Wednesday, December 10, 2008

Ex-Officer Faults Mortgage Giants for ‘Orgy’ of Nonprime Loans


Ex-Officer Faults Mortgage Giants for ‘Orgy’ of Nonprime Loans


By LYNNLEY BROWNING
Published: December 9, 2008
Fannie Mae and Freddie Mac engaged in “an orgy of junk mortgage development” that turned the two mortgage-finance giants into vast repositories of subprime and similarly risky loans, a former Fannie executive testified on Tuesday.


The mortgage development, which began in 2005 and lasted until at least last year, happened as senior executives at the two government-sponsored enterprises ignored repeated warnings from internal risk officers that they were delving too deeply into dangerous territory, according to internal documents released at a Congressional hearing in Washington. The two companies have been taken over by the government.

The former executive, Edward J. Pinto, who was chief credit officer at Fannie Mae, told the House Oversight and Government Reform Committee that the mortgage giants now guarantee or hold 10.5 million nonprime loans worth $1.6 trillion — one in three of all subprime loans, and nearly two in three of all so-called Alt-A loans, often called “liar loans.”

Such loans now make up 34 percent of the total single-family mortgage portfolios at Fannie Mae and Freddie Mac, a level that will link them to eight million foreclosures, or one in six, in coming years, Mr. Pinto said. The nonprime loans “have turned the American dream of homeownership into the American nightmare of foreclosure,” he said.

The hearing was the latest by Congress on the collapse of the two companies, which guarantee half of all mortgages nationwide and are the engine of the housing market. The former chief executives of Fannie Mae and Freddie Mac, Daniel H. Mudd and Richard F. Syron, and their predecessors, Franklin D. Raines and Leland C. Brendsel, faced pointed questioning from lawmakers.

Referring to what he called “the total denial that’s going on here today and the refusal to answer simple questions,” Representative Stephen F. Lynch, Democrat of Massachusetts, told the executives that “if you have accomplished anything here today, you have made conservatorship look very, very good.”

But the testimony of Mr. Pinto, who was

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