Legislation Approved by Committee Prohibiting Bonus Payments to TARP Recipients

The House Financial Services Committee approved legislation which would prohibit the payment of bonus money by companies which have received funds directly from the TARP program and the Housing and Economic Recovery Act until these investments are repaid.

The bill, H.R. 1664, the Grayson-Himes Pay for Performance Act of 2009, prohibits any compensation payments that are unreasonable or excessive, restricts all non-performance based bonuses, and effectively repeals a controversial provision in the American Recovery and Reinvestment Act. The Committee passed the legislation by a vote of 38-22.

The bill is co-sponsored by Congressman Alan Grayson (D-FL) and Congressman Jim Himes (D-CT).

The bill adds new compensation/bonus restrictions to the Emergency Economic Stabilization Act for financial institutions that receive or have received a direct capital investment by the Treasury Department under the Troubled Asset Relief Program or the Housing and Economic Recovery Act (which covers Fannie Mae, Freddie Mac and the Federal Home Loan Banks). While such a capital investment is outstanding, and regardless of when a compensation payment arrangement was entered into, recipients of a direct capital investment from the Treasury would be prohibited from:

• Paying any executive or employee any compensation that is “unreasonable or excessive,” as defined in standards established by the Treasury Secretary.

• Paying any bonus or other supplemental payment that is not directly based on performance-based standards set by the Treasury Secretary.

• The bill would require the Treasury Secretary to consult with the Chairperson of the Congressional Oversight Panel and obtain approval of the agencies that are members of the Federal Financial Institutions Examination Council before defining unreasonable or excessive compensation and establishing performance-based measures.

• The bill also would provide that the restrictions on bonuses of highly-compensated employees, adopted in the American Recovery and Reinvestment Act, would apply while a direct capital investment under TARP remains outstanding, regardless of when the arrangement to pay such bonus was entered into. This provision is intended to effectively repeal a provision that currently exempts from the prohibition’s coverage bonuses that are due under employment contracts entered on or before February 11, 2009.

• Finally, the bill would require a financial institution that is subject to the new compensation requirements to submit an annual report to the Treasury Secretary stating how many executives and employees received or will receive total compensation above specified dollar amounts during the fiscal year.

The legislation is now being forwarded to the full House for consideration.

Interesting Read

HUD's New Multifamily Czar Carol Galante to Focus on Rental Housing Financial Support, Sustainability Initiatives
By Chris Wood
Multifamily Executive News Service

Fannie, Freddie Caught in Bonus Uproar
By Jerry Ascierto
Housing Finance

Freddie Mac's Duel With Regulator: Does It Report Government's Role in Its Losses?
By Zachary A. Goldfarb
The Washington Post

Tough Times at Freddie Mac
Company asks Treasury for $30 billion more after net worth plunges into the red
By Jerry Ascierto
Housing Finance

Tenant evicted even though she pays rent on time
By Sheila Steffen and Deb Feyerick
CNN

An Ancient Culture, Bulldozed Away
China's Attempts to Modernize Ethnic Uighurs' Housing Creates Discord
By Maureen Fan
The Washington Post

Read more »

Treasury Releases CDFI Action Plan

The Department of Treasury released its implementation plan for the funds provided by the American Recovery and Reinvestment Act of 2009 (the Recovery Act) and administered by the Community Development Financial Institutions Fund (CDFI).

The Recovery Act waives the matching fund requirement from non-Federal resources and the general requirement that no single awardee can receive more than $5 million from the fund over a five-year period. As a result, 2009 awards will be made in the form of grants versus matching funds.

The CDFI fund will provide approximately $145 million in financial assistance awards in 2009. The awards will increase to up to $2 million under the financial assistance component. Previously the awards were capped at $1 million. It is anticipated that more awardees will receive assistance as well. Applicants with high scores pursuant to eh FY 2009 Notice of Funding Availability (NOFA) but not funded due to fiscal constraints, will receive assistance. The FY 2009 CDFI application round is currently closed but will be reopened to those interested in applying. A NOFA will be published in the next 30 days with the appropriate details.

Two award announcements will be made to accommodate the flow of Recovery funds and the additional applications. The first will occur in June when the Recovery dollars will be awarded to the most highly rated applications. The second awards will be announced in September to the most highly rated applicants taken from the pool which includes those which submitted applications in response to the NOFA and those entities which did not receive funding during the first round.

Additional New Market Tax Credit (NMTC) authority will made available to 30 organizations which applied under the 2008 round but were not funded even though they were highly rated. The awards are expected to be announced in May. In the current application round, the CDFI Fund anticipates making 100 awards to Community Development Entities (CDEs) totaling $5 billion.

CRA Not Responsible for Mortgage Crisis

In a statement presented before the United States Commission on Civil Rights, Barry Wides, Deputy Comptroller of Community Affairs at the Office of the Comptroller of the Currency (OCC) said the Community Reinvestment Act (CRA) is not “the culprit behind abuses in subprime mortgage lending nor in the broader credit quality issues in the marketplace.”

Wides delivered his testimony in a hearing before the commission on March 20 in Washington, DC. Wides said the OCC and other Federal banking regulatory agencies have looked at this issue in detail by analyzing independent studies and comprehensive loan data sets. He said CRA loans appear to perform as well or better than other types of subprime loans. He also said a vast majority of the subprime loans were not originated by national banks supervised by the OCC.

Interesting Reads

Foreclosure crisis extends to those renting homes from hit landlords
By Celeste Katz
The New York Daily News

Fannie: Cutting Bonuses May Derail Housing Recovery
By Zachary A. Goldfarb
The Washington Post

Cuomo Emerges Amid AIG Disaster
By Chris Cillizza
The Washington Post

A Northeasterly Wind For The GOP?
Republicans Look To Capitalize On The Woes Of Paterson, Corzine And Dodd
By Amy Walter
National Journal

Records Show a High Cost for Faulty Elevators
By Manny Fernandez and Ray Rivera
The New York Times

Read more »