Federal regulators blocked an estimated $24 million in golden parachutes for former Fannie Mae CEO Daniel Mudd and former Freddie Mac CEO Richard Syron. Both executives were ousted last week when the federal government seized control of the two major mortgage companies.
The Federal Housing Finance Agency is a new federal agency created by the merger of two existing housing regulatory agencies by the Housing and Economic Recovery Act of 2008, which was signed into law on July 30. That law gave the agency new authority over golden parachutes, and the FHFA moved swiftly to issue a rule — which it made effective immediately upon publication last week — outlining circumstances under which it could deny golden parachutes.
Mudd was poised to receive up to $8.4 million in compensation while Syron was would have received as much as $15.5 million, according to an analysis performed for the Associated Press by David Schmidt, a senior consultant at executive compensation consulting firm James F. Reda & Associates. In 2007, Mudd received $12.2 million in compensation while Syron received $19.8 million.
“It would have been unconscionable to award these inflated salaries, particularly when the leadership of Fannie and Freddie can hardly be given good grades,” Senator Charles Schumer (D-N.Y.), told the AP.
According to the rule the FHFA published last week, the director of the FHFA can deny golden parachutes for a variety of reasons, including if “there is a reasonable basis to believe that the entity-affiliated party is substantially responsible for the insolvency of the regulated entity, the appointment of a conservator or receiver for the regulated entity, or the troubled condition of the regulated entity.” Likewise, the new rule said, the agency can take into consideration “the degree to which the payment reasonably reflects compensation earned over the period of employment and the compensation involved represents a reasonable payment for services rendered.”
Mudd and Syron were replaced with two individuals with strong finance backgrounds. Herb Allison will be in charge of Fannie Mae, while David Moffett will be the top executive at Freddie Mac.
Earlier this year, Allison retired as chairman, president, and chief executive officer of pension giant TIAA-CREF, which he headed since November 2002. Allison joined TIAA-CREF after a 28-year career at Merrill Lynch & Co. where he last served as president and chief operating officer until 1999.
Allison started out at Merrill as an associate in investment banking soon after his graduation from the Stanford Graduate School of Business. Among the posts he held at Merrill was chief financial officer. After leaving Merrill in 1999, Allison served as national finance chairman for Senator John McCain’s 2000 presidential campaign.
Moffett, credited as an expert in risk management and financial analysis, retired as the vice chairman and chief financial officer of U.S. Bancorp in 2007, after having served the company in that capacity since 1993. He was responsible for all the bank’s financial management responsibilities, including corporate accounting and reporting, tax credit investments, insurance, real estate, purchasing, among other tasks.
He joined Star Banc Corp. in 1993 as CFO and played major roles as Star Banc acquired Firstar in 1998 — which in turn acquired U.S. Bancorp in February 2001, retaining the U.S. Bancorp name. Prior to 1993, Moffett held executive level positions at some of the nation’s top financial services companies, including Bank of America and Security Pacific Corp.