Freddie Mac Bets Against Homeowners and Refinancing

Written By: Emil FleysherMarch 4, 2012, ,

A new report claims that Freddie Mac betrayed American homeowners. That is after placing multibillion-dollar bets that will pay off if homeowners remain shackled by costly mortgages with interest rates well above current rates. Interest rates now reach as high as seven percent. The company does not want borrowers to default on their mortgages. However, it’s also not in its best financial interest to have them shift to less expensive mortgages. This is because when borrowers refinance, they pay off their first loan early, and Freddie loses the interest payments.

As the economy declined, interest rates plunged and millions of homeowners sought refinancing. But, they were unable to qualify for lower rates because lenders rejected them. Freddie Mac was one of those lenders which prevented homeowners from refinancing, while at the same time betting against the possibility of their being able to do so. The fact that Freddie Mac’s financial health strengthens when homeowners can’t refinance their homes creates a conflict of interest.

Essentially, Freddie Mac has prevented households from being able to take advantage of today’s mortgage rates. This seems drastically out of line with their mission and out of line with what Congress wanted them to do.

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