Freddie Mac headquarters in McLean, Va., and the Fannie Mae headquarters in Washington, July 2008.
Freddie Mac headquarters in McLean, Va., and the Fannie Mae headquarters in Washington, July 2008. ASSOCIATED PRESS
Fannie Mae and Freddie Mac, the mortgage giants severely criticized during the mortgage meltdown, especially by Republicans, face another blast of anger after a news report that taxpayers have paid the legal bills of the companies' wealthy former officials.
The New York Times reported that taxpayers, unbeknownst to them, paid more than $160 million for lawyers representing former Fannie Mae CEO Franklin Raines, who served as President Bill Clinton's Office of Management and Budget director, and other top Fannie and Freddie officials.
As the NYT further reports, this disclosure only emerged as the result of a House Republican seeking the information.
Late last year, Randy Neugebauer, Republican of Texas and now chairman of the oversight subcommittee of the House Financial Services Committee, requested the figures from the Federal Housing Finance Agency. It is the regulator charged with overseeing the mortgage finance companies and acts as their conservator, trying to preserve the company's assets on behalf of taxpayers.
"One of the things I feel very strongly about is we need to be doing everything we can to minimize any further exposure to the taxpayers associated with these companies," Mr. Neugebauer said in an interview last week.
As the NYT also reports, it's standard operating procedure for companies to pay the legal defense of executives, current or former, in lawsuits tied to their official actions. Attempts can be made to recoup the money paid in fees if it's determined the officials were guilty of wrongdoing.
But Fannie Mae and Freddie Mac aren't your standard companies, which is partly why they've been so reviled in Republican circles. For much of their existence they were a hybrid.
They operated as private-sector companies in the financial markets. But because they were created by Congress, there was an implied government guarantee which gave investors confidence that if the companies foundered, they would be bailed out. Which is exactly what happened.
This new information will likely only serve as new fuel for a long and fiery antipathy towards the companies in GOP circles.
Its most recent expression has been in the primary blame many conservatives assign to Fannie Mae and Freddie Mac for the mortgage meltdown that kicked off the Great Recession.
Republicans assert that the two huge government-sponsored enterprises, spurred by liberals who wanted to raise the percentage of minority homeowners, created a climate in which banks felt forced to make unsound mortgage loans to borrowers who couldn't repay them.
Many economists and financial experts dispute that version of the mortgage bubble and crash, arguing that Fannie and Freddie actually were late to the subprime party.
Other forces, namely Wall Street's need to create new and ever more complex securities to sell, played a much greater role in the disaster, these experts insist.
Whichever version of how the disaster happened one accepts, the news that taxpayers are footing the legal bills for the ex-officials will likely just be experienced by many as salt being rubbed into the wound.
Taxpayers have already bailed out the two GSEs to the tune of $150 billion and counting.
That we're learning that taxpayers have paid the legal bills of ex-officials who were accused of overseeing, among other things, questionable accounting at the GSEs, is, if nothing else, a public relations disaster for Fannie and Freddie.