Another Leg of Freddie Mac's Long Relay

By Zachary A. Goldfarb
Washington Post Staff Writer
Monday, August 3, 2009

Freddie Mac Chairman John Koskinen has served as interim chief executive of the mortgage giant since March, when he stepped in after the resignation of the first chief executive appointed under government control.

Koskinen, a former Clinton administration official and deputy mayor of the District, has led Freddie Mac as it tries to carry out the Obama administration's mandate for reviving the housing market by adjusting mortgage terms to reduce foreclosures and buying up home loans to help reduce interest rates.

He has also worked to balance the interests of an array of constituencies: lawmakers, investors and regulators. The company has posted billions of dollars in losses and received more than $50 billion in government aid.

Next month, Koskinen will drop his CEO responsibilities when Charles E. Haldeman takes office. The Washington Post spoke with Koskinen about Freddie Mac and its role in the mortgage market. Here is an edited excerpt of that discussion:

Q As the head of one of the nation's largest mortgage companies, you have a broad sense of the housing market. What do you see happening?

A As you can see by the numbers that have just come out . . . either the rate of decline has slowed or we've seen some pick-up in prices. . . . The worst is clearly behind us. I think by the end of the year, people will feel more optimistic about the housing market.

What do you consider your chief accomplishment?

We renewed a sense of enthusiasm and optimism with the employees about the future. I started a little over four months ago as the CEO and then we had the unfortunate death of [acting chief financial officer] David Kellermann and that came on top of the [government seizure of Freddie Mac.] Obviously that was a major set of challenges for people. The most important thing was getting the entire workforce . . . a renewed sense of optimism that we are going to get through the challenges.

What have been the key programs Freddie Mac has worked on?

We're a critical component of the president's 'Making Home Affordable' program, which is designed to keep people in their homes as part of the process to restore the economy to where it was before this great challenge confronted everybody. . . .

We're just at about a stage where you're going to start to see a significant number of [mortgage] modifications, which is going to keep people in their homes when otherwise they'd had go to through foreclosure.

How many mortgage modifications have there been?

We have close to 300,000 people who are in modification process. . . .

On the refinance side, we already refinanced over a million mortgages. . . . I think on average we find that refinances are saving people in the range of $200 to $250 people per month.

What has been the most challenging part of the job?

Being the CEO, CFO and COO as a general matter has been the most challenging part. . . . We're becoming compliant [with the Sarbanes-Oxley corporate governance law] this year having just started filing [securities disclosures] last year. We're ramping up the president's program. We are moving on balance sheet all our [mortgage guarantees, an intense accounting challenge involving $1 trillion in assets.] Then we have a major effort to upgrade significantly the technology of the company.

Freddie Mac has many masters -- lawmakers, a regulator, investors. How do you balance all of these?

Clearly we have a lot of different people to relate to. . . . Our relationship with our regulator, the Federal Housing Finance Agency, has continued to improve and is increasingly transparent. . . . I think what has always been a complicated relationship with regulators has been smoothed out.

What are your objectives now?

Our overall goal now is to maintain the discipline of operating efficiently and profitably. Our goal is not to draw any more from the Treasury than absolutely necessary.

That's all within the context of working cooperatively with the administration and the regulator to implement the president's program and to be a significant part of the national effort to restore liquidity to the mortgage market and help restore vitality to the economy.

Is there any chance Freddie can emerge from this crisis as a viable business?

I continue to be very optimistic that what we've demonstrated for several months now is the critical role that both we and Fannie Mae play in support of the national housing market. Without the two of us and [the Federal Housing Administration], there would be no mortgage market. Over 90 percent of mortgages now are being bought by Freddie, Fannie or FHA. It's clear we have a critical function that we perform.

What role do you see Freddie Mac playing in figuring its own future?

We're looking forward to providing support to the administration and the Congress as they look at this question. But we've been profitable in the past. We've supported the development of homeownership in the United States, and I think we're going to be able to do that effectively in the future.

Do you have a personal view on what Freddie Mac ought to look like?

I've taken position from the start that our most important role in responding to questions like that is not to have a single answer. What we have is a tremendous amount of experience and some very smart people that are able to take a look at what are the implications of each of those [options for the future structure].

Do you believe a shareholder-owned corporation can be created to achieve public policy goals like affordable housing? Are the profit motive and the public motive incompatible?

I've never thought that those were inconsistent goals or impossible to manage. The problem in the past was the increased requests for expanded affordable housing were made by the administration. No one ever balanced out exactly what that was going to cost.

One of the most significant things that's happened is the setting of the affordable housing goals has now been moved to our regulator. So the regulator responsible for looking at safety and soundness is also the one looking at setting the housing goals, and therefore will be able to look at what the costs and risks are of expanding support for affordable home ownership in the context of running a for-profit corporation.

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