A report that was released recently is putting Freddie Mac in the spotlight again, and not in a good way. After reviewing public documents, NPR and ProPublica revealed that Freddie Mac has actually been betting against the homeowners they claim to be helping. “The investment division of Freddie Mac placed millions of dollars of bets against homeowners who are trying to refinance their mortgages at lower rates.” They are doing this by investing in “inverse floaters,” which receive interest payments from mortgage-backed securities. Doing so means a profit when people are not able to refinance and have to stick with their higher-interest payments. If homeowners manage to refinance to a cheaper loan, then Freddie actually loses money.
There is nothing illegal about what Freddie Mac is doing, but it just is wrong. It is a clear conflict of interest, since, as “gatekeepers,” they can determine whether a homeowner is able to refinance to a lower rate. Lower rates mean lower profits for Freddie Mac. On top of that, Freddie Mac and Fannie Mae received huge government bailouts, to the tune of $169 billion. The company maintains that their investment division is completely separate from the group that manages homeowner mortgages and are “actively supporting efforts for borrowers to realize the benefits of refinancing their mortgages to lower rates,” according to a Freddie Mac spokesman.
Freddie Mac is not new to controversy. While reporting significant financial losses last year, CEO Michael Williams earned upwards of $6 million. Add that to some high profile lawsuits from the State of California and the SEC, and Freddie Mac is still firmly in the hot seat.