Freddie CEO Feels Strain Of Firm's Twin Missions
Wednesday, August 6, 2008
Freddie Mac chief executive Richard F. Syron, who has presided over an implosion of investor confidence in his company, said yesterday that conflicting demands on the government-chartered mortgage giant have made his job "almost impossible."
On the eve of Freddie Mac's quarterly earnings report, Syron said that the McLean company has been whipsawed by the dual tasks of creating profit for private investors and serving the public by boosting the housing market.
"What this organization is all about is balancing among the different missions," Syron said in an interview. "It makes the job almost impossible."
Syron offered a spirited defense of his investment decisions at Freddie Mac, a company he's headed since 2003. He said he agreed to increase the purchasing of risky mortgages earlier this decade to fulfill his company's mandate to improve the housing market. But he did so, he said, in a way that also addressed his shareholders' desire to continue to make money.
"We thought that was the right judgment to make, given the information we had at that point in time," he said. Criticism of his choices "is just a little irritating," he added. "This is what we were required to do."
He also said he exercised restraint in buying relatively few subprime mortgages, the type of investment that helped lead to the crisis facing the financial markets. "We decided to give up market share rather than to chase it," he said.
Freddie Mac executives have said the company made a conscious decision to loosen lending standards during the housing boom to hold on to market share. Anthony S. "Buddy" Piszel, the chief financial officer, said in a December interview that the company's view was: "When the entire marketplace is seeing things one way, we can't unilaterally say we're going to see things another way."
Company spokeswoman Sharon McHale said yesterday that while the company moved in the direction of the market, it didn't go as far as others.
At the end of 2006, before the housing bubble burst, Freddie Mac held $122.2 billion of securities backed by subprime mortgages and $56.2 billion of securities backed by so-called Alt-A loans, which typically were issued on the basis of relaxed underwriting standards. As recently as last year, a major portion of the loans Freddie Mac bought, $97.8 billion, had another risky characteristic: they were interest-only, meaning monthly minimum payments didn't reduce the principal owed.
Several Wall Street analysts expect both Freddie Mac and its sister mortgage finance giant, Fannie Mae, to report losses for the second quarter when the companies release their earnings this week. Credit Suisse analyst Moshe Orenbuch wrote that he expects Freddie Mac to post a net loss of about 60 cents a share when it reports today and that he expects Fannie Mae to disclose a loss of about 75 cents a share when it reports Friday.
Syron said the companies' fortunes are tied to the housing market, which has been in steep decline. The companies have only one line of business -- housing finance -- and are operating during what Syron called "the worst housing downtown in about 80 years."
Yesterday, the Treasury Department awarded a contract worth up to $95,000 to the investment firm Morgan Stanley to help assess the risks facing Fannie Mae and Freddie Mac. "It's a broad mandate, and we start immediately," said Jeanmarie McFadden, a spokeswoman for Morgan Stanley.