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At Freddie, We’re Helping Refis Happen — Not Holding Them Back

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I don’t respond to every allegation made against our company in the press. But a recent story rehashed several times by National Public Radio and ProPublica is so fundamentally at odds with the core values and practices of our 5,000 employees that I felt a response to correct the record was essential.

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. This is just not true.

Let me be clear. No company is more committed than Freddie Mac to ensuring that creditworthy borrowers can refinance their mortgages. And we’ve been successful in this effort.  From 2009 to 2011, refinances have made up almost 80% of our business.  We’re proud of our record – refinancing more than 4.3 million mortgages totaling $930 billion during these three years. We’ve also helped 575,000 families avoid foreclosure since the housing crisis began – to enable the housing sector and our broader economy to regain their footing. Helping people hold onto their homes is a vital part of Freddie Mac’s mission.  Any suggestion to the contrary is simply wrong.

What about the argument that Freddie Mac owns securities that are hurt by refinancings? Even though we reduced Freddie Mac’s investment portfolio significantly from $867 billion to $653 billion in less than three years, we continue to own a variety of mortgage obligations. The fact is that investors in mortgage securities are generally "hurt" by refinancings since the resulting proceeds must usually be re-invested at lower rates. But that doesn’t mean that holders of a mortgage security are "betting against struggling homeowners." Rather, such securities can have many different purposes. Here, the securities in question helped us protect the value of our investment portfolio and reduce our need for taxpayer support.

Moreover, there is nothing about these securities that could keep a borrower from refinancing. A borrower’s ability to refinance is solely based on their creditworthiness – not which security their current mortgage backs.

Encouragingly, several news publications and bloggers realized this was a story with fundamental flaws. Forbes – no Freddie Mac defender – highlighted the implausibility of the story’s main accusation, and detailed how a major market investor who was the key source of quotes for the story had an axe to grind. Housing Wire titled its story "The NPR witch hunt of Freddie Mac." One financial blog noted that by preserving cash, Freddie Mac’s security structure allowed for more loan origination.  American Banker quoted one of its financial markets sources saying, "to suggest they’re betting against homeowners is a giant stretch."  And it also ran a thoughtful opinion piece by Clifford Rossi titled “Freddie’s Hedging is Healthy,” which concluded that "if Freddie Mac is guilty of anything it may be…optics [that] look bad."

But as insightful as these favorable pieces are, they were a drop in the bucket compared to the damage done by the original story. In today’s world, the initial impact, the eyeballs, the re-Tweets, are almost all that matters.

So I ask that readers slow down and look at our record. They’ll see that by refinancing almost $1 trillion in mortgages over the last three years, Freddie Mac has been the nation’s second largest source of mortgage funding. Our purpose and our clear interest is to build on that record.  And that’s what we’ll continue to do, day in and day out, for America’s families and taxpayers.   

Charles E. "Ed" Haldeman, Jr. is the chief executive officer of Freddie Mac.

 

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Comments (3)
Ask how all these refinancings effect their massive interest rate swap positions.
Posted by Old School Banker | Thursday, February 09 2012 at 2:36PM ET
Anyone who has life issuance would understand Freddie's action. I buy life issuance for my wife. If she dies, I will benefit from the issuance. But in fact, my lose is priceless.
Posted by org06751451 | Friday, February 10 2012 at 4:41PM ET
I am sorry to be in disagreement with Mr Haldeman, but not everything is "peachy" with Freddie Mac.

During 2011, I was one of the millions of Americans with financial difficulties and a mortgage that was underwater. My wife lost her job in 2010, and we struggled to maintain our home that we bought in the summer of 2004. We have a small family with two lovely boys, and our options started to shrink with every passing day.

We tried to apply for the "making home affordable" program, but we were always discourage and diverted at every step of the way by Freddie Mac. I personally called many different numbers, and waited countless hours on hold, but the response was always the same: do you want to refinance?...no, I want to apply for the making home affordable program!

As a conscientious borrower, I cashed out all of my 401k ($50k in savings) in hopes of maintaining my home, and I used all of my savings to keep my payments current. We also had a $49k down-payment when we purchased our home, add that to the years of principal payments and you start getting the picture.

Our property was more than a house it was our home. We had a lot invested in our home, and we were not going to let it go due to our temporary misfortune. We always believed that things will get better, that this was just temporary, and we continue trying and calling Freddy Mac.

Sure, we received nice letters via mail informing us about our options, but when we called it was the same story. I wish I kept a log of all the calls that I made, and the time that I wasted over the phone, but my estimate is that I called upwards of 40 times with an average waste of one hour per call.

I must add that both my wife and I have a Bachelors in Accounting, and that I also hold a graduate degree from a prestigious university located in Southern California. We are both internet-savvy and consider ourselves to be in an average household.

Finally we got to the point that we couldn't afford a mortgage payment, and we hired a broker to help us with our short sale efforts. It is funny that in less than a month we received short sale offers for our home, and that after informing our bank that we had several offers, we received the making home affordable package from Freddy Mac (ironically 10 months after my first request for the package)

At the end, the bank only lost $10k on the principal and $50k on an equity line of credit. In our case, we lost our down payment, 401k savings, all principal payments, and our dream of having a house. We are currently renting and we want to avoid having to deal with a ruthless bank in a long while.

Dear Mr Haldeman, I wish that you treat all your future customers with dignity and respect, and that all available plans are offered at the time they are requested. I am sure that 99% of all American are a couple of months away from experiencing the same problems, if the situation presents itself.

Sincerely,

A former home-owner
Posted by John D | Saturday, February 11 2012 at 11:29AM ET
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