Freddie Mac Case Analysis

Newal Company: Corporate Strategy |

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Freddie Mac Current Strategy:

Freddie Mac and it’s recently hired CEO, Ed Haldeman, are in the difficult position of managing one of the mortgage markets most critical enterprises through the greatest housing crisis since the Great Depression. The political and public backlash associated with the unprecedented $200B in government backstops for the failed GSEs have handicapped the management of these entities and forced a compromise between policy and shareholder responsibility. Policy makers and government regulators have publically blamed the GSEs (Fannie Mae, Freddie Mac and others) for the mortgage crisis and subsequently imposed significant limitations while in government conservatorship.

Haldeman was also faced with increasingly low employee morale. Executive level compensation was forefront in the media and payment of bonuses to talent at these entities required approval by regulators. Further, market commentators and politicians consistently called for the breakup and dissolution of the GSEs and their implicit government guarantees. These factors created doubt among employees about their future at Freddie Mac and the stability of their pay. Haldeman felt that much of the remaining talent would seek employment elsewhere once the economy stabilized and financial firms began hiring once more. Additionally, Haldeman found it unlikely that he would be able to justify bonuses to the regulators and the public while Freddie Mac was still losing money and on the verge of insolvency.

Freddie Mac needed to consider how the structure of the mortgage market would change and what their role might be in that new environment. This lack of clarity on the future state of the mortgage market made it increasingly difficult for Freddie Mac to plan for profitability and the eventual exit from conservatorship.

The current strategy of Freddie Mac was to effectively manage these difficulties and provide meaningful insights into...