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Fannie Mae named its general counsel, Timothy Mayopoulos, as its next chief executive after he agreed to a sharp pay cut imposed by the mortgage-finance company's federal regulator.
June 5 -
Donald H. Layton, formerly head of E-Trade, seeks to streamline operations at Freddie, cites strain of operating under conservatorship and describes his motivation as public service.
May 10 -
Judicial Watch has sued the Federal Housing Finance Agency, claiming that the agency wrongfully denied a request for documents related to a lawsuit over alleged misrepresentations of mortgage-backed securities.
March 7 -
The Federal Housing Finance Agency acting director, Edward DeMarco, recently sent to Congress a strategic plan for the next phase of conservatorships of Fannie Mae and Freddie Mac. A new structure for housing finance requires congressional action, yet neither Congress nor the administration has come up with an acceptable plan in the three years since Fannie and Freddie were placed into conservatorship. It's far from clear that the DeMarco plan will get the job done.
March 6
As wards of the same federal conservator, Fannie Mae and Freddie Mac rarely diverge these days, but when they do it speaks volumes about where the two companies are headed.
Fannie went in-house to recruit three of its last four leaders, including Timothy J. Mayopoulos, who was promoted to chief executive officer from general counsel last week. Freddie has taken the opposite tack, choosing three of its last four CEOs from outside its ranks.
These patterns support the widespread belief that the two GSEs will eventually merge as a prelude to winding them down, with Fannie as the dominant partner, according to more than a dozen veterans of the two companies. Both GSEs have suffered from massive employee turnover, so choosing someone from within the ranks was likely intended at least in part to shore up morale at Fannie, while recruiting from outside signals continued housecleaning at Freddie.
"Fannie is sending a message that they feel they have better people inside than outside," says Robert Wagner, a senior client partner at executive search firm Korn/Ferry International. "Fannie Mae probably recognizes that their image can't go much lower in the marketplace and they want to send a message to keep people there."
Freddie, on the other hand, is "being a little more competitive and forward-thinking by acknowledging they don't have all the answers, and they are bringing in a fresh perspective and best practices," says Barry Shulman, a principal at the San Francisco executive recruiting firm Shulman Associates.
Fannie reported a profit of $2.7 billion for the first quarter and for the first time since the 2008 government takeover said it would not require additional taxpayer aid. Freddie also posted a profit, of $577 million, but requested an additional $19 million in taxpayer funds.
As the larger GSE, with nearly double Freddie's guarantee volume, Fannie has a deeper management bench, some experts say, though others are quick to emphasize that a wind-down would take years and merger plans aren't in view any time soon.
The Federal Housing Finance Agency, which oversees Fannie and Freddie, says the number of senior executives has fallen to about 70 each,
"The problem with going outside is you have an organization that is already demoralized and the new person comes in with the idea of cleaning house, which means continued turmoil and roiling of the troops, and there's a magnifying effect on the internal sales force," says Wagner. "It's the message it sends to the public, the regulators on the one hand versus the troops on the other." Headhunters "know that the organizations are unhappy…and we know they're vulnerable to being raided."
Neither Fannie nor Freddie nor the FHFA would comment for this story.
To be sure,
A problem with trying to read the tea leaves involving the CEO picks is that both Mayopoulos and Layton are essentially caretakers with ultimate decision-making falling to
"FHFA was not going to let anyone take the job who did not fully understand FHFA's game plan and be willing to be fully on board with the game plan and implement with a full understanding of who is really running the place, which is Ed DeMarco," says a former regulator.
It may help Fannie cement a reputation for newfound transparency that Mayopoulos has been credited for alerting Bank of America executives about higher projected losses at Merrill Lynch & Co. Mayopoulos was fired just before the acquisition closed in 2008 and replaced as B of A's general counsel by Brian Moynihan, who is now CEO.
Freddie last month hired as its CEO
Shulman says the downside of picking an insider is that oftentimes "cultures are incredibly difficult to crack." An insider may be less likely to make changes to a vast bureaucracy.
"There may be some sage wisdom in looking inside, but it doesn't address the external audience's concern on how they are going to fix themselves if they're only looking inward," he says.
"He may be the logical person to wind this down and reduce the footprint of the GSEs in an orderly fashion," says Pinto. "He seems to have the resume to do that as opposed to somebody from Wall Street who would want to grow the company."
Fannie and Freddie are swamped with implementing various initiatives, including raising the quality of loans delivered by mortgage bankers, disposing of repossessed homes and creating a single platform for collecting data. But they are still acting like competitors with different guarantee fees. The long-term goal has been to harmonize policies at the GSEs so they can ultimately be consolidated, GSE and regulatory veterans say.
"It's going to be a very tough road because we're almost talking about the epilogue of Fannie and Freddie," says Cliff Rossi, executive-in-residence at the University of Maryland's Robert H. Smith School of Business and a former risk and credit officer at several financial institutions, including Fannie and Freddie.
"It's less about the fundamental market, such as securitization and the retained portfolio which is in run-down mode, so having a guy whose core strength is around legal issues may be what they need right now" at Fannie, says Rossi.
