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December 9th, 2008

Fannie and Freddie CEOs Ignored Warnings

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Accusations of mismanagement continue for industry heads today, as a House committee has accused the former heads of Fannie Mae and Freddie Mac of ignoring warnings that the GSEs were taking on too many risky loans. Members of the House Oversight and Government Reform Committee released documentation that former Fannie CEO Daniel Mudd and former Freddie CEO Richard Syron disregarded warnings that the companies were building an unhealthy portfolio of risky loans:

Rep. Carolyn Maloney, D.-N.Y., grilled Freddie Mac’s Syron about the company’s decision to fire David Andrukonis, Freddie Mac’s former chief risk officer.

Andrukonis sounded warnings as far back as 2004 about the risks posed by loans in which borrowers didn’t provide proof of their incomes or detail their assets, according to e-mails released by the committee.

Likewise, lawmakers grilled Mudd about an internal Fannie Mae presentation from June 2005 that showed the company at a “strategic crossroads,” at which it could either delve into riskier loans or focus on more secure ones.

Fannie and Freddie, who are known for backing mostly fixed-rate mortgages with substantial down payments, were able to avoid strict oversight and regulation by employing high-paid lobbyists:

Internal Freddie Mac budget records obtained by The Associated Press show $11.7 million was paid to 52 outside lobbyists and consultants in 2006.

Power brokers such as former House Speaker Newt Gingrich and former Sen. Alfonse D’Amato of New York were recruited with six-figure contracts.

What if anything will develop from these accusations? Are we really even surprised by the evidence? Since the CEOs have already been ousted from their positions, the committee’s finding should influence the shape of how the two companies (which own or guarantee nearly half of the nation’s mortgages) will be structured and run in the future.

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2 Responses to “Fannie and Freddie CEOs Ignored Warnings”

  1. Beth Says: January 9th, 2009 at 2:47 pm

    Not my website but you need to see this because you can learn about what is happening to real people at the hands of Bank of America, Freddie Mac, and Preferred Building Systems, on an everyday basis. And its a lot more than what your talking about here.

    http://www.justiceandlight.com/

  2. Tim Manni Says: January 14th, 2009 at 4:31 pm

    Beth,

    Thanks for reading and commenting. We appreciate your insight.

    Tim

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HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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