Freddie Mac ignored warnings of the potential losses

Warnings to Freddie Mac were ignored back in 2004, the warning came from the former risk manager, David Andrukonis, who told the head of Freddie Mac that the underwriting standards were slipping and Freddie Mac could be exposed to potential losses the warning was written on an internal memo.

The U.S. housing market plunged the two major mortgage lenders into the red, Freddie Mac and its sister company Fannie Mae, both banks set up to provide liquidity to the mortgage market.

President Bush last month made a promise that if the banks run out of money the U.S. government would bail them out. It’s said that U.S. taxpayers could foot the bill for tens of billions of dollars if conditions do not improve.

The New York Times interviewed David Andrukonis recalled telling Freddie Mac’s chief executive, Richard Syron in 2004 the company was buying bad loans that “would likely pose an enormous financial and reputational risk to the company and the country”. It’s reported that the memo was discussed and dismissed at a meeting with My Syron.

Source: Independant

Read more about the U.S. Mortgage market here.