'Your World' Exclusive: Freddie Mac CEO on Mortgage Mess

This is a rush transcript from "Your World with Neil Cavuto," August 6, 2007. This copy may not be in its final form and may be updated.

NEIL CAVUTO, HOST: Reaction now from one of the biggest mortgage players on the planet. I'm talking about Richard Syron, the chairman and CEO of Freddie Mac. It is the second-biggest lender in the country. Mr. Syron joins me now in an exclusive chat.

Richard, good to have you. Thank you for coming.

RICHARD SYRON, CHMN. & CEO, FREDDIE MAC: Nice to see you again, Neil.

CAVUTO: All right. We should point out that share in your company were kind of all over the map today, diving on concern originally and then moving up about 8 percent that the government might, might have a role to sort of help out here. What do you think of that?

SYRON: Well, I think the last panel you had was very instructive in this matter. I mean, I think it is important that we do things to prevent the disruptions that are going on in the mortgage market now from spreading to the economy as a whole.

But at the same time, I am not in favor of a bail-out. I think the most important thing we can do, what we can learn, is to prevent these kinds of things from happening again.

CAVUTO: All right. Well, what can.

SYRON: And I do think.

CAVUTO: . Freddie Mac do, Richard, short of a bail out? You have made a number of recommendations. Can we go through them?

SYRON: Sure. Well, let me tell you some of the things that we are doing. I mean, actually, it is a very interesting market now. If you look at the conforming market, that is, the market that Freddie Mac and Fannie Mae are in, that market is much more orderly now than the non-conforming market.

And in fact, a lot of market participants have been saying that the problem is that there is not a bid except or a Fannie and Freddie bid for a lot of these mortgages. We have been active in the prime market. We have recently developed a new product in the subprime market, which we think is a responsible product which we are offering. And we are looking at some things that we can do in the Alt-A market now.

However, we are operating under an agreement with our regulators that constrains both our portfolio and our overall size to some extent. And I think we need to work with them and say what is the proper approach for public policy.


CAVUTO: All right. Now you are a genius, Richard, I'm not. So maybe you can explain this to me in terms that...

SYRON: I doubt that.

CAVUTO: . a dummy like I could understand. All right. Now we have got this situation where people are saying it becomes a self-fulfilling prophecy. In other words, those who are heretofore — have everything they need to get approved for a mortgage, can't, because lenders are skittish. So they drop off. Housing prices tumble because the demand just is not there then. And on and on and on we go. How close are we to something like that, or are we in the middle of it, the end of it, what?

SYRON: I think we are past the middle of it. I do not think we are at the end of it. I think we are in something like that for some mortgages. The market for prime, conventional mortgages has tightened up. It has tightened up a great deal for jumbo mortgages, where the traditional spread between mortgages that Freddie — Fannie could buy and jumbo mortgages was about 25 basis points to about 75 basis points, which does show there is some (INAUDIBLE) to our being able to buy the mortgages.

But it is a bifurcated market now. And as you might expect, the mortgages that are most difficult from a credit perspective, are those that are having the greatest difficulties.

CAVUTO: All right. So let's talk about regions you are familiar with. Certainly in the Northeast that was very, very hot. In the South, in Florida, where you had a real estate running fast and furious. Now if it is difficult to get those jumbo loans, there is a feeling that it is a trickle down, and a trickle down and out. Do you think so?

SYRON: Well, you know, I think you raise a very good point on the regional aspect of this. The plain fact of the matter is we do not have a uniform level, as you know, of housing prices across the United States. I mean, at our conforming limit, the $417,000 mortgage will buy you a very nice piece of property in most of the country.

In Boston, New York, San Francisco, it won't. So I think that is something that has to be taken into consideration.

CAVUTO: Does that mean taking into consideration increasing the amount that a Freddie Mac could back? In other words, in high-priced areas like New York, New Jersey, Connecticut, maybe out of Silicon Valley out West, that you raise that amount so that lenders — individual lenders, are less reluctant?

SYRON: I would say, yes, in that direction, in the sense that even federal government wages vary across the country for the same type of job, so it is folly to think that the price of housing is the same across the country.

But on the point you made before, the places that this is most difficult are places like the upper Midwest, Detroit, et cetera, where there was not much bubble in housing, but actually where we have severe problems with employment right now, and whole neighborhoods that are being left without a bid.

CAVUTO: You know what I worry about, Richard? When — and we are going to get into this with a renowned psychologist on this, but it becomes this.

SYRON: Probably better than an economist.


CAVUTO: This cycle of fear. That people.


CAVUTO: Lenders are afraid to lend, buyers are afraid to buy, and everyone is at a stand-off. Are we there yet?

SYRON: I think we are there. I think we are there in some markets. I think we are there in the subprime market. I think we are there in part of the Alt-A market — these are all terms for parts of the mortgage market. For the non-conventional markets, I think we are there.

But as you pointed out before, there were probably some excesses on the way up, and then housing prices turned very, very radically very, very quickly, something that has not happened in the United States, absent an economic event, in the past. And when that happened, people's psychology towards these markets turned 180 degrees.

CAVUTO: That is exactly right. Richard, a lot this you warned about. Very good seeing you. Richard Syron, the man who runs Freddie Mac, of course, an instrumental player in the middle of this mortgage saga. Richard, thank you very much.

SYRON: Nice seeing you again, Neil.

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