Lawmaker: Fannie Mae CEO made poor choices
Waxman argues that Fannie and Freddie ignored dangerous Alt-A loans
By Ronald D. Orol, MarketWatch
Last update: 12:20 p.m. EST Dec. 9, 2008
WASHINGTON (MarketWatch) – Mortgage giants Fannie Mae and Freddie Mac made irresponsible investments in recent years that cost taxpayers billions of dollars, said House Oversight Committee chairman Henry Waxman on Tuesday citing internal documents.
“Their own risk managers raised warning after warning about the dangers of investing heavily in the sub-prime and alternative mortgage market,” Waxman said at an oversight hearing on the two mortgage giants.
Waxman and other lawmakers expressed concerns about how Fannie Mae ![]()
continued to buy high risk sub-prime Alt-A loans even as concerns about the sector grew. A group of GOP lawmakers raised their own concerns about the compensation, bonuses and pension received by the executives.
“Given that you lost so much money on these Alt-A risky loans. Do you regret buying these risky loans?” asked Rep. Carolyn Maloney, D-NY., to ex- Freddie Mac CEO Richard Syron.
Rep. Elijah Cummings argued that Fannie Mae and Freddie Mac moved heavily into sub-prime loans because executives sought to make a profit on risky mortgages. “People in my district have been left holding a bag,” said Rep. Elijah Cummings. “I speculate it was about profit. I speculate it was about greed.”
Four former CEOs of Fannie Mae and Freddie Mac, testifying at the hearing, defended their actions, arguing that they were in a difficult place operating non diversified residential housing lending corporations that needed to meet government and shareholder obligations while credit tightened. They blamed the financial crisis, in large part, on a credit bubble that burst and mortgage backed securities packaged and sold by investment banks while they were stuck with a charter to continue investing in homes.
“The housing market went into a free fall, and with some predicting a decline of as much as 30% from peak, a business model requiring a company to continue to support the entire market could not flourish,” said former Fannie Mae CEO Daniel Mudd.
Mudd and other ex-Fannie Mae and Freddie Mac executives argued that government should take steps to assist all types of homeowners, including those making payments regularly. “We should reduce the rates and even you the tax code to avoid making this segment become a problem,” Mudd said.
He added that those struggling to stay in homes need both modified mortgages including reductions in monthly payments and also deductions in principals. Borrowers in default also need government aid or charitable programs to stay in homes, said Mudd. “If that doesn’t work, we need to help these borrowers convert from ownership back into rental,” Mudd said.
