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Economy
In reply to the discussion: STOCK MARKET WATCH -- Monday, 30 January 2012 [View all]Demeter
(85,373 posts)26. Freddie Mac Betting Against Struggling Homeowners
http://www.npr.org/2012/01/30/145995636/freddie-mac-betting-against-struggling-homeowners?ft=1&f=1001
...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, non-profit newsroom. These investments, while legal, raise concerns about a conflict of interest within Freddie Mac. "We were actually shocked they did this," says Scott Simon, who heads the mortgage-backed securities team at the giant bond trading and investment firm called PIMCO. "It seemed so out of line with their mission, out of line with what Congress wanted them to do."
Freddie Mac, formally called the Federal Home Loan Mortgage Corporation, was chartered by Congress in 1970. On its website, it says it has "a public mission to stabilize the nation's residential mortgage markets and expand opportunities for homeownership." The company is owned by U.S. taxpayers and overseen by a regulator, the Federal Housing Finance Agency (FHFA).
In December, Freddie's chief executive Charles Haldeman assured Congress his company is "helping financially strapped families reduce their mortgage costs through refinancing their mortgages." But public documents show that in 2010 and 2011, Freddie Mac set out to make gains for its own investment portfolio by using complex mortgage securities that brought in more money for Freddie Mac when homeowners in higher interest-rate loans were unable to qualify for a refinancing. Those trades "put them squarely against the homeowner," PIMCO's Simon says.
Freddie Mac's trades came at a time when mortgage rates were falling to record lows. Millions of homeowners wish they could refinance, but their lenders tell them they can't qualify for today's low rates because of tight rules. Freddie Mac is one of the gatekeepers with the power to set those rules, and lately, it has been saying no more often to homeowners. That raises concerns among some industry insiders who see a conflict: Freddie Mac's own financial health improves when homeowners can't refinance. Simply put, "Freddie Mac prevented households from being able to take advantage of today's mortgage rates and then bet on it," says Alan Boyce, a former bond trader who's been involved in efforts to push for more refinancing of home loans....Freddie and FHFA repeatedly declined to comment on the specific transactions, but Freddie did say that its employees who make investment decisions are "walled off" from those who decide the rules for homeowners....
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...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, non-profit newsroom. These investments, while legal, raise concerns about a conflict of interest within Freddie Mac. "We were actually shocked they did this," says Scott Simon, who heads the mortgage-backed securities team at the giant bond trading and investment firm called PIMCO. "It seemed so out of line with their mission, out of line with what Congress wanted them to do."
Freddie Mac, formally called the Federal Home Loan Mortgage Corporation, was chartered by Congress in 1970. On its website, it says it has "a public mission to stabilize the nation's residential mortgage markets and expand opportunities for homeownership." The company is owned by U.S. taxpayers and overseen by a regulator, the Federal Housing Finance Agency (FHFA).
In December, Freddie's chief executive Charles Haldeman assured Congress his company is "helping financially strapped families reduce their mortgage costs through refinancing their mortgages." But public documents show that in 2010 and 2011, Freddie Mac set out to make gains for its own investment portfolio by using complex mortgage securities that brought in more money for Freddie Mac when homeowners in higher interest-rate loans were unable to qualify for a refinancing. Those trades "put them squarely against the homeowner," PIMCO's Simon says.
Freddie Mac's trades came at a time when mortgage rates were falling to record lows. Millions of homeowners wish they could refinance, but their lenders tell them they can't qualify for today's low rates because of tight rules. Freddie Mac is one of the gatekeepers with the power to set those rules, and lately, it has been saying no more often to homeowners. That raises concerns among some industry insiders who see a conflict: Freddie Mac's own financial health improves when homeowners can't refinance. Simply put, "Freddie Mac prevented households from being able to take advantage of today's mortgage rates and then bet on it," says Alan Boyce, a former bond trader who's been involved in efforts to push for more refinancing of home loans....Freddie and FHFA repeatedly declined to comment on the specific transactions, but Freddie did say that its employees who make investment decisions are "walled off" from those who decide the rules for homeowners....
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