Freddie Mac CEO: “We Couldn’t Afford to Say No to Anyone”
Reports have surfaced that for years, Richard Syron, CEO of embattled Freddie Mac, failed to heed internal warnings that could have protected the U.S. mortgage market giant from some of the catastrophic financial problems it now faces.
Syron received a memo in 2004 from Freddie Mac's chief risk officer warning him that the firm was financing questionable loans that threatened its financial health. While the current housing catastrophe would have certainly caused difficulties at both Freddie Mac and Fannie Mae, Syron exacerbated problems by repeatedly ignoring recommendations from his staff.
Freddie Mac's former chief risk officer, David Andrukonis, told the NY Times that he recalled telling Syron in mid-2004 that the company was buying bad loans that would likely pose an enormous financial and reputational risk to the company and the country.
Syron received a memo stating that the firm's underwriting standards were becoming shoddier and that the company was becoming exposed to losses, the paper said, citing Andrukonis and two others familiar with the document.
But Syron refused to consider possibilities for reducing Freddie Mac's risks, the paper cited Andrukonis as saying. "He said we couldn't afford to say no to anyone," the paper quoted Andrukonis as saying. Over the next three years, Freddie Mac continued buying riskier loans, the paper said.
Citing many executives, the paper said Syron was also warned that the firm needed to expand its capital cushion, but instead that safety net shrank. Syron was told to slow the firm's mortgage purchases, but they accelerated, the paper said.
Those and other choices initially paid off for Syron, who has collected more than $38 million in compensation since 2003, the NY Times said. But when housing prices began declining in 2006, those choices at Freddie Mac proved disastrous.
Source: Source: NY Times | Published on August 5, 2008
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