Management shake-up at Freddie Mac

Written by The Financial Times | Updated: Oct 28 2011, 08:09am hrs
By Tom Braithwaite in New York

Freddie Mac, the government-controlled mortgage giant, is to undergo yet another management shake-up after its regulator announced the departure of Ed Haldeman, its chief executive, and John Koskinen, chairman.

Christopher Lynch, a retired KPMG partner, will succeed Mr Koskinen, while Mr Haldeman will stay until a new chief executive is appointed next year, said the Federal Housing Finance Agency, which oversees the company.

Ed Haldeman has brought strong leadership to Freddie Mac, said Edward DeMarco, acting director of the FHFA. I appreciate his commitment to leadership stability during the upcoming transition.

A Democratic congressional aide said a more useful reshuffle would include the departure of Mr DeMarco, whom liberals believe is standing in the way of more aggressive measures to refinance the mortgages of struggling homeowners.

The new management will take control of a company that last quarter reported a $2.1bn net loss, is dependent on hand-outs from the Treasury, is embroiled in negotiations and lawsuits with banks over bad loans and might be put out of business when Congress gets around to reshaping housing finance.

Freddie Mac and its sister company, Fannie Mae, buy mortgages from loan originators for either their own portfolio or for inclusion in mortgage-backed securities that they sell to investors. They were seized by the government in 2008 to prevent their collapse when the housing market and related mortgage securities tanked.

The company is waiting for the Obama administration and Congress to redesign the housing market and to decide whether to preserve the huge quasi-government companies in any form. Mr Haldeman has said this makes it difficult to retain and motivate 5,000 employees.

At a public event in Boston on Wednesday, Mr Haldeman suggested that the outcome would not be known until after the 2012 elections. It doesnt seem like were in an environment where many decisions are being made, he said.

The Virginia-based company, which many Republicans say played a central role in fuelling the subprime mortgage crisis, has endured continuous upheaval after its 2008 government seizure, including the resignation of David Moffett, chief executive, in 2009 and the suicide of David Kellermann, chief financial officer, the same year.

Freddie Mac is involved in a delicate dance with banks over repercussions for loans sold by the likes of Countrywide, now a unit of Bank of America, in the run-up to the financial crisis. When those loans default, Freddie and Fannie can require lenders to buy them back at face value.

BofA settled claims with Freddie Mac for $1.35bn this year, drawing criticism from the FHFA inspector-general, which said BofA should not be allowed to escape repurchase demands for bad loans.

Meanwhile, the FHFA has sued 17 international financial groups, ranging from Bank of America to Barclays, alleging they mis-sold almost $200bn of mortgage-backed securities and demanding compensation for billions of dollars of losses.

The Financial Times Limited 2011