House Panel: Fannie, Freddie Ignored Warnings
ROBERT SIEGEL, host:
In Washington today, former executives of Fannie Mae and Freddie Mac face tough questioning about emails they either wrote or received. Investigators for the House Oversight Committee got a hold of those emails and other documents. As NPR's Chris Arnold reports, the documents show that Fannie and Freddie executives were repeatedly warned that the companies were taking excessive risks.
CHRIS ARNOLD: During the housing bubble, Fannie Mae and Freddie Mac bought up or guaranteed a lot of bad loans. On some, homebuyers didn't have to show their incomes and couldn't afford their payments. As the firms' losses mounted, their stocks plummeted and the government had to take them over.
Representative HENRY WAXMAN (Democrat, California; Chairman, House Oversight and Government Reform Committee): The companies made irresponsible investments that are now costing federal taxpayers billions of dollars.
ARNOLD: Oversight Committee Chairman Henry Waxman said the committee found internal documents showing that insiders at the firm tried to raise the alarm.
Representative WAXMAN: Their own risk managers raised warning after warning about the dangers of investing heavily in the subprime and alternative mortgage market. But these warnings were ignored.
ARNOLD: Waxman singled out an email from 2004 sent to Freddie Mac CEO Richard Syron. It was sent by the firm's chief risk officer.
Representative WAXMAN: Urging Freddie Mac to stop purchasing loans with no income or asset requirements as soon as practicable.
ARNOLD: In other words, stop buying those loans where the borrower doesn't have to show their income. The risk officer warned that those loans were being given to people who didn't make enough money to buy a house and that the potential for, quote, "predatory lending with this product is great."
Representative WAXMAN: But Mr. Syron did not accept the chief risk officer's recommendation. Instead, the company fired him.
ARNOLD: Lawmakers said the riskier loans led to bigger bonuses for the CEOs, so they criticized Syron and Fannie Mae's former CEO, Daniel Mudd, for making tens of millions of dollars while driving their companies off a cliff. The former CEOs, though, refused to take the blame. Richard Syron.
Mr. RICHARD SYRON (Former Chairman and CEO, Freddie Mac): Given the recent severe nationwide downturn in the housing market, the only nationwide housing decline in housing values since the Great Depression, any company limited exclusively to the line of business - that line of business alone would be severely impacted.
ARNOLD: Answers like that didn't satisfy lawmakers.
Representative MARK SOUDER (Republican, Indiana): Nobody takes responsibility for anything.
ARNOLD: Congressman Mark Souder of Indiana said the government-backed firms made the situation worse. He says Fannie and Freddie expanded the market for these bad loans and gave them legitimacy.
Representative SOUDER: You do this, enabling banks to make new loans. So when you went into this market, you're the enablers.
ARNOLD: This last point is controversial. Most economists agree that the mortgage mess would have happened anyway, regardless of Fannie and Freddie. Wall Street packaged up most of these bad loans all by itself. But all sides agree that Fannie and Freddie might have made a difference if they'd opposed this kind of lending instead of jumping in. Chris Arnold, NPR News.
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