Early Briefing: Assembling A New Mortgage Team

Staff writer Zachary Goldfarb takes a look at the changes underway inside mortgage finance giants Fannie Mae and Freddie Mac today, and reports on the haste in which the government installed new leadership:


New Fannie Mae CEO Herbert M. Allison Jr., left, and his counterpart at Freddie Mac, David Moffett, are charged with an ambitious mission.

Retired and on his first family vacation in years, Herbert M. Allison Jr. sat with his wife and adult sons eating lunch on a veranda in the Virgin Islands when an urgent caller rang with a confidential inquiry.

It was Treasury Secretary Henry M. Paulson Jr. The government was preparing to seize struggling mortgage finance giants Fannie Mae and Freddie Mac. Would Allison, a former chairman of TIAA-CREF, consider leading one of them? "He outlined the seriousness of the situation, and over the phone I told him I'd do whatever he wanted," Allison said.

The next day, Friday, Sept. 5, Allison boarded a water-taxi to the airport, got on a plane, landed in Washington, and with a rucksack and his tropical attire, arrived on the steps of the Treasury Department. He was quickly chosen to be Fannie Mae's new chief executive. The announcement of the takeover would come on Sunday and he would start Monday.

In the month since the government seized the companies, Allison has joined new Freddie Mac chief executive David Moffett, a former U.S. Bancorp chief financial officer, and James B. Lockhart III, the regulator who hired both men and oversees their operations, in forging the team charged with an ambitious mission: Stabilizing the nation's ailing mortgage market and lowering borrowing costs for everyday Americans.

In other news:

* Staff writer Kendra Marr details the high -stakes race for an improved anthrax vaccine between two companies with capital letters in the middle of their names: PharmAthene of Annapolis and Rockville's Emergent BioSolutions.

* Staff writer Michael Rosenwald catches up with Murry Gunty, the founder of a Bethesda private equity firm called Blackstreet Capital Management.

Executives of Blackstreet Capital Management, a Bethesda private-equity firm, are constantly tossing around pithy investment philosophies. One saying is, "If we can't fix it in 12 to 24 months, we probably can't fix it."

Another is, "Management, management, management." And then there is this one: "If we don't lose money for investors, all the other outcomes are good."

That last investing notion has faced quite a test recently, as the relatively small, fly-under-the-radar firm found itself entangled in a public relations nightmare after two infant deaths in August were linked to bassinets sold by Simplicity, which was bought by a Blackstreet affiliate in a complicated deal earlier this year.

Blackstreet's predicament has turned the spotlight on its founder, Murry Gunty, and his business of buying extremely troubled companies near collapse.

By Dan Beyers  |  October 6, 2008; 8:43 AM ET
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Comments

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Freddie & Fannie Resurrection

The Bailout ($$$ Trillion plus) is running wild. The danger is we have an administration who is writing the checks knowing that they won't be around to justify all the additional next generation taxes they are creating in the form of interest and principle payout.

One last hurrah for the Darwinian Capitalism, survival of the fittest - - Only the strongest and most influential corporations will dine for free at the taxpayers table. This is self selection in a manner that rewards privilege and resource.

How can this be? Upon selection, let's examine the new team of Wallstreet retreads Treasury Secretary Paulson will chose to work with.

It will be interesting to see the teams that are chosen and what past role they had in creating the original problem we are trying to solve. In additional, none of them work cheap. Their skills are worth millions of dollars in compensation so taxpayers pay again. No new regulation, rules, limits, or compensation caps, business as usual one more time.

Another Way ---

Since the American tax payer has all ready bailed out Freddie and Fannie I would like to suggest that Secretary of Treasurer Paulson work through these two agencies.

A handful of executives got excessive compensation bonuses but the rest of the organization did not. For decades these organizations did what they were charactered to do. Adjust the mandate, monitor the compensation, and regulate their leverage and let them propose some programs.

Recommendation: Freddie and Fannie submit a joint draft detailing how they would mop up the targeted toxic mortgages along with additional suggests on how to stabilize the real estate market by Thanksgiving.

Why? Having worked with these two agencies in various capacities, I can tell you most of the employees don't have a rip and tear mentality often found on the Wallstreet.

In Addition:
* They have a corporate infrastructure in place to handle the size that will be necessary.
* They have the ability to drill down to the loan level and help stabilize the underlining problem of price erosion of real estate properties.
* They have the ability to quickly launch a series of new origination products that can mop up the toxic mortgages.
* They are a known an accepted International Organizations.
* Untied States Tax payer is the primary owner of these two GSA's and deserve to benefit of any profit, if there is one.

Finally, Regulation, Oversight, and Compensation controls can be monitored and adjusted to reflect fair value for all employees and participates.

Obviously there is more, but this project can work and within the confines of the existing financial platforms.

James Monachino

Posted by: James Monachino | October 6, 2008 12:08 PM

Has anyone looked into the speed with which the government acted, and the TIMING of the Paulson declaration of emergency? Why was it a sudden crisis, and why now? Why were no congressional hearings held?

Paulson is a former Goldman Sachs CEO and relies on a small, influential circle of advisors there. Goldman's campaign donations heavily favor Democratic candidates. Did anyone notice that Paulson's emergency was declared shortly after a McCain surge in the polls?

Now comes the announcement that Paulson has chosen a Goldman official to oversee the bailout plan. Hmmmm.

Has anyone looked into Paulson's phone/email records in the days prior to his announcement? How did he suddenly learn of this crisis, and who spurred him to act?

Something doesn't smell right here. A legitimate economic/credit crisis is one thing, but a phony one trumped up to throw a presidential election is quite another.

Posted by: a loyal reader | October 6, 2008 12:50 PM

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