U.S. mortgage market giant Freddie Mac’s chief executive dismissed internal warnings that could have protected the company from some of the financial problems now engulfing it, the New York Times said, citing more than two dozen current and former high-ranking executives and others.
In 2004, Chief Executive Richard Syron received a memo from Freddie Mac’s chief risk officer warning him that the firm was financing questionable loans that threatened its financial health, the paper said.
Though the current housing crisis would have undoubtedly caused problems at both companies, Freddie Mac insiders say Syron heightened those perils by ignoring repeated recommendations, the NY Times said.
In an interview with the paper, Freddie Mac’s former chief risk officer, David Andrukonis, 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.
Freddie Mac could not be immediately reached for a comment on the report.
