Freddie Mac Chief Resists Calls To Boost Capital
By David S. Hilzenrath
Freddie Mac, the giant mortgage funding company, sent a fresh signal today that it won't compromise the interests of its shareholders to increase its potential support for the troubled housing market.
The McLean firm, which is chartered by the government but trades on the New York Stock Exchange, is perennially torn by conflicting demands--keeping mortgage markets healthy, promoting home ownership and generating profits for its shareholders (not to mention its management). Amid the meltdown of the housing and mortgage markets, many policymakers have been hoping Freddie Mac and its federally sponsored sibling Fannie Mae will lead the rescue.
At a briefing for investors and stock analysts in New York, chief executive Richard F. Syron cited management's fiduciary responsibilities and suggested the company is putting shareholders first when it comes to one of the key questions it now faces.
Freddie Mac's capacity to buy or guarantee mortgages and thereby pick up slack in the weakened market is proportional to the amount of capital it holds as a cushion against losses. Raising additional capital -- for example, by issuing more stock -- could increase that capacity, but it could harm current shareholders.
Syron said Freddie Mac would resist pressure to do that.
"We think we have enough," he said.
Chief financial officer Anthony S. Piszel made the point repeatedly for emphasis, using the jargon of Wall Street: "There is no dilutive capital raise planned."
Syron also implied that Freddie Mac will not attach a high priority to meeting federally mandated quotas that call for it to support mortgages for low-income homebuyers and neighborhoods.
Asked how Freddie would meet its affordable housing goals, Syron suggested that promoting stability and liquidity in the mortgage market are higher priorities.
"It is not good public policy to have mission goals that encourage [Freddie Mac and Fannie Mae] to put people in homes that they end up losing," Syron said.
"We have to do things that make sense and will help the economy of the United States," not hurt it in the pursuit of "what could be unrealistic goals," Syron said.
In recent days, investors have been dumping mortgage-backed securities issued by Freddie Mac and Fannie Mae -- in addition to less marketable mortgage-related securities issued by others.
The Federal Reserveon Tuesday moved to bolster the mortgage market by allowing financial institutions to post such mortgage-backed securities as collateral for up to $200 billion worth of 28-day loans. That action sent the stock market soaring.
At todays briefing, Freddie Mac chief business officer Patricia L. Cook said the Fed's action is "a short-term help" but "it doesn't solve the long-term problem," which is getting the mortgages in the hands of buyers interested in holding them.
"The longer term issue is where do those mortgages ultimately end up," she said.
March 12, 2008; 2:30 PM ET
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