The Federal Housing Finance Agency (FHFA) offered a muted defense of Freddie Mac following a report by NPR and ProPublica that the government-sponsored enterprise had invested billions of dollars in betting against the ability of homeowners to refinance their mortgages.
In a statement released on its website, the FHFA explains that Freddie Mac ‘has historically used the structuring of collateralized mortgage obligations (CMOs) as a tool to manage its retained portfolio and to address issues associated with security performance.’ In this case, the FHFA adds, a CMO known as an ‘inverse floater’ was used in the transactions reported in the NPR-ProPublica news report.
‘For several reasons, Freddie Mac's retention of inverse floaters ceased earlier in 2011,’ the FHFA says. ‘Of Freddie Mac's $650 billion retained portfolio, only $5 billion is held as inverse floaters. A further assessment later in 2011 by FHFA supervision staff identified concerns regarding the controls, including risk management, surrounding the inverse floaters. FHFA supervision staff informed Freddie Mac in December of its preliminary examination findings, and FHFA and Freddie Mac agreed that these transactions would not resume pending completion of the examination work.’
Freddie Mac's perceived conflict of interest was raised yesterday during the White House press briefing. Jay Carney, White House press secretary, said the charges against Freddie Mac ‘certainly raise some concerns.’ However, he said that the matter should be studied ‘by an independent agency’ and added, ‘I believe Treasury is looking into it.’
The Department of the Treasury's website, however, made no mention of any current probe of the Freddie Mac story.