Washington - In the wake of an investigation by NPR and ProPublica that alleges Freddie Mac "placed multibillion dollar bets that pay off if homeowners remain in expensive mortgages with above-market interest rates," U.S. Senator Robert Menendez today called on the Inspector General for the Federal Housing Finance Agency (FHFA), which oversees Freddic Mac and Fannie Mae, to fully examine transactions of both Freddie Mac and Fannie Mae, as well as FHFA's role in the transactions as the regulator of Fannie Mae and Freddie Mac.
In a letter to Inspector General Linick, Menendez, who is Chairman of the Senate Subcommittee on Housing, Transportation, and Community Development, outlined a series of questions about the potential conflict between Freddie Mac's investments and their core mission to make homeownership more accessible.
"If Freddie Mac stood to benefit from homeowners being trapped in above-market interest rates, are such transactions consistent with their mission?" Menendez wrote.
Full text of the letter below.
January 31, 2012
The Honorable Steve A. Linick
Federal Housing Finance Agency
400 7th Street, SW
Washington, DC 20024
Dear Mr. Linick:
As Chairman of the Senate Subcommittee on Housing, Transportation, and Community Development, I write to you today following the disturbing ProPublica/NPR news report from January 30th, 2012, alleging that Freddie Mac had essentially placed multibillion dollar bets that pay off if homeowners remain in expensive mortgages with above-market interest rates.
The article alleges that Freddie Mac began increasing these bets "dramatically" in late 2010 and early 2011, which is "the same time that the company was making it harder for homeowners to get out of such high-interest mortgages." Several lawmakers, myself included, also pushed both Freddie Mac and Fannie Mae to expand their refinancing programs. While it is unclear if Freddie Mac's transactions and their unwillingness to refinance loans for struggling homeowners are connected, these allegations must be thoroughly investigated.
Obviously, the allegations in this article are extremely alarming and raise several other important questions. As Freddie Mac's regulator, what was FHFA's role in these investments? What was the extent of their knowledge prior to and during these transactions? According to press reports, the agency said yesterday it "had identified concerns" surrounding these transactions but does not clarify whether they were resolved or even addressed. What were those concerns and were they resolved? If Freddie Mac stood to benefit from homeowners being trapped in above-market interest rates, are such transactions consistent with their mission? And are firewalls between different groups sufficient to prevent conflicts of interest with the homeowners that Freddie is supposed to help?
I recognize that Freddie Mac is ultimately accountable to American taxpayers, but I have to believe that accountability can be achieved without hurting American homeowners and continuing to devastate the American economy. I simply do not believe these goals are mutually exclusive.
Finally, this raises the larger question of what other transactions may have been conducted at either Freddie Mac or Fannie Mae that are inconsistent with their mission or would run against the interest of homeowners? I respectfully request that you consider opening an investigation into these transactions to ensure that they are consistent with homeowners' interests.
I would strongly urge the FHFA Office of Inspector General to systematically examine transactions of both Freddie Mac and Fannie Mae, as well as FHFA's role in these actions. With the Government Sponsored Enterprises in conservatorship and being kept afloat by American taxpayers, and FHFA both their regulator and conservator, a full accounting of their actions is necessary.
Thank you for your attention to this important matter. Please do not hesitate to contact me if I can be of further assistance.
United States Senator