Warnings saw loan problems at Freddie, Fannie: report

9 Dec 2008, 4:29 pm   -   Source: Reuters
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WASHINGTON (Reuters) - Documents show that top executives at Fannie Mae and Freddie Mac were warned years ago that the firms were offering mortgages that could pose a long-term danger to the companies, borrowers and the industry, The Washington Post reported on Tuesday.

WASHINGTON (Reuters) - Documents show that top executives at Fannie Mae and Freddie Mac were warned years ago that the firms were offering mortgages that could pose a long-term danger to the companies, borrowers and the industry, The Washington Post reported on Tuesday.

In documents obtained by the newspaper, Fannie and Freddie pushed into new, risky markets despite debates within the companies about whether the moves were prudent.

In early September, Fannie Mae and Freddie Mac, the two largest U.S. sources of mortgage finance, were seized by regulators as mounting losses and investor anxiety pushed the companies to the verge of collapse.

Former Freddie chief enterprise risk officer David Andrukonis said in a memo to former Freddie chief executive Richard Syron and other executives the firm was buying mortgages that appear "to target borrowers who would have trouble qualifying for a mortgage if their financial position were adequately disclosed."

Top officials at Fannie Mae also were told that the company needed to find ways to buy subprime mortgages because of competitive pressures, despite increasing risks and the failure of consumers to understand the terms of the loans.

The documents show top executives at both companies were told that the new subprime loans and mortgages made without verification of income, assets or employment, were dangerous both to the companies and to the borrowers they were charted by Congress to help.

Former executives from both companies are due to testify before the U.S. House of Representatives Committee on Oversight and Government Reform on Tuesday to discuss their downfall.

(Reporting by Christopher Doering; editing by Patricia Zengerle)

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