15th Jun 2012

Leader takes pay cut to run Fannie Mae

Three days from now Timothy Mayopoulos will take the helm at Fannie Mae, the US mortgage giant that four years ago had the dubious distinction of getting the biggest bailout of any company after the biggest financial disaster in generations. Mayopoulos will take over from Michael J Williams, as CEO of what is now in effect a state-run company with a very uncertain future. So far Fannie Mae’s rescue has cost US taxpayers an eye-watering $170 billion, but the firm reported a $2.7 billion profit during the first quarter of this year, and for the first time since it was seized by the government in 2008, said it wouldn’t need need additional taxpayer money.

Mayopuolos’s brief will be like urban renewal after a hurricane, or performance acceleration in the trenches. Mayopoulos, an internal hire with 3 years in at Fannie Mae, will be taking a massive pay cut with the promotion to CEO, due to the elimination of bonuses and caps on executive pay at the embattled company. He will be allowed to receive the remainder of his 2012 compensation totalling $2.7 million, but his pay package will drop to $600,000 in 2013.

Mayopoulos’ job will be anything but easy. Fannie Mae and its smaller sibling Freddie Mac own or guarantee most of the mortgages in the US, and their combined assets amount to about $3 trillion. That the government wants to dissolve the company and reduce state involvement in the mortgage market is understood. “But what we’re focused on for the next few years” Mayopoulos has said, “is helping policymakers and the FHFA lay the foundation for a new housing system… Clearly the country deserves a better housing system than it has had in the past.” Fannie Mae will also be responsible for helping millions of overburdened homeowners, and reducing its losses on loans to benefit taxpayers, the new CEO said in an interview with the Huffington Post.

Reducing Fannie Mae’s losses will mean squaring up to Bank of America, as the two companies are at loggerheads over whether Bank of America will buy back billions of dollars home loans with faulty underwriting that it sold to Fannie Mae. This should be an interesting skirmish for Mayopoulos, who worked for Bank of America as general council until he left in 2008.

No shortage of challenges in store for the new CEO then. He’ll want to make an impact in the job as soon as he arrives, and maximize the scope of that impact through efficient planning and organisation. A detailed First 100 Days Plan will be vital.

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