Reuters is reporting that the New York Times has interviewed numerous executives who told Freddie Mac’s CEO to dial back on the risky loans and increase their capital cushion, but Syron knew better and was simply too afraid to say no to anyone.
When I was an underwriter, loans often went through Loan Prospector (LP). This is the proprietary system created by Freddie Mac, Desk Top Underwriter (DU) was the one created by Fannie Mae for their loans.
Over the years, I watched as loans that I reviewed had increasingly bad credit, no assets or a combination of factors and they were getting through LP. In the early days of LP, it processed the easy loans, the A1 credit the loans with high credit scores (above 660) or ones that had lot of cash left over. But LP is really only as good as the user inputting the data and too often, mortgage brokers would send it through time and time again until they got an accept and once they did, whatever requirements they needed they made sure the paper work would be in the file.
For instance, if a borrower had 10 open credit accounts and borrowing money from their 401k meant that they could pay off 2 or 3 of those credit card debts, they might get through LP because those paid in full accounts meant that LP might issue an accept.
I thought of these tactics as gaming the system. In the early days, I didn’t see this sort of thing very often. But by around 2002, I was seeing it on nearly all the loans that were pulled for quality review due to an early default (loan that went into foreclosure the 1st year of the loan).
So, when Reuters wrote this:
In an interview with the paper, Freddie Mac's former chief risk officer, David Andrukonis, recalled telling Syron in mid-2004 that the company was buying bad loans that would likely pose an enormous financial and reputational risk to the company and the country.
Syron received a memo stating that the firm's underwriting standards were becoming shoddier and that the company was becoming exposed to losses, the paper said, citing Andrukonis and two others familiar with the document.
But Syron refused to consider possibilities for reducing Freddie Mac's risks, the paper cited Andrukonis as saying.
Having been associated with the industry and witnessed these loans myself (I never worked for Freddie or Fannie nor did I work for a mortgage company in anyway), it makes me wonder what was really going through Syron’s mind in 2004. That’s when Reuter’s sealed the deal for me with this little ditty:
Those and other choices initially paid off for Syron, who has collected more than $38 million in compensation since 2003, the NY Times said.
I suppose for Dick Syron, it’s just like his counterpart Dick Dauch (American Axle), it’s all about the money in their pockets and to hell with the rest of us.