Mortgage Daily Logo

OIG Says No Conflict of Interest in Freddie’s Hedging

Mortgage News

The Federal Housing Finance Agency Office of Inspector General has dispelled claims the Federal Home Loan Mortgage Corp. was making bets to profit when borrowers were unable to refinance.

The allegations about collateralized-mortgage obligation trades were first made in a January story co-published by ProPublica and National Public Radio.

Inverse floaters enabled Freddie Mac to use the CMO structure to finance mortgages from smaller sellers and to sell portfolio loans, FHFA said at the time.

But the news story said that the transactions gave Freddie an incentive to keep borrowers in high-rate mortgages.

FHFA noted that Freddie stopped retaining inverse floaters in December 2011, though ProPublica claims that the practice continued until January 2012.

At the request of Sen. Robert Menendez (D-N.J.), the inspector general conducted its own investigation and found nothing wrong with what Freddie was doing.

“FHFA-OIG uncovered no evidence that FHFA or Freddie Mac obstructed homeowners’ abilities to refinance their mortgages in an effort to influence the yields of the inverse floating-rate bonds that the enterprise retained in its investment portfolio,” the inspector general’s report stated. “Inverse floaters represent a small portion of Freddie Mac’s capital markets portfolio.

“To the extent that a tension exists between Freddie Mac’s refinancing and investment policies, inverse floaters are no more likely to adversely impact mortgage holders or discourage borrower refinancing than any of the mortgages or other assets that Freddie Mac holds for investment.”

The report noted that Freddie has an “information wall” in place to prevent its capital markets business from using non-public refinance information to make investment decisions. No evidence indicates that the “information wall” has been breached.

The inspector general recommended ongoing supervision of Freddie’s hedging activity.

But ProPublica reporter Cora Currier wrote today that the inspector general didn’t evaluate the information firewall.

“The inspector general relied on the word of employees it interviewed and conducted no further investigation,” Currier wrote. “It also reported that the agency that oversees Freddie has not tested the firewall’s integrity.”

ProPublica cited a statement from Freddie to the Securities and Exchange Commission indicating that selling floating rate securities enabled it to reduce its balance sheet. But most of the officials from Freddie and FHFA who were interviewed by the inspector general said that reducing its balance sheet was not the motivation for Freddie to create inverse floaters.

Related Posts

NewDay USA CEO Rob Posner Expects 10% Increase in 2019 Mortgage Loan Volume

There is No Such Thing as a Free House …

Over the past several years, those who service loans in the State of Washington(1) have seen a dramatic rise in the number of lawsuits in which delinquent borrowers seek to quiet title to their homes on the grounds that lenders are barred from foreclosing based on...

NewDay USA CEO Rob Posner Expects 10% Increase in 2019 Mortgage Loan Volume

The Mortgage Graveyard 2018 Archives

The Mortgage Graveyard 2018 Archives Failed, Struggling and Acquired Mortgage-Related Companies Non-Bank Closures 3 Bank Failures (FDIC) 0 Credit Union Failures 0 Total Mortgage-Related Failures 3  

NewDay USA CEO Rob Posner Expects 10% Increase in 2019 Mortgage Loan Volume

MBS Statistics

MBS Statistics Non-Agency Issuance 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 Private Label RMBS Issuance (S&P) $80 billion to $100 billion (est) $70 billion $34...

NewDay USA CEO Rob Posner Expects 10% Increase in 2019 Mortgage Loan Volume

Sample E-Mail

Sample E-Mail   Covering the Real Estate Finance Since 1999  Mortgage Industry News free news content | view headlines online  Advertorial Text Ad This ad includes a linked bold headline of up to 50 characters and up to 100 words of text. The ad can be...

Popular posts

How Long Does It Take to Refinance a Mortgage
How Long Does It Take to Refinance a Mortgage

So, you’re interested in refinancing your mortgage. Maybe you want some extra capital to do that home project you’ve always dreamed of, interest rates are nearing record lows, or you want to start consolidating debt. Regardless of the motivation behind the refinance,...

How Does Refinancing a Mortgage Work
How Does Refinancing a Mortgage Work

A home purchase is considered an investment, and a robust one at that. Savvy owners are constantly looking for new ways to reduce debt, save money, pay less in interest, and ultimately build equity. Refinancing is one way to leverage your investment and do just that....

What Does It Mean to Refinance Your Home
What Does It Mean to Refinance Your Home

You can think of refinancing your mortgage as a debt redo. Essentially, you’ll swap out the existing loan for a new one - ideally with better terms and conditions. Only this time it could help you save money on high mortgage payments, rather than just borrow it....

Setting up the Utilities in My New House
Setting up the Utilities in My New House

All the tedious, time-consuming home closing documents have been signed, sealed, and delivered. Your belongings are packed into what seems like a million boxes and you have a solid plan to haul all your existing furniture to the new place. Just as your boxes and...

When Is My First Mortgage Payment Due?
When Is My First Mortgage Payment Due?

Navigating your way through a brand new mortgage loan can be a difficult task, especially for first time homeowners. After handing over a large sum of money for the down payment and closing costs, it’s important to pay attention to the timing of your first mortgage...

Newsletter

Don’t worry, we don’t spam

calculate your monthly mortgage payment

Related Topics

Helpful Links

Daily mortgage rate trends

Best mortgage lenders

First-time homebuyers programs by state

Loan limits by state

Types of mortgages

APR vs interest rate

Understanding PMI