Potential Conflicts At Freddie Mac Draw Scrutiny

In December, Freddie Mac CEO Charles Haldeman (from left), FHFA acting Director Edward DeMarco and Fannie Mae CEO Michael Williams testified on Capitol Hill about the Federal Housing Finance Agency's performance. i i

In December, Freddie Mac CEO Charles Haldeman (from left), FHFA acting Director Edward DeMarco and Fannie Mae CEO Michael Williams testified on Capitol Hill about the Federal Housing Finance Agency's performance. Chip Somodevilla/Getty Images hide caption

itoggle caption Chip Somodevilla/Getty Images
In December, Freddie Mac CEO Charles Haldeman (from left), FHFA acting Director Edward DeMarco and Fannie Mae CEO Michael Williams testified on Capitol Hill about the Federal Housing Finance Agency's performance.

In December, Freddie Mac CEO Charles Haldeman (from left), FHFA acting Director Edward DeMarco and Fannie Mae CEO Michael Williams testified on Capitol Hill about the Federal Housing Finance Agency's performance.

Chip Somodevilla/Getty Images

A federal Inspector General's office confirmed Wednesday it is looking into Freddie Mac investments that act as bets against homeowners being able to refinance.

In addition, U.S. senators are expected to probe Freddie Mac's investment practices at a hearing on Capitol Hill on Thursday.

Freddie Mac, based in northern Virginia, is the taxpayer-owned mortgage giant whose public mission is to make homeownership more affordable for Americans.

But a recent investigation by NPR and ProPublica, a nonprofit newsroom, showed that the company, which was chartered by the federal government, has made $5 billion worth of investments that benefit when homeowners are blocked from refinancing their current mortgages to take advantage of today's lower rates.

Freddie Mac is one of the gatekeepers that gets to set the rules by which homeowners are allowed to refinance.

The inspector general for the Federal Housing Finance Agency, which oversees Freddie Mac, issued a statement saying: "We currently have an open evaluation on capital markets, which encompasses this issue. We'll know more when the evaluation is completed."

A Conflict At Freddie Mac?

Freddie Mac, which has a public mission to help make home ownership affordable, also has placed multibillion-dollar bets against American homeowners being able to refinance to cheaper mortgages, according to an investigation by NPR, in partnership with ProPublica, an independent, nonprofit newsroom.

Sen. Robert Menendez, D-N.J., had sent a letter to the inspector general, saying: "If Freddie Mac stood to benefit from homeowners being trapped in above-market interest rates, are such transactions consistent with their mission?"

Lawmakers are interested in exploring the matter because millions of homeowners are frustrated that they can't lower their mortgage payments by qualifying for today's interest rates — the lowest on record. Some prominent economists estimate that upward of 10 million homeowners are being unfairly blocked from refinancing because of unnecessary restrictions, fees and other frictions within the mortgage industry.

The concern is that in recent years, Freddie has been changing the rules to make it more difficult for homeowners to refinance. At the same time, Freddie placed $5 billion worth of bets that pay off if homeowners stay stuck in higher interest-rate loans.

"It's pretty outrageous — Freddie shouldn't be betting against homeowners to begin with," Menendez told NPR. He is the chairman of the Senate subcommittee on housing.

Both Freddie Mac and its regulator have said a "firewall" separates the investment part of the company from the rule-making part. They say lending policy has not been influenced by the investment portfolio.

Comments

 

Please keep your community civil. All comments must follow the NPR.org Community rules and terms of use, and will be moderated prior to posting. NPR reserves the right to use the comments we receive, in whole or in part, and to use the commenter's name and location, in any medium. See also the Terms of Use, Privacy Policy and Community FAQ.