When Freddie Mac Wins, Homeowners Lose

Tuesday, January 31, 2012

For those who purchased a home between 2003- 2009, they owe it to themselves to talk with a Realtor about the ins and outs of a short sale, says Chris White, and here's why...

"Freddie Mac, a taxpayer-owned mortgage company, is supposed to make homeownership easier. One thing that makes owning a home more affordable is getting a cheaper mortgage. But Freddie Mac has invested billions of dollars betting that U.S. homeowners won't be able to refinance their mortgages at today's lower rates, according to an investigation by NPR and ProPublica, an independent, nonprofit newsroom", according to National Public Radio.

White is very concerned for his clients and these investments, while legal, raise concerns about a conflict of interest within Freddie Mac.Freddie Mac, formally called the Federal Home Loan Mortgage Corp., was chartered by Congress in 1970. Their website says it has "a public mission to stabilize the nation's residential mortgage markets and expand opportunities for homeownership."

Owned by U.S. taxpayers  and overseen by a regulator, the Federal Housing Finance Agency (FHFA). Charles Haldeman,  Freddie's chief executive, assured Congress his company is "helping financially strapped families reduce their mortgage costs through refinancing their mortgages."

Oh really?, Chris White asks.  Public documents show that in 2010 and 2011, Freddie Mac set out to make gains for its own investment portfolio by using complex mortgage securities that brought in more money for Freddie Mac when homeowners in higher interest-rate loans were unable to qualify for a refinancing.

This makes for a major conflict when Freddie Mac's own financial health improves when homeowners can't refinance.

Here's why when homeowners lose, Freddie Mac wins:  in 2010 and 2011, Freddie didn't just hold a simple pile of loans. Instead, for hundreds of thousands of home loans, it used Wall Street alchemy to chop these loans up into complicated securities — slices of which were sold in financial markets.
For some homeowners underwater with their mortgage it's impossible to refinance because the new appraisal will show the home to be worth less than what is owed.

The writing on the wall is that for some the only way out is to perform a short sale. For those who purchased a home between 2003- 2009, they owe it to themselves to talk with a Realtor about the ins and outs of a short sale.