Freddie Mac Betting Against Struggling Homeowners

[ghurley]

January 30, 2012

Freddie Mac, a taxpayer-owned mortgage company, is supposed to make homeownership easier. One thing that makes owning a home more affordable is getting a cheaper mortgage.

But Freddie Mac has invested billions of dollars betting that U.S. homeowners won't be able to refinance their mortgages at today's lower rates, according to an investigation by NPR and ProPublica, an independent, non-profit newsroom.

These investments, while legal, raise concerns about a conflict of interest within Freddie Mac.

"We were actually shocked they did this," says Scott Simon, who heads the mortgage-backed securities team at the giant bond trading and investment firm called PIMCO. "It seemed so out of line with their mission, out of line with what Congress wanted them to do."

[link:http://www.npr.org/2012/01/30/145995636/freddie-mac-betting-against-struggling-homeowners|

[fasttense]

1. A good read. It details how Freddie Mac makes money by keeping struggling homeowners in higher

interest rate loans.

What a very corrupt scam.

Making money by using crime as your business plan. It's the new model. Since Obama is not prosecuting any of the criminals who pulled off this same type of scam and destroyed our economy, everyone has to use the criminal model because it provides and advantage. If you don't use crime as your business model, your competition eats you alive.

[PuraVidaDreamin]

2. Why do these people want this country to fail?

They are all terrorists.

[flpoljunkie]

3. If there's some way the president can stop this crap, he ought to do it. Congress sure won't.

But public documents show that in 2010 and 2011, Freddie Mac set out to make gains for its own investment portfolio by using complex mortgage securities that brought in more money for Freddie Mac when homeowners in higher interest-rate loans were unable to qualify for a refinancing.

Simply put, "Freddie Mac prevented households from being able to take advantage of today's mortgage rates — and then bet on it," says Alan Boyce, a former bond trader who's been involved in efforts to push for more refinancing of home loans.

In the long term, he says, allowing more Americans to refinance would help taxpayers as well as mortgage giants Freddie Mac and Fannie Mae, because they would suffer fewer losses related to foreclosures. These inverse floater trades, however, give Freddie Mac a short-term incentive to resist such so-called "mass re-fi" programs.

http://www.npr.org/2012/01/30/145995636/freddie-mac-betting-against-struggling-homeowners

[sarcasmo]

4. Making money by screwing people. This company should have been shut down.

Cretins with no soul.

[PADemD]

5. Freddie Mac Mission Statement with charter attachment

"Freddie Mac was chartered by Congress in 1970 with a public mission to stabilize the nation's residential mortgage markets and expand opportunities for home ownership and affordable rental housing. Our statutory mission is to provide liquidity, stability and affordability to the U.S. housing market."



http://www.freddiemac.com/corporate/company_profile/our_mission/

[Dreamer Tatum]

12. Key word: liquidity. Hedging is sometimes necessary to ensure liquidity.

But I will be the lone voice of reason, so I'll just help sharpen the pitchforks.

[TatonkaJames]

6. A taxpayer-owned mortgage company

Why would taxpayers not want to claim bankruptcy then and restructure their own loans ?

[happyslug]

13. Freddie Mac is NOT Tax payer owned, never was

Its cousin Fannie Mae had been from 1938, but that ended in 1968 when Congress decided to spin it off to private enterprise (This was part of the deal involving the Vietnam War, balancing the budget for Fiscal Year 1969, the last Budget of LBJ and the last Balanced budget till Clinton's administration).

As Wikipedia states:

From 1938 to 1968, the Federal National Mortgage Association (Fannie Mae) was the sole institution that bought mortgages from depository institutions, principally savings and loan associations, which encouraged more mortgage lending and effectively insured the value of mortgages by the US government. In 1968, Fannie Mae split into a private corporation and a publicly financed institution. The private corporation was still called Fannie Mae and its charter continued to support the purchase of mortgages from savings and loan associations and other depository institutions, but without an explicit insurance policy that guaranteed the value of the mortgages. The publicly financed institution was named the Government National Mortgage Association (Ginnie Mae) and it explicitly guaranteed the repayments of securities backed by mortgages made to government employees or veterans (the mortgages themselves were also guaranteed by other government organizations). To provide competition for the newly private Fannie Mae and to further increase the availability of funds to finance mortgages and home ownership, Congress then established the Federal Home Loan Mortgage Corporation (Freddie Mac) as a private corporation through the Emergency Home Finance Act of 1970. The charter of Freddie Mac was essentially the same as Fannie Mae's newly private charter: to expand the secondary market for mortgages and mortgage backed securities by buying mortgages made by savings and loan associations and other depository institutions.

http://en.wikipedia.org/wiki/Freddie_Mac

Just pointing out that since 1968 neither Fannie Mae nor Freddie Mac have been "Taxpayer owned" corporations.

[Common Sense Party]

18. Since 2008, we now own a big chunk of them. That was part of the bailouts.

Do we own 100% of the stock? No--probably nowhere close to it. But the Treasury did buy a good chunk of stock and we are backing up their debt obligations.

I'd say we're on the hook.

[Snake Alchemist]

21. Quite a bit

"Freddie Mac was chartered by Congress as a private company serving a public purpose. On September 6, 2008, the Director of the Federal Housing Finance Agency (FHFA), appointed FHFA as conservator of Freddie Mac. As conservator, FHFA has all rights, titles, powers, and privileges of Freddie Mac, and of any stockholder, officer, or director of Freddie Mac with respect to Freddie Mac and its assets; and title to the books, records and assets of Freddie Mac. In connection with the appointment of FHFA as conservator, Freddie Mac and the U.S. Department of the Treasury have entered into a Senior Preferred Stock Purchase Agreement. As part of the agreement, Freddie Mac has issued senior preferred stock to Treasury, together with a warrant for the purchase of common stock representing 79.9% of Freddie Mac’s common stock."

[Common Sense Party]

24. 80%???!!?

Wow, I had NO idea it was so high.

[Snake Alchemist]

20. Straight from Freddie Mac

"Freddie Mac was chartered by Congress as a private company serving a public purpose. On September 6, 2008, the Director of the Federal Housing Finance Agency (FHFA), appointed FHFA as conservator of Freddie Mac. As conservator, FHFA has all rights, titles, powers, and privileges of Freddie Mac, and of any stockholder, officer, or director of Freddie Mac with respect to Freddie Mac and its assets; and title to the books, records and assets of Freddie Mac. In connection with the appointment of FHFA as conservator, Freddie Mac and the U.S. Department of the Treasury have entered into a Senior Preferred Stock Purchase Agreement. As part of the agreement, Freddie Mac has issued senior preferred stock to Treasury, together with a warrant for the purchase of common stock representing 79.9% of Freddie Mac’s common stock."

[FailureToCommunicate]

7. We just refinanced thru HARP: roadblocks every step of the way!

HARP ="Home Affordable Refinance Program" A program only for mortgages already owned by Fanny Mae or Freddy Mac.

Pain in the butt. But much of the problem was the mortgage servicing company (Wells Fargo) didn't want to budge.

[stockholmer]

11. "mortgage servicing company (Wells Fargo) didn't want to budge": of course not, Warren Buffett wants

his billions in profits to keep flowing into his oligarchic maw from his precious bank.

[FailureToCommunicate]

15. Ja.

[pansypoo53219]

8. i bet freddie mac it he tip of the iceberg.

the rest of the banksters are probably doing worse, as we have seen w/ the shoddy book keeping and demands for stay forms.

[Peace Patriot]

9. Jeez! The FEDERAL mortgage company was doing this: betting on failure!?

I didn't realize this. Thanks for the info!

[ghurley]

16. Your welcome...

I went into work very early and heard NPR lead with this story on the radio. I couldn't believe what I was listening to and was wondering if I was still dreaming

[stockholmer]

10. another article and video

http://finance.yahoo.com/blogs/daily-ticker/freddie-mac-betting-against-homeowners-latest-gse-outrage-164015828.html

NPR and ProPublica released an explosive report http://www.npr.org/2012/01/30/145995636/freddie-mac-betting-against-struggling-homeowners Monday that found government-owned mortgage giant Freddie Mac betting against the very homeowners it is supposed to help. According to the news article, the investment division of Freddie Mac (or as Henry calls it, Freddie's "gambling desk&quot placed billions of dollars of bets against homeowners who were trying to refinance their mortgages at lower rates.

According to NPR/ProPublica's review of public documents, Freddie Mac invested in securities called "inverse floaters," which receive all the interest payments from specified mortgage-backed securities. "If lots of people 'pre-pay' their old loans and refinance into new, cheaper ones, then Freddie Mac starts to lose money," ProPublica's Jesse Eisinger and NPR's Chris Arnold explain. "If people can't refinance, then Freddie wins because it continues to receive that flow of older, higher interest payments."

Although Freddie Mac's bets are legal, they're highly offensive. Rightly or not, many Americans blame Freddie Mac and Fannie Mae -- which was not mentioned in the NPR/ProPublica report -- for the housing boom and subsequent bust. Nearly all Americans would agree these companies should not be focused on generating profits, now that they are officially wards of the state and are using taxpayer dollars to make these bets, as Aaron and Henry discuss in the accompanying video.

Freddie Mac plays a significant role in determining mortgage rates and is one of the "gatekeepers" with the power to decide whether a homeowner can refinance at a lower rate. If homeowners can reduce their mortgage payments, then Freddie Mac loses money. Hence the conflict of interest and the concern Freddie has been turning down refi requests in order to benefit its proprietary trades.

snip

------------------------------------

When is enough financial rape enough for the average American?

[mother earth]

14. Glass-Steagall Act was enacted after the Great Depression to prevent these greed based conflicts of

interest. The same damned issues have come back, banksters know what they can get away with.

Try asking people you know that might be having a hard time refinancing, ask what they are up against.
Even when homeowners do qualify for refinancing, the bank tries its best to get the higher rate.

The best point made here is that when the truly criminal are successful with no consequences, no need to abide by law, crime surely does pay.

[stockholmer]

17. +1000, Repeal of Glass-Steagall, NAFTA,and the horrific Commodity Futures Modernization Act are the

truly bitter legacy of the Bill Clinton/Larry Summers/Robrt Rubin troika, along with the aged thug Alan Greenspan, and the bought and paid for Congress on both sides (Repubs more so, but plenty of sell-out Dems too).

a must watch:

The Warning: Brooksley Born's Battle With Alan Greenspan, Robert Rubin And Larry Summers

http://video.pbs.org/video/1302794657/

[mother earth]

19. Yes, bipartisanship to derail the protections of Glass-Steagall, moreso from the GOP, nonetheless,

this is why we are the 99% fighting for survival. Same problems, different generation. It's amazing to minimally
research the subject and similarities are right in your face. Not by accident, but deliberate orchestration.

The whole system is corrupt, we've been, and continue to be played by a conscienceless banking system enabled by gov't, designed to squeeze out profits from the unknowing masses. Just one direction of the big squeeze. Not one aspect of our lives has been left untouched, which is why gov't does not like transparency. Lied to and brought to war for the profiteers, among other lies.

It is now easy to see who truly represent We The People....a small number....because there were and are pockets to be filled and there is no consequences for the thieves at the highest levels. But, since we are here on DU, we know this by now.

The hatred for big gov't is skewed, the hatred should be directed at the corruption and manipulation of a gov't that's been deliberately honed to ignore rule of law. Transparency...where there is none, there is corruption. The corruption is so massive, it will take a tsunami to clean it out.

[truthisfreedom]

22. And for this discovery and revelation, NPR will be defunded by the rethugs in 10... 9... 8...

7...

[natasor]

23. Freddie Mac/Fannie May again

Hi, I just want to add my voice to the Freddie Mac talk show on the NPR.
My husband and I live in Toledo, OH. We are not under water with mortgage on our home, making regular payments to the 5/3 Bank for 5 years. Actually they automatically withdrow every monthly payment from our checking account. It never was declined. Credit score is in high 700. The 5/3 Bank several times made invitation to us to refi our home at lower interest rate. By doing so we could save $400 a month. We had several attempts to do so with the 5/3 Bank and other mortgage cos. Every time we have been rejected, even so our financial conditions almost did not change.
We realised that something is going on, somebody makes real good money on our rejections.
The next day continue of the show had a qustion to the White House rep "why Freddy Mac does conduct such unfriendly to the struggling homeowners policy?" The answer was "Because it is a private company and has right to employ any policies it likes"
It is so unfair. We, as taxpayers, puled it out of the hole with billions of our hard earned dollars, and now when we ask it to help, it rejacts us from refinancing our mortgages at lower rates. We could save about $5000 a year and make great contribution in economy.
I'd like to provide the links to the atricles, so you could read it and understand better what's all about. http://www.npr.org/blogs/thetwo-way/2012/01/30/146110055/report-prompts-calls-to-end-freddie-macs-conflict-of-interest
an another one http://www.npr.org/2012/01/30/146093300/as-homeowners-struggle-freddie-mac-benefits.
When do this biblical corraption will end???