Fannie and Freddie Fear Mongering

In back to back statements one day after the other, the CFO of Freddie Mac and the CEO of Fannie Mae made statements regarding the real estate market that should have the masses howling in my humble opinion.

The two companies were established with a mission to broaden American home ownership by making loans more affordable. The companies, which purchase loans from high-street lenders and package them for investors in the debt markets, stand behind more than $5 Trillion of home loans.

In light of their companies poor financial performance and their role in the sub-prime mortgage mess these two company officers have made reckless and inflamatory statements that fly in the face of their obligation to instill confidence in the financial marketplace in which they operate. It is one thing to make statements of fact regarding the true financial picture of their companies, but it is quite another to douse the rhetoric with gas and throw a match on the real estate market.

First, Freddie Mac CFO Buddy Piszel reporting in an interview said that “Freddie Mac is unlikely to be profitable in 2008, given the current credit conditions”. Mr Piszel went on to say, using company data, “home prices are slated to decline 18% to 20% from their highs. So far, home prices have fallen 11%.” “We are about halfway through,” he said. Talk about creating your own reality! It’s a wonder Mr. Piszel didn’t advise all potential home buyers not to buy. Hold on and wait for the prices to fall even further, Mr. Piszel could have said. He might as well have done!

Not to be out done, Fannie Mae’s CEO Daniel Mudd chimed in with the following the day. “The housing market has returned to earth fast and hard,” said its chief executive, Daniel Mudd. “In the markets, conditions which many of us had already described as the worst in a generation took a turn for the worse.”  

Mudd said the week of July 7, when alarm bells began to ring, was “one of the worst Fannie Mae has experienced on the debt and equity markets” in the company’s 70-year history.

“It’s been three months since our last [earnings] filing,” said Mudd. “It seems even longer.” Ever the cheery optimist isn’t Mr. Mudd?

Just think how much better things could be if in the past our leaders would have offered up such confidence busting statements. President Roosevelt could have cried to “throw in the towel” and capitulate to the Japanese after they decimated our Pacific fleet in Pearl Harbor at the start of World War II. Yes, he could have, but instead he said “We have nothing to fear, but fear itself” and lead us all to victory!

Mr. Piszel and Mr Mudd are tasked with helping to turn their companies financial fortunes around and while no one expects them to be pollyannish, at least they could use some common sense and a little temperance in their public statements. Didn’t we all learn a lesson from Senator Schumer’s careless remarks and the early demise of IndyMac?


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