Wednesday, October 22, 2014
Inquirer Daily News

Report: Freddie Mac 'bet' against homeowners

An investigation says Freddie Mac made refi rules tougher at the same time trying to ensure from higher-rate mortgage investment income

Report: Freddie Mac 'bet' against homeowners

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A report broadcast Monday by National Public Radio http://goo.gl/nq9Rx and co-authored by ProPublica and NPR alleges that Freddie Mac, the taxpayer-owned provider of mortgage money, is making it hard for borrowers to refinance to lower rates so it can keep getting huge income from higher ones.

The report says that Freddie has spent billions of dollars on securities called "inverse floaters," which receive all the interest payments from specified mortgage-backed securities.

While the investment arm of the company was profiting from homeowners with high-rate mortgages, Freddie was making it more difficult for those locked in high-interest mortgages to refinance to a lower rate, the report said.

In effect, there are “multibillion-dollar ‘bets’ that pay off if homeowners stay trapped in expensive mortgages with interest rates well above current rates,” the reporters, Jessie Eisinger and Chris Arnold, said.

There is no evidence showing Freddie’s investment arm and its credit side were working in concert. In fact, some critics of the ProPublica/NPR probe say that Freddie’s investment in the inverse floaters was reasonable, considering current market conditions.

The report notes that such activities were legal, adding, however, that there are concerns about conflict of interest.

Others point out, however, that the mission of both Freddie and Fannie Mae — emphasized in last week’s State of the Union address —  is to provide affordable mortgages to American home buyers.

Freddie didn’t respond to the accusations in the report directly, and Fannie was not part of the investigation.

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About this blog
Alan J. Heavens blogs about home improvement and the real estate industry and hosts regular chats on those topics. Reach Alan J. at aheavens@phillynews.com.

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