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Freddie Mac Bets Against American Homeowners

The taxpayer-owned mortgage giant made investments that profited if borrowers stayed stuck in high-interest loans while making it harder for them to get out of those loans.

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(AFP/Getty Images)

Jan. 30: Read the update to this article, "Bets Against Homeowners Must Stop, Freddie Mac Was Told." This story is not subject to our Creative Commons license. This story was co-published with NPR News.

Freddie Mac, the taxpayer-owned mortgage giant, has placed multibillion-dollar bets that pay off if homeowners stay trapped in expensive mortgages with interest rates well above current rates.

Freddie began increasing these bets dramatically in late 2010, the same time that the company was making it harder for homeowners to get out of such high-interest mortgages.

No evidence has emerged that these decisions were coordinated. The company is a key gatekeeper for home loans but says its traders are “walled off” from the officials who have restricted homeowners from taking advantage of historically low interest rates by imposing higher fees and new rules.

Freddie’s charter calls for the company to make home loans more accessible. Its chief executive, Charles Haldeman Jr., recently told Congress that his company is “helping financially strapped families reduce their mortgage costs through refinancing their mortgages.”

But the trades, uncovered for the first time in an investigation by ProPublica and NPR, give Freddie a powerful incentive to do the opposite, highlighting a conflict of interest at the heart of the company. In addition to being an instrument of government policy dedicated to making home loans more accessible, Freddie also has giant investment portfolios and could lose substantial amounts of money if too many borrowers refinance.

“We were actually shocked they did this,” says Scott Simon, who as the head of the giant bond fund PIMCO’s mortgage-backed securities team is one of the world’s biggest mortgage bond traders. “It seemed so out of line with their mission.”

The trades “put them squarely against the homeowner,” he says.

Those homeowners have a lot at stake, too. Many of them could cut their interest payments by thousands of dollars a year.

Freddie Mac, along with its cousin Fannie Mae, was bailed out in 2008 and is now owned by taxpayers. The companies play a pivotal role in the mortgage business because they insure most home loans in the United States, making banks likelier to lend. The companies’ rules determine whether homeowners can get loans and on what terms.

The Federal Housing Finance Agency effectively serves as Freddie’s board of directors and is ultimately responsible for Freddie’s decisions. It is run by acting director Edward DeMarco, who cannot be fired by the president except in extraordinary circumstances.

Freddie and the FHFA repeatedly declined to comment on the specific transactions.

Freddie’s moves to limit refinancing affect not only individual homeowners but the entire economy. An expansive refinancing program could help millions of homeowners, some economists say. Such an effort would “help the economy and put tens of billions of dollars back in consumers’ pockets, the equivalent of a very long-term tax cut,” says real-estate economist Christopher Mayer of the Columbia Business School. “It also is likely to reduce foreclosures and benefit the U.S. government” because Freddie and Fannie, which guarantee most mortgages in the country, would have lower losses over the long run.

Freddie Mac’s trades, while perfectly legal, came during a period when the company was supposed to be reducing its investment portfolio, according to the terms of its government takeover agreement. But these trades escalate the risk of its portfolio, because the securities Freddie has purchased are volatile and hard to sell, mortgage securities experts say.

The financial crisis in 2008 was made worse when Wall Street traders made bets against their customers and the American public. Now, some see similar behavior, only this time by traders at a government-owned company who are using leverage, which increases the potential profits but also the risk of big losses, and other Wall Street stratagems. “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,” says Mayer. “These are the kinds of things that got us into trouble in the first place.”

'We’re in financial jail'

Jay and Bonnie Silverstein (Chris Arnold, NPR News)Freddie Mac is betting against, among others, Jay and Bonnie Silverstein. The Silversteins live in an unfinished development of cul-de-sacs and yellow stucco houses about 20 miles north of Philadelphia, in a house decorated with Bonnie’s orchids and their Rose Bowl parade pin collection. The developer went bankrupt, leaving orange plastic construction fencing around some empty lots. The community clubhouse isn’t complete.

The Silversteins have a 30-year fixed mortgage with an interest rate of 6.875 percent, much higher than the going rate of less than 4 percent.  They have borrowed from family members and are living paycheck to paycheck. If they could refinance, they would save about $500 a month. He says the extra money would help them pay back some of their family members and visit their grandchildren more often.

But brokers have told the Silversteins that they cannot refinance, thanks to a Freddie Mac rule.

The Silversteins used to live in a larger house 15 minutes from their current place, in a more upscale development. They had always planned to downsize as they approached retirement. In 2005, they made the mistake of buying their new house before selling the larger one. As the housing market plummeted, they couldn’t sell their old house, so they carried two mortgages for 2½ years, wiping out their savings and 401(k). “It just drained us,” Jay Silverstein says.

Finally, they were advised to try a short sale, in which the house is sold for less than the value of the underlying mortgage. They stopped making payments on the big house for it to go through. The sale was finally completed in 2009.

Such debacles hurt a borrower’s credit rating. But Bonnie has a solid job at a doctor’s office, and Jay has a pension from working for more than two decades for Johnson & Johnson. They say they haven’t missed a payment on their current mortgage.

But the Silversteins haven't been able to get their refi. Freddie Mac won’t insure a new loan for people who had a short sale in the last two to four years, depending on their financial condition. While the company’s previous rules prohibited some short sales, in October 2010 the company changed its criteria to include all short sales. It is unclear whether the Silverstein mortgage would have been barred from a short sale under the previous Freddie rules.

Short-term, Freddie’s trades benefit from the high-interest mortgage in which the Silversteins are trapped. But in the long run, Freddie could benefit if the Silversteins refinanced to a more affordable loan. Freddie guarantees the Silversteins' mortgage, so if the couple defaults, Freddie — and the taxpayers who own the company — are on the hook. Getting the Silversteins into a more affordable mortgage would make a default less likely.

If millions of homeowners like the Silversteins default, the economy would be harmed. But if they switch to loans with lower interest rates, they would have more money to spend, which could boost the economy.

“We’re in financial jail,” says Jay, “and we’ve never been there before.”

How Freddie's investments work

Here's how Freddie Mac’s trades profit from the Silversteins staying in “financial jail.” The couple’s mortgage is sitting in a big pile of other mortgages, most of which are also guaranteed by Freddie and have high interest rates. Those mortgages underpin securities that get divided into two basic categories.

How Freddie Mac structured a deal in which it profited if homeowners stayed trapped in high-interest mortgages.

Graphic by Jeff Larson. Sources: prospectuses for the deals, reporting by ProPublica and NPR

One portion is backed mainly by principal, pays a low return, and was sold to investors who wanted a safe place to park their money. The other part, the inverse floater, is backed mainly by the interest payments on the mortgages, such as the high rate that the Silversteins pay. So this portion of the security can pay a much higher return, and this is what Freddie retained.

In 2010 and '11, Freddie purchased $3.4 billion worth of inverse floater portions — their value based mostly on interest payments on $19.5 billion in mortgage-backed securities, according to prospectuses for the deals. They covered tens of thousands of homeowners. Most of the mortgages backing these transactions have high rates of about 6.5 percent to 7 percent, according to the deal documents.

Between late 2010 and early 2011, Freddie Mac’s purchases of inverse floater securities rose dramatically. Freddie purchased inverse floater portions of 29 deals in 2010 and 2011, with 26 bought between October 2010 and April 2011. That compares with seven for all of 2009 and five in 2008.

In these transactions, Freddie has sold off most of the principal, but it hasn’t reduced its risk.

First, if borrowers default, Freddie pays the entire value of the mortgages underpinning the securities, because it insures the loans.

It’s also a big problem if people like the Silversteins refinance their mortgages. That’s because a refi is a new loan; the borrower pays off the first loan early, stopping the interest payments. Since the security Freddie owns is backed mainly by those interest payments, Freddie loses.

And these inverse floaters burden Freddie with entirely new risks. With these deals, Freddie has taken mortgage-backed securities that are easy to sell and traded them for ones that are harder and possibly more expensive to offload, according to mortgage market experts.

The inverse floaters carry another risk. Freddie gets paid the difference between the high mortgages rates, such as the Silversteins are paying, and a key global interest rate that right now is very low. If that rate rises, Freddie's profits will fall.

It is unclear what kinds of hedging, if any, Freddie has done to offset its risks.

At the end of 2011, Freddie’s portfolio of mortgages was just over $663 billion, down more than 6 percent from the previous year. But that $43 billion drop in the portfolio overstates the risk reduction, because the company retained risk through the inverse floaters. The company is well below the cap of $729 billion required by its government takeover agreement.

How Freddie tightened credit

Restricting credit for people who have done short sales isn’t the only way that Freddie Mac and Fannie Mae have tightened their lending criteria in the wake of the financial crisis, making it harder for borrowers to get housing loans.

Some tightening is justified because, in the years leading up to the financial crisis, Freddie and Fannie were too willing to insure mortgages taken out by people who couldn’t afford them.

In a statement, Freddie contends it is “actively supporting efforts for borrowers to realize the benefits of refinancing their mortgages to lower rates.”

The company said in a statement: “During the first three quarters of 2011, we refinanced more than $170 billion in mortgages, helping nearly 835,000 borrowers save an average of $2,500 in interest payments during the next year.” As part of that effort, the company is participating in an Obama administration plan, called the Home Affordable Refinance Program, or HARP. But critics say HARP could be reaching millions more people if Fannie and Freddie implemented the program more effectively.

Indeed, just as it was escalating its inverse floater deals, it was also introducing new fees on borrowers, including those wanting to refinance. During Thanksgiving week in 2010, Freddie quietly announced that it was raising charges, called post-settlement delivery fees.

In a recent white paper on remedies for the stalled housing market, the Federal Reserve criticized Fannie and Freddie for the fees they have charged for refinancing. Such fees are “another possible reason for low rates of refinancing” and are “difficult to justify,” the Fed wrote.

A former Freddie employee, who spoke on condition he not be named, was even blunter: “Generally, it makes no sense whatsoever” for Freddie “to restrict refinancing” from expensive loans to ones borrowers can more easily pay, since the company remains on the hook if homeowners default.

In November, the FHFA announced that Fannie and Freddie were eliminating or reducing some fees. The Fed, however, said that “more might be done.”

The regulator as owner

The trades raise questions about the FHFA’s oversight of Fannie and Freddie. But the FHFA is not just a regulator. With the two companies in government conservatorship, the FHFA now plays the role of their board of directors and shareholders, responsible for the companies’ major decisions.

Under acting director DeMarco, the FHFA has emphasized that its main goal is to limit taxpayer losses by managing the two companies’ giant investment portfolios to make profits. To cover their previous losses and ongoing operations, Fannie and Freddie already had received $169 billion from taxpayers through the third quarter of last year.

The FHFA has frustrated the administration because the agency has made preserving the value of the companies’ investment portfolios a priority over helping homeowners in expensive mortgages. In 2010, President Barack Obama nominated a permanent replacement for acting director DeMarco, but Republicans in Congress blocked him. Obama has not nominated anyone else to replace DeMarco.

Even though Freddie is a ward of the state, top executives are highly compensated. Peter Federico, who was in charge of the company’s investment portfolio when most of these leveraged investments were made, earned $2.5 million in 2010. He left the company in May 2011.

One of Federico’s responsibilities — tied to his bonuses —  was to “support and provide liquidity and stability in the mortgage market,” according to Freddie’s annual filing with the Securities and Exchange Commission. Mortgage experts contend that the inverse floater trades don’t further that goal.

ProPublica and NPR made numerous attempts to reach Federico. A woman who answered his home phone said he declined to comment.

The FHFA knew about the trades before ProPublica and NPR approached the regulatory agency about them, according to an FHFA official. The FHFA has the power to approve and disapprove trades, though it doesn’t involve itself in day-to-day decisions. The official declined to comment on whether the FHFA knew about them as Freddie was conducting them or whether the FHFA had explicitly approved them.

Liz Day of ProPublica contributed to this story.

Correction Feb. 3, 2012: Peter Federico, who was in charge of Freddie Mac’s investment portfolio, left the company in May 2011. A previous version of this story incorrectly said he still held that position.

The issue has me pulling out my hair. After pursuing multiple American Dreams (higher education, home ownership, small business proprietorship) I find myself with a sizable, though manageable, debt load. I have never missed a mortgage payment on my home or business property, nor have I missed a student loan payment. I paid off my car early and my credit is good. Yet, when I try to refinance my home to lower my rate from 6.875% to 4% bank after bank is telling me no. Sorry, they say, it’s the regulators. Their hands are tied. Well, apparently we are all tied into ponying up more than necessary so that companies like Fannie and Freddie can meet their bottom line. And as a result my ability to invest in my business and provide for my family suffers. Thanks for the expose, ProPublica. Thanks for nothing, Fannie and Freddie.

The American ‘Dream’ is a con-job.

Lucy; exactly/

Steve Thompson

Jan. 30, 2012, 7:56 a.m.

Backing by Fannie and Freddie made it easier for banks to lend more.  Unfortunately, speculators in the “sun and sand” states took advantage of the situation, with 45 percent of first mortgages issued to multiple mortgage holders and 10 percent of mortgages issued to consumers with four or more properties as shown here:

http://viableopposition.blogspot.com/2011/12/americas-housing-boom-and-bust-who-is.html

Perhaps the biggest problem is government involvement in private industry.  While regulations are put in place to ensure the safety of consumers, unfortunately, these same regulations can have unintended consequences.

In this era when I can’t get a half a per cent interest, and the fed is loaning money to banks almost free , there is no reason people should be paying interest rates any higher than 4 %.

scott Kennedy

Jan. 30, 2012, 8:01 a.m.

We bailed them out and WE own them and THEY work against us?  Why is this company still in business and why is everyone still trying to buy homes?  As long as there is a demand for home loans, back stabbing businesses such as Fannie Mae will prosper.
There is no such thing as bad credit….everyone has bad credit and we are all paying through the nose for “good credit.”  Credit is the rating you get to borrow money…borrowing is what got us all in the financial woe we are in now!
Fannie Mae, Bastards!

Yes, a RepubliCON job

Again, it shows how Freddie and Fannie is tied to the politicans and how they are able to dictate the terms of loans and allow homeowners to go into bankruptcy and foreclosures!  The whole setup is filled with CROOKS!

The S.E.C. should investigat­e who is the responsibl­e of these false allegation­s against Freddie Mac.
Freddie Mac is not betting against the homeowners­.
Freddie Mac doesn’t prevent homeowners to take advantage of today’s mortgage rates.
Freddie Mac’s own financial health doesn’t improve when homeowners can’t refinance.
Freddie Mac doesn’t make trades against the homeowners­.
Freddie Mac’s investment­s decisions are approved by the FHFA or the Treasury.
Freddie and Fannie have already in place a program to refinance underwater borrowers, the ones that are reluctant to refinance underwater borrowers are the big banks.
The article can’t discredit Freddie’s operations saying that it uses “complicat­ed securities­”, if you don’t understand them, go to college!

There is no surprise here.  Our government is owned by the banks.

There is a proven methodology to help homeowners in the HOLC of the 1930’s. The Federal government directly offered refinancing at low interest rates and helped a million homeowners keep their homes. They even knocked on people’s doors if they were delinquent in their payments, to offer help!  The true goal of the HOLC was to HELP HOMEOWNERS.

The current programs to help homeowners, the new regulations such as Dodd Frank, and investigations into bank fraud are all nonsense. They were created by politicians who are owned by the banks.

We can expect more of the same until we get money out of politics.  George Carlin summed it up well, when he said that the politicians exist only to make us think we have a choice, but big business is really in charge, not the politicians.

An example of what happens when the people in charge are driven by greed.  Altruism is no longer a word they know are care to know.  It is all about more better and different.  Gingrich advised them - I wonder what exactly his work was.  Was this one of his strategies ?  Historian ?  Most are not stupid enough to swallow this line.  His “lobbying” efforts surely tell a story of a company that is rotten on top from all the wonderful “historical” advice they have been receiving.

The logic of our system eludes me.  1. Why is FreddieMac allowed to play in the casino?  2. With fed rates near zero, why can’t banks be satisfied with a 3.5% interest rate—doesn’t that yield at least 2% profit? 
Dazed and confused in Truckee, CA.

Government ‘rescued’ banks such as INDY MAC (now ONE WEST) are betting just the same . I have been unable to refi for yrs . Their fees are outrageous. They will make more money from the gov. if they do not help the homeowner and wait for them to be forced to foreclose. They are just ‘patiently’ playing the waiting game…...

Peter Shapiro

Jan. 30, 2012, 8:20 a.m.

Funny how no Presidential Candidate even comes close
to talking about this topic… and what exactly they will do…
to Fix this ...Foreclosure crisis

Predators.

This is news?  No this is not news.  This is just the media trying to downgrade Gingrich because of his association with Freddie mac just before the florida primary.

The real news is that members of Congress place Wall Street bets against their constituents and have been doing do since 2009.  We don’t elect the leaders of Freddie Mac.  We can’t do anything about them but we can do something about members of Congress.

Eric Cantor, the Republican Whip in the House of Representatives, bought up to $15,000 in shares of ProShares Trust Ultrashort 20+ Year Treasury ETF in December of 2009, according to his 2009 financial disclosure statement. The exchange-traded fund takes a short position in long-dated government bonds. In effect, it is a bet against U.S. government bonds—and perhaps on inflation in the future.” [Source]

But if you think that betting against the USA is limited to Republicans like Cantor, you are wrong. Democrats do it too.  According to a May 3, 2010 article in the WSJ,  ” . .  . investment accounts of 13 members of Congress or their spouses show bearish bets made in 2008 via exchange-traded funds—portfolios that trade like stocks and mirror an index. These funds were leveraged; they used derivatives and other techniques to magnify the daily moves of the index they track.”

May we attribute this to the advice of our national historian and big time influence peddler, Newt Gingrich?

Once again it’s profits over people, and this time, in a government-backed agency set up to promote the needs of people.  Until our society realizes what is truly important, creating the greatest happiness for the greatest number, and stops trying to hit some arbitrary dollar figure dictated by Wall Street, this kind of heinous activity will go on.

Step one in changing things is to get the Republicans out of power. They exist only to make the rich richer at the expense of everyone else. Then get money out of politics so lawmakers can vote their conscience, and not their campaign treasury report. Then things can begin to change.

This is the same company that paid Gingrich $1.6 MILLION.  What does THAT tell you home owners.  What would happen if a majority of home-owners just WALKED AWAY????  Until that happens, you stay in ‘Freddie/Fannie Prison’.  What’s the worst that could happen?  You downsize, save a TON of $$$$, live in a rental w/in your means, and, w/enough people walking away, Freddie/Fannie either works WITH people on their loans OR they go under and a FLOOD of suddenly affordable houses suddenly hit the market.  It’s 2012, not 1979, you CAN easily rebuild your credit.  Just complaining about the problem is NOT going to get them to give up their gravy train, and until people start walking away from these shackles in droves, they’re not about about to change anything.  If people can organize the overthrow of a decades-old govt in poorer nations, you’d think something could be done here.

Mike Charnesky

Jan. 30, 2012, 8:26 a.m.

The President named a replacement to change these policies, and the
Republicans blocked the nomination.  Any questions ?

Sounds like social capitalism at work. Our government is protecting the banks and hedging their futures with our money so the 1% can stay affluent. If the banks take on too much risks our government will bail them out. Their is no incentive for them to not to. The banks should be treated the same as anyone else that that takes a risk that causes them to fail and loose all of their money. They should go out of business. Why should we encourage our banking system to trade mortgages of vary risks because the risk is insured. There is no other incentive here but to make as much money as possible and to limit the risk and what better way than to have our government bail them out. The banks are doing what they are allowed to do and our government allows them to operate this way using our money. How does this make sense except to the 1% who profit from this.

“The company is a key gatekeeper for home loans but says its traders are “walled off” from the officials who have restricted homeowners from taking advantage of historically low interest rates by imposing higher fees and new rules.”


Now THAT is some real humor.  “Walled off” just like the analysts doing ratings for S&P and Moody’s were “walled off” from the clients whose products were being rated.  We all know that these walls are impermeable and nothing ever ever ever gets through them.  Well ... unless they happen to talk in the hallways ... and the CEO puts a little subtle pressure on one unit because ... guess what ... the CEO and other executives deal with BOTH sides of the wall.

If people think our political system is about republicans versus democrats they have it all wrong which is how the people in power want it. The real issue is power and wealth controlling and subverting our economic and political systems so that things are rigged in their favor. Its that simple. A government in place to facilitate wealth concentration for those at the top. The middle class and working class have no voice or representation in the US and unless we use every means we can to make our votes count nothing is going to change. A vote for a republican or democrat is just going to assure the same corrupt political system continues to help the same corrupt economic forces dominating and plundering middle and working class wealth.

These trades they made could actually be beneficial as hedges for the tax payers. If Freddie is successful at refi-ing a lot of borrowers, they get great benefits—more cash now and fewer losses in the future. IF however they aren’t successful, the return on these securities will offset the likely increase in losses related to the larger future portfolio. Similarly, since Freddie owns a lot of adjustable rate mortgages, they will get increased cashflow if interest rates go up. These inverse floaters are a natural hedge because the cashflow is greater in a low rate environment and less in a high rate environment.
I don’t want to be as vitriolic as hanyu above, but he is right that these trades are NOT something to be lambasting Freddie about. They are sound risk management trades beneficial to the US government and therefore the taxpayers.

This article has VASTLY over-simplified the situation with Fannie/Freddie.  The truth is that

*the mortgage/housing market really need the GSE’s
* The GSE’s are being forced by Govt regulation to raise their “Guarantee Fees” to support the Capital Requirements that make them more secure.
* It’s fair to look at how a short sale in the recent past informs a potential borrower’s current credit and ability to pay.

This situation of lending to borrowers while the investments an institution puts its money into work against borrowers is what needs to be examined.  The blame falls in the 80’s and 90’s… does no one remember Gramm/Leach/Bliley and the dissolution of the Glass-Steagall act that separated investment banks from Lending Banks?  This whole period led to the creation of these funky investments.  Then our Govt turns around and requires these two Govt agencies to become corporations and show a profit, are they supposed to ignore legal (but dangerous and crappy) investment vehicles.

Fannie/Freddie didn’t cause this mess and they’re not the ones making it difficult now.  We need to look at the banks and the people who take the banks money to support them.

Slumpy American

Jan. 30, 2012, 8:38 a.m.

OK, that does it. Jill Stien for president.

The government needs to privatize them and then they can do whatever they like.

This is as unsurprising as it is repellent. It is clear that the people running our major institutions are so devoid of any moral or ethical grounding as to make them the financial equivalents of sociopaths.

Unfortunately, as long as the people who do the hiring and appointing are amoral and unethical, they will continue to choose replacements exactly like themselves and nothing will ever change.

I say since they are against the same people who bailed them out then we should make them repay the taxpayers immediately and if they can’t then let them fail and force them into a chapter 11 debt reorg.

“The company is a key gatekeeper for home loans but says its traders are “walled off” from the officials who have restricted homeowners from taking advantage of historically low interest rates by imposing higher fees and new rules.”
Here we go again! It’s Goldman Sachs all over again!
“Walled off”  - yeah right - just taking your word for it - NOT!!!

Robert McCann

Jan. 30, 2012, 8:49 a.m.

Hedging the interest rate risk for the American taxpayer sounds like a good idea to me.

This is what happens when you let the federal government run what should be a private market business. First they now have all the business(who would want to invest in this?) Second they have run it straight into the ground. Of course there are no investigations, no reforms, no ownership of the problem admitted to by the government. In fact the people responsible for this disaster have gone on to write new regulations to help better manage Wall St.. I am sure the Obama administration will show us the way out of this morass.

The government, Freddie, and Fannie would be hard-put to do anything about it if- even one fourth of- all homeowners refused to pay their mortgages untill they’re refinanced at a reasonable price- at a reasonable interest rate.

Does the Huffpost do some kind of focus group to find out what word or person or institution enrages liberals most and print their headlines based on that, usually with some reference to “shocking,” “offensive,” or “racist!”?

“Gingrich offends [minority du jour]!”  “Limbaugh’s racist remark shocks!” “Big bank charges huge fees!”

ReaItors Are Liars

Jan. 30, 2012, 9:05 a.m.

The Silversteins are greedy ba$tards. They could have sold their old house if they had only LOWERED THE PRICE.

The problem with the American Dream is that you have to be asleep to believe it - George Carlin

We tried to refinance and after months of working with the bank and waiting patiently we were told NO by the bank because we had tried to sell the house prior to trying to refinance.  This leads me to SETERUS. This is the company that manages the loans for Freddie and Fannie.  If you think you are in Freddie/Fannie jail just wait until you have to deal with these guys. You will truly be in hell when you need help from them.

Jeffrey C. Adams

Jan. 30, 2012, 9:21 a.m.

The message about how badly the U.S. economic system has been corrupted is not sinking in—- the general public still really doesn’t understand it. But our elected lawmakers certainly do. Except they have been corrupted by campaigns financed by special interests. So these same lawmakers simply no longer care about the American economy or the middle class. Or preserving an sense of balance and fairness in the legal system. We need another revolution to convince them. Something like an “Arab Spring” set forth by the American Middle Class.

Git gubmint outta housing. Problem solved.

Last fall I attempted to refinance my home through the HARP Program. I met all the criteria: loan backed by Fannie or Freddie (in my case Freddie), current on the mortgage, etc. Ultimately I was told I could not refinance through this program because my mortgage (a 30 yr conventional with an 80%LTV) had been bundled with a batch of subprime mortgages. At the time I thought Chase was the major culprit, now I’m beginning to think they are merely an accessory to the crime.

only 11% of all outstanding fixed rate Agency mortgages are 6% and higher.  The remainder is 5.5% and lower.  Incredibly low rates by historical measures.  These rates are already artificially low because it’s essentially a Govt subsidy.  Private market rates would at least be 50bp higher on average. You will never get a 4% mortgage rate without Bringing money to the table…and you shouldn’t b/c it’s an artificially low rate which doesn’t compensate the Lender for their risk.

This is a pointless article. 

Rates are not the problem for real estate.  Too much inventory, over “ownership”, and underwater mortgage owners are the issues.  This will take time to correct itself.  Most people would be better off if the Fed raised rates and they could start earning interest income on deposits again..

Conflict of interest is right.  If Freddie Mac/Fannie Mae don’t make a profit, they go bankrupt and the American taxpayers are on the hook for the billions of dollars they would lose.  If they don’t allow these people to refinance, the odds are good they will still go bankrupt and taxpayers get screwed.  Our gov’t has no business owning and/or backing a lending institution.  The American taxpayers should NEVER be put at risk in such a horrible manner.

SHUTTER DOWN Freddie Mac and Fannie Mae. They are cancers in our economic system. http://www.sci-burr.com

Using the Silverstein’s debacles, as an example, only weakens the argument, unless that was the intent. Please give me a better example. They clearly should not have been in the larger house, in an upscale neighborhood, in the first place and evidently had little to no equity when they moved. Who, at their age, takes out a 30 yr mortgage?

This certainly sounds like a right-wing wack job. I wonder if they got this idea from consulting with Newt Gingrich as part of his “Strategic” advice contract. Screw the middle class, let’s make some more money. And if things don’t work out our way, the taxpayers will bail us out again. We have nothing to lose.

Part of this article really bothers me. It’s the part that whitewashes the bad decisions made by these homeowners who are now blaming Freddie Mac for their predicament. If you can’t afford to hold two mortgages, don’t buy a new home when you haven’t yet sold your old one. There are no guarantees in real estate sales. If you can’t afford your mortgage at 6%, why did you sign the contract in the first place? Sure, everyone wants to refinance and save thousands, but the contract you signed in the first place was a valid one, and you accepted its terms. To then say you can’t afford it is to expose your inate stupidity. Freddie Mac—despicable. American homeowners in the situation shown—dumb and greedy.

Fannie/Freddie are essentially co-signers on loans. The principal reason to have a co-signer is to shoehorn the debtor(s) into a bigger loan than they are really equipped to handle.  When this practice is widespread, it allows housing prices to increase beyond what the market should allow.  This the what caused the bubble - and the crash.

It was assumed that government regulation could take the place of market discipline in preventing what happened.  Didn’t work.  The Silversteins shouldn’t get another guaranteed loan anytime soon.  They have already defaulted on one.  Fannie/Freddie shouldn’t have allowed them to take out an insured loan on a second home while they still owed on their first.  They may have been ignorant enough to do that, but Fannie/Freddie shouldn’t have guaranteed it.  I assume that the loan they defaulted on was Fannie/Freddie guaranteed and the taxpayers took a bath on it.

I Have a hard time feeling sorry for people that buy manufactured homes in new developments, and buy another home before they sold their last one, also buying a home on two incomes. Having said this I own a window company here in Chicago http://www.pegasusinchicago.com and can’t wait for something positive to happen.

ATTENTION< ATTENTION

The light at the end of the tunnel has burnt out.


Republicans are trying to find a program to cut to pay for another bulb.

Robert Marston

Jan. 30, 2012, 9:57 a.m.

Fannie and Freddie are engaged in the same predatory lending practices as the big banks and all other major lenders. For an institution that was supposed to support the public interest, this should be an object of shame. The regulations and consumer protections should prevent this kind of profiteering and mortgage sharking—not just from Fannie and Freddie, but from all the big banks.

This article is part of an ongoing investigation:
Freddie Mac

Freddie Mac

The taxpayer-owned mortgage giant made investments that profited if borrowers stayed stuck in high-interest loans while making it harder for them to get out of those loans.

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