Pro Publica, NPR Report: Freddie Mac Has Massive Bets Against Homeowner Refis

You don't suppose that placing these big bets against homeowner re-fis might lead to some problems down the road, do you? I mean, it's not as if banks have ever done anything like this before:

Freddie Mac agreed last month to stop making new bets against American homeowners after its regulator, the Federal Housing Finance Agency, raised concerns, according to a statement the agency issued late Monday. Freddie, the taxpayer-owned mortgage giant, still retains $5 billion worth of such bets.

The agency, responding to an investigation by ProPublica and NPR, said it had "identified concerns regarding the controls, including risk management, surrounding the inverse floaters," as the investments at issue are known. The agency did not specify what it had found, but said Freddie agreed in December that "these transactions would not resume pending completion of [FHFA's] examination work."

The statement also said that Freddie had ceased making the deals earlier in 2011 but did not explain why.

Separately, the White House said the Department of the Treasury is "looking into" Freddie's investments, and at least three senators called on Freddie not to bet against struggling homeowners.The mortgage-insurance company bought billions worth of complex mortgage-backed securities that profit if borrowers stay trapped in high interest rate home loans. The $5 billion figure released Monday afternoon is more than had been reported in the ProPublica-NPR investigation.

In late 2010 and early 2011, Freddie began dramatically increasing these multibillion-dollar deals. At the same time, Freddie also made it harder for homeowners to get out of their high-interest mortgages and into more affordable loans that could save them thousands of dollars a year. No evidence has emerged that these decisions were coordinated at the company, and Freddie has denied that they were.

But the deals highlight a conflict of interest: While Freddie's charter calls for the company to make home loans more accessible, the company also has giant investment portfolios that could lose large amounts of money, at least in the short run, if too many borrowers refinance into more affordable loans.

At a press briefing today, White House spokesman Jay Carney was asked whether Freddie Mac's investment strategy contradicted President Barack Obama's stated commitment to make homeowner refinancing more affordable. In his response, Carney stressed that the president does not directly control FHFA."This is an independent institution with independent governance, so we don't make those kinds of decisions," Carney said.

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