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Fannie Mae, Freddie Mac Hearing: Testimony, Video
UPDATE 12/09 at 3:21PM:
HuffPost's Marcus Baram reports:
Former Fannie Mae CEO Franklin Raines blamed regulators and lawmakers for encouraging the massive mortgage finance company to expand into riskier loans with limited oversight while admitting that even he had trouble understanding his own mortgage application.
Raines, who was ousted in 2004 amid accusations of accounting manipulation, told the House Oversight and Government Reform Committee today, "It is remarkable that, during the period that Fannie Mae substantially increased its exposure to credit risk, its regulator made no visible effort to enforce any limits."
He also added that homeowners shouldn't be blamed for the subprime mortgage crisis saying that he had difficulty understanding his own mortgage application.
"I know I can't [understand] and I've tried," Raines said. "To this day, I don't know what it said... It's impossible for the average person to understand" mortgage terms such as negative amortization.
Raines, his successor Daniel Mudd and former Freddie Mac CEOs Richard Syron and Leland Brendsel, faced withering questioning from congressional members wielding some of the 400,000 internal documents obtained as part of their probe into the collapse of the mortgage finance giants.
"All four of you seem to be in complete denial that Fannie and Freddie are in any way responsible for this," said Daniel Issa, the ranking Republican on the committee. "You're either standing behind the mandate of Congress or your mandate of your stockholders or perhaps the mandate of your bonus packages and you're telling us everyone's doing it."
Committee chair Henry Waxman (D-Calif.) noted some of the internal documents, including a June 27, 2005 internal presentation by Fannie that described the company as being at a "strategic crossroad" to either "stay the course" or "meet the market" by taking on risky subprime loans.
"These documents make clear that Fannie Mae and Freddie Mac knew what they were doing," Waxman said. "Their own risk managers raised warning after warning about the dangers of investing heavily in the subprime and alternative mortgage markets."
Under harsh questioning from committee members, Raines's successor Daniel Mudd explained that it was difficult for the companies to meet their multiple obligations to earn profits for their shareholders and to promote affordable housing.
He also explained that Fannie was under pressure to compete with Wall Street banks that were also ramping up their purchases of such risky loans.
"We couldn't afford to make the bet that the changes were not going to be permanent," Mudd said.
Even as the housing boom collapsed, the companies increased their purchase of risky subprime and Alt-A securities, which totaled $158 billion in 2006 and 2007.
When asked by Carolyn Maloney (D-N.Y.) whether he regretted purchasing such a massive amount of low-documentation loans, former Freddie Mac CEO Syron initially demurred before adding,
"In perfect hindsight, I think we always wish that we hadn't bought them," Syron said. "But given the information that we had at the time and given the balance we were trying to achieve, we thought we were making the right decision."
When confronted with memos from Freddie Mac risk manager David Andrukonis that warned about the company's increasing purchase of such risky loans, Syron said he never saw them, prompting Maloney to speculate that either he or Andrukonis were not telling the truth.
Asked why Andrukonis was fired, Syron said that there were a "variety of reasons."
Under tough questioning by Republican Dan Burton, Raines addressed controversies such as reports that he received a preferential mortgage from Countrywide CEO Angelo Mozillo. "I am unaware of preferential treatment by Countrywide... I never talked [to Mozillo] about special treatment."
Four former top executives from Fannie Mae and Freddie Mac are appearing in Washington today to testify about the collapse and government takeover of the mortgage giants.
Check back throughout the day for news and video updates from the hearing.
Watch live video from hearings, courtesy of MSNBC.
From the AP:
Four former top executives are scheduled to be grilled at the hearing, which is being led by Rep. Henry Waxman, D-Calif., chairman of the House Oversight and Government Reform Committee, starting at 10 a.m. EST. But there are doubts about whether the hearing will produce any solid conclusions or will just devolve into partisan bickering.
"I think we're going to get a lot of finger-pointing, which will be totally unproductive," said Bert Ely, a banking industry consultant in Alexandria, Va.Fannie and Freddie, which own or guarantee around half the $11.5 trillion in U.S. outstanding home loan debt, long used their lobbying muscle in Washington to thwart efforts to impose tighter regulation.
In anticipation of today's hearing the Washington Post is reporting that top executives at both companies were warned years ago of the possibly long term effect of their lending practices:
Internal Freddie Mac documents show that senior executives at the company were warned years ago that they were offering mortgages that could pose dangers to the firm, hurt borrowers and generate more risky loans throughout the industry.
At Fannie Mae, top executives were told it was necessary to develop "underground" efforts to buy subprime mortgages because of competitive pressures, although there were growing risks and borrowers often didn't understand the terms of the loans, documents show. [...]In a memo to former Freddie chief executive Richard F. Syron and other top executives, former Freddie chief enterprise risk officer David Andrukonis wrote that the company was buying mortgages that appear "to target borrowers who would have trouble qualifying for a mortgage if their financial position were adequately disclosed."
Andrukonis warned that these mortgages could be particularly harmful for Hispanic borrowers, and they could lead to loans being made to people who would be unlikely to pay them off. "The potential for the perception and the reality of predatory lending with this product is great," Andrukonis wrote.
The documents, which the committee has not yet released but were obtained by The Washington Post, show that Fannie and Freddie, two linchpins of the nation's mortgage market, continued to push into new, risky markets despite internal debate over whether the efforts were prudent.
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Huffington Post | December 9, 2008 09:15 AM