TABACCO: If Private, Capitalist, Corporate Freddie Mac BETS against the very Homeowners with high interest rate Mortgages It is supposed to be overseeing with its political contacts and political power, what do you think Freddie Mac is supporting and working for – those Homeowners (Clients) or its own Bets?
What is the terminology applied to Entities, which work in opposition to those Beneficiaries they are empowered to oversee? Vested Interests, Conflict of Interests, Insider Trading, Felonies, Corruption, Fraudulence, Malfeasance, Lobbying, Politics, Gangsterism, Abuse of Power, etc. etc.
And which Republican Presidential Candidate was paid Big Buck$ as Political/Financial Advisor to Freddie Mac? C’mon, you Newt it yesterday!
“Helping American Business To Thrive” is the EXCUSE!
“Permitting Corporate Malfeasance To Prosper” is the REASON!
YOU MUST NEVER CONFUSE AN
EXCUSE WITH A REASON!
NOW FOR THE
MEAT & POTATOES!
Report: Freddie Mac Bet Against American Homeowners
An investigation by ProPublica and NPR News has revealed Freddie Mac, the taxpayer-owned mortgage giant, has placed multi-billion-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.
Freddie Mac Bets Against American Homeowners
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This story was co-published with NPR News.
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The State of the Government’s Loan Modification Program
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’
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.
TABACCO: The Freddie Mac foreseen and preordained Roadblock to facilitate their own “Bets”! Sounds a lot like the Medical Insurance Industry’s “Preexisting Conditions” exclusion, doesn’t it! Corporations don’t “invent” New Dodges, they just RECYCLE the Old ones! And you thought DEREGULATION was a GOOD THING!??
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.
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.
TABACCO: In making their Scams both unsexy and thoroughly complicated, Corporate Scam Masters prevent both the Major Media and the Trivial Pursuit Public from even being interested in these Machinations! Even if you know, you don’t understand! And even if you understand, you won’t care!
21st Century White Collar Criminals are MASTERS OF GROUP PSYCHOLOGY!
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’s in charge of the company’s investment portfolio, made $2.5 million in 2010, and he had target compensation of $2.6 million for last year, when most of these leveraged investments were made.
One of Federico’s responsibilities — tied to his bonuses — is 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.
Freddie Mac hired Gingrich as it reshaped strategy
(Reuters) – Within months after taking over as chief lobbyist at mortgage lender Freddie Mac in 1999, Mitchell Delk hired a prominent Washington insider to advise him on how to build support among conservatives on Capitol Hill: Newt Gingrich, the former speaker of the House of Representatives.
A key part of Delk’s strategy, as outlined in Federal Election Commission records, was to build goodwill in Congress by holding fundraising events for influential members of House and Senate committees that had oversight of Freddie Mac.
Gingrich had experience in such matters as an architect of GOPAC, one of the Republican Party’s most important political action committees.
Gingrich’s activity at Freddie Mac has been under scrutiny during his run for the 2012 Republican presidential nomination, as rivals have accused him of lobbying for Freddie Mac.
The former speaker has rejected such allegations, and his first $300,000-a-year contract with Freddie Mac, released this week by his campaign, states that he would not “engage in lobbying services of any kind.”
But the contract, together with the FEC records describing Delk’s revamping of Freddie Mac’s lobbying shop, sheds light on how Gingrich could avoid the lobbyist label and still be valuable to the mortgage lender as a strategist.
Gingrich’s contract says the former House speaker would work with Delk and other Freddie Mac officials on “strategic planning and public policy.”
And, it calls on Gingrich to contribute to the lender’s “corporate planning and business goals.”
“He was a consultant for us, and … not a lobbyist,” Freddie Mac spokesman Doug Duvall said, declining to comment further on the lender’s arrangement with Gingrich.
Gingrich’s campaign has offered few specifics about his work for Freddie Mac, for which he earned as much as $1.8 million during two contract periods. It said late last year that part of his job was to help Freddie Mac build bridges to conservatives.
He has called himself a “historian” who advised the mortgage lender on issues such as its lending policies.
Gingrich joined Delk’s government affairs shop at a time when the former Freddie Mac senior vice president was hiring several former members of Congress and congressional aides for his lobbying team.
At the time, conservative Republicans on Capitol Hill were seeking regulations to rein in the profits of government-sponsored lenders such as Freddie Mac.
Delk, who did not respond to phone calls seeking comment, successfully fought back against such legislation by hiring dozens of outside consultants and spending as much on lobbying as many major corporations.
However, his lobbying team came under investigation by the FEC in 2003.
The FEC probe found that under Delk’s guidance, Freddie Mac improperly used corporate resources to put on 85 fundraising events that raised about $1.7 million for federal candidates.
The majority of the events were for Republicans, the FEC found.
FEC investigators concluded that at least one major contribution to a Republican entity came directly from Freddie Mac funds and that some fundraisers were held in Freddie Mac’s offices – both violations of FEC rules.
In 2006, Freddie Mac agreed to a $3.8 million settlement for violating federal election rules, the largest civil fine the FEC had ever levied.
Delk, who resigned from Freddie Mac in 2004, was not charged in the case. Delk’s lawyer in the case, Ken Gross, said Gingrich’s name “never came up in connection with (the FEC) case.”
Vin Weber, a former Republican representative from Minnesota who also was hired as a Freddie Mac consultant, said he never worked directly with Gingrich on Freddie Mac matters.
He said the mortgage lender did not want congressional arm-twisting but hoped to “create a positive buzz for Freddie Mac.”
Weber said someone like Gingrich could provide an important service without lobbying.
“I wouldn’t ask him to pick up the phone (to call a member of Congress), because that is really not necessary. He is circulating all the time with members of Congress,” said Weber, who is supporting Mitt Romney in this year’s race for the Republican presidential nomination.
Former New York Representative Susan Molinari, another Romney supporter, also was hired by Freddie Mac during Delk’s tenure. She did not return phone calls or emails.
Republican Michael Oxley, who was House Financial Services Committee chairman and attended at least 19 Delk fundraisers, said that at the time he did not know Gingrich worked for Freddie Mac.
Oxley “may have seen him from time to time at a social thing,” said Peggy Peterson, a spokeswoman for Oxley.
Gingrich signed a second contract with Freddie Mac in 2006. The lender ended its relationship with outside consultants in 2008, when the U.S. Treasury placed Freddie Mac and Fannie Mae in conservatorship.
Republicans have blamed the government-sponsored lenders, which sustained $14.9 billion in losses when the U.S. housing market crashed, for a major role in the subprime lending crisis.
(Additional reporting by Margaret Chadbourne; editing by David Lindsey and Mohammad Zargham)
TABACCO: If you decide to consult CNN on this story to get their “viewpoint”, good luck! CNN is much too busy running the on-going, Trivial, Gossipy hour-after-hour, day-after-day, week-after-week, month-after-month, year-after-year Republican Presidential Primaries and concomitant political backbiting to concern itself with Relevancies & Essentials for the American Public. And, let’s not forget, this story is neither sexy nor simplistic to boot.
Did I mention that CNN is owned by Have-More Capitalists just like Freddie Mac is – you didn’t think the owners and investors were Middle Class working folks, now did you!
Tabacco: I consider myself both a funnel and a filter. I funnel information, not readily available on the Mass Media, which is ignored and/or suppressed. I filter out the irrelevancies and trivialities to save both the time and effort of my Readers and bring consternation to the enemies of Truth & Fairness! When you read Tabacco, if you don’t learn something NEW, I’ve wasted your time.
Tabacco is not a blogger, who thinks; I am a Thinker, who blogs. Speaking Truth to Power!
In 1981′s ‘Body Heat’, Kathleen Turner said, “Knowledge is power”.
T.A.B.A.C.C.O. (Truth About Business And Congressional Crimes Organization) – Think Tank For Other 95% Of World: WTP = We The People