Problems faced by Freddie Mac in Past Years
In 2003, Freddie Mac was fined $125 million and was forced to restructure their management team. This was a result of under-reporting their earnings. They said that they earned $5 billion from the years 2000 through 2002.They suffered another fine in 2006 of $3.8 million as a result of illegal campaign contributions. Freddie Mac raised money for political candidates who would later use their influence in certain decisions that would affect Freddie Mac. U.S. law prohibits such practices by organizations, corporations, and businesses.
Freddie Mac was sued by a shareholder in 2007. This brought bad press on their company by their practices. They were accused of using false statements as well as misleading statements regarding their systems that were put into effect to protect themselves from the problems in the housing market. The many criticisms of Freddie Mac could not have happened at a worse time. While housing prices were dropping and defaulters were increasing, they could have argued that they were not completely responsible for what happened.
Freddie Mac was then placed into conservatorship. Unlike nationalization, this is only a temporary measure. However, it does limit the decisions they can make without prior permission. This happened in 2008, as there were a number of problems within the company and questions were being raised about the way that it was being run. There were severe losses that brought criticism of its accounting practices. Bailing them out cost the government $150 billion. Freddie Mac’s reputation was surely damaged by this event. There had always been the assumption that Freddie Mac was too big to be allowed to fail, so the government would have had no option but to find the money to help them. This had been the biggest bail out in American financial history. The company was given only a couple of years to sort the problems out as the government will pull back its support in 2012.
While there were many issues for Freddie Mac, homeowners were not put at risk in any way by these scandals. They seemed not be in danger of Freddie Mac foreclosures by these particular scandals.
Things are looking up for Freddie Mac however. They are now in a position to ask the government for much less financial help than they have in the past. It has still asked for $100 million in support, but this is lower than in the past.
