In a stinging rebuttal of accusations that it threatened its customers who were involved in FM Watch, Leland C. Brendsel, chairman and chief executive of Freddie Mac, on Monday categorically denied the charges and accused his detractors of diversionary tactics aimed at little more than protecting profit margins.

Mr. Brendsel made his response in an e-mailed letter to the editor of American Banker that appears on page 12. While striking back at each of the GSE's critics, he saved his strongest language for subprime lenders, who he said "are trying to preserve an extremely costly and in many cases unfair way of doing business."

He denied threatening mortgage lenders with retaliation for participating in FM Watch. "Let me state unequivocally: Freddie Mac has not, does not, and will not do business this way," he wrote. He said the coalition was "seeking to thwart Freddie Mac's ongoing efforts to reduce mortgage costs for America's families," by a "smear campaign" because it "cannot win with the facts."

The comments followed a series of reports on growing tensions between mortgage companies and the government-sponsored enterprises, including charges of overt threats and concerns that the GSEs' expanding business interests threaten banks, mortgage insurance companies, and subprime lenders.

On Monday, American Banker reported that the GSEs' increasing reach into the subprime market has concerned many in that business, who say they will not be able to compete.

Charles Coudriet, president of Saxon Mortgage Inc., a subprime lender in Glen Allen, Va., said Mr. Brendsel is using the issue of predatory pricing "to bully the subprime market and to take advantage of less-well-capitalized companies" and essentially put them out of business.

While Mr. Brendsel did not call the subprime lenders predatory, he wrote that Freddie is using the toughest anti-predatory lending standards in the industry, and he invited FM Watch members "to join us in taking a stand against predatory lenders."

The latest phase of the GSE controversy began when the chief executives of several large financial companies - including William B. Harrison Jr., president and CEO of J.P. Morgan Chase & Co.; Richard M. Kovacevich, president and CEO of Wells Fargo & Co.; Maurice R. Greenberg, chairman of American International Group Inc.; and Denis Nayden, CEO of GE Capital - told The Wall Street Journal that Freddie and Fannie Mae threatened that the companies would suffer financial consequences if they remained members of FM Watch.

Gerald Friedman, chairman of the group, led the barrage of criticism and announced at the same time that the threats had forced him to disband the group's board.

In his letter, Mr. Brendsel said that the large lenders "view Freddie Mac as an obstacle to their domination" of the market for consumer financial services, and that Freddie supports a level playing field for all lenders.

"They would prefer that small lenders have to go through them, rather than directly to the secondary mortgage market," he wrote. "It's no surprise they oppose our innovation that provides mortgage products and technologies to thousands of small and medium-size lenders."

Mike House, chief lobbyist of FM Watch, said in response: "This a typical GSE spin. Anytime anybody questions their business practices or their motives, or tries to have any type of legitimate debate about their proper role, they immediately go on the attack." Spokesmen for Wells and Chase declined to comment.

Mr. Brendsel is to appear at a hearing today to be held by Rep. Richard H. Baker, R-La., to discuss the progress of a six-point agreement reached in October.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.