3 million the last 2 
years, while the President made $800,000. But you think that is 
okay?
    Mr. Williams. Congressman, I have been brought in and asked 
to take on this role as CEO so that I can put in place a 
management team that can help achieve the goals of 
conservatorship, which is stabilize the company, provide 
liquidity to the market, and help struggling----
    Chairman Issa. Okay, but you are still losing money. You 
have taken $90 billion and you are getting $9 million a year.
    Let me go on to Mr. Haldeman. Now, Bloomberg and other 
organizations were concerned when you came on board because you 
don't come with a background like Mr. Williams does. Basically, 
you are not qualified to run the organization, if one were to 
look at your historic resume. That was a concern. But you did 
come out of the private sector. Hopefully you remember. What 
did you make the last year you were at Putnam?
    Mr. Haldeman. I don't recall.
    Chairman Issa. Did you make more than $1 million?
    Mr. Haldeman. Yes, I did.
    Chairman Issa. Was your compensation tied to performance?
    Mr. Haldeman. Yes, it was.
    Chairman Issa. Was it tied tightly to performance, in which 
you could literally look at the yields of accounts or the 
profits of the organization in order to determine what your 
bonus would be?
    Mr. Haldeman. It was tied to the performance of the funds, 
it was tied to the economic performance of the company, and I 
had equity participation, as well.
    Chairman Issa. Now, equity participation always assumes 
that the stock goes up, right?
    Mr. Haldeman. It doesn't always, no. It happened to during 
my tenure at Putnam.
    Chairman Issa. So your options were worthless if your stock 
went down?
    Mr. Haldeman. That would be correct.
    Chairman Issa. Okay. So at Freddie Mac has your stock gone 
up?
    Mr. Haldeman. In my tenure it has not.
    Chairman Issa. Okay. I just want to make sure that $7.8 
million over the last 2 years is based on a company who is not 
worth more today. As a matter of fact, just for the record, if 
I were to look at the net profits for Fannie Mae from 2003 to 
2010, I would find the net profits were a $11 billion loss. At 
Freddie Mac I would find a $72 billion net loss over that same 
period of nearly a decade.
    So including the time before you came in, in which the 
books were being effectively cooked by taking in bad debt that 
was going to go bad, but in fact putting it on, there were 
paper profits of $4 billion and $5 billion, but over that 
period of time you are on an organization that certainly lost 
$14 billion in 2010 and is going to lose equally or more this 
year. So that is the organization you are running for $4 
million a year, is that right?
    Mr. Haldeman. Yes, we have lost money due to loans that 
were put on the books during the period 2005 to----
    Chairman Issa. Okay, my time has expired. I just want to 
get one last thing in for the record.
    Mr. DeMarco, from what I can tell, your $230,000 is all you 
get, right?
    Mr. DeMarco. Yes, sir. All I get is my salary.
    Chairman Issa. And you do stay for that menial amount of 
money, for some unknown reason, even though you could make 
money elsewhere?
    Mr. DeMarco. I am still here, Mr. Chairman.
    Chairman Issa. Thank you, Mr. DeMarco.
    I recognize the ranking member.
    Mr. Cummings. Thank you very much.
    I must tell you, Mr. Haldeman and Mr. Williams, you all 
come from a different world than the one I come from. If I had 
made a million, I sure would know when I made it, that is for 
sure.
    Mr. DeMarco, I want to just go to performance, because as I 
listened to Mr. Williams and Mr. Haldeman, I don't remember 
hearing the word performance. I may have heard it, but I don't 
remember hearing it. You said in your testimony that part of 
compensation these executives receive is based on their 
performance. But with all due respect, their performance and 
yours, has been severely deficient, especially in the area of 
assisting homeowners.
    In 2008, Congress and the President directed you to help 
homeowners in need. Congress passed the Emergency Economic 
Stabilization Act and the President signed it on October 3, 
2008. The act states clearly that FHFA, Freddie Mac, and Fannie 
Mae ``shall implement a plan that seeks to maximize assistance 
for homeowners.''
    In your testimony today you confirmed this is one of your 
three goals, did you not?
    Mr. DeMarco. I did.
    Mr. Cummings. But I have seen no plan to do this. What I 
have seen is an agency that basically has to be dragged to do 
its work by the Congress.
    Let's look at performance. HAMP, the Home Affordable 
Modification Program, was supposed to help 3 to 4 million 
homeowners modify their loans. So far, it has helped fewer than 
800,000, is that true?
    Mr. DeMarco. I believe that is correct for the HAMP 
program. It is not a correct reflection of the loan 
modification activity at Fannie Mae and Freddie Mac.
    Mr. Cummings. So with regard to HARP, the Home Affordable 
Refinance Program, that was supposed to help between 4 and 5 
million borrowers refinance at lower rates. So far, fewer than 
900,000 have been refinanced, is that right?
    Mr. DeMarco. There have been over 900,00 HARP refinances to 
date, and, as you know, Mr. Cummings, from the changes that we 
have made to that program recently, we are expecting an uptick 
in that of a meaningful amount.
    Mr. Cummings. Of course we are, but we are talking about 
what we have done to date. These gentlemen, they are making 
this money now. I am talking about today, so I am looking at 
performance now.
    Mr. DeMarco, it was not until President Obama made an 
address to Congress on this topic that you started to revamp 
this program in a serious way. Let's look at FHFA----
    Mr. DeMarco. First, for the record, Mr. Cummings, I 
actually directed both companies to work with FHFA on a 
thorough reexamination of the HARP program several weeks before 
the President's address, so work was already underway.
    Mr. Cummings. Okay, but you could have started that a lot 
earlier, could you not?
    Mr. DeMarco. We did try it last winter and we made some 
changes and I regret that--well, I don't regret anything. What 
I would say is that we redoubled our efforts in August and I am 
pleased with the results.
    Mr. Cummings. Well, Mr. DeMarco, let me tell you, while you 
may not have any regrets, I have regrets. I have regrets for 
the people who are being put out of their houses and need help, 
and would like for the goals that were stated to be manifested, 
and that I do have regret about. And I understand your lack of 
regret and I am so sorry to hear you have no regrets, because I 
wish you could face some of the people who are out of their 
homes.
    Mr. DeMarco. Please don't take my words out of context, Mr. 
Cummings. I did not say that with regard to American 
homeowners. I believe that myself and everyone at FHFA and, 
frankly, the gentlemen to my right have been working very hard 
to provide assistance to American homeowners.
    And with regard to the quotation from statute that you 
cited, it is quite right. I actually cite it myself frequently. 
But the full quotation includes that we were to undertake this 
maximizing assistance to homeowners in consideration of the net 
present value to the taxpayers, and I believe that that makes 
what we are doing in terms of providing relief to homeowners 
consistent with our mandate as conservator to preserve and 
conserve the assets and property of the company, and thereby 
minimize further losses to the taxpayers.
    Mr. Cummings. And the mandate is that you shall implement a 
plan that seeks to maximize assistance for homeowners and use 
this authority to encourage the servicers of the underlying 
mortgages in considering net present value to the taxpayer to 
take advantage of the Hope for Homeowners Program, is that not 
correct?
    Mr. DeMarco. That is it, sir. In fact, I think you raise an 
excellent point here and I think it is actually one of the key 
accomplishments we have had this summer, which is the Service 
and Alignment Initiative that FHFA organized with Fannie Mae 
and Freddie Mac to provide uniform mortgage servicing standards 
so that servicers would know how to effectively, efficiently, 
and timely respond to troubled borrowers.
    And I think we learned from some of the difficulties of the 
last few years and we have put in place an identical set of 
servicing requirements that Fannie and Freddie each have for 
mortgage services so that the moment a borrower goes 
delinquent, the servicers now have clear instructions and 
positive incentives to make early and robust contact to 
borrowers to find out what their difficulty is.
    We are placing a tremendous amount of emphasis on getting 
immediate contact with the borrower and trying to find an 
appropriate solution to their difficulty, because what we have 
learned is the faster we do that, the greater the likelihood of 
success. And I believe that our efforts in this way have been 
very much consistent with fulfilling the Issa mandate that you 
quite rightly cite.
    Mr. Cummings. Mr. Chairman, just real quick.
    Chairman Issa. I ask unanimous consent the gentleman have 
an additional minute.
    Mr. Cummings. Thank you very much.
    Chairman Issa. Without objection.
    Mr. Cummings. Thank you.
    Mr. DeMarco, I have said this to you before. As I listen to 
your defense, and I do consider that defense, and rightfully 
so, I said to you and I begged you, do not mistake a comma for 
a period. We can get so caught up in saying what we have 
achieved that we fail to know that we can do better, and I 
think that is what troubles me and that is what troubles many 
Members of Congress. And I say it to you with all sincerity, I 
am not trying to hurt your feelings or anything like that, but 
I have to tell you I am talking about some people who are in 
pain, I mean big time. So I beg you do not mistake a comma for 
a period.
    Mr. DeMarco. I appreciate that, Mr. Cummings. I have 
benefited from our discussions the last couple months and I 
remain committed to making sure that Fannie Mae and Freddie 
Mac, in conservatorship, are doing all full, robust, and 
appropriate things to be able to help American homeowners that 
are troubled in their mortgages. And we will continue in that 
effort and I am taking under consideration all of the things 
that you have told me, sir, and I do believe that we share a 
deep concern for the number of American households that are 
troubled and we do share a desire to provide appropriate 
assistance to them, and we will continue to try to improve our 
efforts in that way, Mr. Cummings.
    Mr. Cummings. Thank you.
    Thank you, Mr. Chairman, for your indulgence.
    Chairman Issa. No problem. Thank you.
    I now ask unanimous consent that the entirety of the act, 
H.R. 3221, be placed in the record, and I particularly cite 
powers of the conservatorship, the agency may, as conservator, 
take such actions as may be necessary to regulate the entity in 
a sound and solvent condition and appropriately to carry out 
the business of the regulated entity and preserve and conserve 
the assets and properties of the regulated entity. I believe 
that is what the gentleman was referring to.
    [The information referred to follows:]



    
    Chairman Issa. With that, we recognize the gentleman from 
Michigan, Mr. Walberg.
    Mr. Walberg. Thank you, Mr. Chairman.
    And thank you, Mr. Williams, Haldeman, and DeMarco, for 
being here. I heard you state that you appreciate us inviting 
you. Thanks for your use of words there. I couldn't have said 
that myself. However, this is a duty we have to do.
    Mr. DeMarco, the $12.79 million in bonus pay for 10 
executives that we are discussing today, bonuses that you 
approved, was for providing ``liquidity, stability, and 
affordability to the housing market.'' My bankers, lenders, 
financial institutions back at home desire that, would agree 
with that, and would want that to continue, but in light of 
that, what benchmarks are Fannie and Freddie meeting that would 
allow such bonuses to kick in, especially in light of the 
taxpayer losses of approximately $170 billion?
    Mr. DeMarco. So this is detailed in the annual securities 
filings of the two companies, but, as reported in my written 
statement, these losses that the taxpayers are absorbing are a 
result of business decisions made pre-conservatorship and 
mortgages that were originated pre-conservatorship, and one of 
the focal points for the executive compensation for the 
executives at Fannie and Freddie are their efforts to try to 
minimize losses on that book of business.
    They can't undo mortgages that are made, but what they can 
do is that they can take aggressive actions to mitigate those 
losses through loan modifications and other foreclosure 
prevention activities, and I report monthly to the House 
Financial Services Committee and the Senate Banking Committee 
on the efforts that have been undertaken to that end and the 
array of things on which they are assessed and go to efforts to 
minimize losses, undertake homeowner assistance, ensure that 
there is ongoing liquidity in the market, and to be working 
with us on things such as the servicing improvements that I 
talked about in my exchange with Mr. Cummings.
    Mr. Walberg. But in light of all that continues on, in 
light of what Mr. Cummings mentioned also about his people, 
likewise in my State of Michigan, you stated your opposition 
yesterday to putting these executives on par with the Federal 
pay scale, a position that you continue to suggest today in 
comments, I believe. A legislative proposal that was passed out 
of the House Financial Services yesterday to do just that. Why 
do you oppose that so aggressively? Why do you oppose that and 
do you believe Federal agencies cannot perform their duties 
because they don't offer Wall Street size paychecks?
    Mr. DeMarco. I oppose it simply for the matter that I 
believe enacting that and immediately putting all the employees 
at Fannie and Freddie on a completely different pay scale is 
going to result in the taxpayer losses to Fannie and Freddie 
going up, not down. That is it, put simply. The chairman read 
the excerpt from the HERA legislation regarding 
conservatorship, and an important aspect of that, what he read, 
is that I am preserving and conserving the assets of a business 
entity. These remain business entities and they remain 
regulated entities; they are not Government agencies. If the 
Congress of the United States wants to take action to make them 
Government agencies, make the employees Government employees, 
that is a different story and legal structure than the one that 
I am being held responsible for overseeing today.
    What I am being responsible for overseeing today, the way 
the law works today, Fannie Mae and Freddie Mac employees are 
not Government employees. These are not Government agencies, 
they remain private corporations undertaking trillions of 
dollars of business, participating in the marketplace. They 
continue to be subject not just to FHFA regulation; they 
continue to be subject to other laws and regulations that apply 
to similar private financial institutions, including----
    Mr. Walberg. I understand all of that, Mr. DeMarco.
    Mr. DeMarco [continuing]. The Securities and Exchange 
Commission rules and so forth.
    Mr. Walberg. I understand all of that; our citizens don't. 
We are in tough times and sometimes very difficult decisions 
have to be made, and if indeed there is public service, like 
you indicated, that you want to provide a service--and I think 
the two gentlemen seated next to you have indicated the same 
thing--there are challenges to be faced.
    Mr. Haldeman, in October you announced that you would be 
stepping down from your position once a successor has been 
named.
    Mr. Haldeman. That is correct.
    Mr. Walberg. Did compensation play any role in this 
decision?
    Mr. Haldeman. No, it did not.
    Mr. Walberg. Mr. Williams, earlier this year you stated 
that you would leave it to the FHFA to determine what your 
appropriate compensation would be. If Mr. DeMarco changed 
course and decided that your compensation should be curtailed, 
would you be fine with that?
    Mr. Williams. Congressman, I would evaluate my own personal 
options, but that would be the decision of the board and 
Director DeMarco.
    Chairman Issa. I thank the gentleman.
    I now ask unanimous consent to enter into the record a 
study of 2011 compensation done by the Association of Corporate 
Counsels, Southern California Chapter, for 2011 and would note 
that in public companies the compensation in 2011 was 
approximately $400,000 for general counsels. Well, the general 
counsels for Freddie Mac received 2.9 million and Fannie Mae 
received 2.6 million, more than four times the compensation 
that at least the Southern California Chapter of General 
Counsels believes is fair.
    [The information referred to follows:]



    Chairman Issa. With that, we go to----
    Mr. DeMarco. If I may, Mr. Chairman, I think that this is 
pretty important because of the theme of your hearing here 
regarding protecting the American taxpayer. So with regard to 
the legal departments of Fannie Mae and Freddie Mac, I would 
like to point out to the committee that Fannie Mae and Freddie 
Mac, with FHFA, FHFA taking the lead on this as conservator, 
has filed lawsuits against 18 of the biggest financial 
institutions in the country and even in the world to recover 
losses that we believe are the legal responsibility of others. 
This is part of our activity to protect the American taxpayer 
and to carry out our conservatorship responsibility.
    But I will say, Mr. Chairman, that for us to be able to 
successfully execute on such complex litigation regarding 
complex financial transactions and securities, I need to have 
qualified and experienced counsel to be working with us on 
that. So I believe that this is an investment that we are 
making that is part of protecting the American taxpayer.
    So these are the sorts of things that if we fundamentally 
and radically and immediately change the rules of the game with 
respect to how we perceive Fannie and Freddie, we may gain in 
terms of compensation, but I would like the committee to know 
that, from my perspective as conservator, I believe that we 
risk other things that could harm the American taxpayer. I know 
that that is--and to the Congressman's point over here, I 
understand that that is hard for the American people----
    Chairman Issa. I actually don't have any time, so I don't 
want to cut you off, and I know that there will be further 
dialog, so I certainly will seek time to have this dialog.
    But at this time we recognize the gentleman from Ohio, Mr. 
Kucinich, for 5 minutes.
    Mr. Kucinich. Thank you very much, Mr. Chairman, and thanks 
for holding this hearing.
    One of the things that is interesting about these hearings 
is that occasionally you get some insight into how people think 
in a broader sense about those they are supposed to serve, and 
I have to say that, of the witnesses, Mr. Haldeman was the only 
one who seemed to understand the concerns that the American 
people have about this issue that faces this committee today. 
So I want to thank you for that.
    I also want to say that, in listening to the testimony, my 
concern is that there may not be enough sympathy for people who 
are losing their homes. And if there is a gap with tremendous 
pay being given to people at the top and we don't see enough 
sympathy for people who are losing their homes, that may mean 
that you just don't get it, you are too far removed.
    Now, Mr. DeMarco, on November 1st your general counsel 
wrote a letter to Ranking Member Cummings. He disclosed that 
last year Fannie Mae and Freddie Mac imposed $150 million in 
penalties against banks for not foreclosing on homeowners fast 
enough. According to your general counsel's letter, mortgage 
servicers were charged daily fees by Fannie Mae and Freddie Mac 
if they failed to process foreclosures within set deadlines. 
Here is what your general counsel wrote: ``To date, the top 10 
servicers account for the bulk of the fees due. The total 
amount for all servicers after approving appeals and 
corrections is approximately $150 million for 2010.'' And this 
is stunning with all the abuses going on with robo-signing and 
the filing of false court documents, Fannie and Freddie were 
charging massive fees against banks that failed to expedite 
foreclosures.
    Mr. DeMarco, were you aware of these penalties?
    Mr. DeMarco. I am aware of them, Congressman, and I can 
explain them. These penalties are a result of the failure of 
mortgage servicers to perform under their servicing contracts 
with Fannie Mae and Freddie Mac in a way that are driving up 
costs to the American taxpayer. The servicers are under 
contractual obligations to Fannie and Freddie to mitigate 
losses. In my exchange with Mr. Cummings earlier, I went into 
some detail about the effort we have undertaken to ensure that 
servicers are reaching out to troubled borrowers from the 
moment there is evidence they are in trouble.
    Mr. Kucinich. Well, wait a minute, though. There is a point 
here that you are missing, and that is there was an inspector 
general finding, you are familiar with it, that FHFA ``directed 
Fannie May to impose compensatory fees against the servicers 
for violating foreclosure time line limits.'' Now, is that true 
and did you actually direct Fannie or Freddie to impose those 
penalties in 2010?
    Mr. DeMarco. It is true, Congressman, because it is driving 
up the cost to the American taxpayer.
    Mr. Kucinich. So you were aware of the abuses going on, but 
you failed to address them in a timely manner? That is what the 
inspector general reported.
    Mr. DeMarco. With all due respect, Congressman, these are 
two different issues, and the compensatory fees that have been 
assessed have been done so with recognition and allowance for 
the delays in foreclosure processing either due to assisting 
the borrowers to try to find a foreclosure alternative or 
because of foreclosure delays that have been driven by things 
external to the servicers' control.
    Mr. Kucinich. Well, this IG report concluded that ``there 
were multiple indicators of foreclosure abuse risk prior to 
2010 that could have led FHFA to identify and act earlier on 
the issue, including consumer complaints alleging improper 
foreclosures, contemporaneous media reports about foreclosure 
abuses by Fannie Mae's law firms and public court filings in 
Florida and elsewhere highlighting such abuses.''
    Now, Mr. DeMarco, if you were aware of these abuses, why 
would you order hundreds of millions of dollars in penalties to 
try to speed up the process even further? Why would you do 
that?
    Mr. DeMarco. I would like to again try to separate the 
abuses and the corrections that have been undertaken with 
regard to them with servicers not performing adequately in 
foreclosing on properties that have gone multiple years without 
any payment, because this is driving up the cost of the 
taxpayer. We are foreclosing on properties that have had no 
payments for 2, 3 years or more, and all this time the American 
taxpayer is funding those mortgages. And it is also damaging 
local communities and it is damaging housing markets to have 
these properties sitting there with no action being taken 
against them. Congressman, with all due respect, I believe that 
this is----
    Mr. Kucinich. Well, with all due respect to you, sir, the 
IG report talked about supporting first and now overloaded with 
the volume of foreclosures, documentation problems were 
evident, they said. You haven't disputed that.
    Members of the committee, what you have here is a situation 
where they are focusing on accelerating foreclosures and 
diverting our constituents. I am from Cleveland. We have more 
foreclosures than in most areas.
    Mr. McHenry [presiding]. The gentleman's time has expired. 
The gentleman's time has expired.
    Mr. Walsh of Illinois is recognized for 5 minutes.
    Mr. Walsh. Thank you, Mr. Chairman, and thank you for being 
with us here today.
    A couple quick points and then an overall question. We talk 
in trillions, billions, and millions around here. We are $15 
trillion in debt. Fannie and Freddie have been subsidized to 
the tune of about $170 billion the last 3 years. Executive 
compensation last year, in 2009 and 2010, was about $35 
million. Big numbers; they jump out.
    Just quickly, two smaller numbers jumped out at me. Fannie 
and Freddie paid outside compensation consultants $655,000 in 
2008 and $560,000 in 2009 to determine their own pay structure? 
We paid outside consultants that much money to determine the 
pay structure? Does that sound right, Mr. Williams and Mr. 
Haldeman? Does that sound excessive?
    Mr. Williams. Congressman, the company and the board of 
directors hired compensation consultants to help them structure 
our compensation program format.
    Mr. Walsh. A little closer.
    Mr. Williams. Congressman, the board of directors hired 
compensation consultants to work with them to develop a 
compensation program at the request of FHFA, and they worked in 
partnership with FHFA and the Treasury Department to develop 
that compensation program.
    Mr. Walsh. So $655,000 in 1 year to help you determine your 
pay structure. Mr. Haldeman, does that sound excessive?
    Mr. Haldeman. It sounds like a lot of money, but there are 
compensation consultants that are required for the board in 
addition to the company's compensation consultant. So I think 
that number would include four consultants, if I get it right, 
because I think you were pointing out for both Enterprises. So 
that would be four in total. But I agree it is a lot of money.
    Mr. Walsh. And one other quick point on your testimony, Mr. 
Haldeman. You said that the 15 highest executives today are 
paid roughly the same as the top 5 a decade ago. I don't know 
that that is something to rave about. I mean, James Johnson, 
1991 to 1998, earned $100 million in pay with the company; 
Franklin Raines, we remember that name, 1999 to 2005, earned 
more than $90 million from 1998 to 2003. Daniel Mudd earned $12 
million in 2005. I don't know that it furthers our topic here 
to compare what we are doing today with what executives made 15 
years ago.
    Mr. Haldeman, I appreciate the tone you took, that you 
understand the outrage, certainly, that Congress feels and, in 
theory and in practice, we reflect the outrage that is out 
there. But understand something. Many Members of Congress came 
here because this country is broke. Big freshman class of 
Republican and Democrats, most of whom left probably much 
higher paying positions to come here and serve this country 
because this country is broke. I am not unusual, there are 
other Members like myself who came here and turned down my 
health benefits, turned down any pension benefits, because we 
all have to do something pretty quickly or we are going to be 
in a heap of trouble and future generations are going to be in 
a lot of trouble.
    So I appreciate that you understand the outrage, but are 
you telling me that, unlike Congress and some other departments 
in Government, we are fundamentally not able to find people who 
need to do what they need to do at Fannie and Freddie for less 
than the amount of money in base pay and bonuses that we are 
paying folks? And, if so, do you understand how a lot of people 
might find that hard to believe?
    Mr. Haldeman. First of all, I think all of us appreciate 
the public service of the entire Congress and realize that many 
have made a personal sacrifice to take on those roles, and I 
commend Acting Director DeMarco for the public service that he 
has given the country. And there are many examples of people 
who have done that.
    The dilemma I face--maybe I can bring the numbers down a 
little bit in size. One of the important functions we perform 
at Freddie Mac is managing an investment portfolio. When I took 
over my job in August 2009, that investment portfolio was $900 
billion. We have brought it down continuously; it is now about 
$680 billion in size. There are people who are managing that 
portfolio.
    What I worry about is if they make a 1-percent mistake, 
that costs the taxpayer $6.8 billion. If they make a one-tenth 
of 1 percent mistake, it is $680 million. And the people that 
are required to effectively manage that money, that investment 
portfolio, and not make those mistakes are highly skilled, 
sophisticated, seasoned people that have many, many 
opportunities for high-paying jobs, and we need some of them at 
Freddie Mac to make sure we don't make those mistakes. That is 
the dilemma.
    Mr. McHenry. The gentleman's time has expired.
    Mr. Walsh. Thank you, Mr. Chairman.
    Mr. McHenry. Mr. Tierney for 5 minutes.
    Mr. Tierney. Thank you, Mr. Chairman.
    Let me change tack here a little bit, if I can. Mr. 
DeMarco, I want to ask you about principal reductions. That 
will be no surprise to you, coming from our many previous 
discussions. But first I want to share with you some comments. 
Neil Barofsky, who is the former Special Inspector General for 
the TARP program, said ``There needs to be a recognition that 
many borrowers will never make the required payments on their 
underwater mortgages; that the owners of these mortgages have 
already lost any meaningful chance of obtaining a full recovery 
of the outstanding principal. The sooner that this reality is 
recognized and addressed, the sooner a recovery can take hold. 
As such, an aggressive principal reduction program is 
necessary.''
    Alan Binder, the former Vice Chair of the Federal Reserve 
Act, said most economists see principal reductions as central 
to preventing foreclosures.
    Ben Bernanke, the Federal Reserve Chairman, said in this 
environment principal reductions that restore some equity for 
the homeowner may be a relatively more effective means of 
avoiding delinquency and foreclosure.
    Mark Zandi, chief economist for Moody's Analytics said a 
weaker than anticipated housing market poses a serious threat 
to the economic expansion. He suggests a policy step: one of 
the best odds of ending the housing crash quickly and 
definitively would have the Government facilitate loan 
modifications with substantial principal write-downs.
    Now, when Congress passed the Emergency Economic 
Stabilization Act of 2008, we directed FHFA, Freddie, and 
Fannie to implement a plan that seeks to maximize a system for 
homeowners. We have been through the language on that, but it 
does talk about having the mortgage servicers and covering 
servicers to take advantage of programs to minimize 
foreclosures. There is nothing in the law that I see or that 
anybody else advises sees that prevents you from approving a 
program to reduce principal if it is in the taxpayers' 
interest.
    Now, Fannie Mae's second quarter credit supplement says the 
average return to Fannie Mae this year on foreclosed properties 
is 55 percent of unpaid principal balance. So you are going to 
lose 45 percent of any foreclosed property. If that is the 
case, but you would only lose 5 percent, say, of a principal 
reduction program, why not reduce the principal and keep the 
borrower in his or her home?
    Mr. DeMarco. We have been through the analytics of the 
underwater borrowers of Fannie and Freddie and looked at the 
foreclosure alternative programs that are available, Mr. 
Tierney, and we have concluded that the use of a principal 
reduction within the context of a loan modification is not 
going to be the least cost approach for the taxpayer to allow 
this homeowner an opportunity to stay in their home.
    We are using aggressive loan modification activities that 
include principal forbearance, which will zero out the interest 
rate charged on the underwater portion of the mortgage without 
forgiving the debt of the mortgage, and this is all designed to 
get the borrower into an affordable monthly payment so that 
they can continue in their home, and that has been the basic 
calculus that has guided this decision.
    As I have said before, I do not believe that I have been 
appropriated taxpayer funds for the purpose of providing this 
more general support to the housing market. We are supposed to 
undertake our loss mitigation activities with regard to the 
cost to the taxpayer.
    Mr. Tierney. But you have been empowered as conservators to 
have the fiduciary responsibility of maximizing the value of 
the taxpayers' assets, and if it is less costly to modify the 
principal, to modify the loan than it is to go to foreclosure, 
I would think you would be breaking that fiduciary 
responsibility. What you are telling me flies in the face of 
Neil Barofsky, Alan Binder, Ben Bernanke, Mark Zandi, and all 
these people. You just come up with a different idea. And maybe 
you would share with us your calculation so we can run it by 
some of these other people who see it quite differently than 
you do.
    Several of the banks are already doing principal reductions 
right now. You have the example of Arquin, who has a program 
where the servicer reduces the loan to 95 percent of the 
homeowner's fair market value. The excess principal is forgiven 
over 3 years as long as the homeowner remains current. When the 
home is sold or refinanced, the borrower is required to pay 25 
percent of the appreciated value and share that with Arquin. 
According to the company's CEO, shared appreciation 
modifications help homeowners avoid foreclosure and restore 
equity, providing a significant benefit to the customer, the 
economy, and the housing market.
    They are not doing that to be nice, you know that. It is in 
their financial self-interest. And I still don't think you have 
made a compelling argument why it is not in Fannie Mae's and 
Freddie Mac's and the taxpayers' financial self-interest to do 
that. JPMorgan Chase is doing it, Allied Financial, Bank of 
America, Wells Fargo, they have reduced an average of $51,000 
off the balance of about 73,000 borrowers in 2009 and 2010. Is 
everybody else wrong, Mr. DeMarco, and FHFA is right in this?
    Mr. DeMarco. Congressman, I believe that the decisions that 
we have made with regard to principal forgiveness are 
consistent with our statutory mandate. I do believe that we are 
taking all due effort to provide assistance to homeowners and I 
do not believe I have been authorized to use taxpayer money for 
a general program of principal forgiveness.
    Mr. Tierney. Mr. Chairman, if I can have unanimous consent 
for 30 more seconds.
    Mr. DeMarco, I would like you to do two things for the 
committee, if you would.
    Mr. DeMarco. Okay.
    Mr. Tierney. First, I would want you to identify anywhere 
in the statute that specifically prohibits you from developing 
principal reduction programs, because as I read the law you 
don't have the authority to do that. So if you would do that 
and then share that with the committee and me. Second, I would 
like you to submit whatever analysis you have done that shows 
why reducing the principal of some mortgages is worse for the 
U.S. taxpayer than foreclosure. If you would provide that 
analysis, because you talked about it, I would appreciate it. 
Would you do that for us?
    Mr. DeMarco. We can provide that information as you 
suggested, Congressman.
    Mr. Tierney. Thank you.
    Mr. McHenry. The gentleman's time has expired.
    Mr. Farenthold from Texas.
    Mr. Farenthold. Thank you, Mr. Chairman.
    Gentlemen, Mr. Williams, Mr. Haldeman, I would like to 
start my questions with you. First off, I want to commend you 
for being here. If I were taking a salary like you guys were in 
these times, I would be reluctant to be up and facing the 
people. I admire you for taking the heat on this.
    But let me ask you a question. You compare your salaries, 
in justifying them, to those making and made in private sector 
companies. In those private sector companies very often the 
compensation package is based on very specific design results 
in the performance of the company, but you basically serve at 
the pleasure of the shareholders through the board of 
directors. In Freddie and Fannie, you guys basically are 
serving the taxpayers. We have invested a whole lot of money in 
your company and, really, this committee and Congress is about 
the total level of oversight we have.
    From what I have heard from people back home is a pretty 
consistent wow. Why are you taking this much money performing 
so poorly and having to come back. And I have heard today that 
you have said, well, it would be doing worse if we weren't 
doing what we do. So let me ask you this. Would you all invest 
in Freddie and Fannie? Would you put your own money in that and 
expect to see a return or to see it level out? And I guess we 
will start with Mr. Williams.
    Mr. Williams. Congressman, let me start with a few points. 
First of all, as we have all--to your comments, the losses that 
we have been incurring are due to the loans that were booked 
prior to 2009. Second, the management team that we have brought 
in is a new management team to deal with the challenges that we 
are facing and the specific issues that we have been asked to 
serve as conservator: stabilize the company, to provide the 
necessary liquidity and support to the market, ensure there is 
adequate supply of affordable rental housing, and help 
distressed homeowners wherever we can.
    Mr. Farenthold. Okay, I understand, but you started in this 
company 20 years ago at, I think you testified earlier, well 
over $100,000. So you have been there through this. Where were 
you kicking and screaming? Again, tell me if you were, because 
I don't know. Where were you kicking and screaming, say, hey, 
we are about to get in a lot of trouble?
    Mr. Williams. Congressman, I am happy to discuss my role 
prior to conservatorship. In the years leading up to 
conservatorship, I served as chief operating officer of the 
company. I was responsible for managing our regulatory 
agreements that were put in place prior to conservatorship and 
making sure we achieved all the objectives under that; I was 
responsible for leading the company's efforts to restate our 
financial statements and get current with the SEC's filings, 
which we did all that; and I oversaw the company's areas such 
as technology, human resources, as well as our----
    Mr. Farenthold. But from an executive level, didn't you 
have to see some of this coming?
    Mr. Williams. Congressman, in hindsight, I am sure we all 
wish that we could have made different decisions back in that 
time.
    Mr. Farenthold. All right. Well, let me just ask one more 
question. I think it would be fair to say that there are a lot 
of people who take jobs for less money than they would make in 
other jobs for reasons beyond compensation. Take the President. 
It doesn't pay all that well. The Supreme Court doesn't pay 
nearly what a good lawyer can make in the private sector. 
Certainly our teachers, who are underpaid throughout this 
country, take jobs for reasons beyond compensation. Vikram 
Pandit of Citigroup says he is not going to take any 
compensation until the company turns a profit.
    Don't you think we could get qualified people to do your 
jobs and the jobs of those other senior executives without 
having to pay millions of dollars?
    Mr. Williams. Congressman, I am happy to address that 
question because, first of all, as I noted, this is a new team. 
We have reduced executive compensation by 50 percent, we have 
reduced the number of senior executives by 30 percent. But I 
can tell you are these jobs competitive? Yes. In the course of 
3 months I lost five senior vice presidents out of the company 
to financial services and other companies where I can assure 
you they were making more money and had better career prospects 
as a result. These are challenging jobs in challenging 
circumstances, and we need to pay and reward the people who are 
doing the jobs.
    Mr. Farenthold. I see that my time is about to expire, and 
I apologize for not getting to you, Mr. Haldeman. Thank you.
    Mr. McHenry. Mr. Davis of Illinois is recognized for 5 
minutes.
    Mr. Davis. Thank you very much, Mr. Chairman.
    Mr. DeMarco, let me ask. When you announced these 
compensation packages in 2009, you issued a press release 
explaining that these million dollar salaries were necessary to 
``attract and retain the talent needed'' for Fannie Mae and 
Freddie Mac to perform their roles. In a recent letter to 
Congress you wrote that you were also concerned about a rapid 
turnover of management and staff replaced with people lacking 
the institutional, technical, operational, and risk management 
knowledge requisite to the running of corporations with 
thousands of employees and more than $2 trillion in financial 
obligations.
    Let me ask what kind of analysis did you do prior to making 
these conclusions? Did you survey the current staff that was 
present? And do you have some kind of document that you could 
share with us that would demonstrate the potential effects of 
lower salaries on the work force, on the agencies, and 
ultimately on the homeowners who had mortgages to pay?
    Mr. DeMarco. Congressman, with regard to the announcements 
of the pay structure that took place in 2009, the background 
for that was developed over the course of time by my 
predecessor, and then when I became acting director I assumed 
completion of that work. It was done in consultation with other 
Government agencies; it was done in consultation with pay 
consultants; it was done in a lot of consultation with the 
Special Master for Compensation at the Treasury Department to 
assess what was the market like for compensation in troubled 
but large and complex financial institutions, and what was the 
right structure and balance to weigh between the need to have 
competent, skilled professionals running these complex 
financial institutions against market conditions at the time 
and the market opportunities that they had. That was all part 
of the determinations that went into the announcement in 2009.
    Mr. Davis. Well, let me ask----
    Mr. DeMarco. Since then----
    Mr. Davis. Let me just ask, because time is going to 
expire. Earlier this year the Inspector General for the Federal 
Housing Finance Agency issued a report evaluating your 
oversight of executive compensation at Fannie Mae and Freddie 
Mac. The IG report stated that ``you never seriously 
considered'' comparing compensation at Fannie and Freddie to 
compensation at other housing agencies. Is that true?
    Mr. DeMarco. We did not consider the FHA commission or the 
head of Ginnie Mae to be market comparables to private 
companies that operated with all the liabilities and 
responsibilities of a private company. We certainly, being 
Government employees, are well aware of the compensation that 
those executives have.
    Mr. Davis. So you are saying that you did not make a 
comparative analysis of other housing agencies that might have 
some of the same responsibility, although certainly not as much 
and certainly not of exactly the same type.
    Mr. DeMarco. That is right, I am saying that we did not 
find that to be comparable to two private companies that were 
operating in the marketplace with all the legal 
responsibilities and liabilities of private, complex financial 
institutions.
    Mr. Davis. Do you think that the Federal Housing 
Administration, Ginnie Mae, and other agencies, who seemingly 
were doing much better, did not take into consideration the 
same factors and the same market and the overall conditions of 
the economic climate?
    Mr. DeMarco. I am not sure I followed the question, but 
certainly Government employees have a completely different set 
of benefits and, frankly, personal liabilities, or lack 
thereof, when it comes to their engagement. And I do believe, 
and I have a great deal of respect for people who come into 
political positions in Government, they take a huge cut in 
compensation for the opportunity to be direct players in 
assisting the country and in guiding policymaking in the 
country. These are temporary positions that they fill before 
going back out into the private sector, and I do believe that 
the leadership of a company that has $2 trillion worth of 
obligations needs to have competent people.
    Mr. Davis. Bottom line, you think that the salaries are 
necessary and we couldn't do it any other way?
    Mr. DeMarco. I believe that what we have in place, sir, is 
what is the best to minimize the losses to the taxpayer in 
terms of the overall situation that we have as long as Fannie 
and Freddie are in conservatorship, and it is why I said in my 
written statement, oral remarks, I really wish that we could 
have the administration and the Congress of the United States 
get together and come up with legislation that would bring 
these conservatorships to an end and to build an appropriate 
housing finance system for the future.
    Mr. Davis. Thank you very much, Mr. Chairman. I yield back.
    Mr. McHenry. I thank my colleague.
    Mr. Burton for 5 minutes.
    Mr. Burton. First of all, let me just say that the problem 
started in 1994, when you loosened up--and you weren't here, 
none of you were here--when we loosened up the underwriting 
standards. To give loans to people who cannot afford to make 
the payments is crazy. I was an underwriter for an insurance 
company for a long time and I know how that system works. You 
just don't do it. And it is not rocket science. The minute you 
give a loan to somebody who doesn't have the capability to make 
the payments, then you have created a mess that is inevitably 
going to end in disaster, and that is what you inherited.
    Now, you, Mr. Williams, was there for 20 years. I don't 
know how you didn't see part of this, but, nevertheless, the 
problem was pretty apparent to somebody who has any idea how 
finances work.
    Let me just ask a couple questions. You had an outside 
entity make a recommendation on compensation and then you, as 
conservator, Mr. DeMarco, made a recommendation to the board 
and that was pretty much approved. Is that the way it works?
    Mr. DeMarco. I had responsibility for the final decision, 
Mr. Burton.
    Mr. Burton. So you made the decision on compensation.
    Mr. DeMarco. Ultimately. This work was well underway before 
I became acting director, but ultimately, yes.
    Mr. Burton. I know, but you were the one. Well, we have 
talked a little bit about this before. For legal counsel for 
public companies--and I heard what you said about the expertise 
of these guys--the 2010 salary for public companies was 
averaging about $266,000 and with a bonus it was about 
$104,000, so it was around $400,000. For a private company the 
salary was $204,000 and the bonus was around $100,000.
    Now, under Freddie Mac, Robert Bostrom, the general 
counsel, got $2.9 million in 2010 and Timothy Mayopoulos, the 
general counsel, got $2.6 million in total compensation in 
2010.
    I understand that they had the expertise and I understand 
that they had to have a good staff in order to make sure that 
the litigation was processed and pursued in a very rapid way, 
but that just seems very excessive to me. And Mr. Williams and 
Mr. Haldeman, I am sure, are competent in many ways. I don't 
have the time nor the inclination to go into their 
qualifications, but when you look at the salaries and you 
realize the problems that the country faces, it is just 
excessive. I don't think anybody that looks at this would 
disagree with that.
    And I am very disappointed. You talk about being very 
cognizant of the taxpayers' money. I am very disappointed that 
this kind of pay is being given, with the bonuses and 
everything, when it is far in excess of the private sector in 
most cases.
    And you inherited a lot of the problem. Don't 
misunderstand. I understand that. And the underwriting was 
terrible before, and I don't know how in the world we are going 
to get out of this quagmire, but the fact of the matter is it 
is excessive and I think it needs to be corrected. We have to 
have competent people, we have to make sure we have competent 
people that can do the job, but I think that when you start 
giving these salaries out to these people, you have to make 
absolutely sure you are not being excessive.
    Mr. DeMarco, I am sure you are trying to do the job to the 
best of your ability, but I hope you will try a little bit 
harder as long as you are the conservator. And if you have 
recommendations on what Congress can do to help deal with this 
problem, I sure would like to see it. I would like to see 
Fannie Mae and Freddie Mac be done away with and go back to the 
private market, where sound business principles are applied to 
make sure the qualified people are buying these houses, instead 
of trying to help everybody out, especially those who can't 
afford them. You just dig a bigger and bigger hole, and that is 
why this country is in the mess that it is right now.
    Mr. Chairman, I yield back.
    Mr. McHenry. From former chairman to former chairman, Mr. 
Towns is recognized for 5 minutes.
    Mr. Towns. Thank you very much, Mr. Chairman.
    Let me begin by saying that I want you to help me be able 
to determine in terms of how you arrive at these bonuses. I 
know that, in education, if you are able to lower the dropout 
rate, teachers are able to improve the reading scores, have 
great retention in terms of students graduating on time or 
staying in school, and then based on that the teacher gets a 
bonus, which I think that makes sense. They have done something 
outstanding; now they are rewarded.
    Tell me how you arrived at the bonuses, Mr. DeMarco.
    Mr. DeMarco. So FHFA, in consultation with the boards of 
directors of each company, developed corporate scorecards for 
each company outlining an array of areas of performance 
regarding minimizing losses to the taxpayer, remediating 
operational and risk management weaknesses of the company, and 
ensuring that the businesses operated effectively and 
efficiently.
    So there was an array of items that were put into the 
corporate scorecard. These are then scored by management at the 
end of the year, reviewed by internal audits of the companies, 
then reviewed by the board of directors and finally by my staff 
in terms of assessing the performance, and that becomes the key 
input into the determination of these bonuses.
    The structure for the employees' compensation, the 
executive compensation, has the following components: We set a 
target compensation for each executive that is aligned to be at 
or below the median of a comparable position in a comparable 
firm, and from that target compensation a third of it is set 
aside to be paid in the form of a target incentive opportunity, 
or what you all would refer to as a bonus, and that gets paid 
out over a 2-year period after the performance year.
    Then the rest is salary. A portion of it is paid during the 
course of the year; the majority of it is held off as deferred 
salary to be paid the following year, and that is done for 
retention purposes. Furthermore, to incentivize performance 
there, a portion of that deferred salary is itself tied to the 
corporate performance, allowing for a reduction in the actual 
amount of deferred salary that is paid if performance doesn't 
measure up.
    As is detailed in my written statement, in each of the 
years we have done these assessments, we have not awarded full 
amounts for either the deferred salary or for the target 
incentive opportunities; we have awarded less than the targeted 
amounts.
    Mr. Towns. Let me just say that I notice, in terms of my 
good friend and colleague, Congressman Burton indicated in 
terms of what happened in terms of 1994, but I think there is 
one thing that we are not considering, is the fact that, in 
many families, one person has lost his or her job, and that has 
created a lot of problems along the way. And when I walk the 
streets in my district and I listen to the people that are 
losing their homes, and then you look at these salaries, one 
would say, wait a minute, why don't we take these salaries and 
save a whole block. And this is what you are hearing from 
people back in the district that I represent in Brooklyn, New 
York.
    Do you hear people talking about excessive salaries?
    Mr. DeMarco. I do. I get correspondence on this as well. I 
certainly hear from Members of Congress and so forth, and all I 
can say, Congressman, is I believe that we are trying to strike 
a difficult balance between ensuring that these multi-trillion 
dollar companies have the appropriate expertise running them 
and that we are keeping these salaries as low as possible, 
while ensuring that we have capable people and that the people 
that are there, from the CEOs on down, are focused on helping 
homeowners. We are very committed to trying to help troubled 
homeowners and to provide alternatives to them when they get in 
trouble.
    Mr. Towns. But if we are not successful, I am not sure that 
we should--let me just ask one quick one before my time is 
expired. The IG report concluded that your agency failed to act 
on foreclosure abuse issues until the middle of 2010, even 
though there were multiple indicators prior to that time which 
would have led you to act earlier. Are you familiar with this 
report?
    Mr. DeMarco. I am.
    Mr. Towns. Let me ask you about one of the foreclosure 
firms, the law firm of Steven J. Baums in New York. Over the 
past week, both Freddie Mac and Fannie Mae instructed servicers 
not to refer any new foreclosure cases to the firm. Why did 
Freddie and Fannie just now drop this law firm? Why did it take 
so long? I just want to find out as to why. Yes, please. Why 
did it take so long, Mr. Williams?
    Mr. Williams. Congressman, we are constantly looking at our 
law firms and we find, when they are not performing or, in this 
case, I concur with your concern about their behavior, we take 
action as quickly as possible. It is also important for us to 
prudently move the cases so that we don't incur additional 
losses to the taxpayer.
    Mr. Towns. That should be considered in your evaluation as 
well to determine whether the person gets that extra 
compensation. Thank you.
    Mr. McHenry. I thank the former chairman.
    Recognize Mr. Kelly.
    Mr. Kelly. Thank you, Mr. Chairman. I would yield back my 
time to the Chair.
    Mr. McHenry. Well, thank you. I certainly appreciate the 
gentleman yielding.
    Mr. DeMarco, I know you are familiar with the Office of 
Inspector General, but to Mr. Williams--because of your service 
in Government, Mr. DeMarco, I know you are very familiar with 
that process, but, Mr. Williams, Mr. Haldeman, are you both 
aware that Federal IGs have the right to request information 
and assistance from their regulated entities?
    Mr. Williams. Yes, I am.
    Mr. Haldeman. I am aware as well.
    Mr. McHenry. Now, it was brought to the committee's 
attention that employees at the Enterprises have resisted 
document requests made by the FHFA Office of Inspector General, 
arguing that these requests must go through the FHFA. Were you 
aware of this, Mr. Williams?
    Mr. Williams. Congressman, we are fully cooperating with 
the IG on all matters and coordinating with FHFA.
    Mr. Haldeman. It was my understanding that we were 
cooperating with any requests from the IG and coordinating it 
with our counterparts at FHFA.
    Mr. McHenry. Okay. Will you both commit full compliance 
with all requests of information from the Office of Inspector 
General? Mr. Williams.
    Mr. Williams. Congressman, we work with the IG 
cooperatively.
    Mr. McHenry. Will you commit? It is a question. And I 
understand you want to give a different answer, but will you 
commit to providing the documents and information the Office of 
Inspector General requests of your entity?
    Mr. Williams. We have been, Congressman, and will continue 
to do so.
    Mr. McHenry. You will continue to do so. Is that correct?
    Mr. Williams. That is correct.
    Mr. McHenry. Thank you.
    Mr. Haldeman.
    Mr. Haldeman. Yes. The only caveat I would add is that we 
do coordinate that activity with our regulator, FHFA.
    Mr. McHenry. Okay. So, to be clear, to you, Mr. DeMarco, so 
the oversight, Office of Inspector General, who is to oversee 
you, they must request from you, in order to request from the 
entities that you are regulating in order to get information.
    Mr. DeMarco. The IG's responsibility is to oversee the 
economy and efficiency and effectiveness of FHFA, and that is 
done to get the effect of some of FHFA's activities, they will 
request information from the regulated entities, and I believe 
we have worked out a very efficient process for dealing with 
that and I believe both companies have been responsive to the 
IG. But the IG's oversight is of FHFA and FHFA's oversight is 
of Fannie and Freddie.
    Mr. McHenry. Right. But in order to get that information, 
for instance, the TARP oversight, Office of Inspector General 
requests information of the banks that got money, and they 
don't have to go to the Treasury in order to ask for that.
    Mr. DeMarco. Right. It is not being--I don't believe it is 
being passed through.
    Mr. McHenry. Would you commit to letting the Office of 
Inspector General directly request of Fannie and Freddie the 
documents and information that they need?
    Mr. DeMarco. Pursuant to audits and evaluations being 
undertaken by the IG, certainly.
    Mr. McHenry. Okay. Thank you.
    With that, I would like to yield the balance of the time 
back to Dr. DesJarlais.
    Mr. DesJarlais. Thank you, Mr. Chairman, and thank you all 
for appearing before us today.
    The title of our hearing today, as you well know, is Pay 
for Performance: Should Fannie and Freddie Executives Be 
Receiving Millions in Bonuses? With the little time we have, I 
will go to each of you and let you answer that question 
directly.
    Mr. Williams.
    Mr. Williams. Yes, Congressman. Should we be paid for 
performance? Yes, we should. And are we being evaluated on the 
performance of the executives? Yes, we are. And we have been 
given some very complex challenges to deal with in this market.
    Mr. DesJarlais. Mr. Haldeman.
    Mr. Haldeman. Yes, we should be paid based on performance. 
The difficulty is that, in contrast to my years in the private 
sector, where all the companies were profitable and it was 
easier to identify performance and tie it to profitability, 
much more difficult to tie pay to performance in the kind of 
situation we have at Freddie Mac, where there are so many 
embedded losses that we are dealing with that continue to come 
through the financial statements.
    Mr. DesJarlais. Okay. And again the title Pay for 
Performance: Should Fannie and Freddie Executives Be Receiving 
Millions in Bonuses, Mr. DeMarco, let's address the millions in 
bonuses.
    Mr. DeMarco. I believe they should be being compensated at 
a market rate that allows FHFA's conservator to ensure that we 
can attract and retain suitable executives to run these 
companies.
    Mr. DesJarlais. Thank you. I will have some more questions. 
I yield back.
    Mr. McHenry. The gentleman's time has expired.
    Mr. Clay for 5 minutes.
    Mr. Clay. Thank you, Mr. Chairman. Mr. Chairman, the 
witnesses have testified that part of their compensation is 
based on how Fannie and Freddie perform, but I have serious 
questions about some of their so-called achievements. Let me 
give you an example.
    Fannie Mae's 10-K filing states that credit losses were 
actually lower than expected in 2010. It sounds like good news, 
however, the reason for these lower credit losses is that many 
servicers were caught up in the robo-signing scandal and were 
forced to halt their foreclosures during the fourth quarter of 
2010.
    Mr. DeMarco, how can you take credit for fewer losses if 
they resulted from the robo-signing scandal? And that is not a 
basis for bonus, is it?
    Mr. DeMarco. Congressman, the performance over the last 
year that was better than FHFA itself had projected in a 
published report in October 2010 is reflective only in part by 
delays in foreclosures; in fact, reflects that we have had 
better performance of underwater mortgages that had been 
projected, we have had a better performance of loan 
modifications and other foreclosure alternatives than had been 
projected. So, in fact, I think it is reflective of the fact 
that the steps that have been taken at these companies are 
actually bearing fruit and have resulted in performance that 
was better than was modeled and publicly reported in 
projections by FHFA last year.
    Mr. Clay. Okay, let me give you another example. Part of 
the executive compensation was based on this factor, whether 
Fannie Mae was able to issue at least 37.5 percent of all new 
mortgage backed security issuances. According to Fannie Mae, 
they exceeded this goal. However, as the IG pointed out, the 
main purchaser was the Government. In a report issued earlier 
this year, the IG said this, it seems unlikely that Fannie Mae 
could have commanded such a large share of the market without 
the Federal Reserve purchase of its MBS.
    Mr. DeMarco, you can't really take credit for meeting this 
goal if it was due to deliberate support from the Federal 
Reserve, can you?
    Mr. DeMarco. These were not coordinated actions, 
Congressman. The Federal Reserve's purchase of mortgage backed 
securities was designed to affect mortgage interest rates and 
rates in the marketplace. These are separate things.
    Mr. Clay. Okay, let me ask you about another example. One 
of the measures for determining performance bonuses for Freddie 
and Fannie executives was whether they provided more 
affordability to the housing market. They claim they met this 
goal, arguing that affordability has improved dramatically. Do 
you know why? Because housing prices have tanked.
    Mr. DeMarco, are you seriously paying million dollar 
bonuses for achievements in this area?
    Mr. DeMarco. That particular element, sir, is reflective of 
the companies' responsibility for meeting various affordable 
housing goals. Without regard to the fact that they are in 
conservatorship, they remain subject to these kinds of 
responsibilities, and that is what they were being looked at, 
to make sure that in conservatorship they weren't stepping back 
from certain parts of the market, including those that are 
generally referred to as affordable housing sector in the 
marketplace. It was designed to make sure that they stayed 
active in purchasing mortgages in all parts of the marketplace.
    Mr. Clay. Okay, so that was the benchmark, affordability. 
But are you actually awarding bonuses because housing prices 
are continuing to plummet?
    Mr. DeMarco. No, sir.
    Mr. Clay. Okay, what is the benchmark, then?
    Mr. DeMarco. The benchmark is the housing goals that are in 
place and that we report on to the Congress.
    Mr. Clay. You know, I am mystified as to why these so-
called achievements should entitle executives to million dollar 
bonuses, and they either had nothing to do with the actions of 
Fannie and Freddie or they appear to reward a continuing 
downward spiral in our housing market. I can't figure out which 
one it is. Can you help me?
    Mr. DeMarco. Congressman, I appreciate how difficult this 
is. Clearly, we are all affected by the conditions in the 
country's housing market and its economy. We are trying, as 
conservator of Fannie and Freddie, to ensure that those 
companies remain active in the marketplace so that the country 
has a functioning secondary mortgage market, to make sure that 
they are taking all appropriate action to assist borrowers in 
troubled mortgages, and that the $5 trillion worth of mortgages 
that the American taxpayer is now supporting are being overseen 
and managed by competent professionals that can prudently 
manage the risk of such an enormous portfolio.
    As I have said at the outset and in my written statement, 
it is not our goal to be keeping this going, and I really would 
welcome working with the Congress of the United States to get 
on with the hard work of having finance reform so that we can 
bring the conservatorships themselves to an end, which would 
end this compensation issue and the much larger exposure to the 
taxpayer.
    Mr. McHenry. The gentleman's time has expired.
    I would encourage you to also work with the President on 
housing finance reform.
    Dr. DesJarlais from Tennessee is recognized for 5 minutes.
    Mr. DesJarlais. Thank you, Mr. Chairman.
    Mr. Williams, CEO of Fannie Mae, correct?
    Mr. Williams. Correct.
    Mr. DesJarlais. Okay. Do you think that Fannie Mae is a 
success, the enterprise is succeeding doing well?
    Mr. Williams. Congressman, we have been given some very 
challenging goals, as I have articulated. We have needed to 
stabilize the company, to provide critical support to the 
marketplace as we have provided our liquidity and funding for 
both single-family and multi-family, while helping to reduce 
long-term credit losses and helping----
    Mr. DesJarlais. Is it meeting your expectations as a CEO?
    Mr. Williams. I think the team has done an extraordinary 
job under very difficult circumstances, sir.
    Mr. DesJarlais. Okay.
    And, Mr. Haldeman, as far as Freddie Mac, you are the CEO. 
Do you think it is a success? Are you proud of the company? Do 
you feel good about where you are going?
    Mr. Haldeman. I would divide the company into two parts, 
and this is in part a reference to an earlier question of 
whether I would invest in Freddie Mac, and that is a relevant 
issue because I have been an investment person for most of my 
life. And if I could divide Freddie Mac into two parts, I would 
definitely invest in the company from 2009 on. I am incredibly 
proud of the work of our employees from 2009 on. We have a 
very, very high quality book. Our people are entirely committed 
to making sure we participate in responsible lending going 
forward.
    Mr. DesJarlais. Okay. I mean, as CEOs, that is the answer I 
had hoped to hear, that you are both proud of your companies 
and you have high expectations for them. Since entering 
conservatorship, Fannie Mae and Freddie Mac, or the 
Enterprises, have taken $169 billion from the Treasury and 
still owe taxpayers $141 billion, so Government ownership of 
Fannie and Freddie is now the most expensive bailout of the 
2008 financial crisis, which sets you on a different level than 
private sector companies who, if they are profitable, that is 
good; if they get big bonuses, that is fine; the taxpayers 
aren't paying for those, so they are not as concerned. But 
right now the taxpayers are paying for these and they are very 
concerned, and that is why we are having this hearing.
    Mr. DeMarco, getting back to the beginning of the hearing 
when Chairman Issa was talking about salaries, according to 
reports, Mr. Williams and Mr. Haldeman made about $4.7 million 
and $5.1 million, respectively, last year, and I think Mr. 
Williams' base salary was $900,000 and Mr. Haldeman was similar 
to that, so obviously big bonuses involved to reach that $4.7 
million and $5.1 million. And as was mentioned several times, 
President Obama makes $400,000, Members of Congress make 
$174,000, and I think you made about $240,000. Do you think 
that the work that Mr. Williams and Mr. Haldeman warrants eight 
times as much pay as the President of the United States?
    Mr. DeMarco. As an economist, sir, I believe that what is 
perceived as the total compensation value and benefit of 
various positions goes beyond just the salary that is there, so 
I don't find it fruitful to measure the compensation of the 
President of the United States with those of CEOs of major 
corporations.
    Mr. DesJarlais. Well, how about Members of Congress? Right 
now the disapproval rating for Congress is pretty high, and 
even though I think all of our colleagues here feel that we 
work very hard, I think people feel we get paid too much, and 
our deficit is $14.3 trillion and rising. I think that if 
Congress felt that they should get a bonus because we are doing 
a good job right now, we would all be voted out of office, and 
should be, because clearly the deficit continues. You all owe 
the taxpayers $141 billion, so when taxpayers are seeing 
millions of dollars in bonuses going to the executives, I 
understand their outrage, and, Mr. Haldeman, you said you 
understood that too.
    So, Mr. DeMarco, as the conservator of Fannie and Freddie, 
you are nominally the boss of Mr. Williams and Mr. Haldeman. 
They can't do much without talking to you first. Do you think 
that their work is 10 times harder or 10 times more complex 
than yours and maybe Members of Congress? Is their salary 
difference justified?
    Mr. DeMarco. I don't think anyone is going to agree, 
including me, that anyone is working 10 times harder than I am 
right now, Congressman.
    Mr. DesJarlais. Okay. Well, are they justified, then? I 
mean, should they be getting----
    Mr. DeMarco. I believe that given the framework that was 
put in place, they are justified, because the framework was 
designed in consultation with the Special Master of Treasury, 
looking at large financial institutions that operate as private 
companies, not as government agencies, to develop a 
compensation structure and amount. I believe that what we 
struck here was an appropriate balance cognizant of what the 
marketplace looks like.
    Mr. DesJarlais. Well, again, bonuses should be based on 
performance, and clearly I think it is dubious that the 
performance is there to warrant million dollars of bonuses with 
that type of debt to the American taxpayers. I understand why 
they are upset. I am upset. But I do thank you all for 
appearing here.
    Mr. DeMarco. Thank you.
    Mr. McHenry. Mrs. Maloney from New York is recognized for 5 
minutes.
    Mrs. Maloney. Thank you.
    I would like to continue on this line and ask about the 
bizarre situation with bonuses. When things are going well for 
a company, bonuses are awarded for positive performance. But 
when things are going poorly, we hear the argument today that 
bonuses are necessary for recruitment and retention. In other 
words, it always seems like a good time for an executive bonus.
    When you announced, Mr. DeMarco, these new compensation 
packages in 2009, you issued a press release defending the high 
salaries, even though Fannie and Freddie were going into 
conservatorship after major losses, and they have continued to 
lose money. They have been bailed out to the tune of $169 
billion in taxpayers' money and I am told that Fannie has asked 
for an additional $7.8 billion and Freddie for an additional $6 
billion.
    And the compensation plan that I looked at--I agree with my 
friend on the other side of the aisle, but the compensation 
plan here that I have looked at both Fannie and Freddie, and I 
would like to put it in the record, consists of approximately 
$6 million for each executive, and I would like to place that 
in the record. And your basic argument that you have given to 
both sides of the aisle today is that it is necessary to 
attract and retain talent.
    So my question is is there ever a wrong time to award 
lucrative bonuses, Mr. DeMarco?
    Mr. DeMarco. There are, Congresswoman, and we have. When 
these companies were placed into conservatorship, all bonuses 
were eliminated at the company. We had a number of senior 
executives leave the company. There were no severance or golden 
parachute payments made to them. The folks that were most 
responsible for the companies ending up in conservatorship left 
without anything taken. In fact, the collapse of their stock 
price did much to reduce the value of compensation it earned 
prior.
    The difficulty that we have at FHFA as conservator of 
Fannie and Freddie is that the country still needs to have a 
functioning secondary mortgage market. I have two GSEs here 
that needed Government assistance in order to continue to 
function in the marketplace. We replaced the leadership of 
those companies that led to the conservatorship, but now I have 
to be able to attract people in to run multi-trillion dollar 
companies knowing that there is going to be this flow of losses 
from business decisions they had nothing to do with.
    Mrs. Maloney. But let me say that a lot f your comments 
today sound very much like AIG. And I would like to place AIG's 
statement in defense of their bonuses in the record. In their 
statement they said that they had asked their employees who 
received retention payments or bonuses or stocks, or any type 
of pay in any form, of $100,000 or more to return at least half 
of those payments. And I would like to put AIG's statement in 
the record, too.
    And my question, Mr. DeMarco, did you at least do as much 
as AIG did? Will you ask executives at Fannie and Freddie to 
return half of their retention payments, their retention 
bonuses, their retention payments?
    Mr. DeMarco. I will not, Congresswoman. I believe that 
would be a breach of faith with the agreement that I have 
struck with the employees of these two companies. And I believe 
that trying to take such action at this point would be 
detrimental to the taxpayers' interest. I know how difficult 
this is and how frustrating it is, but I believe that to take 
such actions would not help the American taxpayer at this point 
and it would not help the country's housing market.
    Mrs. Maloney. Earlier, you spoke rather movingly about 
public service, about people who take a job to give back to the 
community, to help their country, and Fannie and Freddie are no 
longer answering to shareholders; they are answering to 
taxpayers. They are not only answering to taxpayers for their 
salary and the bonuses, which I believe they don't deserve, but 
they are answering to the taxpayer for the continued bailout 
that continues for these two entities. So you are in a very 
different structure now, and I would say you should look for 
employees who want to give back to their country with their 
talent.
    In fact, yesterday, as the chairman knows, we had a bill 
pass out of Financial Services that will treat AIG like every 
other Government agency and be on the pay scale of every other 
Government agency, and will not include bonuses. So Congress is 
acting to move in a way that is more appropriate for an agency 
that continues to be bailed out, is no longer answering to 
shareholders, but answering to the American taxpayer, and the 
American taxpayer, 14 million of them, are without jobs and 
struggling. It is hard for them to understand how executives 
get $6 million in pay for a failing entity. Surely there are 
talented people that can handle these jobs and do it in a way 
and a pay scale appropriate with Government agencies.
    I yield back. My time has expired. I have a lot more to 
say, but my time has expired.
    Mr. McHenry. I thank my colleague.
    Mr. DeMarco, I just want to take a moment. We are 
approaching the noon hour. We have a few more Members that want 
to ask questions, but I just want to take a moment of personal 
privilege and say thank you for serving as a human shield this 
morning. I know it has been tough, but we certainly thank you 
for your service.
    With that, Mr. Gowdy, the subcommittee chairman, Mr. Gowdy, 
is recognized for 5 minutes.
    Mr. Gowdy. Thank you, Mr. Chairman.
    Mr. Haldeman, why did the Enterprise enter a 
conservatorship?
    Mr. Haldeman. The Enterprise entered a conservatorship in 
September 2008 because of the severe economic stress our 
company was under and, in the words of Secretary Paulson, felt 
a timeout was necessary.
    Mr. Gowdy. Well, do you agree with Mr. DeMarco? Because in 
his testimony he said it was a series of poor business 
decisions that led to the conservatorship. Do you agree with 
that or disagree with that?
    Mr. Haldeman. In my tenure at Freddie Mac, I have tried 
very hard to----
    Mr. Gowdy. I am not asking about that. I am asking about 
decisions that led up to the entering of a conservatorship. It 
is a very simple question. Were there poor business decisions 
that led to that? The answer is obviously yes. I mean, we can 
have this exercise as long as you want to have it, but the 
answer has to be yes, right? Or else there wouldn't have been a 
conservatorship.
    Mr. Haldeman. It is difficult for me to say that because I 
don't want to second-guess my predecessors.
    Mr. Gowdy. Well, we are paying you a handsome salary 
because you are supposed to be an expert in the field. And you 
are not going to second-guess your predecessors?
    Mr. Haldeman. Because it is very difficult to say what one 
would have done at that point in time given those circumstances 
and pressures that they were under.
    Mr. Gowdy. So you can't think of a single poor business 
decision that was made prior to 2008?
    Mr. Haldeman. I can talk about some decisions that were 
made that I hope I would do differently, but I would prefer not 
to characterize them as poor business decisions.
    Mr. Gowdy. Well, Mr. DeMarco, it is your language, poor 
business decisions. What specifically did you mean by poor 
business decisions by his predecessors? He is obviously 
reluctant to go into that; hopefully you will not be as 
reluctant.
    Mr. DeMarco. Mr. Gowdy, both Fannie Mae and Freddie Mac 
reduced their underwriting standards, allowed much greater risk 
in terms of the mortgages they purchased, they reduced the 
guaranty fees, the insurance that they were charging for this, 
and they made investment in private label mortgage backed 
securities that while at the time were all rated by private 
credit rating agencies as AAA rated securities, clearly we have 
seen that there was substantial risk in those instruments. So 
these are business decisions made. The executives of those 
companies at the time can make these decisions----
    Mr. Gowdy. During what time?
    Mr. DeMarco. This is largely occurring in the period from 
2005 to the first half of 2008.
    Mr. Gowdy. Who is Daniel Mudd?
    Mr. DeMarco. He was the CEO of Fannie Mae during this 
period.
    Mr. Gowdy. What was his total compensation?
    Mr. DeMarco. I don't know off the top of my head, sir.
    Mr. Gowdy. So you wouldn't disagree if it were $12 million.
    Mr. DeMarco. That could be right.
    Mr. Gowdy. How about Richard Syron?
    Mr. DeMarco. He was the CEO of Freddie Mac.
    Mr. Gowdy. During what time period?
    Mr. DeMarco. I am not sure, but it ended at the time of 
conservatorship.
    Mr. Gowdy. Exactly, 2003 to 2008. Now, what was his total 
compensation for that time?
    Mr. DeMarco. Again, I am sorry, sir, I don't know that.
    Mr. Gowdy. Would you disagree with me if I told you it was 
more than $38 million?
    Mr. DeMarco. I could believe that.
    Mr. Gowdy. All right. So surely you can understand the 
frustration of taxpayers who were paying bonuses while the bus 
is driven through the gates of hell. And then you want us to 
pay bonuses while the people change the tires.
    Mr. DeMarco. I can certainly understand the frustration. 
This committee doesn't know me very well, but I have been a 
career civil servant my entire life and most of that career 
service has been in policy positions in which I have tried to 
advise policymakers, including numerous congresses, of the 
risks to the taxpayer in the Fannie Mae and Freddie Mac model.
    It gives me no satisfaction or pleasure to be sitting here 
at conservator of these companies at this point, seeing the 
devastation to the American taxpayer that has resulted. When I 
spent the better part of my career trying to warn policymakers 
of the risks that were inherent in the structure that was in 
place pre-conservatorship, and that is why I would like to end 
this hearing with the same plea that I began at the beginning. 
FHFA is ready to work with the Congress and the administration 
to bring these conservatorships to an end and to build a more 
robust, sound housing finance----
    Mr. Gowdy. Well, I want to ask you about that. Who is James 
Johnson?
    Mr. DeMarco. James Johnson was the CEO of Fannie Mae prior 
to Dan Mudd, back in the 1990's.
    Mr. Gowdy. And what was his total compensation during that 
time period?
    Mr. DeMarco. It was substantial, sir.
    Mr. Gowdy. One hundred million dollars. Now, he had a good 
working relationship with Congress, right?
    Mr. DeMarco. Yes, he did.
    Mr. Gowdy. Okay. Now, Franklin Raines, what was his total 
compensation?
    Mr. DeMarco. I don't know, sir.
    Mr. Gowdy. Would you disagree if it were more than $90 
million?
    Mr. DeMarco. I would agree with that.
    Mr. Gowdy. And he had a good working relationship with 
Congress. So sitting here simply saying that we need a better 
working relationship with Congress, one could argue that is 
what got us into this abyss.
    Mr. DeMarco. I am sorry, I don't recall saying having a 
better working relationship with Congress. I thought I said----
    Mr. Gowdy. I have heard you mention the word Congress a 
half dozen times.
    Mr. Chairman, if I could have 30 more seconds.
    The graveyard is full of people who are waiting on Federal 
judgeships that never came, and I have heard the argument time 
and time again that we have to raise compensation levels for 
Federal judges so we can attract the right kind of people. And, 
yet, every time there is an opening there are 100 folks that 
are vying for it. They will take a tremendous cut in pay. I 
find it literally ironic that the total compensation for the 
U.S. Supreme Court justices is less than either of these two 
men made.
    Thank you, Mr. Chairman.
    Mr. McHenry. Mr. Connolly for 5 minutes.
    Mr. Connolly. Thank you, Mr. Chairman.
    And thank you to our witnesses for being here today. I know 
you would like to do nothing better than be here today before 
this committee.
    Mr. DeMarco, if I understood your testimony, you make the 
argument that putting aside histrionics, putting aside public 
opinion, even putting aside the opinion here in the Congress, 
the problem, the challenge you face is that a substantial 
number of the mortgages of the United States are tied up in 
these two organizations and you have to find competent, highly 
qualified, skilled managers willing to manage a Freddie Mac and 
Fannie Mae and, therefore, you have to give a nod toward sort 
of what the marketplace offers in terms of skilled managerial 
leadership and thus the compensation we are looking at.
    Mr. DeMarco. That is correct, Congressman.
    Mr. Connolly. Would you agree, though, that given the fact 
that these are GSEs, given the fact that the taxpayer has 
invested very heavily now directly in trying to straighten the 
ship of state for both Freddie and Fannie, that transparency 
rules might be a little different for these two organizations 
than for a private commercial entity on Wall Street?
    Mr. DeMarco. I think that there can be allowance for 
greater transparency, yes, sir.
    Mr. Connolly. Well, allowance for. As a public servant, as 
a fellow public servant, what, in your view, where is that 
line? I mean, presumably, that line is different than a private 
entity, a purely private entity on Wall Street. So what do we 
as policymakers here on the Hill and what, more importantly, 
does the public have a right to expect by way of transparency 
in compensation packages and policy?
    Mr. DeMarco. I believe these companies are continuing to 
operate as private companies, as SEC registrants, and the 
public is certainly entitled to have the same disclosures of 
the compensation of the executives of other firms, and that is 
done. Furthermore, we have detailed, the FHFA has detailed the 
executive compensation program and structure that is in place 
for these companies. But we go beyond that with respect to 
disclosure and we provide numerous reports to the Congress on 
the conservatorship operations both in terms of detailing the 
sources of losses that have led to these taxpayer draws and 
detailing the activities that are underway at both companies to 
assist homeowners.
    Mr. Connolly. Mr. DeMarco, you are familiar with the 
Inspector General report that was actually critical with the 
compensation system: ``FHFA has neither developed written 
procedures to evaluate the Enterprises' recommended 
compensation,'' the Enterprises referring to Fannie and 
Freddie, ``each year, nor required agency staff to verify and 
test the means by which the Enterprises calculate their 
recommended compensation levels.''
    Do you disagree with that finding?
    Mr. DeMarco. I am familiar with the finding and I can 
explain it. Yes, sir, I am familiar with it and we have agreed 
to take their recommended remediation that the IG had in its 
report.
    Mr. Connolly. So you are going to have written procedures.
    Mr. DeMarco. We will have written procedures.
    Mr. Connolly. When might we see such written procedures?
    Mr. DeMarco. I have assured the Inspector General we will 
have those in place by the end of this year, in time for the 
review of the coming year's performance.
    Mr. Connolly. Given the ostensible inadequacies identified 
by the IG, why wouldn't we have a little bit less confidence 
that the compensation programs, bonuses and other compensation, 
given the lack of transparency, lack of clear criteria and 
policies, lack of written policy, why should we have faith that 
that is just the ticket, that is what we need to make sure we 
are getting the right people to manage Fannie and Freddie?
    Mr. DeMarco. It is a fair question, Congressman, but the 
companies themselves have disclosed the scorecards and the 
ratings on them. What the IG was referring to is, within FHFA, 
the FHFA internal review process of these scorecards did not 
have written procedures as to how that should be done. The IG 
did not say we didn't have a process, it said we did not have 
one documented. And he is quite right about that and I believe 
that that is a proper control system, and we have agreed to put 
that in place.
    With regard to the calculations themselves, this is the IG 
saying that well you have delegated to the companies to 
undertake normal day-to-day operations, including calculating 
pay, but we think with regard to these executives, you ought to 
send an FHFA examiner in there to re-check the calculations 
that have been done to determine the pay. We have agreed to do 
that.
    Mr. Connolly. One final question, Mr. Chairman.
    This committee, Mr. Cummings specifically, on behalf of the 
minority, at least, requested copies of compensation agreements 
from your office. We received recently heavily redacted copies 
of documents. Is it your position that this committee is not 
entitled to see the actual unredacted compensation agreements 
involved with Fannie and Freddie?
    Mr. DeMarco. Sir, this has to do with distinguishing people 
who are named executive officers and those that are not, and it 
is trying to respect the privacy rights of those people. But we 
have provided the committee, I believe, with a great deal of 
information detailing the individual executives at the company 
and the compensation that is being paid.
    Chairman Issa [presiding]. Would the gentleman yield?
    Mr. Connolly. Of course, Mr. Chairman.
    Chairman Issa. Mr. DeMarco, the majority feels that you 
have been generally forthcoming, but we would ask would you be 
willing to provide all compensation packages that include 
bonuses with the names redacted, however, with, if you will, 
numbers that could be referenced when we are going through the 
skill set? So that the gentleman, although you are very right, 
we don't need to know the names of every individual, we want 
that respected, we would appreciate it if we could go to 
compensation levels far below our normal 10-K level, and I 
think that is what the gentleman would like to see.
    Mr. Connolly. Quite correct.
    Mr. DeMarco. We will provide that.
    Chairman Issa. Thank you.
    Mr. Connolly. I thank the Chair.
    Chairman Issa. You are very welcome.
    We now recognize the gentlelady from New York, Ms. Buerkle, 
for 5 minutes.
    Ms. Buerkle. Thank you, Mr. Chairman.
    And thank you to our panelists, in particular Mr. DeMarco, 
for being here and for lasting this long. I just have a few 
questions, mostly follow-up to some of the testimony that I 
have heard this morning.
    You mentioned in your testimony, Mr. DeMarco, and my 
colleague, who has since left, from New York, talked about the 
need to retain or the need to attract quality employees, so 
that was the justification for these incredible salaries and 
bonuses.
    But then you talked about in many instances salaries, what 
we pay people, is almost irrelevant; maybe they have a passion 
for it, maybe they have an interest in it, maybe they are just 
interested in doing the greater good. So which is it? I mean, 
which one do you think should be the motivation here for these 
salaries?
    Mr. DeMarco. I believe those motivations are personal, and 
I think that I am looking at in terms of overseeing two 
companies with 12,000 people is I have to be concerned about 
that most of those people are concerned about what their 
compensation is.
    But one other difference here that I think makes this sort 
of not just a clean this or that is that to work at Fannie Mae 
or Freddie Mac today leaves the employees, whether they are an 
executive or they are a secretary, with the fundamental risk of 
I don't know how long this company is going to be around and I 
don't know what I am working for long-term. And I think that 
that is also a very tricky thing for us as conservators, tricky 
for the two CEOs in trying to encourage people to stay engaged 
at their companies.
    Ms. Buerkle. Well, I would agree with that except for 
Fannie and Freddie have the ability and now we are talking 
about third quarter losses. They have now gone back to the 
Treasury and made huge requests for additional money. But 
anyway, I guess my thought is maybe we need to reconsider if it 
is performance. These third quarter losses should be a concern 
to everyone, and in particular the American taxpayer.
    Mr. DeMarco. Congresswoman, I certainly agree with that. If 
I may, I would say that, and this is in my written statement, 
that we are, for the next year, certainly looking again at the 
corporate scorecards and we are looking at the condition of the 
company, as well as the gradual shrinkage taking place at the 
company, and we are trying to reduce compensation. Every time a 
position comes open, we are making serious effort to be filling 
it at a lower compensation.
    Ms. Buerkle. Okay. Speaking of the corporate scorecard, you 
mentioned earlier you assess performance. What do you base that 
corporate scorecard on? Is that based on the HAMP program?
    Mr. DeMarco. That is only one component. And HAMP is 
reflective of the loan modifications generally, which is the 
critical loss mitigation activity taking place at Fannie and 
Freddie for the benefit of not just helping homeowners that are 
troubled in their mortgages, but also to the huge losses to the 
taxpayer on troubled mortgages. That is an important element to 
be assessed.
    Ms. Buerkle. I am sure, though, you are aware of the issues 
with HAMP, the HAMP program, that it is a failed program, and 
maybe that isn't what we should be basing the standard on what 
the Inspector General has brought out about that HAMP program.
    Mr. DeMarco. Yes, Congresswoman. I am aware that there is a 
lot of concern and criticism of the HAMP program, and certainly 
the number of HAMP modifications is not what the administration 
projected it initially would be.
    But I would point out that Fannie Mae and Freddie Mac have 
not just undertaken HAMP modifications, but in fact they are 
going much further, and we have been collectively working on a 
ray of loan modification opportunities for homeowners that go 
well beyond HAMP, which is why it has been reported HAMP has 
done whatever it is, 800,000 loan modifications. Fannie and 
Freddie alone have done just under 1 million permanent loan 
modifications, and the performance of those modifications has 
been quite good and it has led to a reduction in taxpayer 
losses. So we are trying to go beyond HAMP, go beyond the 
limits of HAMP, to offer homeowners a good opportunity 
respective of the taxpayer.
    Ms. Buerkle. And I would respectfully request that you 
provide--there must be a standard, compilations of all of these 
standards that you are using, and if you could submit that to 
the committee, I would appreciate that.
    Mr. DeMarco. Certainly, Congresswoman, we would be glad to 
do that.
    Ms. Buerkle. Now, in my few seconds that are left, many 
would argue that the housing market was the primary reason that 
there was such a financial crisis in 2008. So in response to 
that, the knee-jerk reaction was to pass Dodd-Frank, which we 
are hearing from our financial institutions, the community 
banks, banks in general what a difficult and onerous and 
regulatory, unreasonable bill this is.
    And yet Fannie and Freddie are not included or covered by 
Dodd-Frank. Probably one of the biggest reasons that this whole 
crisis occurred was the housing market. Can anyone on the panel 
explain that to me? Why were Fannie and Freddie left out of the 
Dodd-Frank bill?
    Mr. DeMarco. I can't explain it, but I certainly, as 
conservator, point to some argument during the development and 
debate regarding Dodd-Frank. I believe the administration and 
the leadership that was pushing the Dodd-Frank legislation 
through felt like the housing market was too unstable and that 
they wanted a different vehicle to focus on housing finance. I 
say that not to be for it or agin it, just to say that there 
were certainly plenty in Congress that wanted to see Fannie and 
Freddie be part of the legislation. That is now how the 
legislative process worked out.
    Ms. Buerkle. Thank you very much, Mr. DeMarco.
    I yield back, Mr. Chairman.
    Chairman Issa. I thank the gentlelady.
    We now recognize the gentlelady from the District of 
Columbia, Ms. Holmes Norton.
    Ms. Norton. Thank you very much, Mr. Chairman. I certainly 
appreciate this hearing.
    Mr. DeMarco, in my own profession, that is to say, the 
profession before I came to the Congress, already had a bad 
name, I was a lawyer. And I must say I think that Fannie and 
Freddie have given home ownership a bad name. That is why I am 
interested in your oversight of your own lawyers.
    I was particularly struck by the law firm, currently a 
major law firm, the Baum law firm, which a New York district 
court judge--and this is really unusual for a judge to--it may 
even be a call for someone to go before the ethics committee of 
the bar--talked about finding falsities contained in 5 
paragraphs out of only 10 in an entire petition that the Baum 
firm had submitted. This was a foreclosure case. The case was 
Federal Home Loan Mortgage Corporation v. Raya. And the judge 
went on to say that the misrepresentation ``of the material 
statement was outrageous and the firm has imputed the proper 
administration of justice.''
    What struck me is that the judge said this was not the 
first time that the Baum firm had been unethical. How could a 
law firm operate on behalf of Fannie and Freddie after being 
sanctioned like that if this was not the first time?
    Mr. DeMarco. Congresswoman, forgive me, I am not familiar 
with the particular case that you are citing. I can report to 
you that both Fannie Mae and Freddie Mac have ceased doing new 
business with this particular law firm. When issues regarding 
it certainly came to our collective attention, each----
    Ms. Norton. Why was this law firm kept on after being 
sanctioned? Is this firm considered such an outstanding firm 
for Fannie and Freddie that you had to have its services?
    Mr. DeMarco. I can't speak to the timing here, Ms. Norton. 
I do know that when this information regarding the firm came to 
our attention----
    Ms. Norton. Are you following the conduct of the firms that 
you have----
    Mr. DeMarco. We have gone further than that, Congresswoman. 
FHFA just very recently directed Fannie Mae and Freddie Mac to 
begin the wind-down of their retained attorney networks, their 
list of law firms around the country that are used to process 
foreclosures. So this whole approach to doing business this 
way, and the direct engagement between Fannie Mae and Freddie 
Mac and individual law firms is on a path to cease. We are 
stopping this entire----
    Ms. Norton. That is good news. We understand that you have 
said that firms would now have to meet ``certain minimum 
uniform criteria.'' What are those criteria?
    Mr. DeMarco. Those are in the process of being developed.
    Ms. Norton. Well, could I ask that you submit to the 
chairman and the ranking member a draft of those criteria when 
they are completed? When will they be completed?
    Mr. DeMarco. I know that the work is actively going on. I 
can't tell you exactly, but I think over the next couple months 
we are looking to have this wrapped up. We are working not just 
with Fannie and Freddie on this, but we are working with the 
primary Federal banking agencies because the banking agencies, 
as you know, have been involved in oversight of what the banks, 
as mortgage servicers, have been doing in this area, and the 
law firm actually works for the mortgage servicers.
    So we are trying to get alignment between the standards 
that we believe are appropriate here, get the bank regulators 
aligned with us on that so that there is uniformity in the 
mortgage market with regard to the performance expectations and 
standards for which we are going to hold law firms accountable. 
So this work is actively underway and what we are hoping for 
here is, rather than a disparate set of standards, that we can 
come to one set of standards in which there is going to be 
better accountability for law firms that are going foreclosure 
processing.
    Ms. Norton. The last thing that Freddie and Fannie need are 
law firms to drive them into further trouble than the American 
people already hold them accountable for. Thank you very much.
    Chairman Issa. Would the gentlelady yield?
    Ms. Norton. I would be glad to yield.
    Chairman Issa. I just want to understand. General counsels 
that you pay effectively over $1,000 an hour, $2.6 million and 
$2.9 million, respectively, they are working to try to figure 
out how to manage outside law firms, but that is why we had to 
pay, instead of $300,000 or $400,000 for general counsel, we 
had to pay nearly $3 million, right, so that they would not 
know better than this, but after the fact they would begin 
working on standards to do better?
    Mr. DeMarco. They had standards. They had standards written 
into the contract; they were not identical. And certainly with 
the foreclosure abuses that have been identified and the 
problems that just as few firms have done to tarnish an entire 
industry, we believe that we are taking appropriate action to 
try to remediate that.
    And that as a matter of simplifying Fannie Mae and Freddie 
Mac and as part of the sort of gradual stepping back of the 
size and complexity of those companies, it was my judgment that 
the appropriate step to take was to not have Fannie and Freddie 
continue to maintain this separate relationship with individual 
law firms, but that that was better done and would get better 
execution on mortgage servicing if it was done all through the 
existing mortgage servicer.
    Chairman Issa. Well, I thank the gentlelady for yielding 
and I certainly share with you the concern that maybe they have 
reached a better conclusion, but it is interesting that it was 
Government officials who interceded, people who make less than 
a quarter of a million dollars a year because of the failure of 
multiple nearly $3 million a year general counsels in this so-
called private sector. I thank the lady for bringing this up.
    Ms. Norton. Mr. Chairman, and the draft that the gentleman 
has said would be submitted to you and the ranking member seems 
to me is important.
    Chairman Issa. We look forward to seeing it expeditiously.
    We now recognize the chairman of the subcommittee, Patrick 
McHenry, the gentleman from Hickory, North Carolina.
    Mr. McHenry. I thank the chairman.
    Mr. DeMarco, has FHFA ever rejected a compensation package 
presented to you?
    Mr. DeMarco. Yes, we have had proposals made that we have 
said, no, that is not acceptable, let's go back and redo it.
    Mr. McHenry. Would you be willing to submit that for the 
record once you can gather the documents?
    Mr. DeMarco. I will try to find something appropriate to 
submit for the record here, Congressman. These are done as 
proposals that are made from the board, and I look at them and 
I make determinations based upon the comparables and----
    Mr. McHenry. I understand. I understand. So I would ask 
you, Mr. DeMarco, has the White House ever been in contact with 
you about compensation issues?
    Mr. DeMarco. We, under the senior preferred stock purchase 
agreement that provides the Treasury support to Fannie and 
Freddie, part of that agreement is written into it that the 
FHFA shall consult with the Treasury Department on executive 
compensation. So this is done as a consultation. With every 
executive compensation package that I have to approve, it is 
sent to the Treasury Department for their review. We request a 
consultation with the Treasury on this. This area was obviously 
most active in 2009, when we were working with Ken Feinberg, 
who was the Special Master for Executive Compensation.
    Mr. McHenry. Has the White House ever reached out to you?
    Mr. DeMarco. I have not had any conversation with the White 
House regarding executive compensation.
    Mr. McHenry. Okay.
    Mr. Haldeman, has the White House contacted you regarding 
executive compensation, your firm?
    Mr. Haldeman. They have not contacted me in any way.
    Mr. McHenry. Thank you. Has the Treasury?
    Mr. Haldeman. No.
    Mr. McHenry. Okay.
    Mr. Williams, has the White House ever contacted you 
regarding executive compensation at your firm?
    Mr. Williams. No, they have not, Congressman.
    Mr. McHenry. Has the Treasury?
    Mr. Williams. No, they have not.
    Mr. McHenry. Okay.
    Now, okay, this is interesting because there has been a hew 
and cry from the President in particular about executive 
compensation and it is somewhat strange to me that, in an area 
where he could exert influence, he has chosen not to.
    Additionally, Mr. Williams, Mr. Haldeman, it has been 
mentioned in the press that part of your bonus compensation is 
tied to your relationship with the HAMP program, the Home 
Affordable Mortgage Program that the administration has put on, 
mortgage modifications. But it has been reported in Politico 
that 35 percent of your compensation is tied to what you 
connect and actually get modified through the HAMP program. Is 
that correct?
    Mr. Williams. Congressman, we look at an array of goals 
under our total loss mitigation efforts, so we not only look at 
HAMP modifications, but also our own modifications, as well as 
short sales, deeds in lieu, and activities around our REO, 
including activities we have done to open up mortgage help 
centers in many districts and provide counseling to neighbors. 
So HAMP is one of many metrics that fit into the overall----
    Mr. McHenry. But that is not--is that an individual metric 
or is mortgage modifications one of your metrics and HAMP is 
within that?
    Mr. Williams. HAMP is one goal within a series of metrics 
that we are looking at.
    Mr. McHenry. And what percentage of your bonus structure is 
tied to that?
    Mr. Williams. Congressman, the board looks at the totality 
of our----
    Mr. McHenry. I understand the board actually laid out these 
metrics for how you would be compensated. Beyond your normal 
day-to-day compensation, if you hit these metrics, they would 
reward you financially. I understand the board created this.
    Mr. Williams. Right.
    Mr. McHenry. But you are aware of what those goals are, are 
you not?
    Mr. Williams. Correct.
    Mr. McHenry. Okay. So what percentage of your bonus 
compensation deals with mortgage modifications?
    Mr. Williams. Congressman, that is what I was trying to 
say. The board evaluates my performance based on the totality 
of the scorecard. Our efforts in credit loss mitigation are an 
important component of that; they look at the totality of the 
scorecard.
    Mr. McHenry. Mr. Chairman, I ask unanimous consent for an 
additional minute.
    Chairman Issa. Without objection.
    Mr. McHenry. Thank you.
    You are not answering my question, Mr. Williams. What 
percentage of your compensation is tied to mortgage 
modifications?
    Mr. Williams. Congressman, I am answering your question. 
Our compensation, my compensation is tied to our performance 
against all the goals and objectives, and we are evaluated 
based--and I am evaluated based on how the company does against 
each of those metrics. The board doesn't assign a specific 
weighting to each individual metric.
    Mr. McHenry. So it is more of a feeling, right? I mean, if 
you are laying out this metric, in your 2009 to 2010 10-K, goal 
number one is your performance to help in the housing recovery, 
including mortgage modifications. Goal number two, 
interestingly enough, is to protect taxpayers. This is your 10-
K. Goal number three was to measure, manage, and reduce 
enterprise risk more effectively. Interesting order of how this 
is to be done with the intent that you repay the taxpayers.
    So there is no weighting to this? So if you had zero 
mortgage modification, but you were able to save the taxpayers 
a few more dollars, you could get the same bonus that you 
currently get?
    Mr. Williams. If I had not performed on all the goals, then 
I would be held accountable for that, Congressman.
    Chairman Issa. The Chair would like to inform the gentleman 
we are going to have a second round.
    Mr. McHenry. Fantastic. This is very important and I ask 
unanimous consent to submit for the record the August 31st 
Politico article Fannie, Freddie Dole Out Big Bonuses.
    Chairman Issa. Without objection, so ordered.
    Mr. McHenry. Thank you.
    [The information referred to follows:]



    Chairman Issa. We now will start our second round.
    Oh, I am sorry. Jackie, I am getting new glasses, I 
promise. Before I recognize the gentlelady from California, it 
is the intent of the Chair to finish including a second round 
by 1 sharp. So if Members start showing up here, I assure you I 
will attempt to reach them all, but I will not keep you past 1. 
You have been very patient.
    We now recognize the gentlelady, my friend from California, 
way far down there, Ms. Speier.
    Ms. Speier. Thank you, Mr. Chairman.
    Thank you, witnesses, for appearing here today. We have 
been talking about accountability and it is my understanding 
that Mr. DeMarco makes determinations on the salaries of the 
CEO of Fannie and Freddie based on performance. Would you agree 
with that, Mr DeMarco?
    Mr. DeMarco. Yes.
    Ms. Speier. All right.
    Let me ask you, Mr. Williams, at a Senate hearing yesterday 
it was disclosed that Fannie failed to contact nearly 60 
percent of all borrowers for loan modifications. How would you 
score, how would you grade your performance on that?
    Mr. Williams. Congresswoman, I am not specifically familiar 
with the fact, but what I will tell you is that we manage our 
servicers and our servicers are held responsible for reaching 
out to the borrowers. We have undertaken a number of efforts to 
ensure that our servicers are held accountable. We have 
increased our incentives----
    Ms. Speier. All right, Mr. Williams, 60 percent is not 
accountable. So what I am asking you to do, and through the 
Chair, is go back and determine whether or not it is accurate 
to say that 60 percent of your borrowers have not been 
contacted for loan modifications.
    Mr. Haldeman, it was disclosed yesterday at the Senate 
hearing that 80 percent of your borrowers, not 60 percent, but 
80 percent of your borrowers were not contacted for loan 
modifications. Are you familiar with that?
    Mr. Haldeman. What period of time was that statistic?
    Ms. Speier. I don't think it matters. I think the fact that 
80 percent of the borrowers have not been notified is an F.
    Mr. Haldeman. For any period of time. The reason for me 
inquiring about time period was to see how far in the past that 
was and whether we are making progress in terms of more right 
party contact over time. I believe we are.
    Ms. Speier. I think it is within this year.
    Mr. Haldeman. Then I would----
    Mr. DeMarco. Congresswoman, I am sorry, I am not personally 
familiar with what was reported in the Senate yesterday, but I 
would find these numbers a bit hard to believe.
    Ms. Speier. Okay. Would you, upon reviewing that, provide 
this information to the committee so that we can assess your 
performance based on that kind of information?
    Mr. Haldeman. Absolutely.
    Ms. Speier. Now, to you, Mr. DeMarco, you have been at a 
number of meetings that have been scheduled with the gentleman 
from Maryland, Mr. Cummings, and I thought we made great 
progress at the last meeting. We already know that the HARP 
program has only reached about 800,000 homeowners, that there 
are some 11 million homeowners who are underwater with their 
loans, and you had provided us with information that would 
suggest, if I remember correctly, about 3 million of those 
homeowners fall under Fannie or Freddie.
    And based on the proposal that the President suggested, 
where, if these are homeowners who have been paying their 
mortgages on time, with the exception of maybe one in the last 
year, that they could in fact refinance their loans for 
whatever the percentage is now, which is probably close to 6 
percent to maybe as low as 4 percent. And that looked all very 
good, but we haven't heard a peep from you since. So I would 
like to know what is happening with that program.
    Mr. DeMarco. Certainly. I am pleased to answer that, 
Congresswoman. First of all, Fannie Mae and Freddie Mac don't 
have 3 million underwater mortgages, that is referencing 
something closer to the HARP eligible universe. But you are 
quite right, we have had some very healthy discussions 
regarding the HARP program and its opportunity to assist 
borrowers that have a mortgage owned or guaranteed by Fannie 
Mae or Freddie Mac to be able to refinance.
    When I made the announcement regarding the changes to the 
HARP program, we said that we would have the directives out to 
the seller servicers, that is, the people that actually service 
mortgages and originate them for Fannie and Freddie, we would 
have the detailed guidance regarding HARP out to them by 
November 15th. That was yesterday. That went out yesterday 
afternoon.
    So now the mortgage community, the lenders out there now 
have the updated guidance with regard to how the HARP program 
is working, what the changes are, what that means operationally 
for them. So as of today they have that information and they 
should be gearing up to be implementing the changes to the HARP 
program.
    Ms. Speier. So I can say to my constituents you can go to 
any bank, any of the big five right now, all of whom are in the 
HARP program, and ask them to refinance your loan, and if one 
won't do it, another one will because the servicers are just 
going to make money off of this, correct?
    Mr. DeMarco. Well, we are trying to encourage servicers to 
reach out to borrowers to let them know that this opportunity 
is available to them. Different institutions are going to need 
different amounts of time to actually make the operational 
changes to implement the new program, but they have known it 
was coming and the big ones have certainly been all geared up 
for it and are looking forward to participating. So they may 
all be ready at slightly different time periods, but I would 
expect in the very near future all of them are up and running 
with it.
    Ms. Speier. Thank you.
    I yield back.
    Chairman Issa. I thank the gentlelady.
    I will now recognize myself for a second round.
    Earlier I brought up the subject of general counsels. Mr. 
DeMarco--well, actually, I will do it this way. Mr. Williams, 
what were your legal fees in 2010, outside legal fees?
    Mr. Williams. Congressman, I will have to check on that and 
get back to you.
    Chairman Issa. Mr. Haldeman, what were your outside legal 
fees, approximately?
    Mr. Haldeman. I will have to get back to you with a good 
number on that.
    Chairman Issa. Mr. DeMarco, do you know how much they are 
spending in outside counsel of all sort?
    Mr. DeMarco. Not off the top of my head, sir.
    Chairman Issa. But is it fair to say that all these 
lawsuits that you earlier justified, a $2.9 million 
compensation package for Mr. Bostrom, was because you needed 
somebody that could manage these various lawsuits? So the 
question is are these lawsuits being done by his observation or 
are they basically being done by outside counsel? And do you 
need to spend $2.9 million, or roughly $1,000 an hour if he 
works 3,000 billable hours a year, do you need to spend that 
much to get somebody to hire outside counsel?
    Mr. DeMarco. It is a team effort in pursuing this 
litigation.
    Chairman Issa. Well, then how much is the entire team paid?
    Mr. DeMarco. Mr. Bostrom is no longer employed by Freddie 
Mac.
    Chairman Issa. Okay, well, then Mr. Mayopoulos, the general 
counsel over at Fannie Mae, at $2.6 million. It isn't a whole 
lot different. When I hear team effort, I say great. I go to 
baseball and football games. I am not asking what the whole 
roster got paid; I am asking about--I don't know whether he is 
the quarterback or the coach. But the question is if I go to 
major Fortune 500 corporations that have huge patent portfolios 
and they are suing constantly, and they pay a quarter as much 
this or half this amount, including stock bonuses, very seldom 
are they going to get to $2.6 million.
    But, more importantly, I see some sort of a direct 
relation. What I heard earlier is, jeez, you guys kind of got 
swamped in how to administer the job because this was so 
unique. Two point nine million dollars is a pretty good chunk 
of money. Isn't it enough to get some of the finest former U.S. 
attorneys, who make $160,000 a year, who know about suits and 
litigation? We have a former U.S. attorney who is a member of 
this committee, and I believe when he went from being a U.S. 
attorney to being a Congressman he actually got a small pay 
raise, getting to $174,000.
    Your salary seems to be sufficient to keep you overseeing 
people who make more than 10 times what you make.
    Mr. DeMarco. We are putting that to the test on a daily 
basis.
    Chairman Issa. Touche.
    I would like to move to another one. Although executive 
compensation and performance is the subject here, this is 
tangentially involved. Yesterday, when I read Uncle Sam is a 
reluctant landlord of foreclosed homes, a quarter of a million, 
248,000, they reported homes are currently for sale or rent. 
They have a number further down in the article that is closer 
to a million.
    Mr. Williams, have you done everything you can do to 
quickly sell and get back in the hands of people who will 
maintain homes or to rent to people who can afford to pay the 
rent on their homes, even if they are the existing current 
debtor?
    Mr. Williams. Congressman, we have an expansive REO 
operation that we run. We are constantly looking to move 
properties. We first rehabilitate the property; we look to 
preserve the community through the execution; we also work with 
community groups; and, more importantly, we focus on people who 
want to come in and own the home, because that is the best 
thing that you can do for the neighborhood.
    Chairman Issa. But isn't it true that by the time you 
actually do a liquidation sale of a home, it has typically been 
in foreclosure and often unoccupied, or even occupied by not 
the original owners, but by somebody they sublet to or somebody 
that simply squatted for a year or more, and the home is 
devalued considerably because of that intervening period?
    Mr. Williams. Congressman, we try to take over the 
properties as quickly as possible when they go through 
foreclosure. Much of what we are all dealing with today is the 
fact that properties are staying in foreclosure for extended 
periods of time, which ends up adversely affecting the 
properties.
    Chairman Issa. Have you come to Congress for relief so that 
you can foreclose more expeditiously or, in fact, even convert 
a homeowner who clearly cannot and is not making payments into 
a tenant?
    Mr. Williams. Congressman, we actually do have a tenant-in-
place program, which we are renting back properties to about 
10,000 borrowers.
    Chairman Issa. Ten thousand out of millions?
    Mr. Williams. Out of millions.
    Chairman Issa. So the question I asked you, and maybe I 
will go to Mr. Haldeman because you guys are slightly different 
in your organizations, do you need, can Congress give you 
greater authority so that in fact these sort of expeditious 
conversions will cause less loss of asset to the community? 
Because Mr. Cummings and I come from very different 
communities; mine is more suburban, his is more urban. The one 
thing we know, though, is no matter where a foreclosed property 
is, the entire neighborhood suffers during that entire period; 
it is not just the asset that the taxpayer is losing on. Do you 
have all the tools? Ten thousand rentals into a million homes 
doesn't sound like the tool is working very well.
    Mr. Haldeman, do you have all the tools you need so these 
homes are occupied, maintained, and as productive as possible, 
regardless of whether or not the current debtor is able to make 
payments?
    Mr. Haldeman. Mr. Chairman, we have worked with Fannie and 
with FHFA on a servicer alignment initiative which I think is 
going to allow us to more effectively deal with the problem 
that you are talking about, that is, have increased pressure on 
our servicers to do some of the things you are speaking of.
    Chairman Issa. Mr. Williams.
    Mr. Williams. Congressman----
    Chairman Issa. I didn't mean to cut you off, but I wanted 
to give you both----
    Mr. Williams. That is quite all right. Two other points. 
One, the foreclosure laws are State laws, so if Congress is 
willing to act to take responsibility for what are currently 
State laws, that would be one thing. A second thing that I 
would highlight is we are working with both FHFA and Freddie 
Mac on opportunities to further expand REO opportunities for 
rental.
    Chairman Issa. Mr. DeMarco? You don't get paid as much, but 
you are welcome to give full answers.
    Mr. DeMarco. Thank you, Mr. Chairman. It has been a 
challenge for me as conservator to look at the difficulties 
that you were talking about, properties that are unoccupied or 
where there is a squatter.
    To Mr. Williams' point, part of the difficulty here is that 
these are governed by State laws, and there are some States 
that have foreclosure processes and foreclosure requirements 
that are designed to protect the borrower, but at the same 
token that is imposing greater losses on the investor in these 
mortgages because it is such a time-consuming and costly 
process to move these properties through foreclosure.
    Even if the property has been abandoned or has a squatter 
sitting in it, it still, in some States, is an enormous length 
of time to move that thing through foreclosure, to get that 
property back into the marketplace to help that local 
community, and I do believe that that is a problem and it is 
not being addressed.
    Chairman Issa. Well, I am going to be cognizant I have 
overused my time even on the second round. But what I will tell 
you on behalf of this committee is that if you will bring to 
us, if you will, the bad actors, the ones that you believe the 
States that are hurting you, not helping you, and thus hurting 
the taxpayer, I am a very strong believer in the 10th 
Amendment, but when it comes to Federal preemption, look, we 
hand these States a lot of money, and if we are looking at the 
various Federal programs that are helping their citizens, we 
have every right to say this money will not be as available 
to--and I will take North Carolina because I have a Member 
present--North Carolina, we can say, look, this program is not 
going to be available in North Carolina unless North Carolina 
gives us the tools to get a reasonable opportunity to in fact 
rehabilitate these.
    And I would say, for one, even my home State of California, 
given a choice of not getting the Federal dollars or making 
changes as to Freddie and Fannie and FHA underwritten homes, 
they would make changes necessary to help. We have never been 
asked. So I would hope that you would really look, use your 
general counsels, some of those 3,000 hours, and please give to 
us where the problems are, because we are the committee that 
happens to also own intergovernment relations. All of those 
States, all of those cities are in fact within our portfolio to 
try to help them help you and help all of us.
    Mr. DeMarco. Thank you, Mr. Chairman. I will have the team 
follow up with you. I will say the State of California has one 
of the faster processes, and I believe that has actually helped 
certain markets in California to recover better and faster.
    Chairman Issa. Thank you.
    Recognize the ranking member.
    Mr. Cummings. Just one clarification. The chairman had 
asked for agreements with regard to compensation agreements and 
certain information, and I just want to make sure that we are 
talking about those executives named in the SEC filings. Is 
that right?
    Mr. DeMarco. I believe that is what we are talking about.
    Mr. Cummings. Okay. All right.
    Mr. DeMarco. But if it is more, we will certainly clarify.
    Mr. Cummings. All right. Number two, you mentioned, with 
regard to those law firms dealing with foreclosures, I think 
you said two firms had given the rest of them a bad name. Is 
that what you said?
    Mr. DeMarco. I said a few.
    Mr. Cummings. Oh.
    Mr. DeMarco. I said a few.
    Mr. Cummings. I was going to say it was a lot more than 
two.
    Mr. DeMarco. No, I understand. No, I did not say two. I 
said that a few firms in the industry have given the entire 
industry a bad name.
    Mr. Cummings. And what, other than changing the lawyer 
network system, has anything been done to bring any kind of 
punishment to these guys? In my other life I used to represent 
lawyers, and for some of the stuff that these lawyers did our 
lawyers would be suspended from the practice of law, if not 
disbarred. And I find it interesting how they keep working for 
us. I just don't understand it and I just wonder whether we 
underestimate what they have been doing. This whole robo-
signing stuff, we create a ``normal'' and that is not normal, 
it is not supposed to be normal. I could go on and on and on.
    I was just wondering has there been any efforts to punish 
these folks.
    Mr. DeMarco. Well, Mr. Cummings, I am not an expert in 
this, but my general awareness is that this would be something 
that would be done by a State bar association.
    Mr. Cummings. Right. That is correct.
    Mr. DeMarco. It should be done in the State. And what has 
been puzzling to me is I am not aware of hardly any debarment 
or State disciplinary action that has been taken against law 
firms. Now, there may be people behind me that know more, but 
that is in their realm. We have certainly been working with 
State attorney generals on this issue and, as you well know, 
State attorney generals have been taking an awful close and 
long look at foreclosure processing issues both by servicers 
and by law firms.
    Mr. Cummings. Did you have something on that, Mr. Williams?
    Mr. Williams. I was going to echo that point, Congressman, 
that we have been cooperating whenever we find these situations 
with State attorney generals and local counsel on these 
matters.
    Mr. Cummings. Did you have something, Mr. Haldeman?
    Mr. Haldeman. I have nothing to add.
    Mr. Cummings. Last, but not least, let me say this. I know 
that there have been some that have said that you all probably 
felt a little uncomfortable being here, but I have to tell you 
I don't have any sympathy, because of the people that I face 
every night when I go home in my block in Baltimore. I have, 
probably in my block, out of about 30 houses, 7 or 8 of them in 
foreclosure, and those were my neighbors, and we see it over 
and over again.
    I just think that there is more we can do. I just believe 
it. And I really wonder sometimes whether the President even 
knows how significant this problem is. And I say that with all 
due respect. Sometimes I wonder whether he even has the 
information available to understand how many Americans are 
drowning. We just had NAKA in Baltimore, and they tell me some 
16,000 people came out trying to get their mortgages modified, 
16,000 in 4 days.
    So I just hope that when you go back to your drawing 
boards, you know, I kind of wish I could just hang out in the 
boardroom and just whisper in your ears constantly, reminding 
you about the people who are suffering and who need some 
urgency, and they don't feel like they are getting it.
    And I know what you are saying, but when you have people 
like the man that I talked to yesterday, who comes home and all 
his stuff is out on the corner, and it is about Christmas time 
and Thanksgiving, and he doesn't know where he is going to go, 
listening to people who make $7 million in 2 years, who are 
supposed to have something to do with his plight and helping 
him out of it, doesn't give him much relief. You know, he can't 
afford a house; he can't even afford a turkey.
    So I hope that you will keep that human element in mind. 
And we are going to be meeting with you again, not the 
committee, but our group of legislators, Mr. DeMarco, hopefully 
within the next 2 to 3 weeks.
    Mr. DeMarco. Okay.
    Mr. Cummings. Thank you very much.
    Mr. DeMarco. Thank you, Mr. Cummings.
    Mr. McHenry [presiding]. I thank the ranking member.
    I recognize myself.
    Now, Mr. Williams, I ended with you and how your deferred 
compensation is calculated, and reading the Politico article on 
this, it is not clear if it is Fannie or Freddie where this 
compensation package works this way, so, Mr. Haldeman?
    Mr. Haldeman. So we have a scorecard, which is weighted 
into broad categories, broad categories such as financial 
results, mission, technology and infrastructure, and there are 
weightings attached to those large categories, and they are on 
the order of four or five of them and a category weighting is 
typically 20 to 30 percent. And HAMP would be a subpoint under 
one of those larger categories, and there are not weightings 
attached to a subpoint. So it is a little bit difficult to be 
too precise about the percentage weighting for just HAMP 
modifications.
    Mr. McHenry. But is one of the broader sections mortgage 
modifications?
    Mr. Haldeman. It would be mission or supporting the housing 
market, that kind of language. And subpoints under that would 
be all of the tools that we have to try to be supportive of the 
housing market, including modification.
    Mr. McHenry. What other than modifications would be in that 
subcategory?
    Mr. Haldeman. It would be refinancings, and within that 
HARP refinancings and traditional refinancings; there would be 
traditional modifications and HAMP modifications; it could be 
affordable housing goals. Those all could be subpoints.
    Mr. McHenry. But largely that mission, that piece is 
largely modifications?
    Mr. Haldeman. That would be a big piece of it. It certainly 
would be a significant piece of it that our board would be 
looking at. It is not precisely weighted, but because of the 
attention afforded that in the press, I am sure that our board 
looks very closely at the numbers of modifications that are 
done.
    Mr. McHenry. So that mission piece, what percentage of your 
deferred compensation comes from that, your bonus?
    Mr. Haldeman. I don't recall the precise number, and it 
does vary from year to year, but it would typically be a number 
like 25 percent.
    Mr. McHenry. But you know at the beginning of the year that 
the board is going to measure you against this scorecard?
    Mr. Haldeman. Yes.
    Mr. McHenry. Okay.
    Is that similar for your organization, Mr. Williams?
    Mr. Williams. Yes, it is, Congressman.
    Mr. McHenry. Okay. And in a similar form as Mr. Haldeman 
described his scorecard? Is your scorecard similar?
    Mr. Williams. I have not looked at Freddie Mac's scorecard, 
but we do have a scorecard----
    Mr. McHenry. If you listened to the gentleman--I have never 
seen the scorecard.
    Mr. Williams. We look at very similar sets of priorities, 
providing liquidity and stability and support for the market, 
ensuring that we are doing everything we can to manage credit 
losses and all the other activities related to our financial 
results that we control, and then also making sure that we 
continue to improve the operational and risk areas of the 
company.
    Mr. McHenry. And are mortgage modifications a part of that 
scorecard?
    Mr. Williams. Yes, they are a part of that.
    Mr. McHenry. Okay. Is HAMP a part of that as well?
    Mr. Williams. HAMP modifications and administering the 
program for Treasury are one piece of the scorecard.
    Mr. McHenry. Okay, thank you. That is much more forthcoming 
than the last exchange we had, and I appreciate that.
    Mr. DeMarco, you outline this in your written statement 
about the scorecards, corporate scorecards.
    Mr. DeMarco. Yes.
    Mr. McHenry. Back in March, the IG said that FHFA didn't 
have a written policy on how to handle that. With your 
testimony today, it sounds like that critique you have 
incorporated and now there are some solid policies by which to 
judge these scorecards.
    Mr. DeMarco. To clarify, I committed to the IG that this 
will be completed by the end of this calendar year. The work is 
actively going on now.
    Mr. McHenry. Okay, thank you, and thank you for clarifying. 
I do appreciate that.
    Now, the additional question would be will you make public 
that policy?
    Mr. DeMarco. Well, I certainly could. This is what the IG 
was requesting.
    Mr. McHenry. Well, the question is not----
    Mr. DeMarco. Yes.
    Mr. McHenry. Do or do not. There is no try.
    Mr. DeMarco. I will make it public. I will make it public. 
It is a written internal procedure for how we would go about 
the internal review.
    Mr. McHenry. Okay.
    Mr. Haldeman, will you make your scorecard public for your 
institution?
    Mr. Haldeman. I can see no reason why----
    Mr. DeMarco. This has to be reported in the 10-Ks anyway. 
These are publicly disclosed.
    Mr. McHenry. Right, but in a user-friendly format. I have 
the Fannie 10-K and it is with three broad goals. I have now 
lost it in my stack of paper. Here it is. And it is very 
unclear in the couple of pages in the 10-K. Would you make 
this----
    Mr. DeMarco. If I may, I will work to make sure that we 
have greater clarity and transparency with regard to the 
scorecards going forward.
    Mr. McHenry. Okay. I appreciate that, but since we do have 
the heads of the two institutions you are overseeing, I 
mentioned you as a human shield earlier today, my intention is 
not, in this questioning, for you to throw yourself in front of 
this questioning. I appreciate your willingness to do this. It 
is more of a soldier-like sacrifice. I appreciate it. But with 
massive losses we want to be able to understand at the 
beginning of the year how you will be judged and what success 
looks like.
    Mr. Haldeman, would you----
    Mr. Haldeman. It is a reasonable request and I am happy to 
do it, subject to the approval of our regulator. We are a 
regulated organization and I like to check most things with the 
regulator before doing it or committing.
    Mr. McHenry. Nicely done. Who says there is just politics 
on the Hill?
    Mr. Williams.
    Mr. Williams. Congressman, we disclose our goals in 
accordance with the SEC rules. We also disclose in accordance 
with SEC rules how individuals have performed. We provide the 
scorecards to Mr. DeMarco and we will work with him on how he 
wants to handle this going forward.
    Mr. McHenry. Okay. Okay. Well, Mr. DeMarco has outlined 
that he would like to see housing finance reform, as would I, 
and I have been in Congress since 2005 trying to articulate 
that, and it still has not happened. The administration has not 
taken the lead; the President has not taken a lead. The 
President has complained about executive compensation packages, 
but two large entities where he could have a larger and direct 
say, he tends to make speeches rather than actual consultation.
    Mr. Williams, Mr. Haldeman, there are discussions about 
Fannie and Freddie's losses going forward. Mr. Williams, at 
what point will your institution be able to repay the taxpayers 
for this extraordinary support?
    Mr. Williams. Congressman, I do not venture a timeframe in 
which we would do that. We are very focused on our credit 
losses. As you have seen probably from the conservator's 
report, the activities we have undertaken are reducing future 
expectations around this area. We will continue to focus on 
this, but bear in mind much of what we are dealing with is also 
driven by the state of the economy, unemployment, and declining 
home prices.
    Mr. McHenry. Mr. Haldeman.
    Mr. Haldeman. Yes. As you know, Congressman, we do pay a 10 
percent preferred dividend on our outstanding draw, which, for 
Freddie Mac, is now approximately $70 billion, so our annual 
preferred dividend is $7 billion. And I think the best place to 
go to get an answer to your question is detailed analysis put 
out by FHFA which looks at both Enterprises going forward and 
under different scenarios makes a projection as to the amount 
of draw that will be required going forward.
    Mr. McHenry. So you don't have any planning purposes in 
your institution that outlines when this would happen?
    Mr. Haldeman. We do, and the numbers----
    Mr. McHenry. What year would that be?
    Mr. Haldeman [continuing]. And our numbers in planning were 
submitted to FHFA and made part of the document that they put 
out.
    Mr. McHenry. So you are not willing to say what year it is?
    Mr. Haldeman. I can't recall from the document----
    Mr. McHenry. Mr. Williams, what year will Fannie have 
repaid the Treasury?
    Mr. Williams. Congressman, as you know, with a 10 percent 
dividend on the amount that is drawn, we will never fully be 
able to pay back the amount that is due to the Treasury. This 
is why the director has highlighted the need to move forward.
    Mr. McHenry. Mr. DeMarco, what year will the GSEs be able 
to repay the taxpayers for this extraordinary support?
    Mr. DeMarco. I do not believe they will repay the taxpayer 
in full.
    Mr. McHenry. Ever?
    Mr. DeMarco. Well, unless we keep this conservatorship 
going to my children and beyond, no. I would hope that the 
conservatorships end before then.
    Mr. McHenry. Okay. At what point--Mr. Haldeman wouldn't 
venture a guess, but at what point will Freddie be able to 
repay the extraordinary support?
    Mr. DeMarco. Mr. Chairman, I don't believe either company 
will repay the extraordinary support in full. I have said that 
before. I look at the current financials of the company, the 
fact that we are shrinking the retained portfolios of the 
company, looking at the expenses that are there, including the 
dividend, which is paid to the Treasury Department for that 
which is already borrowed, and I don't have a time line looking 
forward that I can point to and say by this year this will be 
repaid. And I do hope that we have moved beyond the 
conservatorships in the relatively near future, so we are not 
going to get them repaid before then.
    Mr. McHenry. So if we just left this as it is currently 
structured, we could be back here having this same hearing in 5 
years.
    Mr. DeMarco. No, I think we will look quite different in 5 
years, and I believe that the book of business that we have 
been taking on since conservatorship is a profitable book of 
business to the taxpayer and I believe that as we finish 
washing through these bad mortgages that were originated in the 
2005 to 2008 period, that will eventually we will move passed 
that and the remaining book of business, the new book of 
business will be profitable to the companies. So I believe that 
that is one of our fundamental obligations with the companies 
in conservatorship, is to ensure the new business we are doing 
is profitable, and I believe it is, but that is not going to be 
profitable enough to be repaying this amount of money in the 
near future.
    Mr. McHenry. And what year do you think that would be?
    Mr. DeMarco. I believe our projections--well, it is going 
to depend upon house prices and employment.
    Mr. McHenry. Sure. It depends on a lot of different things.
    Mr. DeMarco. But we believe that by the end of next year we 
will have moved through a good chunk of most of what is left 
with the previous book.
    Mr. McHenry. Okay. I certainly appreciate that and I 
appreciate your willingness to answer questions today.
    Mr. DeMarco, I have referred to you as a human shield a 
number of times. I sit on both Financial Services and this 
committee. You have been very forthright. We understand the 
difficult situation that has been thrust upon you. We do 
appreciate your career service to the Federal Government.
    Mr. Haldeman, Mr. Williams, we certainly appreciate your 
willingness to head up very challenging institutions. We do. 
The concern here today is the extraordinary taxpayer support 
and the fact that, in essence, we have two nationalized 
entities, and we also have AIG, for instance, but we have two 
nationalized entities here, and that is where your compensation 
becomes a question for the taxpayers. Otherwise, if you are 
private institutions, we have had these hearings before with 
private institutions. That is not the proper purview of those, 
me, for instance, that is a taxpayer fiduciary. However, 
because of the nature of your entities, that is where this 
concern comes.
    And we understand you are patriotic Americans. We are not 
questioning your patriotism by any means, but we are 
questioning whether or not this is an appropriate type of 
compensation, level of compensation with two nationalized 
entities.
    Thank you for being here today. I certainly appreciate your 
willingness and your time.
    With that, this committee stands adjourned.
    [Whereupon, at 1:03 p.m., the committee was adjourned.]
    [Additional information submitted for the hearing record 
follows:]




                                 
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