Freddie Mac Differs With Regulator on 2007 Results

Explaining its executive pay for 2007, Freddie Mac yesterday put a markedly different spin on the company's performance last year from the assessment of a federal regulator in a recent report to Congress.

The compensation committee of Freddie Mac's board listed a variety of "notable accomplishments . . . that have better positioned the company," including its "market-leading response to early signs of the subprime crisis."

In a report to shareholders that detailed multimillion-dollar pay packages for top executives, the compensation committee also cited a "successful offering of $6 billion in preferred stock in December 2007, which substantially strengthened our capital position."

The regulator, the Office of Federal Housing Enterprise Oversight (OFHEO), had a different take on those developments two weeks ago in an annual report to Congress. It discussed, among other things, why it believes Freddie Mac remains "a significant supervisory concern."

Freddie Mac, which was chartered by the government to support the mortgage market, lost $3.1 billion in 2007, the first annual loss in the McLean company's history.

OFHEO blamed the company's trouble in part on its purchase of loans "with weak underwriting" and a "strategic decision" to take on riskier loans in 2006 and 2007.

The compensation last year for Freddie Mac's chairman and chief executive, Richard F. Syron, included a $1.2 million salary, $3.5 million in bonuses, $8.3 million in stock awards and $771,585 in perks and benefits.

The $6 billion December preferred stock offering that Freddie Mac directors cited as a success was a costly response to serious trouble. In November, Freddie Mac became undercapitalized; that is, its financial cushion fell below the level OFHEO requires it to maintain to reduce its risk of failing.

The company's need for additional capital was at least partly the result of poor planning by Freddie Mac, the regulator suggested. In retrospect, Freddie Mac's decision to spend money earlier in the year raising its dividend and buying back its own stock was "mistimed," OFHEO wrote.

"Freddie Mac's expensive emergency corrective action in the fourth quarter emphasizes the need for more permanently heightened attention to income forecasting, and more prudent capital management generally," OFHEO wrote.

Syron has expressed regret that Freddie was forced to issue the additional stock and cut its dividend late last year. "We wanted to dilute the common shareholders like we wanted to shoot ourselves in the head with a gun," Syron told investment analysts in December.

The compensation committee credited Syron with "leading the home mortgage industry through the subprime crisis."