Washington (CNSNews.com) - The past heads of now-disgraced mortgage giants Fannie Mae and Freddie Mac pleaded their collective innocence before Congress, claiming that neither they nor their companies had anything to do with the nation’s current economic woes.
The former chief executives, whose respective tenures cover the expansion and subsequent collapse of the U.S. housing finance market, said that it was the failure of the housing market that caused Fannie and Freddie’s failures, not the other way around.
“Fannie Mae is required by law to support the housing finance market,” Daniel Mudd, Fannie Mae’s CEO from 2005 to 2008, told the House Committee on Oversight and Government Reform Tuesday.
“As this market went through an unprecedented depression, the company bore commensurate and unprecedented losses,” Mudd said.
Richard Syron, CEO of Freddie Mac from 2003 to 2008, told Congress much the same thing, saying that Fannie and Freddie’s deep involvement in a troubled market led to the institutions’ collapse.
“As the guarantor of almost half of the home mortgages in the country, it is not at all surprising that these two firms would get hit hard by the biggest housing collapse in 75 years,” he said.
Franklin Raines, CEO of Fannie Mae from 1998-2004, was even more direct in absolving his former organization of responsibility.
“It (the housing crisis) did not result from Fannie Mae’s recent business decisions or its accounting practices,” Raines declared. “Fannie Mae did not cause the current crisis.”
Leland Brendsel, CEO of Freddie Mac from 1987-2003, said that the U.S. housing finance system is the best in the world, adding that Fannie and Freddie had been a major part of it.
“I believe that we have had the best housing finance system in the world,” Brendsel bragged to Congress, “and that Freddie Mac and Fannie Mae have been vital to its success.”
Syron said that Freddie and Fannie were forced into the sub-prime mortgage market, arguing that they wouldn’t have been able to meet their Congressional mandates if they hadn’t been involved.
“Freddie Mac entered the non-traditional slice of the market because, as the private lending sector shifted toward those types of loans, Freddie needed to participate in order to carry out its public mission,” Syron claimed.
Raines expressed similar sentiments, saying that while Fannie was involved in sub-prime lending, it was merely playing ‘catch up’ to the private sector.
“Fannie Mae had a limited market presence in promoting or investing in sub-prime or Alt-A loans,” Raines testified.
“If anything, Fannie Mae played catch-up to the banks and investment banks who drove the securitization of the most toxic sub-prime mortgages,” he said.
Rep. Christopher Shays (R-Conn.) reacted harshly to the CEOs’ claims, when asked about them by CNSNews.com.
“That’s just bull****,” Shays said. “The bottom line to this was they were entering into a market they didn’t have to enter in to.”
“That was, ironically, one of the concerns of the private sector, that they were broadening their reach beyond what their mandate was,” Shays explained.
Shays said that had the private sector been successful in keeping Fannie Mae and Freddie Mac out of the sub-prime market, they would never have gotten into trouble.
“The irony was, had the private sector succeed in keeping them out, they would have been kept out,” he added.
Shays singled out Raines for criticism, saying that the embattled former CEO left only after it was discovered he had been cooking his company’s books.
“Frank left when it was disclosed that their books didn’t meet any of the (federal) standards and that they had overstated – by billions – their profits, that’s why he left,” Shays said.
Rep. Brian Bilbray (R-Calif.), meanwhile, said that there was no doubt that Fannie and Freddie were to blame in creating the housing bubble.
“I think that the responsibility they’re denying was the responsibility in the creation of the bubble,” he told CNSNews.com.
“The fact is they’re dodging (responsibility), it wasn’t sustainable, their attitude was make the money now and get out,” Bilbray said.
Bilbray called both politicians and the CEOs to task for what he said was an unsustainable inflation of the housing market – one that hurt the very people it claimed to help.
“There’s enough blame on both sides,” he said. “There were political and economic abuses here, a lot of people saying ‘I’m going to get what I can out of it now’ both the politicians who want to take credit for expanding a market far beyond what was sustainable in the economy and those who were in the private sector who were looking to make the dollars and get out with huge amounts of money.”
Shays said that everyone involved has paid for their mistakes, except the former CEOs.
“The companies have paid for it, the stockholders have paid for it, and the public’s paid for it, and the CEOs have made a fortune,” he said.
Both Raines and Syron brushed aside CNSNews.com’s requests for interviews.