This article on employee reaction to difficulties at Fannie Mae and Freddie Mac incorrectly said that Fannie Mae was seeking to sell $3 billion in securities this week. Freddie Mac is the company involved with the sale.
Workers Shaken by Fannie, Freddie Woes
Monday, July 14, 2008
For years, Fannie Mae and its smaller rival, Freddie Mac, were destination workplaces in the Washington region. With a booming housing market and the implicit backing of the federal government, employees enjoyed high pay, bonuses and the promise of a prosperous retirement, thanks to the companies' high-flying stock prices.
Internally, it was considered near-betrayal for employees to sell their stock. A year ago, when both stocks were trading at about $60 per share, such loyalty made sense.
Today, it looks like a mistake.
After a month-long battering by a skittish Wall Street, worried that the twin mortgage giants might be running out of cash, employees of Fannie and Freddie have watched more than 80 percent of their stock value -- in concrete terms, their retirement funds -- evaporate since last July.
"For the long-termers, this is just horrible," said Thomas Lawler, Fannie Mae's former senior vice president for portfolio management, who retired in 2006. "This is something people are just . . . their mouths are just agape. As an existing shareholder, you're sad, depressed and possibly even [ticked] off."
It is a time of intense worry for District-based Fannie Mae's 5,800 employees, 4,775 of whom work in this region. The same is true for the 5,000-some worldwide employees of McLean-based Freddie Mac. Most of those interviewed for this article would not speak publicly on the record for fear of rebuke or because they have seen what negative media coverage has done to their companies in recent days.
Though both firms hold delinquent home mortgages that will lead to losses, regulators have said that neither faces a liquidity crisis. But when federal officials late last week sought to reassure Wall Street that backstop options might be available to Fannie and Freddie -- such as opening the Federal Reserve's "discount window," or lender of last resort -- the discussions were not enough to restore Fannie and Freddie stock, each of which fell about 45 percent last week alone.
Yesterday, the government announced broad measures to lend money to Fannie and Freddie and buy their stock if necessary. Fannie will find out quickly whether the government muscle has any effect: The mortgage giant faces a critical test of investor confidence today when it offers $3 billion of its securities in a previously scheduled sale.
"[Employees] feel that no matter what they do at this point, the situation may get out of control, and something needs to be done to clamp down" on unfounded rumors, one Fannie employee said.
"This is my family's financial future," said Lorrie Rudin, former director of executive compensation for Fannie Mae, who retired last year. "I worked there for 20 years, and I'm just absolutely devastated and terrified."
Employees cite Bear Stearns, the Wall Street bank made vulnerable by the credit crisis and ultimately brought down in March by, effectively, a run on the bank in which lenders refused to loan them money.
The venerable Arthur Andersen accounting firm suffered a similar fate in 2002, because of its ties to disgraced energy trader Enron. Federal prosecutors launched an aggressive investigation of Andersen that led to the dissolution of the nearly century-old accounting firm considered a rock in the industry.