Freddie Mac Employees Speak Out

by pohearn on October 5, 2008

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With the bailout package now safely signed into law, many are hoping to see stability returned to markets both here in the US as well as throughout the world.  Certainly, this situation has proved the adage that “when the US economy gets a cold, the world economy gets a fever.”  As well, and as I’ve noted in the past, when the housing market gets a cold, the rest of the economy here in the US gets a fever.

The housing market in the US is one of the most vibrant and most important elements of our economy for a couple of reasons.  First, there is a long tradition here in the US of placing value on home/land ownership.  To most, owning land, and especially a home, is synonymous with freedom.

To further that portion of the American Dream, congress began decades ago to actively foster a secondary mortgage market to serve the primary market and to bring additional sources of capital for lenders.  Many even today don’t understand the fact that Fannie Mae and Freddie Mac are themselves not allowed to originate mortgages.  Rather, their only goal is to serve as a conduit for the primary lending market to funnel capital to that market.

Another thing that many don’t understand is the fact that Freddie and Fannie have always been intense rivals.  These companies do not much like each other and competition between them is fierce.  That said, Fannie Mae has been around for about 40 years longer than Freddie Mac and has always been the more dominant of the pair in the market.

With both Fannie and Freddie now in conservatorship, it  is likely both companies will assume a lower profile in the future.  That said, many at Freddie Mac and Fannie Mae right now are wondering why the federal government felt it necessary to take such a radical step.  In years past, many of my contacts inside the GSEs had very little to say regarding the politics of life in the GSE environment.  Now, however, with all the radical changes that have occurred, there are those now willing to step up and discuss this crisis from their perspective.

Certainly, neither Freddie nor Fannie are happy places to be working right now.  At Freddie Mac, for example, they have seen 4 different CEOs in less than six years.  From Leland Brensdel (ousted because of accounting irregularities), to Greg Parseghian (ousted because he was accused of being complicit in Freddie’s accounting regularities), to Dick Syron (ousted after Freddie was placed in conservatorship), to the current federally appointed head, David Moffett.

Before it’s troubles began in 2002, both Freddie and Fannie were considered great places to work.  Freddie in particular had a collegial atmosphere, which was fostered by CEO Brensdel.  Leland Brensdel himself could be seen many mornings in the cafeteria, having breakfast with staff and chatting with employees.  Brensdel served in the CEO role for almost 20 years and had been with the company from the time it was a small organization to the time when it had grown to over 5000 employees in five major cities.

Now, with Brensdel long gone and the company in conservatorship, many employees are leaving as fast as they can and few have nice things to say about life at Freddie Mac.  One employee mentioned the only thing keeping them there at the moment is the fact that fewer companies are hiring right now.  Whether this bleeding of talent of talent is acceptable to Moffett and his leadership is anybody’s guess.

At least one source at Freddie Mac, however, has expressed satisfaction at the early departure of former CEO Syron.  Everyone at Freddie Mac knew that Dick was there for a limited time, five years, in order to help reorder the company after the company had admitted to accounting irregularities.

However, Syron’s style was to initiate a series of internal changes that resulted in the departure of a sizable portion of the company’s leaders.  Most of those departures were involuntary, and bled the company of the institutional know-how that had made Freddie so effective.

The process seemed much like what happens in professional sports when a new coach takes over.  The new coach often sweeps the previous coach’s staff out and replaces them with people that they’ve worked with in the past.  The problem with this analogy is that the secondary mortgage market is so unique that sweeping away the previous leadership arguably harms the company’s ability to compete.

It’s rumored that Syron never even bothered to move to the Northern Virginia area after accepting the CEO slot at Freddie Mac.  Rather, he took a suite at the Ritz up the street from the company and planned to stay there until his contract expired, after which, it was widely understood, he would return to Boston.

As difficult as things were under Syron, they’ve only gotten worse of late.  Not that David Moffett has made things worse, but Freddie employees wonder why it was necessary for the government to put them into conservatorship.  In terms of corporate assets and liquidity, Freddie Mac seems to be doing alright at this point.

The Wall Street Journal reported last week that neither Freddie nor Fannie have had to borrow at all against the $100 Billion promised by Paulson when the companies were placed in conservatorship.  And while Paulson and the Bush Administration thought the move might have served to restore some level of confidence to the markets, the move seems to have had the opposite effect.

From the standpoint of the average employee at Freddie Mac, the past six years of long hard work to restore the reputation of their company seems to have all been for nothing.  Everything at Freddie Mac seems at a standstill while employees wait for Moffett to decide on next steps there.

Perhaps Moffett would do well to take a page from Brensdel’s book and just show up in the cafeteria a couple of mornings a week to have breakfast and say hello to employees.  Syron did not seem to care much for Freddie Mac.  If Moffett does, he could begin to restore hope by simply reviving some of the collegial atmosphere the company enjoy under both Brendsel and Parseghian.

If the secondary market is to ever properly refocus its efforts to serving the primary market and, through those markets, the American public, it will start with the restoration of hope and confidence at the companies which have served this country well over the past few decades.

NOTE: If you have a story to tell about how the current economic crisis is impacting your company, please contact us and let us know. We are seeking your thoughts and experiences.

Last 3 posts by pohearn

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    Oh cry me a freaking river.

    Do you know how many imploded mortgage companies were voted/ranked "great places to work"? A lot. The reason should be obvious: companies that are flush with cash can afford to be generous to their employees, and bumper profits bring about euphoria in general. Believe me, plenty of now-extinct dot-coms were "great places to work" before the previous crash. That is no reason to wish it all back.

    And the fact that the GSEs haven't tapped the Treasury line yet isn't too meaningful. The trajectory is not good; that is why they were seized. The reason they haven't tapped the line is that the government has suspend all sorts of reserve requirements and has moved the banking system to a "no cash until you crash" model.

    Sorry for the annoyed tone, but Fannie and Freddie benefited inestimably from having an "implicit" government backing, and also by having DC in a lobbying stranglehold.

    Any mortgage people wistful for this kind of largesse to come back need to grow up. Dot-com people seem to have learned a lot more quickly that their jobs weren't coming back, and in a sense weren't "real" in the first place. It was more like a nice dream.

    Same goes for Fannie, Freddie, and the rest of the major players in the "mortgage bubble era."

    Sure, the Republican-driven attempt to re-cast the whole mortgage crisis as the fault of the GSEs is revisionist at best, but I don't know how you can say Fannie and Freddie have "served the country well". It was a fraudulent scheme of privatized profits derived from an implicit government guarantee (backed by no formal provisions). So saying they have "served us well" is like saying FHA downpayment laundering scams have "served us well" because, of course, they get people into homes. Nevermind how, or what happens afterwards.
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    Neither Fannie nor Freddie are in receivership, they are in a conservatorship. They are very different. Please get your facts correct. Thanks.
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    You're correct about Fannie and Freddie being in conservatorship rather than receivership. Thanks for calling out my mistake. I'll fix that in the text.

    As for the comparison of the dot com industry vs. the housing industry, I worked in both, so I have some experience with the difference. In the dot com industry, we offered mainly ideas and services, not assets. Homes are assets and traditionally the best asset one can own.

    Secondly, while there was a level of tension between lenders and the GSEs, it was still a relationship that served lenders well. You could argue that the industry would have done just as well, or better, without the GSEs, but you would need to show some evidence. If you have such evidence, I would love to see it.

    Finally, the problem we're facing now came because lenders and GSEs left their long-standing practices of controlling risk. Moving so forcefully into the sub-prime market came because congress was pressuring the industry to better support "low-income households." The move to support those households without finding some way to control for all the increased risk was a huge mistake, and both the industry and congress share the blame for that.
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    I am a freddie mac shareholder. I did not know i was and had no intent to be one.
    My financial advisor steered me to safe low risk corporate bonds. but they were not corporate bonds and they were not gauranteed by the government. Implied gauranteed
    but what does that mean. They are not worth 2-3 cents on the dollar.

    Well if i had a meaningful vote as a shareholder i would vote NO to the $200 million bonus. What a joke retention bonus- they should be lucky to have a job. the bigger their bonus the greater their culpability. There is need for new blood at Freddie and no one there should earn more than the President of the USA. I am sure the shareholders say NO , the taxpayers say NO. Give those jobs to those who are unemployed who deserve it.
 

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