Senators Slam Freddie on Bets Against Homeowners

Senators Slam Freddie on Bets Against Homeowners

by Jesse Eisinger ProPublica

Sen. Robert Menendez, D-N.J., had sharp words for Freddie Mac’s investment practices and conflicts of interest at a Senate Banking Committee hearing Thursday.

The senator’s concerns came in the wake of a ProPublica and NPR report that Freddie, the giant taxpayer-owned mortgage company, had made concentrated investments in complex mortgage securities that benefited from the inability of homeowners in high-rate mortgages to get refinancing. During the same period, Freddie also made it harder for people to get refinancing. Freddie said the decisions were separately made and that there was a firewall between them.

“I don’t understand why you make a bet that you can largely control the outcome of, and want your bet to lose,” Menendez said. “I think that’s against human nature, so I’m not quite sure these firewalls exist in a way that aren’t affecting policies. And that’s a problem.”

Speaking earlier to NPR, the senator called the investments “outrageous.”

The issue is heating up in Washington. On Tuesday, 10 senators sent a letter to Edward DeMarco, the head of the Federal Housing Finance Agency, the regulator that oversees Freddie Mac, calling the report “deeply troubling.”

“If the inability of homeowners to refinance their homes enhances Freddie Mac’s bottom line, this is especially troubling,” the letter said. “Freddie Mac exists to support the housing market, and it should not have a financial incentive to make it more difficult for struggling homeowners. Such actions by Freddie Mac are contrary to the best interests of American homeowners, sound economic policy, and its mission.” (Read the full letter.)

And the inspector general for the FHFA confirmed Wednesday that it is looking into Freddie Mac’s investments. “We currently have an open evaluation on capital markets, which encompasses this issue. We’ll know more when the evaluation is completed,” the government watchdog said.

Separately, Freddie Mac’s chief executive, Charles Haldeman, disputed the ProPublica and NPR story in a piece on the American Banker’s website.

“The major claim is that Freddie Mac worked against homeowners’ ability to refinance in order to boost the performance of specialized securities that make up roughly 1% of our investment portfolio,” Haldeman wrote. “This is just not true.”

He added: “The securities in question helped us protect the value of our investment portfolio and reduce our need for taxpayer support.”

ProPublica and NPR’s story did not actually claim that Freddie’s efforts to tighten mortgage standards were done to boost the investment value of its securities, called “inverse floaters.” The story reported that decisions to limit credit were made at the same time that the company ramped up its investments, but the story said there was no evidence that the two actions were coordinated. As the story noted, Freddie says there is a strict firewall between the two businesses.


5 Responses to “Senators Slam Freddie on Bets Against Homeowners”
  1. CAS says:

    (fing freddie and fannie) however if its against policy then they must be tried, persecuted to the fullest. otherwise fire the assholes and we start over- OH YEA – seize all their personal assets first. Including bank accounts

  2. john says:

    In addition to hedging their bets, Freddie—or rather the Federal Housing Finance Agency—-continues their refusal to consider principal reductions as any form of option at all. There is a reason that Demarco’s replacement has not been Congressionally approved. With some hope, Congressman Cummings will pull the veil back, but with what level of authority?

  3. Carlos Dehesa says:

    If President Obama does not know what to do and our representatives are hidden, the Republicans lost in trivialities looking for a popular candidate, Democrats pretending to do something for people but only in campaign speeches, the General Attorneys getting ready for another settlement, while bankers earn millions of dollars daily; my question is :

    And now who will defend us?

  4. gregory says:

    Can you say RICO “I don’t understand why you make a bet that you can largely control the outcome of, and want your bet to lose,” This is the DIRT of the DIRT low class assholes Betting against Americans…..

  5. readdocs says:

    More snakes in the grass and foxes in the hen house.

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