WASHINGTON (Reuters) - Freddie Mac (>> Federal Home Loan Mortgage Corp), the No. 2 provider of U.S. mortgage money, on Thursday named financial industry veteran Donald Layton as its next chief executive, putting him atop a government-controlled firm that most politicians want to shut down.
The appointment of Layton, the former chief executive of online brokerage E*Trade Financial Corp (>> E TRADE Financial Corporation), takes effect May 21. It ends a six-month search for the company's third chief executive in less than four years.
Freddie Mac and its larger rival, Fannie Mae (>> Federal National Mortgage Association), were seized by the government at the height of the financial crisis in 2008 as mortgage losses threatened their solvency. Congress is still debating their future.
Layton, 62, has experience with troubled companies. He was named by the U.S. Treasury Department as an outside director of American International Group Inc (>> American International Group, Inc.), the bailed out insurer, two years ago.
He spent 30 years at JPMorgan Chase and its predecessor companies and was a senior adviser to the Securities Industry and Financial Markets Association, one of the biggest lobbying groups for Wall Street.
"I regard this as a version of public service to help the country," Layton told Reuters, speaking of the Freddie Mac job. "I am fully aware that it is not the same thing as a job like a CEO running a public corporation where you and the board get to control your destiny."
Fannie Mae is also in the midst of a CEO succession. Its current chief executive, Michael Williams, said in January that he planned to step down, although he committed to staying until the search is complete. Fannie Mae has not given details on when Williams' successor will be named.
One of the biggest challenges Layton faces is Freddie Mac's uncertain future, which has made it tough for the company to attract and retain employees with specialized skills to manage its portfolio of mortgage investments.
"This is an organization that presents a big management challenge," Layton said. "My expectation is that I will be there for years, not months, and I believe in that time frame Congress will get to a more serious debate about the future."
Freddie Mac's and Fannie Mae's already dominant presence in the mortgage market grew larger as private capital dried up during the financial crisis. Together, they own or guarantee about 60 percent of all U.S. mortgages.
Lawmakers from both parties agree that the government's role in the housing finance system should be scaled back, and eventually that Fannie Mae and Freddie Mac should be shuttered. However, they disagree over how quickly to unwind the companies and what role the government should ultimately play.
Layton and the new Fannie Mae chief executive will be subject to a compensation plan, unveiled by the companies' regulator in March, that targets their salaries at around $500,000 per year, down from base pay of $900,000. Previously, Fannie and Freddie CEOs could earn as much as $6 million with deferred pay and bonuses.
The scaled-down pay package came in response to mounting political pressure over controversial multi-million dollar salaries given to executives at the companies, which have soaked up about $151 billion in taxpayer aid.
Last week, Freddie Mac announced a profit of $577 million for the first quarter, but it drew an additional $19 million in taxpayer aid in order to make a dividend payment to the U.S. Treasury - the price of its taxpayer support.
Fannie Mae on Wednesday said it generated a $2.7 billion profit during the first quarter - its strongest since it was taken over by the government. It said it would not need taxpayer aid for the first time.
The two firms and their regulator are under pressure from the Obama administration to write down loan principal for troubled borrowers facing foreclosure. Layton said he wanted to wait until he arrived at the company to express any views on the benefit of such mortgage aid.
"I will have an informed view once I have been there a little while and get inside the company and see the analysis," he said.
(Reporting by Margaret Chadbourn; Editing by Kenneth Barry, Tim Dobbyn and Dan Grebler)
By Margaret Chadbourn