Syron’s side of the story

Freddie Mac’s chief says mortgage-backer’s mission calls for taking risks

Richard Syron built a career taking on and solving tough challenges. Now, as his career nears its end, the former president of the Federal Reserve Bank of Boston faces serious questions of whether he can succeed one more time.

Syron, 64, chief executive of the mortgage giant Freddie Mac, is under fire for loan decisions that critics say were too risky for the government-sponsored company. The New York Times reported yesterday that Syron in 2004 ignored warnings of executives against financing mortgages outside Freddie’s normal risk parameters.

Syron yesterday defended his loan decisions, arguing that Freddie needed to take additional risk to meet its government mandate to provide affordable housing. Although a private company, Freddie Mac was created by Congress to expand mortgage credit and home ownership.


”If you’re going to take aid to low-income families seriously, then you’re going to make riskier loans,” Syron said in an interview yesterday. “We have goals to meet.”

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Syron added the cause of Freddie’s problems isn’t those loans, but a deep and extended housing downturn, spreading into the broad mortgage market. US home prices are falling for the first time since the Great Depression, and the economy is weakening, affecting even creditworthy borrowers.

Freddie guarantees nearly $2 trillion in mortgages, insuring them against defaults. “Like a property and casualty company, you get hit with a flood, it’s a huge problem,” Syron said. “We have the Mississippi levies breaking.”

Freddie and its sister company, Fannie Mae, buy mortgages from lenders, which frees up money for new loans. Their earnings come from interest on mortgages and mortgage-backed securities owned by the companies as well as fees for packaging and guaranteeing home loans as securities. Together they own or guarantee about half of US mortgages.

The sharply increasing pace of mortgage defaults has sparked worries about whether the companies would have enough capital to make good on guarantees. Last month, those worries turned to panic. A market sell-off cut Freddie’s and Fannie’s stock value about in half and pushed the companies toward collapse, forcing the federal government topledge billions of dollars in investments and loans to keep them solvent, if it became necessary.


The credit warnings reported by the Times came not long after Syron arrived in 2004 to fix Freddie, reeling from an accounting scandal in which executives misstated some $5 billion in earnings. In addition, Freddie’s commitment to affordable housing had declined to the point it employed gimmicks to meet congressional goals.

For example, said Syron, Freddie would essentially rent loans to meet affordable housing goals, buying them from lenders to carry on the books at year end, then selling them back. Syron ended that practice and re-emphasized the housing mission.

That put him in conflict with other executives, who believed Freddie’s most important duty was to ensure investments were safe and sound. The chief risk officer at the time, David A. Andrukonis, warned Syron the loans Freddie was buying risked the financial position and reputation of the company and the country, the Times reported.

But Freddie had to balance the risks against affordable housing goals, Syron said. Andrukonis and other executives disagreed on that balance, he said. Andrukonis was later fired, Freddie officials said.

”The place didn’t have enough orientation towards its housing mission,” Syron said, “and he disagreed with that approach.” Andrukonis couldn’t be reached.


The dual nature of Freddie and Fannie, privately owned with public responsibilities, poses particular challenges. Executives must answer to both investors and lawmakers, who have long pushed for expanding home ownership.

Freddie “is not a purely private corporation,” said US Representative Barney Frank, the Newton Democrat who chairs the House Financial Services Committee. “The fact is they were under pressure to buy some of these loans.”

But William Gale, director of economic studies at the Brookings Institution, said blaming housing goals for bad loan decisions is “clearly trying to pass the buck.” Like other companies, Freddie gambled on risky loans to make money, Gale said.

Syron said he expects Freddie to get through this crisis without having to rely on the federal guarantees. Since his days as a researcher at the Boston Fed, Syron has taken on critical issues at critical times, but rarely have the stakes been so high.

A damaged Freddie Mac would further undermine the struggling US housing market and with it, the fragile US economy, analysts said.

”You’ve got a troubled national economy, an extreme housing correction, and volatile financial markets which sell as soon as there’s a whiff of fear,” Syron said. “This is the toughest thing I’ve ever done.”

Syron grew up in Watertown, the son of Irish immigrants, his mother a maid, his father a sanitation worker. He became the first in his family to graduate high school, then earned a bachelor’s degree at Boston College and doctorate in economics at Tufts University.

Those who have followed his career say a combination of intellect and street smarts has long made Syron stand out.

Former Governor Michael Dukakis recalled Syron as a young researcher and economic adviser at the Boston Fed during his first administration in the 1970s, when soaring energy costs, Sun Belt migration, and decline of traditional industries left the state an economic basket case. As Dukakis developed strategies to move Massachusetts to a knowledge-based economy, Syron, working with then-Boston Fed president Frank Morris, provided data, analysis, and theory to support the effort.

Just as impressive, Dukakis said, Syron could dive into a room of lawmakers, shaking hands, swapping stories, and explaining economics understandably.

”He’s always been that kind of guy, intellectual, pragmatic, and politically smart,” Dukakis said.

Syron later left Boston for Washington, D.C., working as assistant to then Federal Reserve System chairman Paul Volcker. He returned to Boston a few years later and, in 1989, became president of the Boston Fed.

Syron encouraged the Boston Fed’s research department to wade into important, but contentious public policy issues. Perhaps best known was its study of lending discrimination, which found race, not lending risks, driving loan decisions.

Joseph P. Kennedy II, then a Massachusetts congressman, said the study helped change lending practices and expand credit to minority and poor neighborhoods. In taking on the issue, Kennedy recalled, Syron was virtually alone in the financial industry.

”The data demonstrated a clear and consistent prejudice, and it took leadership to acknowledge,” Kennedy said. “More than that, he just has a conscience. He’s a person of conscience who tries every day to do the right thing.”

Syron left the Boston Fed after five years to lead the American Stock Exchange, which was losing listings and market share to the New York Stock Exchange and Nasdaq. Syron reversed the trend, attracted new companies, and engineered a merger with Nasdaq.

Next came a stint leading Thermo Electron Corp., now Thermo Fisher, of Waltham, where Syron restructured a sprawling, disjointed company. He sold off divisions, refocused on the core instrument business, and won praise from Wall Street analysts. But George Hatsopoulos, the company founder, said Syron was too attuned to Wall Street, selling technologies that could have paid off in the long-term.

”He was great with people, a great manager,” said Hatsopoulos, “but he didn’t have the technology vision required by Thermo.”

There’s little debate that Freddie Mac needed an overhaul. By most accounts, Syron has succeeded in cleaning up the accounting mess. He recruited a new board of directors, revamped accounting policies, and instituted new financial controls. In May, the Office of Federal Housing Enterprise Oversight, which regulates Freddie Mac and Fannie Mae, said Freddie had eliminated “all material weaknesses” in relation to the past accounting problems.

But then the housing downturn hit.

If things had gone as planned, Syron would have already made a graceful exit from Freddie. He’d be spending the summer on Cape Cod. More than a year ago, when few expected the housing downturn to last so long, Syron prepared to turn over the job to Eugene McQuade, a former FleetBoston and Bank of America executive.

But McQuade changed his mind and left Freddie. Syron agreed to stay until the end of 2009.

”I was hoping to be fishing or playing golf,” Syron said. McQuade, now president at Merrill Lynch’s US banks, declined comment.

The next several months won’t be a vacation for Syron. The housing market continues to slump, and economists don’t expect it to hit bottom until at least next year. But Syron said he plans to leave Freddie as he has other jobs: on top.

”You’re not about to fall asleep on this bronco,” he said, “but it’s less likely that I’m going to get trampled under its feet.”

Robert Gavin can be reached at

Syron left Freddie Mac last November, two months after the federal government seized the mortgage finance company.

Robert Gavin can be reached at