"Freddic Mac Has Been Betting On Itself for Years"
Washington, February 1, 2012 – Reports this week that Freddie Mac “bet against homeowners” by buying “billions worth of complex mortgage-backed securities that profit if borrowers stay trapped in high interest rate home loans” squares with Freddie Mac’s history of favoring profits over its housing mission, according to the National Association of Affordable Housing Lenders (NAAHL).
In their story, “Freddie Mac Betting Against Struggling Homeowners, January 30, 2012” National Public Radio and ProPublica reported that in 2010 and 2011, Freddie Mac invested in MBS that were designed to generate “more money for Freddie Mac when homeowners in higher interest-rate loans were unable to qualify for a refinancing.”
“I wasn’t shocked to read that Freddie Mac ‘bet against homeowners’, since that’s been part of its business model for a long time,” said NAAHL President and CEO Judy Kennedy. “In fact, in pursuit of profits, Freddie Mac, and its GSE counterpart Fannie Mae, helped finance billions in high-cost subprime and Alt-A mortgages during the housing boom that later helped crater the housing market.”
This GSE story goes back to 1992, when Congress allowed Freddie Mac and Fannie Mae to “take less than the return earned on other activities” to finance mortgages for average income homebuyers. Instead, they took advantage of borrowers and extracted more of a return by pumping capital into a higher-cost, unregulated subprime market, the implosion of which did play a significant role in the housing bust.
• The Washington Post (“How HUD Mortgage Policy Fed the Crisis, June 10, 2008”) documented that the GSEs issued over $550 billion in GSE debt to finance higher-cost, higher yielding subprime mortgages, borrowing at near-Treasury rates to finance half of all subprime mortgages originated in 2003-2006. The companies then loaded up on other high-yielding Alt-A mortgages in 2007.
• Fannie Mae and Freddie Mac themselves have reported that one-third to one-half of subprime mortgage borrowers could have qualified for safer, lower-cost prime loans. Instead of helping families buy homes with responsible, conventional mortgages, the GSEs effectively financed at least 40 percent of all subprime and Alt-A mortgages.
“It’s very clear that Freddie Mac, and Fannie Mae, deliberately chose “margin” over “mission” right up until their 2008 conservatorship, and at least in Freddie Mac’s case, beyond.”
NAAHL 2012/NAAHL GSE Press Release February 2012.pdf