Fannie’s Mudd: No Contrition Here

In case anyone tells you different, Dan Mudd, former CEO of Fannie Mae (FNM), is definitely NOT contrite.

Yes, he used the word “sorry” in�prepared remarks today to the Financial Crisis Inquiry Commission, but the substance was a pretty aggressive defense of just how hard he and the team worked amidst impossible circumstances and unreasonable requirements.

Mudd, the man shown to the door by former Treasury Secretary Henry Paulson in late 2008, as Fannie went into conservatorship, has since come around to Paulson’s contention, namely that Fannie Mae was on a Mission Impossible:

There are subjects where I respectfully differ with former Treasury Secretary Paulson, but I do agree with his ultimate assessment that the cause of the GSE’s troubles lies with their business model. A monoline GSE structure asked to perform multiple tasks cannot withstand a multiyear 30% home price decline on a national scale, even without the accompanying global financial turmoil.

Sounds just like what Paulson said to Mudd the day he asked him to step down, as recounted by Paulson in his recent book, On the Brink:

“If you acquiesce,” I concluded, “I will make clear to all I am not blaming management. You didn’t create the business model you have, and it’s flawed. You didn’t create the regulatory model, and it is equally flawed.”

Mudd goes on to itemize all those flaws: Congress and various Presidential administrations prevented Fannie from diversifying in the mortgage business away from the secondary to the primary market, even though that’s where the profits were going; government pushed Fannie into taking 50% of its business from home owners whose income was below the median; and all this at the same time he had to please shareholders to keep bringing in capital to support mortgages.

And when all hell broke loose in 2008, Fannie was required to clean up the mess in mortgages.

As crisis became havoc, Fannie Mae was called upon by the Administration and Congressional leaders from both sides of aisle [sic] to refinance subprime borrowers who could qualify for a fixed rate loan.

Sure, Mudd offered some contrition: “I wish I could have maintained the delicate balance of the roles assigned to Fannie Mae, and I’m sorry that I could not.”

But he also defended what Fannie had accomplished:

In the days when the yawning gap in homeownership between white and minorities was an issue of national concern, Fannie and Freddie [Mac (FRE)] narrowed the difference. Fannie Mae did this while earning a competitive return.

His parting shot? �You trying doing this–it ain’t easy:

Government entities created to support homeownership as a social good will tend to socialize the risk to all taxpayers. Purely private companies will tend to exercise their fiduciary responsibility to pass the costs and the risks to homeowners. Hybrid organizations will be left to balance conflicts between taxpayers, homeowners, and shareholders. There are no simple answers.

Fannie Mae shares today closed up 1 penny at $1.10.