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.