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US: Regulator Plans to Bar Big Severance

by JAMES R. HAGERTYWall Street Journal
September 15th, 2008

The regulator of Fannie Mae and Freddie Mac said Sunday that it won't allow the companies to make "golden parachute" severance payments to the mortgage companies' ousted chief executive officers.

In a statement, the Federal Housing Finance Agency said such payments wouldn't be made to Daniel Mudd and Richard Syron, despite provisions in their contracts. Mr. Mudd served as chief executive of Fannie and Mr. Syron was chairman and CEO of Freddie until last weekend, when the regulator seized control of the companies, saying they were in danger of running out of capital.

News reports that the two executives stood to receive millions of dollars in severance payments under their contracts triggered public protests from numerous politicians and inspired political cartoons in newspapers.

The FHFA cited "applicable statute and regulation" for its decision. The regulator has taken management control of the two companies under a legal process known as "conservatorship," which could last for years while Fannie and Freddie are restored to financial health. The U.S. Treasury has pledged to provide as much capital as the companies need to continue in their role as the main suppliers of funding for home mortgages.

The FHFA last week named Herb Allison as CEO at Fannie and David Moffett as CEO at Freddie.

Spokesmen for Fannie and Freddie declined to comment on the pay decision. Messrs. Syron and Mudd couldn't be reached immediately for comment.

David Schmidt, a senior consultant at James F. Reda & Associates LLC, a compensation consulting concern in New York, estimated that, without the regulator's intervention, Mr. Mudd's exit package could total as much as $6 million to $8 million and Mr. Syron's $15 million. Those totals include pensions, continuing benefits and other payments the companies' boards might grant. It isn't clear what pension and other payments may still be made to Messrs. Syron and Mudd, given the regulator's ruling.

The collapse in the share prices of Fannie and Freddie already has wiped out much of the two executives' wealth. Since March, for instance, the value of Mr. Mudd's shares in Fannie has dropped to about $683,000 from $23.7 million.

Write to James R. Hagerty at

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