January 31, 2012
After a bailout in 2008, tax payers like you and me own Freddie Mac, a government-sponsored enterprise that exists to work with mortgage lenders to help citizens get lower housing costs and a better opportunity for home financing. However, a National Public Radio and ProPublica exclusive report on Monday, January 30th, discovered that Freddie Mac, in an attempt to make additional money and potentially hedge itself, has invested in securities that benefit from higher mortgage payments. This is simply an act of betting against the very the purpose it stands for.
What does this mean?
With financing rates at a historic low, homeowners across the nation are looking to benefit through refinancing their home mortgages. Freddie Mac should be fulfilling its mission of making (or keeping) more homeowners by being a resource for refinancing. Instead, it is betting on mortgages with high-interest rates not being refinanced - an exact opposite of its mission statement. So now, either Freddie Mac will attend to its own interests and act to prohibit homeowners from attaining lower borrowing costs, or Freddie Mac will act in accordance with its mission and lose money on its in-house investments!
Should a government entity be betting against the very purpose for which it exists?
(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp. The author's opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).