Henry Cisneros on Fannie and Freddie Bailout: “Nothing Dramatic Will Happen Before the Election”

 

By Anthony M. Freed 

Faux Biz News aired an exclusive interview Monday afternoon with the former U.S Secretary of Housing and Urban Development Henry Cisneros, currently Executive Chairman to CityView. 

 Cisneros stated that he agrees there is a need for Federal intervention at Fannie Mae and Freddie Mac, but does not believe the government will have to bail out or nationalize the troubled GSE‘s. Cisneros insisted that the GSE’s are an essential part of of the economy.

 “If they didn’t exist we would have to invent them,”  waxed Cisneros.

 When asked if he thought the situation was as DIRE at the quasi-government entities as many analysts are implying, such as the need for a complete take over by the Feds, Cisneros replied that was an “overstatement” and that he was confident “they can recapitalize.”

 

“Fannie and Freddie will survive this, and should.” Cisneros said confidently, based on exactly what evidence though, he did not say.

 

When asked about the timing of any further interventions on the part of the Feds at the GSE’s, Cisneros knowingly replied, “Nothing dramatic will happen before the election.”

 

He then went on to express his opinion that it is the Federal Government that needs to step up to the plate and absorb the record number of foreclosures the nation is and will experience. “through 2009”Cisneros predicted.

 

On interventions, he said the government “needs to do a better job restructuring these mortgages” that are speeding towards foreclosure, but cautioned against anything as dramatic as the nationalization of Fannie and Freddie, and further stated that the Feds needs to devise “smaller, more concrete things we can do to keep people in their homes.”

 

When asked of his opinion on the present management at Fannie and Freddie, Cisneros was sympathetic, stating he thought they had been run “into an absolute buzz saw”by having to deal with the effects of variables like economic downturn, a weak dollar, and high fuel costs simultaneously.

When questioned about whether there was a need for fresh blood at the top of the GSE‘s, Cisneros expressed only tentative support.

“They are working through it and I basically support them,” he said of the GSE chiefs.

Oh, and don’t forget the fact that as the credit crisis was beginning to fully reveal itself last August, Countrywide CEO Angelo Mozilo was Dumping His Shares as fast as legally possible – perhaps even faster.

On the subject of his old buddies at mortgage sweatshop Countrywide, particularly Angelo Mozilo, Cisneros seemed to be a little defensive. He began with some gratuitous compliments for Faux Biz “fair and balanced” approach to the news, and thanked them for giving him a forum to clear the air on the issue.

“Angelo Mozilo is not a bad man, he is a very good man,”  he managed to muster regarding his former colleague and founder of Countrywide. Quite a testimony from a close friend.

He then went on to explain that Angelo Mozilo “hasn’t been perfect” and that it was Mozilo’s managerial mistakes that had ultimately “cost him the company he built.”

I really like this line about the cost to Mozilo personally. Give me a break. The guy drove up originations and Countrywide’s stock price at the peak of the housing bubble, changed his stock option plan to a more accelerated and personally advantageous pace, cashed in for about $500MM dollars and then retired to his tanning bed, leaving the company on the verge of total collapse.

Poor, poor Angelo, all that hard work and nothing to show for it? It’s an American Tragedy if you ask me.

Even worse, Mozilo was still telling investors and employees – who were heavily invested in Countrywide through retirement and profit sharing plans – that the company had access to more than enough capital to and credit to maintain current operating levels, and that there was no threat to the company’s solvency.  

The SEC and FBI both opened an investigations into Mozilo‘s sweetheart stock option deal, but neither agency seem too interested in getting right to the bottom of it any time soon.

It is a pretty straight forward case of insider trading: One day Mozilo says Countrywide is well capitalized and has access to more than enough credit. Days later Mozilo cashes in stock options worth millions of dollars, and at price well above Countrywide’s trading price that day.

 Then within days, Mozilo announces that Countrywide was not in as good a shape as he thought, and that they did not have access to as much capital as he had thought. The stock tumbled and Bank of America made their first installment in the form of a clever multi-billion dollar option deal that ended up being a losing gamble, and was perhaps the major factor behind B of A’s decision to follow through with the purchase of ravaged Countrywide Financial. 

Cisneros was then somewhat surprised when asked about the ‘VIP’ mortgage loans he and other policy heavy-hitters like Christopher Dodd, Chairman of the uber-powerful Senate Banking Committee received from pal Angelo in the not-quite-ever-a-scandal laughably termed the “Friends of Mozillo.”

“I did get a mortgage under the VIP program,” Cisneros stated, “but it was at market…I think the record will show that is the case,”  he said resolutely.

Since leaving public service and the Board of Directors of Countrywide Financial, Cisneros founded CityView (2003), a private investment company that seeks to direct capital towards funding “homes for working families,” particularly for those who hold positions that directly benefit their community, such as teachers, healthcare workers, police and fire personnel. I applaud his civic minded efforts, and I am sure St. Peter has made a note, too.

On the success of CityView‘s efforts, Cisneros remarked that the “present market has made it tougher”  to get the job done.

 

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