ProPublica Muckrakes Fannie and Freddie’s Conflicts of Interest: I Say, “Tip of the Iceberg”

The following article ran in ProPublica, and it is followed by a call to action from the folks at the popular blog 4closurefraud—sign a petition to have Ed DeMarco removed  and replaced by interim appoitnment from the helm of the FHFA, for his work in actively advocating against homeowners, and against the central stated purpose of the FHFA

Senators Slam Freddie on Bets Against Homeowners

by Jesse Eisinger ProPublica, Feb. 9, 2012, 6:17 p.m.

Sen. Robert Menendez, D-N.J., had sharp words for Freddie Mac’s investment practices and conflicts of interest at a Senate Banking Committee hearing Thursday.

The senator’s concerns came in the wake of a ProPublica and NPR report that Freddie, the giant taxpayer-owned mortgage company, had made concentrated investments in complex mortgage securities that benefited from the inability of homeowners in high-rate mortgages to get refinancing. During the same period, Freddie also made it harder for people to get refinancing. Freddie said the decisions were separately made and that there was a firewall between them.

“I don’t understand why you make a bet that you can largely control the outcome of, and want your bet to lose,” Menendez said. “I think that’s against human nature, so I’m not quite sure these firewalls exist in a way that aren’t affecting policies. And that’s a problem.”

Speaking earlier to NPR, the senator called the investments “outrageous.”

The issue is heating up in Washington. On Tuesday, 10 senators sent a letter to Edward DeMarco, the head of the Federal Housing Finance Agency, the regulator that oversees Freddie Mac, calling the report “deeply troubling.”

“If the inability of homeowners to refinance their homes enhances Freddie Mac’s bottom line, this is especially troubling,” the letter said. “Freddie Mac exists to support the housing market, and it should not have a financial incentive to make it more difficult for struggling homeowners. Such actions by Freddie Mac are contrary to the best interests of American homeowners, sound economic policy, and its mission.” (Read the full letter.)

And the inspector general for the FHFA confirmed Wednesday that it is looking into Freddie Mac’s investments. “We currently have an open evaluation on capital markets, which encompasses this issue. We’ll know more when the evaluation is completed,” the government watchdog said.

Separately, Freddie Mac’s chief executive, Charles Haldeman, disputed the ProPublica and NPR story in a piece on the American Banker’s website.

“The major claim is that Freddie Mac worked against homeowners’ ability to refinance in order to boost the performance of specialized securities that make up roughly 1% of our investment portfolio,” Haldeman wrote. “This is just not true.”

He added: “The securities in question helped us protect the value of our investment portfolio and reduce our need for taxpayer support.”

ProPublica and NPR’s story did not actually claim that Freddie’s efforts to tighten mortgage standards were done to boost the investment value of its securities, called “inverse floaters.” The story reported that decisions to limit credit were made at the same time that the company ramped up its investments, but the story said there was no evidence that the two actions were coordinated. As the story noted, Freddie says there is a strict firewall between the two businesses.


Here’s what you can do about this, a call to action from 4closurefraud:

Ever heard of Ed DeMarco? Most people don’t know the name of the career bureaucrat who serves as Acting Director of the Federal Housing Finance Agency and oversees Fannie Mae and Freddie Mac. Between the two, Fannie and Freddie own or guarantee over half the mortgages in the country, making Ed DeMarco the most powerful man in housing.

DeMarco’s job is to do everything in his power to help Americans avoid foreclosure, but he has repeatedly sided with Wall Street and blocked requests from Congress and the Obama administration to help struggling homeowners by reducing principal on loans to fair market value.1

But here’s the good news: Next week, during Congress’s recess, President Obama has the opportunity to make a recess appointment and replace DeMarco immediately. Let’s ask the President to do just that.


Reducing principal on underwater mortgages to fair market value could create a million jobs and inject billions of dollars of badly needed revenue into the economy.2 Principal reduction has also been touted by economists and U.S. government officials as the best way to help homeowners who are underwater on their mortgages. With so much at stake, why is Ed DeMarco standing in the way of economic recovery and relief for struggling homeowners?

But it doesn’t end there.

A recent news investigation revealed that, under DeMarco, Freddie Mac invested billions of dollars in Wall Street securities that bet against homeowners’ ability to refinance their loans, while at the same time raising fees that made it harder for homeowners to refinance.

Let’s be clear: DeMarco isn’t just doing a bad job. He is actively working against the interests of American homeowners and the government’s efforts to help them. That’s an outrage, and it’s time for President Obama to replace him.

Can you sign the petition to President Obama to replace Ed DeMarco & replace him with somebody committed to helping families and communities?

2 thoughts on “ProPublica Muckrakes Fannie and Freddie’s Conflicts of Interest: I Say, “Tip of the Iceberg”

  1. In my opinion Freddie and Fannie, over the last decade, have become “subsidiaries” of the big banks, such as BOA, Mellon and JP Morgan/Chase, with a relationship similar to that of the banks and MERS.

    When a major news organization, like Fox, gets the chutzpah to let their viewers know that the “robo signing fraud” that is currently associated with countless bank foreclosures in America is just the tip of the iceberg, maybe a change may come. Then the world will see that those bank foreclosures have been on properties that the banks do not own. They are just the servicers for the creditors who, because of the securitzation process, and more fraud, have no idea which properties they purchased.


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