When the government owns or controls more of the economy, different parts of the government start working against each other.
Freddie Mac has an incentive to reduce its losses and its taxpayer bailouts.
The wider economy has an interest in the housing market rebounding.
These two goals are in conflict as the following report outlines.
AFP reports: WASHINGTON — US-owned mortgage giant Freddie Mac is holding billions of dollars in investments that only pay off if homeowners remain locked into high interest rates, a media investigation has found.
The report by the ProPublica website and National Public Radio on Monday said the mortgage giant began dramatically increasing such bets in 2010 at the same time it was making it more difficult for homeowners to refinance.
It said the trading arm of the firm is in theory “walled off” from its housing finance activities, which by government charter are to be directed at making home loans more accessible.
The Federal Housing Finance Agency (FHFA), which supervises Freddie, said in a statement to ProPublica that it had ordered a halt to such investments — known as “inverse floaters” — in December, following an internal assessment.
The assessment “had “identified concerns regarding the controls, including risk management,” it said in a statement published in full by ProPublica.
The statement said inverse floaters make up $5 billion out of a portfolio of $650 billion, and did not have any impact on its refinance program.