To appreciate this concern, it's crucial to understand Freddie's and Fannie's business. The existence of the memo raises a question of whether Freddie ignored that instruction from its regulator. In a brief email to ProPublica, he disputed a quotation attributed to him but did not comment on the substance of the internal debates. It also minimized the costs to the company of trapping homeowners in mortgages with interest rates so high they would eventually default. "The board's view was you could decide to categorize it or ignore it but couldn't say it didn't exist. A more aggressive refi program by both Freddie and its sister company Fannie Mae would have helped an additional nine million homeowners to refinance, saving them nearly $75 billion in interest payments to date, Columbia University housing economist Christopher Mayer estimates. Freddie continued to hinder refinancings through a late 2011 relaunch of HARP designed to further slash refi costs and paperwork. So banks avoided a wide swath of homeowners whose loan-to-value ratio was near 80 percent. Wisdom did not respond to requests for comment. "I don't think we ever had a discussion of whether this was good for a Democratic administration." The ultimate backer of that original loan — in this case Freddie or Fannie — takes a loss because the loan was "pre-paid," meaning it was paid off earlier than expected. The new CEO, Donald Layton, has made it clear that making changes to the company's refi program is "a major priority," the spokesman said. These companies are also known as Government Sponsored Enterprises, or GSEs. Freddie officials wanted to protect the company's bottom line and some sought to nix a backdoor economic stimulus.
Jesse Eisinger is a senior reporter and editor at ProPublica.Get our investigations delivered to your inbox with the Big Story newsletter.Thank you for your interest in republishing this story. "We were adding barriers to the homeowner," says the Freddie executive. Freddie Mac was established by Congress in 1970 to provide liquidity, stability and affordability to the nation's residential mortgage markets.
The consequence: Homeowners stayed trapped in high-rate loans. That wasn't the only restriction. It is one of several government-sponsored enterprises (GSEs) established since the early 20th century to help reduce the cost of credit to various borrowing sectors of the economy. The main difference between the two comes down to the source of the mortgages they buy: Fannie Mae buys mortgage loans from major retail or commercial banks, while Freddie Mac obtains its loans from smaller banks, often called thrift banks or savings and loan associations, that are focused on providing banking services to communities. According to interviews, these officials feared that mass refinancing would hurt the company's bottom line and therefore its ability to repay taxpayers, who had bailed out Freddie and Fannie in 2008 to the current tune of In a letter to Sen. Robert Menendez (D-NJ) in May, DeMarco wrote that "FHFA specifically directed both [Fannie and Freddie] to exclude from consideration changes in their own investment income as part of the HARP evaluation process." The Obama administration and the Federal Housing Finance Agency (FHFA), which oversees Fannie and Freddie, didn't fix HARP for years. Federal Home Loan Mortgage Corp (FHLMC) is a stockholder-owned, "Almost immediately after taxpayers bailed them out, Fannie and Freddie imposed unprecedented restrictions on refinancing, preventing millions of people from saving money on their mortgages and leaving hundreds of thousands of people to lose their homes unnecessarily," says Mayer. "Freddie is the party of 'no.' he said. Fannie Mae and Freddie Mac. With this funding advantage, it issues large amounts of debt (known in the marketplace as agency debt or agencies), and in turn, purchases and holds a huge Freddie Mac doesn't originate or service home mortgages, but rather buys loans from mortgage lenders, freeing up their capital for more lending.
But as the portfolios grew in the years leading up to the financial crisis, the tail began to wag the dog. Many people believe that the size of the retained portfolio—as well as the complexities of managing mortgage risk—pose a great deal of Freddie Mac has done more than 284,000 HARP refis this year through August, compared with 185,000 for all of last year. When the program was overhauled late last year, Freddie retained more restrictions than Fannie, puzzling many housing experts. The FHFA was frustrated when Freddie Mac announced its guidelines in November 2011 because they restricted refis more tightly than Fannie's did. Fannie Mae and Freddie Mac were created by Congress to "provide funding to mortgage lenders by purchasing their mortgages and then holding them or selling them to investors in the form of securities that they guarantee." It also raises the question of why FHFA did not act immediately to prevent Freddie from imposing its tighter rules. Wisdom criticized the refi program, saying that it was "policy, not business," according to the executive.
1970 Freddie Mac created to provide competition in the secondary mortgage market and end Fannie Mae’s monopoly.
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