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Intro: "An investigation by ProPublica and NPR News found that Freddie Mac has been betting against refinancing opportunities since late 2010, which was around the same time it started to make it harder for homeowners to get out of high-interest mortgages."

Freddie Mac has invested billions of dollars betting that U.S. homeowners won't be able to refinance their mortgages at today's lower rates, according to an investigation by NPR and ProPublica, an independent, nonprofit newsroom. (Photo: Pablo Martinez Monsivais/AP)
Freddie Mac has invested billions of dollars betting that U.S. homeowners won't be able to refinance their mortgages at today's lower rates, according to an investigation by NPR and ProPublica, an independent, nonprofit newsroom. (Photo: Pablo Martinez Monsivais/AP)



Freddie Mac Profits If Homeowners Unable to Refinance

By David Wallechinsky and Noel Brinkerhoff, AllGov

31 January 12

 

orrowing a page from Goldman Sachs and other Wall Street banks that bet against investments sold to investors, mortgage giant Freddie Mac is banking that Americans won't be able to refinance their homes - even though making refinancing easier is one of the taxpayer-owned operation's primary missions.

An investigation by ProPublica and NPR News found that Freddie Mac has been betting against refinancing opportunities since late 2010, which was around the same time it started to make it harder for homeowners to get out of high-interest mortgages.

"We were actually shocked they did this," Scott Simon, former head of the giant bond fund PIMCO's mortgage-backed securities team, told ProPublica and NPR. "It seemed so out of line with their mission."

The problem is that Freddie Mac, which is run by the Federal Finance Housing Agency, has a dual mission. On the one hand, it is supposed to help homeowners refinance their mortgages at lower rates. But on the other hand, it is supposed to use its huge investment portfolio to make a profit. Enter a form of investment known as an "inverse floater," which is backed primarily by the interest payments on mortgages. If interest payments are high, Freddie Mac makes more money; if homeowners refinance at lower rates, Freddie Mac's profits go down.

The current practice seems similar to the one that led the country into a financial crisis in 2008. "More than three years into the government takeover, we have Freddie Mac pursuing highly levered, complicated transactions seemingly with the purpose of trading against homeowners," real-estate economist Christopher Mayer of the Columbia Business School told ProPublica and NPR. "These are the kinds of things that got us into trouble in the first place."

Freddie Mac Bets Against American Homeowners (by Jesse Eisinger, ProPublica and Chris Arnold, NPR News)

Bets Against Homeowners Must Stop, Freddie Mac Was Told (by Jesse Eisinger and Cora Currier, ProPublica and Chris Arnold, NPR News)

Freddie Mac Profits From The Misery Of American Homeowners So That Banks Don’t Have To (by Matt Levine, Dealbreaker)

Bailouts Not Over…Fannie Mae and Freddie Mac Take Another $13.8 Billion (by Noel Brinkerhoff, AllGov)

Treasury To Probe Freddie Mac's Investments

 

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+22 # Barbara K 2012-01-31 11:18
How can homeowners refinance? Their credit is destroyed by the circumstances that got them to this point. I think that credit bureaus should take that into account and give them a passing grade on their Credit Scores, maybe Congress should mandate that.

NEVER VOTE REPUBLICAN !!

our future and our livelyhoods are at stake like no other time
 
 
-25 # lnason@umassd.edu 2012-01-31 11:55
This is disgraceful. But BarbaraK, it was the Democrats who successfully blocked reform of Fannie and Freddie and it is Democrats who are continued to subsidize these euphemistically named "government sponsored entities."

Lee Nason
New Bedford, Massachusetts
 
 
+12 # nancyw 2012-01-31 12:05
But it was under Bush that people lost jobs, the economy shifted to the military industry, and more jobs went overseas.
 
 
+1 # Stephanie Remington 2012-01-31 17:02
The official unemployment rate was only a hair lower in 2011 than it was in 2008.
http://www.statista.com/statistics/193290/unemployment-rate-in-the-usa-since-1990/

The unofficial rate (the real rate) was over 20% in 2010, which was higher than the previous year. I haven’t been able to find anything for 2011.

Underemployment is higher than it was, and rising, in 2008.
http://thecomingdepression.blogspot.com/2010/04/unofficial-unemployment-rate-rises-to.html
 
 
+1 # CandH 2012-02-01 09:00
"2011: Official (U3) ~ 8%; Broadest (U6) ~ 15%; SGS ~ 22.5% --

The seasonally-adju sted SGS Alternate Unemployment Rate reflects current unemployment reporting methodology adjusted for SGS-estimated long-term discouraged workers, who were defined out of official existence in 1994. That estimate is added to the BLS estimate of U-6 unemployment, which includes short-term discouraged workers.

The U-3 unemployment rate is the monthly headline number. The U-6 unemployment rate is the Bureau of Labor Statistics’ (BLS) broadest unemployment measure, including short-term discouraged and other marginally-atta ched workers as well as those forced to work part-time because they cannot find full-time employment.'' Supporting Charts @ http://www.shadowstats.com/alternate_data/unemployment-charts
 
 
-1 # John Locke 2012-02-01 10:03
nancyn: Unemployment has increased under Obama also; in January 2009 when he was inaugurated the unemployment rate was at 7.6%...he has ignored the problem of the unemployed and they have steadily increased. The difference now and why they claim 8.6% is that millions have fallen off the unemployment rolls.

However, If you believe the statistics being put out by "a Government Agency" you are being conned, since when has the government ever told us the truth. The unemployed are still above 14% when all the unemployed are added in and counted...
 
 
+6 # reiverpacific 2012-01-31 13:00
Quoting lnason@umassd.edu:
This is disgraceful. But BarbaraK, it was the Democrats who successfully blocked reform of Fannie and Freddie and it is Democrats who are continued to subsidize these euphemistically named "government sponsored entities."

Lee Nason
New Bedford, Massachusetts

Wasn't it these damn Democrats who caught the PRIVATE COMPONENT of Freddy-Fannie both with their hands in the till and took steps to make them over into the Federal Finance Housing Agency. As a self-confessed financial and economic idiot, I'm open to fact-based argument but that's my recall.
However, it's disappointing that skullduggery is still at large but at a certain point like -"we have Freddie Mac pursuing highly levered, complicated transactions seemingly with the purpose of trading against homeowners,"- my eyes start to glaze over at the esoteric depths to which the logic (or lack thereof) will sink to make sly profits for somebody.
But I DO know for sure that "BarbaraK" is right to point a finger at the corrupt and incompetent credit bureaus whose lightest word is made holy! The entire fuzzy picture will never be fully resolved in any but the bank's favor until the whole credit rating system is overhauled. I would suggest splitting them up into State-supervise d and administered agencies which are answerable to the consumers in each, so that every affected individual's circumstances can be truly weighted into the equation and monitored fairly.
 
 
+6 # gentry cooper 2012-01-31 13:59
there should be no credit bureaus period.
 
 
+3 # Stephanie Remington 2012-01-31 17:09
How about just writing down their loans to reflect the current value of their homes or – as Dean Baker has been suggesting for years -- allowing families to stay in their homes as renters.

http://www.cepr.net/index.php/blogs/cepr-blog/right-to-rent-helping-homeowners-and-the-economy
 
 
+6 # Cambridgemac 2012-01-31 12:24
"We were actually shocked they did this...It seemed so out of line with their mission." - Scott Simon
Hard to tell if Scott Simon is telling the truth, which means he's an idiot, or lying, which means he's coy. Either way, after years of watching major corporations and especially Finance, commit fraud and rip off states (Enron/Californ ia), customers around the world (Goldman sold products designed to fail and then bet against its customers - http://topics.nytimes.com/top/reference/timestopics/people/t/fabrice_tourre/index.html) and attempting to rip off the entire countries..... Well, why would someone intelligent be shocked?
 
 
0 # reiverpacific 2012-01-31 19:37
Quoting Cambridgemac:
"We were actually shocked they did this...It seemed so out of line with their mission." - Scott Simon
Hard to tell if Scott Simon is telling the truth, which means he's an idiot, or lying, which means he's coy. Either way, after years of watching major corporations and especially Finance, commit fraud and rip off states (Enron/California), customers around the world (Goldman sold products designed to fail and then bet against its customers - http://topics.nytimes.com/top/reference/timestopics/people/t/fabrice_tourre/index.html) and attempting to rip off the entire countries..... Well, why would someone intelligent be shocked?

No kiddin'!
As I figger it, Scott Simon is yet another latter-day PBS Patsy who, if he was given the indisputable warning that life would end tomorrow, would die trying to come up with a "P.C." digestible name for Armageddon (yet another evil chuckle)!
 
 
+2 # cordleycoit 2012-01-31 13:10
The tax payer is paying for all these wild and wacky bonus money. So they get to steal homes and do the pooch to us twice how quint and Republican. We simply grumble and move out and pay and pay. The cash cow gets milked by bankers with steel gloves.
 
 
0 # lilpat126 2012-01-31 15:32
Credit bureau are the pawns of banking. It gives them an excuse to rip us off.
All three of them are the one and the same.
They give you a "free" credit report if you pay for them for the next 12 months. Just who needs 36 credit report in a year? They are fear mongers.
 
 
+3 # MidwestTom 2012-01-31 20:07
My solution ton the housing crisis, Appraise every house and give every homeowner a check of 20% of the current value of their homes. this would be less than the bank bailouts. It would be fair, because everyones house has gone down in value. I would stop most of the foreclosures, and it would stimulate the economy. much better than loaning the billions that the Fed is now doing to the European banks and governments.
 
 
0 # colpow 2012-02-01 03:59
Yes, and the appraisal process (to be paid for by the government) would likely have to hire hundreds of thousands of people to not only appraise the houses, but to handle the barrage of paperwork and logistics involved in such a proposal. And these could be long-term temp jobs, because it will take years to get it done. It could work, but it will never happen.
 
 
0 # bluepilgrim 2012-02-01 07:27
I'm not religious at all, but I can understand anciwent wisdom:

For where your treasure is, there will your heart be also. No one can serve two masters, for either he will hate the one and love the other; or else he will be devoted to one and despise the other. You can not serve both God and Mammon.
—Matthew 6:19-21,24

God, in this case, also means humanity and human values. Translation, then: you can value people or you can value profit. And therein lies the difference between socialism and capitalism.
 
 
0 # CandH 2012-02-01 09:15
Two Points: 1--Simon, formerly of right-wing PIMCO Mortgage Unit, should be well aware of these transactions, even at FM, if he did the job he says he did. And 2--Columbia Business School leader, as a reference for a lead about questionable mortgage investment practices, is laughable, if it weren't so deprave and bizarre of a maneuver of the supposedly "liberal" NPR/PP doing it.

"So ProPublica misses completely that the GSEs have long been engaged in a massive program of interest rate hedging. The implication is that it is meaningless to look at the inverse floaters in isolation; you’d need to look at the composition of all of Freddie’s exposures to reach any conclusions as to what sorts of wagers, if any, they are taking. Looking at one position in isolation is meaningless."

So, what's going on behind the scenes here? http://www.nakedcapitalism.com/2012/01/propublicas-off-base-charges-about-freddie-macs-mortgage-bets.html
 
 
+1 # oakes721 2012-02-01 19:05
The One Percent is investing in the FAILURE of the Ninety-Nine Percent. Aim for the gutter, you can't miss. It's as sure a bet as falling down. They provide the banana peels for free. It's a slapstick comedy but only One Percent of the audience is laughing.
 
 
0 # Eliza D 2012-02-02 15:04
We really need a new world order, and it's not going to come about with the omnipotent corporations controlling virtually all aspects of our lives. One weapon we still have, though, is the boycott. It is the dream of most Americans to own our own homes, but in this season of absurdly inflated prices and high unemployment, it might be time for young couples to think hard about other options. For example, they could pay relatives or friends to put an addition on their home in which they could live until this madness ends. That would be cheaper.Boycott the mortgage entirely! Back to tribal life. Maybe when the banks find their revenue stream is dried up, they'll open the dams again. I know the logistics are difficult for many, but just a thought.
 

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