Sen. Robert Menendez, D-N.J., had sharp words for Freddie Mac's investment practices and conflicts of interest at a Senate Banking Committee hearing Thursday.

The senator's concerns came in the wake of a ProPublica and NPR report that Freddie, the giant taxpayer-owned mortgage company, had made concentrated investments in complex mortgage securities that benefited from the inability of homeowners in high-rate mortgages to get refinancing. During the same period, Freddie also made it harder for people to get refinancing. Freddie said the decisions were separately made and that there was a firewall between them.

"I don't understand why you make a bet that you can largely control the outcome of, and want your bet to lose," Menendez said. "I think that's against human nature, so I'm not quite sure these firewalls exist in a way that aren't affecting policies. And that's a problem."

Speaking earlier to NPR, the senator called the investments "outrageous."

The issue is heating up in Washington. On Tuesday, 10 senators sent a letter to Edward DeMarco, the head of the Federal Housing Finance Agency, the regulator that oversees Freddie Mac, calling the report "deeply troubling."

"If the inability of homeowners to refinance their homes enhances Freddie Mac's bottom line, this is especially troubling," the letter said. "Freddie Mac exists to support the housing market, and it should not have a financial incentive to make it more difficult for struggling homeowners. Such actions by Freddie Mac are contrary to the best interests of American homeowners, sound economic policy, and its mission." (Read the full letter.)

And the inspector general for the FHFA confirmed Wednesday that it is looking into Freddie Mac's investments. "We currently have an open evaluation on capital markets, which encompasses this issue. We'll know more when the evaluation is completed," the government watchdog said.

Separately, Freddie Mac's chief executive, Charles Haldeman, disputed the ProPublica and NPR story in a piece on the American Banker's website.

"The major claim is that Freddie Mac worked against homeowners' ability to refinance in order to boost the performance of specialized securities that make up roughly 1% of our investment portfolio," Haldeman wrote. "This is just not true."

He added: "The securities in question helped us protect the value of our investment portfolio and reduce our need for taxpayer support."

ProPublica and NPR's story did not actually claim that Freddie's efforts to tighten mortgage standards were done to boost the investment value of its securities, called "inverse floaters." The story reported that decisions to limit credit were made at the same time that the company ramped up its investments, but the story said there was no evidence that the two actions were coordinated. As the story noted, Freddie says there is a strict firewall between the two businesses.

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