NPR and ProPublica on Monday released the results of their “investigation” into the operations at Freddie Mac.
And through this exhaustive detective work they’ve shockingly found the government-sponsored enterprises securitize mortgages. Or, as NPR puts it, uses “Wall Street alchemy.”
Who in their right mind would try to counter NPR and ProPublica articles that clearly depict the evil mortgage market behemoth undercutting homeownership initiatives and doing the unthinkable: Trying to earn money for bond investors?
Hate to say it NPR and ProPublica, but the same thing is happening at Ginnie Mae and Fannie Mae, and just about everywhere a home is bought, sold and financed.
But not in the trite, bombastic language that now dominates mortgage finance news.
The biggest tell of this witch hunt is the lack of new evidence to back the claims of NPR and ProPublica. Yes, Freddie Mac securitizes loans. Yes, Freddie Mac doesn’t sit on those loans.
Also, Freddie Mac once more freely allowed lending to homeowners. That landed it basically where it is now. More glaring, however, is the lack of mention of prepayment risk.
Even more importantly, the very federal conservatorship status that both Fannie and Freddie are under is designed to protect their assets. That means keeping performing loans right where they are — in a position that most efficiently monetizes loans for investors.
It should probably also be mentioned, too, how large of an investor the United States of America is in Freddie Mac.
As for the expert sources placed in the article, well let’s just say, like most people in the secondary mortgage market who will speak to the press, they are not the biggest fans of the GSEs.
While NPR does not reveal the research showing Freddie Mac actively denying mortgage refinancings, here are some interesting tidbits.
The Federal Reserve Bank of New York, acting on behalf of the Treasury, currently holds $835.6 billion of Fannie, Freddie and Ginnie mortgage-backed securities.
Looking at that chart, the breakdown of Freddie Mac, 30-year mortgage bonds show a heavy preference to homeowners at 5% or lower. There is about $9 billion of mortgages at interest rates higher than that. By way of comparison, the Fed holds $275 billion in lower coupon notes.
Looks like one of the largest Freddie Mac investors, the U.S. government, is pretty confident in low-interest Freddie bonds.
So, it’s too bad the only thing NPR provides is a hypothetical where Freddie Mac is this standalone bad guy in the mortgage finance market.
I would like to see more proof that Freddie is engaged in some sort of big conspiracy.
Because, the way NPR makes it look, Freddie Mac is simply engaged in mortgage finance capitalism. Warts and all.
Write to Jacob Gaffney.
Follow him on Twitter @jacobgaffney
