How would you like it if your bank made more money when you couldn’t pay your mortgage or if they refused to refinance you, than they would make if you could make your payment and refinance? Essentially NPR and ProPublica have pointed out that Freddie Mac made investments in certain types of securities that can be interpreted like that.
Various news agencies have reported that “When Homeowners Lose, Freddie Mac Wins” under these types of investments. Other agencies, most notably, Forbes, has pointed out that these investments are not abnormal and reasonable. They pointed out that less just over 1 half of 1 percent of Freddie Mac’s portfolio was used to purchase these investments. Forbes even references the investments made by Orange County in 1994 that led to OC’s bankruptcy.
At first glance it’s shocking to believe that the same agency that is supposed to help homeownership would make these kind of bets. I believe it would be is a conflict of interest if there we actually betting against homeowners. I’m not a bonds trader or investment banker and I don’t understand all the lingo that I find in the articles I’ve read, but it sounds like it was a bet against interest rates going up and not against homeowners directly.
What do you think???
Links to Various Articles: