Waxman: Fannie, Freddie ignored warnings

Dec. 9, 2008 at 5:38 PM
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WASHINGTON, Dec. 9 (UPI) -- The top executives of Fannie Mae and Freddie Mac ignored warnings about the risk of diving into subprime mortgages, U.S. Rep. Henry Waxman said Tuesday.

Waxman, a California Democrat, cited internal documents, including memos by top executives and risk officers at Fannie Mae and Freddie Mac, in his statement as he opened a House Oversight and Government Committee hearing on the collapse of the giant mortgage lenders.

Freddie Mac CEO Richard Syron fired a chief risk officer for his warnings on subprime lending, Waxman said.

Fannie Mae CEO Daniel Mudd, in an internal presentation in 2005, said that Fannie Mae could remain with the traditional mortgage market or seek higher revenues in subprime and alternative lending. He acknowledged that the second course meant accepting "higher risk and higher volatility."

Two years later, a risk officer e-mailed Mudd, complaining that the board had been told Fannie Mae had the ability to change its culture and take greater risks.

"I have been saying that we are not even close to having proper control processes for credit market and operational risk," the officer said. "I got a 16 percent budget cut. Do I look stupid?"

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