E-mails Show Mortgage Execs Were Warned

(AP)  Top executives at mortgage finance companies Fannie Mae and Freddie Mac ignored warnings that they were taking on too many risky loans years before the housing market plunged, according to documents released Tuesday by a House committee.

E-mails and other internal documents released by the House Oversight and Government Reform Committee show that former Fannie Mae CEO Daniel Mudd and former Freddie Mac CEO Richard Syron disregarded recommendations that they stay away from riskier types of loans.

"Their irresponsible decisions are now costing the taxpayers billions of dollars," said Rep. Henry Waxman, D-Calif., chairman of the committee, which reviewed nearly 400,000 internal documents from Fannie and Freddie.

At the hearing, Republicans argued that weak government regulation of Fannie and Freddie and the homeownership policies of the Clinton administration were the key cause of the financial meltdown. "We knew a long time ago that this train was going to crash," said Rep. Christopher Shays, R-Conn.

Democrats acknowledged that the two government-sponsored companies contributed to the financial crisis, but stressed that Wall Street banks - not Fannie and Freddie - led the dramatic decline in lending standards that caused mortgages to start defaulting in huge numbers two years ago.

The two companies were seized in September by government regulators. Two months later, Freddie Mac asked for an injection of $13.8 billion in government aid after posting a massive quarterly loss. Fannie Mae has yet to request any government aid but has warned it may need to do so soon.

Fannie and Freddie own or guarantee around half the $11.5 trillion in U.S. outstanding home loan debt. The two companies are the engines behind a complex process of buying, bundling and selling mortgages as investments.

They traditionally backed the safest loans, 30-year fixed rate mortgages that required a down payment of at least 20 percent. But in recent years, they lowered their standards, matching a decline fueled by Wall Street banks that backed the now-defunct subprime lending industry.

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.

"Do you regret firing him?" Maloney said. "Do you regret buying these risky loans? Do you regret the way you led - and I would say mismanaged - this company?"

In defense, Syron said Andrukonis "was fired for a variety of reasons. It was not primarily for his having a view on credit."

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.

"We couldn't afford to make the bet that the changes were not going to be permanent," Mudd said.

Lawmakers were clearly frustrated by what they called a lack of willingness among Syron and Mudd, plus former Fannie CEO Franklin Raines and former Freddie Mac CEO Leland Brendsel to share any of the blame for the companies' fortunes.

"All four of you seem to be in complete denial that Freddie and Fannie are in any way responsible for this," said Rep. Darrell Issa, R-Calif. "Your whole excuse for going to risky and unreasonable loans that are defaulting at an incredibly high rate is that everyone is doing it."

Repeated attempts to impose tighter regulation on the two companies were thwarted by the companies' powerful 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.

The more difficult questions, however, will come next year, when lawmakers weigh what role, if any, the two companies play should play in the mortgage market

Options include taking the companies private, morphing them into a public utility or a federal agency, or leaving them as government-sponsored entities that have private shareholders and profits, with tougher regulations.

Today's hearings came as the National Association of Realtors reported that home sales in October fell by less than one percent compared to the previous month. But the figures included deeply discounted foreclosures and distressed sales that figured in roughly 40 percent of all transactions.

[polarbearzz]

Mr. Grouch

In my view, you''re very much too quick to excuse Phil Gramm. He was deeply involved with writing the legislation that removed controls on derivatives. To top it off, he was deeply involved in removing controls on commodities as well.

Certainly, the legislation was voted on and approved. Should I mention that both the House and Senate were under Republican control at the time?

It is more than these factors that led to the crisis, but if you disable the brakes, you shouldn''t wonder why you have a runaway.

[patrik1974]

How come Barney Frank, Chris Dodd, Chuck Schumer or any members of congress are not brought before the public to answer questions about there role in this mess.
jett3310 - are you going to include Bush. He was the guy driving this ship did nothing to prevent this mess.

[cheetah-man7]

There should be a bounty on republicans.


------------------------------------------------------

Posted by zzy-izzy


Yup, and public hangings too! Those Evangelicals would just LOVE that, wouldn''t they?

[jett3310]

How come Barney Frank, Chris Dodd, Chuck Schumer or any members of congress are not brought before the public to answer questions about there role in this mess. I''m in total amazement of everybody is getting blamed except congress. There at the front of the line pushing laws on the mortgage industry. Why does congress get a free pass.

[tmittelstaed]

My family bought a home in the mid 90''s. Like most other homebuyers of the time we were pitched an ARM by the mortgage broker we used. I declined and opted for 30 year fixed as I could not understand how allowing the bank to set the interest rate at whatever they wanted 3 years later would be a good thing. For years after that I never understood why anyone with any sense would possibly get an ARM on a home. Then in 2003 I met a professional home flipper who was making close to $100K a year doing it and I asked him what was the f * * k with these ARMS? He said he used ARMS all the time but that the ARM was invented for home flipping and that was the only legitimate use of it and that nobody would ever get an ARM for their primary residence if they had any brains at all.
It was not the bankers who were to blame - it was greed on the part of people buying super expensive homes in 2006 onwards, with the idea that if you could make $50K flipping a cheap home, you could make $200K flipping an expensive home - and support from the home construction community who was creating these suburban tracts with 3/4 of a million dollar 3000sqft homes with wood beams, vaulted ceilings, marble countertops and all the rest of it. Now those communities are vacant with thieves carrying off the air conditioning units to sell for copper scrap, and the greedy wannabe flippers have long since disappeared behind an ocean of foreclosures.

[txgrouch2007]

SPECIFICALLY PHIL GRAMM HE IS THE REPUBLICAN
THAT SPEARHEADED THE LEGISLATION THROUGH CONGRESS
TO DEREGULATE THE BANKS / FINANCIAL FIRMS.

Posted by cbs3200 at 08:17 PM : Dec 09, 2008

Are you nitwits STILL pushing this nonsense?

CHECK THE HOUSE VOTE on the 1999 Gramm-Leach-Bliley act. IT WAS PASSED OVERWHELMINGLY by BOTH parties.

Only a complete blundering idiot would try to blame it on EITHER party alone.

[actornaught]

Warning these lowlifes that the scheme was about to crash just egged them on to grab as much as they could, while they could.

Now the Quick Money Grab has another name: Bailout.

[zzy-izzy]

There should be a bounty on republicans.

[zzy-izzy]

CBS3200 YOU ARE ON THE MONEY AND HIS NEXT MOVE WAS TO WRECK YOUR HEALTH CARE PLAN IF JOHN MCCAIN HAD GOT IN OFFICE.

[tangouniforn]

According to an article published a couple of weeks ago, the bank regulators started to get really concerned in 2006 about the loans being made. They were getting ready to crack down on the lenders and put a stop to the risky loans being made. The banks were making a ton of money making these risky loans. When the banks learned of the planned crackdown, their lobbys went to the white house and presented their cases. They said that there was no risk. The white house agreed so the regulators were shut down. I do not doubt that the loose regulations go back several years. But if it could have been saved, as the regulators believed, in 2006, then the only entity that can be blamed for this disaster is the Bush white house.