Fannie and Freddie ignored advice

Fannie and Freddie ignored advice

While mortgage giants Fannie Mae and Freddie Mac have been bailed out and put under conservatorship, questions still remain over what factors led to the government sponsored enterprises’ (GSE) failure.

Richard F. Syron, CEO of Freddie Mac from 2004 to September, 2008, attributes some of the blame to the nature of the housing market.

“When the dramatic and widespread downturn in housing prices occurred, the pressures on Freddie Mac and Fannie Mae were enormous. The GSEs are in a non-diversified business focused solely on residential housing lending in the United States,” said Syron during a House Oversight and Government Reform Committee hearing.

“As the guarantor of almost half the homes mortgages in the country, it is not at all surprising that these two firms would get hard by the biggest housing collapse in 75 years.”

However, the release of certain documents suggest to some members of Congress that the CEOs were aware of the risks that came with alternative lending, and are therefore responsible for their companies downfall since they did not respond to the warnings.

Rep. Dennis Kucinich (D-Ohio) referenced a series of emails that the committee was provided with that detailed a discussion between former CEO of Fannie Mae Daniel Mudd and the company’s Chief Risk Officer. In the email, the Chief Risk Officer accused Fannie Mae of having the weakest control processes he had seen in his career. After the email was initially received the Chief Risk Officer’s budget was cut by 16%, a move that he interpreted as being carried out with malice.

“The facts show, gentleman, that many of you at this table did know the risks and that you were warned not to take them and that you ignored your internal advisor, your Chief Risk Officer,” said Kucinich.