FREDDIE MAC RESPONDS TO THE NEW YORK TIMES

Charles Duhigg's story ("At Freddie Mac, Chief Discarded Warning Signs," August 5) fell far short of the standards New York Times readers have every right to expect from the paper. Given the consequence of the subject, readers deserved more than a superficial tale spun on the purported comments of a collection of anonymous former employees and unspecified "others" – likely including the well-worn band of ideologues and self-interested detractors who have opposed the GSE model for years.

Readers deserve more. The story is apparently based on the word of David Andrukonis, a former employee who was involuntarily terminated in 2005. It describes a memorandum – one we can't confirm the existence of, one we don't believe Mr. Syron ever saw, and one that Mr. Duhigg never produced for us. Although the reporter was aware of these facts, he cited the individual's account without mentioning them, instead portraying the former employee as having left amicably to become a schoolteacher.

Readers also deserve more than a highly selective cherry-picking of quotes from extensive interviews and information the reporter received over several hours and weeks, including interviews with Mr. Syron. For example, he chooses to ignore completely Mr. Syron's main challenge when he joined Freddie Mac: that the company had treated its mission of improving affordability as a tax, rather than as a core responsibility that the firm should embrace.

In fact, a full review of the facts makes clear that Freddie Mac has helped to keep a bad situation in the housing market from becoming even worse.

• There is ample public record of the significant effort that Freddie Mac and its management team put in to balance its public mission with its commitment to safety and soundness – a record that was shared with the reporter.

• This result of our efforts to manage risk prudently is that we exceed our regulatory capital standards and remain highly liquid in the midst of the single largest decline in real estate values since the Great Depression, with a cushion above the 20% mandatory target surplus established by our regulator.

• As a mono-line company focused solely on U.S. home mortgages, Freddie Mac is of course experiencing higher losses as home prices decline and defaults increase – just like every other financial institution with exposures to mortgages. Contrary to the facts the reporter was given and the impression he sought to create:

  • While, in hindsight, there are some loan practices it would have been better if we had avoided, nonetheless our mortgage default and credit loss rates are a fraction of the industry averages. That's because when we decided to expand our activities, we did it in a very prudent and surgical way relative to others. With few exceptions, we enabled families to buy homes they could afford and are still enjoying today.

  • Our losses could have been even lower had it not been for the need to balance our exposures with our affordable housing goals – and the company was transparent about this. For example, it is a matter of public record that when the U.S. Department of Housing and Urban Development made the decision to raise the affordable housing goals for Freddie Mac and Fannie Mae in 2004, we warned that moving forward with the higher goals would cause a relaxing of underwriting standards. As we pointed out to the Times, but they chose not to include, the Federal Register of November 2, 2004 notes that we "cautioned that the struggle to meet high goals for low-income groups could cause the GSEs to relax underwriting standards and/or extend loans to people who are unprepared."

• At absolutely no time did we "wager" – as the reporter suggested – "that if things got too bad, the government would bail [us] out." As our spokesman said, we never made choices assuming the government would intervene. Moreover, as Mr. Syron and other members of management have made clear repeatedly – including at the company's investor day in New York in March – we have an obligation to balance safety and soundness, mission and our fiduciary duty to shareholders.

• The story portrays capital management as a series of simple right or wrong, "go" or "no go" decisions, when it too is a balancing act. Last year, Freddie Mac raised $6 billion in capital and our safety-and-soundness regulator, the Secretary of the Treasury and the Federal Reserve Chairman have reiterated that we have sufficient capital and are financially sound – this is before we meet our commitment to raise an additional $5.5 billion.

• The reporter bizarrely characterized our not raising this second round of capital as some kind of pique or defiance. Nothing could be further from the truth. As we told the reporter, while our CEO and senior management team wanted to raise that capital quickly, our own internal and external legal counsel, counsel to the Board and our bankers and counsel to our bankers – advised us of the significant risk of commencing a public offering due to the timing of the second quarter release and until after we completed our registration with the SEC, which we have since done.

As a government-sponsored enterprise, Freddie Mac serves an essential national public policy mission to help support America's mortgage finance markets, operates safely and soundly, and fulfills its fiduciary responsibilities to investors. Maintaining the right balance between sometimes conflicting demands requires constant vigilance and judgment day in and day out as financial markets go up and down, competitors come and go, opponents attack and innovations drive product and process changes at an ever-increasing pace. But the decisions we made were based on business judgments that were carefully considered based on all of these factors.

We continue to perform the mission with which Congress charged us: providing critically needed liquidity and stability to the mortgage market. While others have fled the market, Freddie Mac and Fannie Mae remain virtually the only major sources of mortgage liquidity. In much of the home mortgage market, investor capital dried up as the collapse of the subprime mortgage market led to a broader loss of confidence in the financial markets – but not for those we insure. For example, rates on the conforming home mortgage market traditionally served by the GSEs remain healthy, even as those on jumbo home mortgages skyrocketed. Only when Congress gave the GSEs temporary authority under the economic stimulus package to buy some jumbo loans in high-cost areas did rates on these jumbo loans fall.

Throughout our history, we have striven to serve our mission, maintain our financial strength and provide investors value so that they will continue to provide the capital underpinning the nation's housing markets. We are clearly capable – and intend to continue to serve this mission going forward.

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Freddie Mac is a stockholder-owned corporation established by Congress in 1970 to provide liquidity, stability and affordability to the nation's residential mortgage markets. Freddie Mac raises capital on Wall Street and throughout the world's capital markets to finance mortgages for families across America. Over the years, Freddie Mac has made home possible for one in six homebuyers and more than five million renters.