Mortgage: Everything you need to know....and more!

Who is Freddie Mac? (page 2)

Company

Awards

  • Freddie Mac was named one of the 100 Best Companies for Working Mothers in 2004 by Working Mothers magazine.
  • Freddie Mac was ranked number 50 in Fortune 500's 2007 rankings.
  • Freddie Mac was ranked 20 in Forbes' Global 2,000 public companies rankings for 2008.

Credit rating

  • Senior Long-Term Debt: AAA Aaa AAA
  • Short-Term Debt A-1+ Prime-1 F-1+
  • Subordinated Debt BBB+/Watch Positive Aa2 AA-
  • Preferred Stock C Ca C/RR6
  • Risk-To-The-Government NR (Not Rated) Not Applicable Not Applicable
  • Bank Financial Strength Not Applicable E+ Not Applicable

Investigations

In 2003, Freddie Mac revealed that it had understated earnings by almost $5 billion, one of the largest corporate restatements in U.S. history. As a result, in November, it was fined $125 million—an amount called "peanuts" by Forbes.

On April 18, 2006 Freddie Mac was fined $3.8 million, by far the largest amount ever assessed by the Federal Election Commission, as a result of illegal campaign contributions. Freddie Mac was accused of illegally using corporate resources between 2000 and 2003 for 85 fundraisers that collected about $1.7 million for federal candidates. Much of the illegal fund raising benefited members of the House Financial Services Committee, a panel whose decisions can affect Freddie Mac. Notably, Freddie Mac held more than 40 fundraisers for House Financial Services Chairman Michael Oxley, R-Ohio.

Government subsidies and bailout

Officially, Freddie Mac is not given any backing, insurance, or statutory support by the US Government. Both Fannie Mae and Freddie Mac often benefited from an implied guarantee of fitness equivalent to truly federally-backed financial groups.

As of 2008, Fannie Mae and Freddie Mac owned or guaranteed about half of the U.S.'s $12 trillion mortgage market. This made both corporations highly susceptible to the subprime mortgage crisis of that year. Ultimately, in July of 2008, the speculation was made reality, when the US government took action to prevent the collapse of both corporations. The Treasury Department and the Federal Reserve took several steps to bolster confidence in the corporations, including extending credit limits, granting both corporations access to Federal Reserve low-interest loans (at similar rates as commercial banks), and potentially allowing the Treasury Department to own stock. This event also renewed calls for stronger regulation of GSEs by the government.

President Bush recommended a significant regulatory overhaul of the housing finance industry in 2003, but many Democrats opposed his plan, fearing that tighter regulation could greatly reduce financing for low-income housing, both low- and high-risk. Bush opposed two other acts of legislation: Senate Bill S. 190, the Federal Housing Enterprise Regulatory Reform Act of 2005, which was introduced in the Senate on January 26, 2005, sponsored by Senator Chuck Hagel and co-sponsored by Senators Elizabeth Dole and John Sununu. S. 190 was reported out of the Senate Banking Committee on July 28, 2005, but never voted on by the full Senate.

On May 23, 2006, the Fannie Mae and Freddie Mac regulator, the Office of Federal Housing Enterprise Oversight, issued the results of a 27 month long investigation.

On May 25, 2006, Senator McCain joined as a co-sponsor to the Federal Housing Enterprise Regulatory Reform Act of 2005 (first put forward by Sen. Charles Hagel [R-NE]) where he pointed out that Fannie Mae and Freddie Mac's regulator reported that profits were "illusions deliberately and systematically created by the company's senior management". However, this regulation too met with opposition from both Democrats and Republicans.

Several Democrats who served as executives of Fannie Mae or Freddie Mac include Franklin Raines, former Budget Director for President Clinton and current Housing Policy advisor to Barack Obama, CEO from 1999 to 2004; James Johnson, former aide to Democratic Vice-President Walter Mondale and ex-head of Obama's Vice-Presidential Selection Committee, CEO from 1991 to 1998; and Jamie Gorelick, former Deputy Attorney General to President Clinton, and Vice-Chairman from 1998 to 2003. In his position, Johnson earned an estimated $21 million; Raines earned an estimated $90 million; and Gorelick earned an estimated $26 million. All three top executives were also involved in mortgage-related financial scandals.

The top five recipients of campaign contributions from Freddie Mac and Fannie Mae during the 1989 to 2008 time period are Christopher Dodd, (D-CT) $133,900, John Kerry, (D-MA) $111,000, Barack Obama, (D-IL) $105,849, Hillary Clinton, (D-NY) $75,550, and Paul Kanjorski,(D-PA) $65,500. John McCain received $21,550 from these GSEs during this time. Freddie Mac also contributed $250,000 to the 2008 Republican National Convention in St. Paul, Minnesota according to FEC filings. The organizers of the Democratic National Convention have not yet submitted their filings on how much they received from Freddie Mac and Fannie Mae (the latter of which tends more to support Democratic candidates).

Conservatorship

On September 7, 2008, Federal Housing Finance Agency (FHFA) Director James B. Lockhart III announced pursuant to the financial analysis, assessments and statutory authority of the FHFA, he had placed Fannie Mae and Freddie Mac under the conservatorship of the FHFA. FHFA has stated that there are no plans to liquidate the company.

The announcement followed reports two days earlier that the Federal government was planning to take over Fannie Mae and Freddie Mac and had met with their CEOs on short notice.

Under the reported plan, the federal government, via the FHFA, would place the two firms into conservatorship and for each entity, dismiss the chief executive officer, the present board of directors, elect a new board of directors, and cause to be issued new common stock to the federal government. The value of the common stock to pre-conservatorship holders would be greatly diminished, in the effort to maintain the value of company debt and of mortgage-backed securities.

The authority of the U.S. Treasury to advance funds for the purpose of stabilizing Fannie Mae or Freddie Mac is limited only by the amount of debt that the entire federal government is permitted by law to commit to. The July 30, 2008, law enabling expanded regulatory authority over Fannie Mae and Freddie Mac increased the national debt ceiling by US$800 billion, to a total of US$ 10.7 trillion in anticipation of the potential need for the Treasury to have the flexibility to support the federal home loan banks.

On September 7, 2008, the U.S. Government took control of both Fannie Mae and Freddie Mac. Daniel Mudd, CEO of Fannie Mae and Richard Syron, CEO of Freddie Mac have been replaced. Herbert M. Allison former vice chairman of Merrill Lynch will take over Fannie Mae, and David M Moffett, former vice chairman of US Bancorp, will take over Freddie Mac. It is estimated that the liabilities of both companies could cost U.S. taxpayers tens of billions of dollars.