Freddie Mac Bet on Homeowners' Misery, Report Says

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Banks and Government Fail Homeowners

Foreclosure Crisis

Banks and the government have fallen short in helping homeowners in danger of foreclosure.

Latest Stories in this Project Bets Against Homeowners Must Stop, Freddie Mac Was Told Underwater Homeowners May Swim Freely Still Waiting for Cleanup in Foreclosure Mess Foreclosure Crisis: The Story So Far Flaws Jeopardize New Attempt to Help Homeowners Full Coverage

Freddie Mac Bets Against American Homeowners by Jesse Eisinger, ProPublica and Chris Arnold, NPR News Jan. 30, 2012, 5 a.m.

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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 payoff if homeowners stay trapped in expensive mortgages with interest rates wellabove current rates.

Freddiebegan increasing these bets dramatically in late 2010, the same time that thecompany was making it harder for homeowners to get out of such high-interestmortgages.

No evidencehas emerged that these decisions were coordinated. The company is a keygatekeeper for home loans but says its traders are “walled off” from theofficials who have restricted homeowners from taking advantage of historicallylow interest rates by imposing higher fees and new rules.

Freddie’scharter calls for the company to make home loans more accessible. Its chiefexecutive, Charles Haldeman Jr., recently toldCongress that his company is “helping financially strapped families reducetheir mortgage costs through refinancing their mortgages.”

But the trades, uncovered for the firsttime in an investigation by ProPublica and NPR, give Freddiea powerful incentive to do the opposite, highlighting a conflict of interest atthe heart of the company. In addition to being an instrument of governmentpolicy dedicated to making home loans more accessible, Freddie also has giantinvestment portfolios and could lose substantial amounts of money if too manyborrowers refinance.

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

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

Thosehomeowners have a lot at stake, too. Many of them could cut their interestpayments by thousands of dollars a year.

Freddie Mac,along with its cousin Fannie Mae, was bailed out in 2008 and is now owned bytaxpayers. The companies play a pivotal role in the mortgage business becausethey insure most home loans in the United States, making banks likelier tolend. The companies’ rules determine whether homeowners can get loans and onwhat terms.

The FederalHousing Finance Agency effectively serves as Freddie’s board of directors andis ultimately responsible for Freddie’s decisions. It is run by acting directorEdward DeMarco, who cannot be fired by the presidentexcept in extraordinary circumstances.

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

Freddie’smoves to limit refinancing affect not only individual homeowners but the entireeconomy. 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-estateeconomist ChristopherMayer of the Columbia Business School. “Italso is likely to reduce foreclosures and benefit the U.S. government” becauseFreddie and Fannie, which guarantee most mortgages in the country, would havelower losses over the long run.

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

The financialcrisis in 2008 was made worse when Wall Street traders made bets against theircustomers and the American public. Now, some see similar behavior, only thistime by traders at a government-owned company who are using leverage, whichincreases the potential profits but also the risk of big losses, and other WallStreet stratagems. “More than three years into the government takeover, we haveFreddie Mac pursuing highly levered, complicated transactions seemingly withthe purpose of trading against homeowners,” says Mayer. “These are the kinds ofthings that got us into trouble in the first place.”

'We’re infinancial jail'

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

The Silversteins have a 30-year fixed mortgage with an interestrate of 6.875 percent, much higher than the going rate of less than 4percent. They have borrowed fromfamily 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 payback some of their family members and visit their grandchildren more often.

But brokershave told the Silversteins that they cannotrefinance, thanks to a Freddie Mac rule.

The Silversteins used to live in a larger house 15 minutes fromtheir current place, in a more upscale development. They had always planned todownsize as they approached retirement. In 2005, they made the mistake ofbuying their new house before selling the larger one. As the housing marketplummeted, they couldn’t sell their old house, so they carried two mortgagesfor 2½ years, wiping out their savings and 401(k). “Itjust drained us,” Jay Silverstein says.

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

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

But the Silversteins haven't been able to get their refi. Freddie Mac won’t insure a new loan for people whohad a short sale in the last two to four years, depending on their financialcondition. While the company’s previous rules prohibited some short sales, inOctober 2010 the company changed its criteria to include all short sales. It isunclear whether the Silverstein mortgage would have been barred from a shortsale 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, Freddiecould benefit if the Silversteins refinanced to amore affordable loan. Freddie guarantees the Silversteins'mortgage, so if the couple defaults, Freddie — and the taxpayers who ownthe company — are on the hook. Getting the Silversteinsinto a more affordable mortgage would make a default less likely.

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

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

How Freddie'sinvestments work

Here's howFreddie Mac’s trades profit from the Silversteinsstaying in “financial jail.” The couple’s mortgage is sitting in a big pile ofother mortgages, most of which are also guaranteed by Freddie and have highinterest rates. Those mortgages underpin securities that get divided into twobasic categories.

Anatomy of a Deal 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 isbacked mainly by principal, pays a low return, and was sold to investors whowanted 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 highrate that the Silversteins pay. So this portion ofthe 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 — theirvalue based mostly on interest payments on $19.5 billion in mortgage-backedsecurities, according to prospectuses for the deals. They covered tens ofthousands of homeowners. Most of the mortgages backing these transactions havehigh rates of about 6.5 percent to 7 percent, according to the deal documents.

Between late2010 and early 2011, Freddie Mac’s purchases of inverse floater securities rosedramatically. Freddie purchased inverse floater portions of 29 deals in 2010and 2011, with 26 bought between October 2010 and April 2011. That compareswith seven for all of 2009 and five in 2008.

In thesetransactions, Freddie has sold off most of the principal, but it hasn’t reducedits risk.

First, ifborrowers default, Freddie pays the entire value of the mortgages underpinningthe securities, because it insures the loans.

It’s also abig problem if people like the Silversteins refinancetheir 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 theseinverse floaters burden Freddie with entirely new risks. With these deals,Freddie has taken mortgage-backed securities that are easy to sell and tradedthem for ones that are harder and possibly more expensive to offload, accordingto mortgage market experts.

The inversefloaters carry another risk. Freddie gets paid the difference between the highmortgages 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 unclearwhat kinds of hedging, if any, Freddie has done to offset its risks.

At the end of2011, Freddie’s portfolio of mortgages was just over $663 billion, down morethan 6 percent from the previous year. But that $43 billion drop in theportfolio overstates the risk reduction, because the company retained riskthrough the inverse floaters. The company is well below the cap of $729 billionrequired by its government takeover agreement.

How Freddietightened credit

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

Sometightening is justified because, in the years leading up to the financialcrisis, Freddie and Fannie were too willing to insure mortgages taken out bypeople who couldn’t afford them.

In a statement, Freddiecontends it is “actively supportingefforts for borrowers to realize the benefits of refinancing their mortgages tolower rates.”

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

Indeed, justas it was escalating its inverse floater deals, it was also introducing newfees on borrowers, including those wanting to refinance. During Thanksgivingweek in 2010, Freddie quietly announced that it was raising charges, calledpost-settlement delivery fees.

In a recentwhite paper on remedies for the stalled housing market, the Federal Reservecriticized 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.

Aformer Freddie employee, who spoke on condition he not be named, was evenblunter: “Generally, it makes no sense whatsoever” for Freddie “to restrictrefinancing” from expensive loans to ones borrowers can more easily pay, sincethe company remains on the hook if homeowners default.

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

The regulatoras owner

The tradesraise questions about the FHFA’s oversight of Fannie and Freddie. But the FHFAis 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 actingdirector DeMarco, the FHFA has emphasized that itsmain goal is to limit taxpayer losses by managing the two companies’ giantinvestment portfolios to make profits. To cover their previous losses andongoing operations, Fannie and Freddie already had received $169 billion fromtaxpayers through the third quarter of last year.

The FHFA hasfrustrated the administration because the agency has made preserving the valueof the companies’ investment portfolios a priority over helping homeowners inexpensive mortgages. In 2010, President Barack Obama nominated a permanentreplacement for acting director DeMarco, butRepublicans in Congress blocked him. Obama has not nominated anyone else toreplace DeMarco.

Even thoughFreddie is a ward of the state, top executives are highly compensated. PeterFederico, who's in charge of the company’s investment portfolio, made $2.5million in 2010, and he had target compensation of $2.6 million for last year,when most of these leveraged investments were made.

One ofFederico’s responsibilities — tied to his bonuses — is to “support and provideliquidity and stability in the mortgage market,” according to Freddie’s annualfiling with the Securities and Exchange Commission. Mortgage experts contendthat the inverse floater trades don’t further that goal.

ProPublica andNPR made numerous attempts to reach Federico. A woman who answered his homephone said he declined to comment.

The FHFA knewabout the trades before ProPublica and NPR approached the regulatory agencyabout them, according to an FHFA official. The FHFA has the power to approveand disapprove trades, though it doesn’t involve itself in day-to-daydecisions. The official declined to comment on whether the FHFA knew about themas Freddie was conducting them or whether the FHFA had explicitly approvedthem.

Liz Day of ProPublica contributed to this story.

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Travis

Jan. 30, 7:32 a.m.

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.

Lucy

Jan. 30, 8:04 a.m.

The American ‘Dream’ is a con-job.

Robert

Jan. 30, 8:39 a.m.

Lucy; exactly/

Steve Thompson

Jan. 30, 8:56 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.

Henry

Jan. 30, 9 a.m.

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, 9:01 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!

Matt Nielsen

Jan. 30, 9:02 a.m.

Yes, a RepubliCON job

No1Liberal

Jan. 30, 9:04 a.m.

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!

ebano hanyu

Jan. 30, 9:06 a.m.

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!

Jan. 30, 9:10 a.m.

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.

Javalos

Jan. 30, 9:15 a.m.

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.

jim kalember

Jan. 30, 9:15 a.m.

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.

janice

Jan. 30, 9:16 a.m.

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, 9:20 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

Andrew

Jan. 30, 9:20 a.m.

Predators.

liz

Jan. 30, 9:22 a.m.

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.”

kal Palnicki

Jan. 30, 9:22 a.m.

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

Jay S

Jan. 30, 9:22 a.m.

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.

Chase

Jan. 30, 9:25 a.m.

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, 9:26 a.m.

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

Jeff

Jan. 30, 9:29 a.m.

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.

Robert Smith

Jan. 30, 9:33 a.m.

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.

Craig

Jan. 30, 9:33 a.m.

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.

Wisc Bison

Jan. 30, 9:34 a.m.

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.

Jan. 30, 9:34 a.m.

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, 9:38 a.m.

OK, that does it. Jill Stien for president.

fred mac

Jan. 30, 9:44 a.m.

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

GIMP

Jan. 30, 9:46 a.m.

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.

James inman

Jan. 30, 9:47 a.m.

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.

Marja

Jan. 30, 9:47 a.m.

“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, 9:49 a.m.

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

Lou English

Jan. 30, 9:59 a.m.

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.

Dan

Jan. 30, 10:02 a.m.

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.

Robert

Jan. 30, 10:03 a.m.

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, 10:05 a.m.

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

Linda B

Jan. 30, 10:09 a.m.

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

Suzy

Jan. 30, 10:11 a.m.

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, 10:21 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.

gitda

Jan. 30, 10:28 a.m.

Git gubmint outta housing. Problem solved.

Bill Compton

Jan. 30, 10:30 a.m.

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.

Mark

Jan. 30, 10:34 a.m.

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..

Gamera

Jan. 30, 10:38 a.m.

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.

Zious

Jan. 30, 10:40 a.m.

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

Tony T

Jan. 30, 10:40 a.m.

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?

termpaper

Jan. 30, 10:43 a.m.

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.

Judith

Jan. 30, 10:44 a.m.

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.

Andrew

Jan. 30, 10:49 a.m.

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.

Eric

Jan. 30, 10:53 a.m.

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.

vivtorlove1

Jan. 30, 10:56 a.m.

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, 10:57 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.

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