WASHINGTON — Well-intentioned victims of a historic, unanticipated housing market meltdown? Or reckless and arrogant firms that plunged headfirst into the riskiest mortgages in a blind pursuit of profits?
The panel investigating the financial crisis Friday heard those two sharply divergent reasons for the failures of housing giants Fannie Mae and Freddie Mac, which were seized by government officials in 2008 at a total cost of at least $125.9 billion to taxpayers so far.
The third day of hearings into the subprime mortgage mess highlighted the difficult task of the Financial Crisis Inquiry Commission in ferreting out the causes of the worst fiscal morass since the Great Depression.
First, two former Fannie Mae executives testified that juggling the legislatively mandated missions of the former government-sponsored enterprise — to meet ever-rising affordable housing goals and to make a profit for its shareholders — drove it so deeply into subprime and other risky mortgages that there was no way to survive when real estate bubble burst.
“We took the brunt of the crisis head on,” said Daniel H. Mudd, who served as chief executive from 2004 until its seizure in 2008. “This extraordinary upheaval in the economy, and in the mortgage market in particular, challenged Fannie Mae in ways that would have been difficult to overcome regardless of any business decisions that preceded the crisis.”
But panel members then heard from two former regulators of Fannie Mae and Freddie Mac. They said that company executives had no one to blame but themselves for the failure of the housing firms as they relentlessly pursued profits and used their political clout to thwart attempts to rein them in.
“Ultimately, the companies were not the unwitting victims of an economic down cycle or flawed products and services of theirs,” said Armando Falcon, former head of the Office of Federal Housing Enterprises Oversight, which regulated Fannie and Freddie. “Their failure was deeply rooted in a culture of arrogance and greed.”
Bill Thomas, the commission’s vice chairman, said it reminded him of the classic Japanese film “Rashomon,” which featured a horrible crime recalled from different points of view.
“I was there for the movie as well,” Thomas, who served in Congress from 1979 to 2006, told the regulators, “and I think your version tends to have a greater degree of credibility … than the one that I heard earlier.”
Panel members also appeared to side more with the regulators, expressing skepticism that Fannie Mae acted properly in the years leading up to its failure, when it guaranteed or owned more than $5 trillion in mortgages by the time it was seized.
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