Fannie Mae and Freddie Mac executives went on the hot seat today over the mortgage meltdown as House members criticized them for ignoring warnings about risky mortgages.
Former Freddie Mac chief executives Leland Brendsel and Richard Syron and former Fannie Mae chief executives Daniel Mudd and Franklin Raines were at Capitol Hill for the House Oversight and Government Reform Committee hearing on the causes of the companies' meltdown.
"All four of you still seem to be in complete denial that Freddie and Fannie are, in any ways, responsible for this," Rep. Darrell Issa, R-Calif., said. "Your whole excuse for going to risky and unreasonable loans that are defaulting at an incredibly high rate is, everyone is doing it, if we don't do it, we will be left out. Well, I am sorry that you wanted to be the most popular girl in school and you forgot what your mother told you about your activities."
Documents released by the committee Tuesday showed that the top executives at mortgage finance companies Fannie Mae and Freddie Mac ignored warnings that they were taking on too many risky loans long before the housing market plunged.
Chairman Henry Waxman, D-Calif, said the committee had obtained nearly 400,000 documents from Fannie Mae and Freddie Mac as part of their investigation.
E-mails and other internal documents released by the committee show that Mudd and Syron disregarded recommendations that they stay away from riskier types of loans.
"We have before us, some of the people who are the perpetrators of the largest meltdown of the country," said Rep. John Mica, R-Fla.
Mica argued that the underwriting standards started to deteriorate during Bill Clinton's presidency. Republicans blame the two mortgage giants for causing the national housing meltdown by thwarting tighter regulations, and also the Clinton administration, for loosening regulations in the first place.
Many Democrats lay the blame on Wall Street banks for loose and flexible lending standards.
But on Tuesday, both sides criticized the executives. Rep. Virginia Foxx, R-N.C., said it was the most bipartisan hearing the House has had.
The government took over Fannie Mae and Freddie Mac in September to prevent them from collapsing and worsening the already escalating mortgage crisis. At that time, the two giants owned nearly half of the country's mortgages.
As part of being placed in "government conservatorship," they would get as much money as needed from the Treasury Department to cover losses and continue guaranteeing new mortgages. Their top executives were fired and replaced by Wall Street veterans Herb Allison and David Moffett.
At that time, it was the largest takeover of any financial institution in American history, and was expected to cost taxpayers between $25-$50 billion.
In October, after posting a massive quarterly loss, Freddie Mac asked for a $13.8 billion cash infusion from the government to keep it afloat. Fannie Mae has also warned that it would need a similar loan soon, according to the Associated Press.
"The facts show, gentlemen, that many of you at this table did know the risks and that you were warned not to take them, and that you ignored your internal adviser, your chief risk officer," Rep. Dennis Kucinich, D-Ohio, told the executives in presence.