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Jesse Eisinger, ProPublica, and Chris Arnold, NPR News February, 2012
“Sen. Robert Casey, D-Pa., sent a list of questions about Freddie Mac’s controversial trades to the mortgage giant’s regulator, highlighting how much remains unknown even after a flurry of statements from the regulator.
“ProPublica and NPR reported on Monday that Freddie Mac, the taxpayer-owned mortgage-insurance company, placed multibillion-dollar bets that pay off if homeowners stay trapped in expensive mortgages with interest rates well above current rates.
“Questions the senator put to the regulator, the Federal Housing Finance Agency, include why Freddie made the deals in the first place, when the FHFA learned of the trades, what role, if any, the FHFA played in them, and what the FHFA plans to do about the billions of dollars worth of deals Freddie still has on its books.
“Freddie began increasing those deals, called inverse floaters, deals 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, and Freddie says that they weren’t.
“But the trades highlight a conflict of interest: Freddie’s charter calls for the company to make home loans more accessible, but Freddie also has giant investment portfolios and could lose substantial amounts of money if too many borrowers refinance.” To continue reading this article, click here.
Read this related article (“Meet the Obscure Federal Regulator Who’s Not Helping Homeowners“), too.
“Last week, ProPublica and NPR raised questions about a risky investment strategy at Freddie Mac that would pay off if homeowners stayed trapped in expensive mortgages. It’s just the latest example of how government-owned Freddie Mac and Fannie Mae have frustrated many by not putting homeowners first.
“Fannie and Freddie are required to help homeowners while earning profits so they can pay back the taxpayers who bailed them out. Here is our guide to the little-known federal regulator, Edward DeMarco, ultimately in charge of the two companies. You may have never heard of him, but as The Washington Post put it, he’s ‘the most powerful man in housing policy.’”