Realty Check

Former FHFA Director Disputes Paulson's Critique

Former FHFA Director James Lockhart has to be one of the least-known major players in the recent collapse of the nation's housing market and financial system.

He was the guy charged with overseeing Fannie Mae and Freddie Mac when the two were put into conservatorship in September of 2008.

In fact, he was the guy who put them into conservatorship because only he had the power.

At the time, Fannie and Freddie owned or guaranteed more than $5 trillion in U.S. mortgages as well as mortgage-backed securities, or half of the country's home loans. They were also one of the biggest issuers of debt in the world. Putting the two into conservatorship was not just a domestic trauma, it was a massive emotional blow to the world economy.

I've interviewed Mr. Lockhart on several occasions, both before and just after the takeover of the two mortgage giants.

I have always found him to be one of the most honest government regulators, in a sea of officials who are given many, many hours of media training before they're ever allowed to approach a camera.

The others are not dishonest, they're just trained to say as little as possible while still filling up air time.

Lockhart, however, often surprised me in what he was willing to say, calmly and clearly, and whom he was willing to criticize, even within his own ranks.

Fannie, Freddie, a Rock & a Hard Place

In October of 2008, barely a month after the Fannie and Freddie takeover, Lockhart told me in an interview that the only way to solve the mortgage crisis was for lenders to do principal write downs.

The new CEO's of Fannie and Freddie were not on board with principal write downs, and Lockhart criticized them for that.

Today, as the government's mortgage rescue program pulls in weak numbers, more and more experts are calling for principal write downs.

All of this is why I was a bit surprised to read an excerpt from former Treasury Secretary Henry Paulson's new book, "On The Brink,"that depicted Lockhart as "nervous" in those crucial few days leading up to the takeover of Fannie and Freddie and very reluctant to put the two into conservatorship. Paulson called the FHFA a "weak regulator," and seemed to imply the same of Lockhart.

I asked Lockhart on camera today at the American Securitization Forum conference what he thought of Paulson's description of the event and of him.

He told me, "What we were going through, my agency wanted to do this right. There was a chance they were going to be sued. No one has ever put two big financial institutions into conservatorship at the same time. It has never been done before or after for that matter. So we were doing it very carefully. I think what he did say was we wanted to get it right, and my team did get it right, its been very very successful . There's nothing like the Lehman story about Fannie or Freddie at this time. It worked."

After the interview, when the camera was off, Lockhart told me that he was not "nervous" during that week in 2008, that in fact he had never been so calm.

He said he knew what needed to be done but he also knew that it had to be done extremely carefully because any mistakes could be extremely dangerous.

He told me he was very proud of his team at the FHFA and how they handled those historic days, and admitted that some former colleagues were "ticked" at Paulson's portrayal.

He described Paulson during that time as "very very tense."

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