Fannie Mae, Freddie Mac Shown as Mortgage Market Predators

rcwhalen's picture

Got an interesting note from Chris on the Berlin-DC-LA mortgage thread this AM.  Confirms my view that the housing GSEs are feeding off lower income borrowers.  -- Chris

Thought you might be interested in the latest news that Freddie Mac bet against Refis.  Seems like more scandals at the GSEs; just what we didn't need.

This morning, NPR and ProPublica, began reporting on financial transactions at Freddie Mac that bet against homeowner refinancing with their portfolio.  I think that there are a number of important policy implications of this story, not the least of which is pushing hard to separate the GSEs from their portfolios and move toward reducing their oversized influence in housing finance.

These transactions are not only against the public interest, but are in violation of their mandate to reduce risk.  Even worse, these transactions create derivative securities that are hard to sell or unwind, so that they make it more difficult to privatize the GSEs. FHFA approved differences in lending standards for the two institutions, which also moves against common standards and privatization.

Here is a link at ProPublica (http://www.propublica.org/article/freddy-mac-mortgage-eisinger-arnold) and

NPR (http://www.npr.org/2012/01/30/145995636/freddie-mac-betting-against-stru...)

Professor Tony Sanders at GMU put it well: "Face it, Fannie Mae and Freddie Mac are like dinosaurs from Jurassic Park.  They will fight to survive. And you can't control them!"