January 30, 2012
Anna Christopher, NPR
FREDDIE MAC BETTING AGAINST AMERICAN HOMEOWNERS
TAXPAYER-OWNED GIANT BENEFITING BY MAKING IT HARDER
FOR AMERICANS TO REFINANCE HIGH-INTEREST MORTGAGES
REPORT BREAKING ON 'MORNING EDITION,' NPR.ORG AND PROPUBLICA.ORG
NPR's and ProPublica's reporting raises concerns about a conflict of interest at the taxpayer-funded mortgage giant: despite a policy mission to make lending more available, some recent investments and practices put Freddie Mac squarely against the homeowner when it comes to refinancing. In 2010 and 2011, Freddie Mac, whose business decisions are controlled by the Federal Housing Finance Agency, invested in complex and leveraged mortgage securities that appreciate when homeowners in higher interest rate loans are unable to quality for refinancing. Conversely, as homeowners refinance and their loans therefore drop out of these securities, Freddie Mac steadily loses money.
At the same time, Freddie Mac has also made it more difficult for people to qualify for lower-rate mortgages. Freddie and its larger cousin Fannie Mae have imposed new rules and regulations and introduced new fees in recent years, that narrow the number of borrowers who qualify for a Freddie-insured mortgage.
Scott Simon, managing director of the mortgage backed securities team at the giant bond investment firm PIMCO, tells NPR and ProPublica: "They actually put themselves squarely on the opposite side of the homeowner. So if the homeowner lost and was unable to refinance they win, and if the homeowner can refinance, they lose."
NPR's Arnold introduces listeners to one couple that Freddie Mac is effectively betting against, Jay and Bonnie Silverstein, who live in an unfinished development in a suburb of Philadelphia. The Silversteins could save $500 a month if they were able to refinance from their nearly 6.875% 30-year fixed mortgage to today's much lower rates. They haven't been able to because of a restriction that Freddie Mac tightened up over the past two years. Meanwhile – Freddie Mac has been benefiting – collecting the interest on the Silversteins' near 7 percent loan. What's more, a former Freddie Mac employee says these sorts of obstacles to refinancing loans guaranteed by Fannie and Freddie make no sense.
Arnold and Eisenberg report that while some credit tightening by Fannie and Freddie was justified after the housing bubble burst, many economists now think the pendulum has swung too far – resulting in many Americans being unfairly trapped in higher interest loans. The FHFA says a firewall exists between the investment and the credit policy sides of Freddie Mac. But NPR and ProPublica's reporting raises concerns of a conflict of interest – with Freddie's investment arm actively betting against homeowners being able to refinance. At best, the firm appears to be attempting to profit off the inability of American homeowners to refinance, even if the firewall within the company is sound.
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The full story is available now at NPR.org and ProPublica.org; further reports will air this afternoon on Talk of the Nation and All Things Considered. Check local stations for broadcast times.