Freddie Mac Problems Differ From Those Portrayed on TV

Thick briefing books and a host of information was what David Moffett expected his first day at Freddie Mac, the government-sponsored mortgage agency as it was taken under conservatorship.
Instead, there were no books or information — just three men: Treasury Secretary Henry Paulson; Timothy F. Geithner, future treasury secretary; and Ben S. Bernanke, chairman of the Federal Reserve Board — “nothing except what I saw on television,” Moffett told the Friends of Finance at the University of Tulsa.
“I was shocked,” said Moffett, whose financial career began at Tulsa’s First National Bank.
Conversation centered around the liquidity of Lehman Brothers, an investment banking firm. He had previously been invited to Washington to help with the nation’s mortgage issues.
“I knew I was being interviewed but didn’t know what it was about,” he said.
Later, he was asked to return, being advised that he might stay a week. With two suits, six shirts and three ties, he returned to Washington. He ended up there for nearly eight months, straddling two administrations, from September 2008 to March 2009.
The central point of the economic crisis was the housing market, and the goal was to get it back on its feet.
Moffett learned home buyers no longer had to prove their income, no down payments were needed, and mortgage payments were not tied to a percentage of income.
Home lending practices were based on three assumptions, he said:
Assumption No. 1: “Home prices always rise.”
Assumption No. 2: “Home prices always rise.”
Assumption No. 3: “Home prices always rise.”
Everything in Washington was based on that single assumption, said Moffett, now senior adviser to the Carlyle Group, a private equity firm.
With the new administration, however, “everything changed.”
In two weeks, President Barack Obama was to announce a $75 billion plan that would keep 10 million homebuyers out of default by restructuring loans, and he needed some data from Freddie Mac.
Moffett was told this would solve the problem, but he didn’t think so.
Given the presidential speech in advance, Moffett knew the $75 billion program was to be announced.
Asked if he would publicly support it, Moffett replied he would give only noncommittal comments, he said.
He resigned from the Federal Home Loan Mortgage Corp. a short time later.
“I was not going to allow more losses,” he said.
Moffett said “no one saw the train wreck coming,” referring to the economic crisis.
“Congress did not want to stop the train,” he said.
The regulators “were totally surprised” by what happened to the economy, he said, which is “why it was such a crisis.”
Moffett attributed the development of the economic crisis to the multitude of regulating agencies, all having a narrow focus and none looking at the broader, national economy.

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