Government-Picked Leader Resigns as Losses Pile Up
Tuesday, March 3, 2009
The government-appointed chief executive of Freddie Mac announced yesterday that he is stepping down just six months into the job because, associates said, he was frustrated with the intense scrutiny by federal regulators and the short leash they keep the company on.
David M. Moffett's resignation comes amid growing losses at the McLean mortgage-finance company and unresolved questions about whether it should follow the path of a private firm trying to make its way back to profitability or that of a government agency whose overriding goal is carrying out public policy.
Associates described Moffett as never gaining the kind of independence he wanted as chief executive and never feeling fully invested in the company's activities. They spoke on condition of anonymity because they did not want to divulge private discussions.
Moffett's resignation letter underscored how far Freddie Mac's role changed over the past year. Although Freddie Mac was once widely considered one of the nation's top financial services firms, the company said in a statement that Moffett, former chief financial officer of U.S. Bancorp and a Carlyle Group senior adviser, "wants to return to a role in the financial services sector." Moffett declined to comment for this story.
Freddie Mac and its counterpart, Fannie Mae, have seen their businesses change sharply since they were taken over by the government in September. They have been asked by the government to play an instrumental role in the housing recovery plans of the Bush and Obama administrations by funneling cash into the home loan market to bring down rates and restructuring thousands of mortgages to make them more affordable for struggling borrowers. Even while working for the public good, the companies have been pushed by regulators to preserve capital and avoid unnecessary costs to taxpayers.
Freddie Mac has suffered growing losses in the past few months as the economy has deteriorated. Freddie Mac yesterday said that it expects, as previously announced, to need up to $35 billion in taxpayer money to stay solvent after it reports fourth-quarter earnings, likely in the next few days. That would bring the total government investment in the company to nearly $50 billion.
The Treasury recently doubled its commitment to both Freddie Mac and Fannie Mae, saying it would backstop them up to $200 billion each. Fannie Mae asked for $15 billion last week, its first infusion.
Since September, Freddie Mac's regulator, the Federal Housing Finance Agency, has been deeply involved in the running of the company, assigning a dozen liaisons to shadow top executives. Every major decision has had to receive the approval of the FHFA, led by Director James B. Lockhart III, a hold-over from the Bush administration.
Lockhart said Fannie Mae and Freddie Mac were taken over "to ensure that they fulfill their mission of providing stability, liquidity and affordability to the mortgage market in a safe and sound manner. We have worked closely with the firms to ensure that they continue to do so, and they have."
When Moffett considered adjusting prices on certain types of mortgages to reflect the declining economy, Lockhart intervened and urged the firm to keep mortgages as cheap as possible, people familiar with the matter said.
As Moffett worked to present a 2009 business plan that would steer Freddie Mac back to being a profitable company, the FHFA second-guessed many of his decisions, people familiar with the matter said. He sometimes had to wait weeks for government feedback on issues such as employee compensation, spending on computer equipment and evaluating the risk of extending credit to borrowers, the people said. The company also had to get approval from its regulator for employees to speak on panels or attend conferences.
And even though Freddie Mac now works to carry out government policy, its top executive doesn't have the authority that some in government do. "What Freddie Mac has become is completely different even from a government agency," said a former Freddie Mac executive who has worked with Moffett. "If you're a senior person at the U.S. Treasury or another agency, you still have tremendous authority, the ability to shape policy. At Freddie Mac, it's unclear if anybody has any ability to shape any policy except at the micro-management level."
Moffett and his counterpart at Fannie Mae, Herbert M. Allison, were tapped days before the U.S. government seized Fannie Mae and Freddie Mac. Moffett will step down by March 13. The board expects to name an interim chief executive by then. People familiar with the situation said Chairman John A. Koskinen or another board member is likely to fill in temporarily. Freddie Mac has had a temporary chief financial officer since September.
"Freddie Mac will keep serving a public mission that has never been more vital to us, to our many constituencies, or to our nation. That means we will work tirelessly to expand loan modifications and refinancing opportunities," Koskinen wrote in a memo to the staff yesterday. "You deserve leadership with the strong background and desire required to serve Freddie Mac's expanded mission during this national housing and economic crisis."
Moffett's view of his tenure at Freddie Mac appeared to change with time. A few days after starting at the firm, Moffett was asked at a town-hall meeting of employees whether he planned to live in the Washington area, a sensitive question because his predecessor had often commuted from his home in Massachusetts.
Moffett said he planned to move, and the employees thundered in applause.
He looked for a place, ending the search a few weeks ago. Most weeks, he lived in corporate housing at the Four Seasons hotel in Georgetown. On a few Fridays, he flew back home to Amelia Island, Fla.