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Freddie Mac CEO ignored warnings

Syron told of risks, former official says

Email|Print|Single Page| Text size + By Charles Duhigg
New York Times News Service / August 5, 2008

The chief executive of the mortgage giant Freddie Mac rejected internal warnings that could have protected the company from some of the financial crises now engulfing it, according to more than two dozen current and former high-ranking executives and others.

That chief executive, Richard F. Syron, in 2004 received a memo from Freddie Mac's chief risk officer warning him that the firm was financing questionable loans that threatened its financial health.

Today, Freddie Mac and the nation's other major mortgage finance company, Fannie Mae, are in such perilous condition that the federal government has readied a taxpayer-financed bailout that could cost billions of dollars. Although the current housing crisis would have undoubtedly caused problems at both firms, Freddie Mac insiders say Syron heightened those perils by ignoring repeated recommendations.

In an interview, Freddie Mac's former chief risk officer, David A. Andrukonis, recalled telling Syron in mid-2004 that the company was purchasing bad loans that "would likely pose an enormous financial and reputational risk to the company and the country."

Syron received a memo showing that the firm's underwriting standards were becoming shoddier and that the company was becoming exposed to losses, according to Andrukonis and two others familiar with the document.

But as they sat in a conference room, Syron, the former Boston Federal Reserve president, refused to consider possibilities for reducing Freddie Mac's risks, said Andrukonis, who left in 2005 to become a teacher.

"He said we couldn't afford to say 'no' to anyone," Andrukonis said. Over the next three years, Freddie Mac continued buying riskier loans.

Syron contends his options were limited.

"If I had better foresight, maybe I could have improved things a little bit," he said. "But frankly, if I had perfect foresight, I would never have taken this job in the first place."

More than two dozen current and former high-ranking executives at Freddie Mac, analysts, shareholders, and regulators said in interviews that Syron ignored recommendations that could have helped avoid the current crisis.

Executives of both Fannie and Freddie say that one of the reasons the firms hold so many bad loans is that Congress has leaned on them for years to purchase mortgages from low-income borrowers.

Others, however, dismiss that explanation. "Sure, it's hard to deal with the pressures of Congress and shareholders and regulators," said a former high-ranking Freddie executive. "But that's why executives get paid so much. It's not acceptable to blame those pressures for making bad choices."

Eric Dash contributed reporting.

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