Tag Archives: Freddie Mac

Housing Bust Is Over! Not So Fast.

The housing experts, Ben Bernanke, the Obama administration, and the Wall Street Journal all want us to believe that the housing market has turned—at last.


The next thing out of his mouth will be Quantitative Easing, Round 3.

Headlines like this are in the news this week: “The U.S. finally has moved beyond attention-grabbing predictions from housing “experts” that housing is bottoming. The numbers are now convincing.”

And this: “Nearly seven years after the housing bubble burst, most indexes of house prices are bending up. “We finally saw some rising home prices,” S&P’s David Blitzer said a few weeks ago as he reported the first monthly increase in the slow-moving S&P/Case-Shiller house-price data after seven months of declines.”

Housing starts rose 6.9 percent to a 760,000 annual pace after a revised 711,000 rate in May that was faster than initially estimated, the Commerce Department reported today in Washington. The median forecast of 79 economists surveyed by Bloomberg News called for a 745,000 rate. Which means they were off by 2%. I don’t think this grounds for celebration.

Nearly 10% more existing homes were sold in May than in the same month a year earlier, many purchased by investors who plan to rent them for now and sell them later, an important sign of an inflection point. In something of a surprise, the inventory of existing homes for sale has fallen close to the normal level of six months’ worth despite all the foreclosed homes that lenders own. The fraction of homes for sale that are vacant is at its lowest level since 2006. Which means nothing since the 2006 number was normal, and banks have been holding on to property that they have foreclosed in order to not flood the market and drive up inventory.

In other words, these numbers are completely manipulated by the banking industry in an attempt to normalize the markets.

“Even with the overall economy slowing,” Wells Fargo Securities economists said, cautiously, in a note to clients, “the budding recovery in the housing market appears to be gradually gaining momentum.”

Housing is still far from healthy despite the Federal Reserve’s efforts to resuscitate it by helping to push mortgage rates to extraordinary lows: 3.62% for a 30-year loan, according to Freddie Mac‘s latest survey. Single-family housing starts, though up, remain 60% below the 2002 pre-bubble pace. And, by the way, try qualifying for a mortgage these days. Ha!

Americans‘ equity in homes is $2 trillion, or 25%, less than it was in 2002 and half what it was at the peak, in 2006. More than one in every four mortgage borrowers still has a loan bigger than the value of the house, though rising home prices are reducing that fraction very slightly.

Still, the upturn in housing is a milestone, a particularly welcome one amid a distressing dearth of jobs. For some time, housing has been one of the biggest causes of economic weakness. It has now—barely—moved to the plus side. “A little tail wind is a lot better than a headwind,” says economist Chip Case, the “Case” in Case-Shiller.


From here on, housing is unlikely to be the leading drag on the U.S. economy. It will instead reflect the strength or weakness of the overall economy: The more jobs, the more confident Americans are about keeping their jobs, the more they are willing to buy houses. “Manufacturing had led growth and construction had lagged,” JPMorgan Chase economists said last week. “Now the roles are reversed: Manufacturing growth has slowed as private construction comes to life.”

Unfortunately, as we see fewer jobs, all of the new construction will result in a huge inventory of new homes and further bloat an already bloated market.

The biggest threat is that large shadow inventory of unsold homes, homes which owners won’t put on the market because they are underwater, homes that will be foreclosed eventually and homes owned by lenders. Another threat is the holdback that the banks have been managing around homes already in foreclosure, so as to not flood the market. They have been trickling onto the market, slowed in part by government efforts to delay foreclosures; a flood could reverse the recent rise in prices. Or the still-dysfunctional mortgage market could get even worse. 

Don’t believe what you read, folks. The housing bust is far from over.



Steal a Car, Go to Jail. Crash the Global Economy. Nothing.

More than three years after their September 2008 government takeover, mortgage giants Fannie Mae and Freddie Mac are back in the news.

Just last week, the inspector general of the Federal Housing Finance Agency, which regulates the pair, reported that Fannie has had to ante up nearly $100 million to defend three former officials of the companies—including Fannie’s ex-CEO Franklin Raines—as a result of an accounting-fraud scandal that erupted in 2004. This of course, has become the U.S. taxpayer’s burden.

The allegations paint a picture of executives hell-bent on loading their companies with shaky loans to boost their bonuses.

Then there’s the fierce debate among conservatives and liberals over whether Fannie and Freddie were primarily responsible for the Great Recession by making home loans to low- and moderate-income folks who couldn’t afford the payments—or whether the culprit was Wall Street, which fueled the housing market by securitizing the risky subprime and alt-A (aka low-documentation or liar) loans that produced most of the mortgage defaults and credit losses. How about both?

OVERARCHING ALL OF THIS are two security-fraud complaints filed late last year by the Securities and Exchange Commission in the U.S. district court in Manhattan. The agency is charging, among others, Daniel Mudd, another former Fannie CEO, and Richard Syron, his counterpart at Freddie, with a variety of civil offenses connected to the 2008 collapse that pushed their companies into government conservatorship. The underlying motive for the alleged misdeeds was greed, the agency asserts. Both the companies’ stock prices and their executives’ bonuses were linked to financial results. The more mortgages processed, the better the reported numbers would be.

The complaints, backed by various statements of fact agreed to by Fannie and Freddie in accompanying non-prosecution agreements, paint a sordid picture of what went on at the two government-sponsored enterprises from 2005 until their collapse in September 2008.

The allegations, although couched in bloodless prose, paint a picture of executives hell-bent on loading up their companies with high-fee subprime and alt-A mortgage guarantees, while hiding from investors, regulators and even Congress the outsize risks involved. The effort allegedly involved shenanigans such as mislabeling mortgages as prime that clearly weren’t and systematically debauching decades-old credit standards for acceptable mortgages, such as an 80% loan-to-value maximum and a strong FICO credit score for borrowers.

Syron’s lawyer, Thomas Green of SidleyAustin LLP, called the charges against his client “senseless.” He added that, during Syron’s tenure, Freddie Mac had been scrupulous in “disclosing information about the character of all the loans in its single-family portfolio. There was no inadequate disclosure.” Daniel Mudd’s lawyer was unavailable for comment about the SEC case. But Mudd has said he didn’t attempt to mislead anyone and that the government had all the relevant information on Fannie’s loan book. Syron asserts that Freddie wasn’t the victim of wrongdoing, but rather of a once-in-a-century home-price collapse. They have apparently changed their tune from one of “We were only looking out for the shareholders.”

The complaints focus on Fannie and Freddie’s primary business: guaranteeing interest and principal payments on single-family home mortgages they buy from lenders throughout the U.S., and then repackage into “agency securities” sold to investors worldwide. The guarantee remains attached to individual mortgages throughout their lives in securitization. The two agencies’ single-family portfolios account for over half of their combined $5.3 trillion book of business.

The SEC alleges that mislabeling dramatically understated the extent of both companies’ exposure to subprime and alt-A mortgages. Fannie, for example, claimed in its second-quarter 2008 report, issued just a month before the company’s seizure, that its alt-A mortgages accounted for only $306 billion of its guarantee exposure, when the real number was $647 billion, the SEC says.

Fannie was able to fudge the number, contends the complaint, because it pre-arranged with many alt-A lenders to code only a certain percentage of their alt-A loans with that designation. When a lender screwed up, which the complaint claims happened occasionally, it would draw a rebuke from Fannie, which would accept the loans only after the lender dropped the alt-A tag. The SEC states that the company euphemistically referred to mislabeled mortgages as “lender-selected loans.”

ACCORDING TO THE SEC COMPLAINT, there were yawning gaps between Freddie’s reported and actual subprime and alt-A exposures. By the second quarter of 2008, Freddie was claiming in filings that subprime comprised an infinitesimal $2 billion to $6 billion, or less than 0.2%, of its total single-family book, when the real number was an estimated $244 billion, or 14%. Just before Freddie’s collapse, alt-A had grown to $541 billion, or 30% of the book, rather than the officially reported $188 billion, or 10%.

Bizarrely, the SEC reports, beginning perhaps in 2004, Freddie began to buy mortgages that had passed muster on Fannie’s automated underwriter system, Desktop Underwriter, instead of using its own Loan Prospector. The SEC alleges that Freddie preferred Underwriter because it generated more mortgage-purchase approvals as a result of its looser FICO credit and loan-to-value standards. By 2007, Freddie was getting more loans (31%) via Fannie’s system than its own (27%).

In their heyday, before being seized, Fannie and Freddie embraced pell-mell growth. And why not? Shareholders wanted growth and the higher stock prices that it typically fuels, and that’s what earned the managers big bucks from stretch-goal bonuses and the like. Periodic genuflection to the companies’ supposed social mission—cheap mortgages for all deserving Americans regardless of income status—camouflaged greed.

By 2007, Freddie Mac was well along toward its ultimate plunge over a cliff, but its stock (ticker: FMCC) was doing great, trading near $65 at one point. Fannie’s shares (FNMA) also were in the 60s for part of that year. Now, both fetch less than 40 cents a share in over-the-counter trading.

Also in 2007, Freddie CEO Richard Syron got almost $20 million in compensation, according to an SEC filing—a $1.2 million salary, $3.45 million in bonuses, $770,000 in other compensation, plus stock and options worth $14.3 million at the time of their grant. To be sure, the stock and options ultimately were smoked in Freddie’s collapse into federal conservatorship. Syron also received a car and driver for commuting, a free home-security system and $100,000 to pay his legal fees in negotiating his contract.

For a time in the 1990s and early in the present millennium, rising home ownership ensured smart growth for Fannie and Freddie. The two government-sponsored enterprises’ retained-investment portfolios grew to $1.7 trillion, combined, as they bought more mortgages and other paper to capitalize on the handsome spread between their rock-bottom cost of funds (debt implicitly guaranteed by Uncle Sam) and the yield on their investments.

BUT THAT GAME ENDED IN 2004, when their regulators accused them of hiding gains and losses on their interest-rate hedges, to mask their financial results’ volatility. Several senior officers of the companies, including Franklin Raines, ultimately were forced to walk the plank. And, later that year, Raines and two others were named in a class-action suit that accused them of having used bogus accounting to produce larger bonuses for themselves. The departures ushered in the Syron and Mudd eras, setting the stage for the much bigger debacle that was to follow, four years later.

The 2004 incident concluded with the companies’ being hit with surcharges on their capital by federal regulators and enjoined to stop expanding their retained portfolios.

To keep growing, the Mudd and Syron regimes plunged into the subprime and alt-A guarantee business, which threw off substantially higher guarantee fees than prime loans. Fannie and Freddie argue that this helped them meet their affordable-housing goals for low- and moderate-income borrowers. They also assert that Wall Street’s origination and securitization machines were stealing the march on them in the fast-growing subprime and alt-A markets, and that they had to compete to stay relevant. The rising risk this entailed, the SEC contends, was obscured by the underreporting of their actual exposure.

A Bush administration official, who had a ringside seat to the GSE collapse in 2008, recalled recently that both the White House and Treasury woke up to the unfolding disaster only in the summer of that year. This person says that the White House was particularly miffed at Syron (“a real empty suit”) and Freddie’s board (“a bunch of incompetents”) who refused to raise more capital, as they had agreed to in March. Fannie, on the other hand, honored its agreement by selling preferred stock.

MUDD, HOWEVER, INSPIRED MORE confidence among the Bush officials, this person says. Whereas Syron reportedly cut a somewhat buffoonish figure by insisting on being called Dr. Syron in recognition of his Ph.D. in economics, Mudd was a CEO out of central casting. He had much of the gravitas of his father, former network anchor Roger Mudd. Tall and articulate, he had been a decorated Marine officer. He worked at the Defense Department and GE Capital before joining Fannie in 2000 as its chief operating officer.  After Franklin Raines, his boss, was sacked as a result of the 2004 accounting scandal, Mudd smoothly slid into the CEO position late that year. In the end, his charisma didn’t matter.

Fannie’s mortgage-default rate has consistently topped Freddie’s since the seizure. Freddie has cost U.S. taxpayers $72.2 Billion in capital injections; Fannie, $112 Billion. A total of $184.2 Billion. If found guilty, shouldn’t these guys be in prison for the rest of their lives?

The SEC is seeking disgorgement from Mudd, Syron and four other executives of what the agency considers the fruits of their misconduct. Effectively, this applies to only the bonuses they received in their last three years or so at the GSEs. For Mudd and Syron, the hit probably wouldn’t exceed $10 million each. The SEC also wants to bar any of the six defendants from serving as an officer or director of a public company. That’s all? That’s it?

In January, Mudd, 53, resigned as CEO and a director of the hedge-fund company Fortress Investment Group. He had gone on leave from the company just days after the SEC filed its action in December.

Typically, the SEC prefers to settle cases like these, rather than stretch its limited resources by going to trial. The defendants sign a consent decree that carries no finding of guilt, innocence or liability. In this case, this means that any monetary penalties would be paid by Fannie and Freddie’s directors-and-officers liability policies, rather than by the executives themselves.

Absolutely amazing!

Q And A About The Mortgage Settlement And You.

Aid may take months, and eligibility depends on who owns your loan.

The record $26 billion foreclosure-abuse settlement that states and the Obama administration reached last week with five big banks is being billed as a program that will help more than 1 million U.S. homeowners.

However, the funds are being allocated to a number of different programs and it is not yet clear who will get relief — or when. Housing counselors said borrowers likely won’t begin receiving compensation or other forms of assistance until this summer at the earliest.

Here are answers to common questions about the program.

Q. There will be about $17 billion available to reduce mortgage-loan debt for struggling homeowners. How do I know whether I will be eligible for this principal-reduction assistance?

A. Borrowers who are delinquent or on the verge of delinquency and have loans that are on the books of one of the five participating banks are the likeliest to be eligible for help cutting the size of their mortgage, known as principal reduction. These borrowers must show they are behind on their payments.

Eligible homeowners must have loans serviced by the five big banks participating in the settlement: Bank of America (US:BAC), J.P. Morgan Chase & Co. (US:JPM), Citigroup Inc.(US:C), Wells Fargo & Co.(US:WFC) and Ally Financial Inc, the company formerly known as GMAC.

Borrowers who have loans owned by investors also may be eligible but to a lesser degree.

But homeowners whose mortgage loans are owned by Fannie Mae and Freddie Mac — the two government-seized mortgage giants that own about 50% of all U.S. mortgages — are not eligible to participate in the principal-reduction program. Neither are homeowners in Oklahoma since the state did not take part in the deal. Get more information from the NationalMortgageSettlement.com site.

You can check to see whether Fannie Mae or Freddie Mac owns your home loan at these links.Click here to see whether your home loan is owned by Fannie Mae.

Click here to see whether your home loan is owned by Freddie Mac.

Q. If I am behind on my mortgage payments, what should I do to find out whether I am eligible for any relief?

A. Regulators say that borrowers will be contacted by their mortgage servicer, a state local administrator or their state attorney general in coming months.

But troubled homeowners should also contact a U.S. Department of Housing and Urban Development certified housing counselor in their area to obtain free help in identifying whether they are eligible to receive relief on the amount they owe on their mortgage. Find a local HUD-approved housing counseling agency here.

Housing counselors and state attorneys general also suggest contacting your bank immediately to make sure they are aware of your grievances.

Q: If I am current on my mortgage payments but have little or no equity in my home, whom do I contact to see if I can receive assistance to refinance my loan at current low interest rates? Read: 30-year mortgage holds at record low.

A. If you’re in this situation, your mortgage servicer may contact you in coming months. But housing counselors also suggest that “underwater” borrowers — those who owe more than their home is worth — should contact their bank and local state attorney general’s office for more information.

Q. If my mortgage is serviced by a lender that is not one of the five participating in the settlement, can I participate?

A. The Justice Department and other regulators are currently in discussions with nine other mortgage servicers and say they hope to reach a settlement over problematic foreclosure practices in the coming weeks. Keep an eye out for statements from your local attorney general’s office to see if this deal is announced.

Q. Roughly $1.5 billion in funds is being allocated to borrowers who have lost their homes and experienced mortgage servicing abuse. Regulators estimate that borrowers could receive about $2,000 each if 750,000 people are deemed eligible. If I have lost my home to foreclosure and feel that I have experienced servicer abuse, how can I apply?

A. Borrowers who lost their homes between January 2008 and December 2011 can apply. In a few months, potentially eligible consumers should receive a notification from a settlement administrator or their state attorney general. The spokesman for Iowa Attorney General Tom Miller said consumers will probably fill out a fairly simple form that verifies certain facts, and they’ll have to attest that they were subjected to some form of servicing abuse.

Borrowers in any stage of foreclosure in 2009 or 2010 may also be eligible for compensation or some other remediation (such as getting your home back from bank inventory) as part of a separate regulatory enforcement action against a number of banks. Regulators say borrowers who have been foreclosed upon can apply and possibly receive help through both processes. So far, no borrower has received assistance through this approach, but regulators expect assistance to go out by the end of 2012. Learn more about this foreclosure review and request an application form here.

Q. Another $2.75 billion is being paid to states to fund legal aid, housing counselors and other programs. Can I receive help this way?

A. Money going to housing counselors and legal aid may help borrowers indirectly. But keep in mind that states have some leeway in how to use the funds.

For example, Ohio’s attorney general estimates that $97 million of funds going to the state will be used to conduct foreclosure prevention and neighborhood revitalization programs. However, Wisconsin and Missouri reportedly are planning to use a large part of their settlement funds to help balance their state budgets, rather than directly helping borrowers.

Hope this helps. 

A Mortgage Settlement That Is As Bogus As The Mortgage, And The Foreclosure.

Details about the $25 billion mortgage settlement signed off by 49 state attorneys general tamp down early expectations about how many mortgage borrowers might receive relief.

The much-ballyhooed bank settlement over mortgage lending and foreclosure abuses is eerily reminiscent of the scandal itself. Beware of the fine print.

Forty-nine state attorneys general signed off on a $25 billion deal with five major banks — one is tempted to say robo-signed — that first and foremost protects the banks from government lawsuits.

Exactly which struggling homeowners will benefit is still being sorted out. If a mortgage is owned or backed by Fannie Mae or Freddie Mac — about 55 percent of all mortgages — it is not eligible for help. Underwater, but making your payments? Do not expect any relief.

Borrowers who lost their homes to dodgy foreclosures might collect $2,000 for what they went through. In theory they could sue their lender, but imagine how much legal time two grand would pay for.

The New York Times reported an audit of recent foreclosures in San Francisco County found most all involved legal violations or suspicious documentation. It is not clear the settlement goes after the abuses found in the audit.

Past industry standards of confirming a borrower’s credit, capability and collateral sound so ’70s. Instead the lenders signed documents without verifying information. Those instincts carried through at the other end with foreclosures that did not follow legal processes of notice and filings.

The latest wrinkle in the settlement story comes via The Associated Press, which reported that $2.75 billion for states to help prevent foreclosures is being sucked up in state budgets. Governors and legislators covet the cash to plug budget holes.

Lessons learned from the mortgage scandal are about the details. Same for the settlement. And at the end of the day, the tiny, elite minority who govern and control this country slide out the back door. Un-accountable, un-controllable and un-punished.

The Poster Boy for Greed, Avarice and Immorality in Capitalism.

Freddie Mac‘s Regulator “Completely Puzzled” by Accusations of Immorality.

Federal Housing Finance Agency Acting Director Edward DeMarco during testimony before Congress in December.
I am a capitalist, but I am guided by a moral compass. Mr. DeMarco doesn’t seem to own one. I know my GOP friends will not like this, as DeMarco was only doing his job. But, in my mind this is reminiscent of prison guards at Dachau only doing their jobs.

Saying he is “completely puzzled by the notion that there was something immoral that went on here,” the man at the top of the agency that regulates Freddie Mac has explained why he believes the taxpayer-owned mortgage company did nothing wrong when one of its arms, as NPR and ProPublica have reported, “placed multibillion-dollar bets against American homeowners being able to refinance to cheaper mortgages.”

Edward DeMarco told Morning Edition co-host Steve Inskeep in an interview broadcast on today’s show that Freddie Mac’s actions were “in the class of ordinary business transactions.” The “reverse floaters” in Freddie Mac’s investment portfolio, which as NPR has reported “brought in more money for Freddie Mac when homeowners in higher interest-rate loans were unable to qualify for a refinancing,” did not affect the agency’s efforts to stabilize the mortgage market, DeMarco said. So, all of you homeowners waiting for your bank to give you a loan modification, don’t hold your breath.

Instead, DeMarco characterized the investments as part of Freddie Mac’s effort to make sure it doesn’t lose money. And he said one of his major responsibilities, is to “make sure Fannie Mae and Freddie Mac undertake activities that don’t cause further losses to the American taxpayer.”

I know someone who submitted paperwork to Chase Bank (his mortgage servicer) every month from the period beginning in January 2011 and ending in October 2011. Chase kept sending form letters requesting the same documents that this guy had already submitted. He then would write a letter explaining that he had already submitted those documents and attached same, month after month. In all, nine separate letters, some requesting the documents he had submitted in the first month. This was clearly a game, manufactured to appear that Chase was in compliance with the Obama Administration’s Loan Modification Program. When the robo-signing investigation concluded in September of 2011, Chase (along with the other 26 banks that had been held up),  denied the request and moved to foreclose.

That began in November 2011. He has until the end of this month to vacate and then the home becomes REO’ed and will come onto the market at a fire sale price. And, we are not talking about Las Vegas pricing here or a Floridian market. This home is in Pebble Beach, CA and was real-estate appraised at $2.4m twelve months ago. The most recent real estate appraisal was in September, and it came in at $1.2m. This is the beginning of the high-end inventory that will be coming to market over the next few months, and is why I keep saying that the housing market is only going to get worse.

DeMarco is acting director of the Federal Housing Finance Agency (FHFA) — the agency that regulates Freddie Mac and Fannie Mae.

Two key senators “who have taken the lead on legislation aimed to help homeowners refinance at historically low interest rates,” are critical of FHFA’s oversight of Freddie Mac. One of them, Democratic Sen. Barbara Boxer of California, laid much of the blame on DeMarco and accused him of not looking out for American homeowners who want to refinance at today’s historically low interest rates.

DeMarco said though, that “not only I, but my staff think of the average homeowner on a daily basis” and believe that their efforts to stabilize the mortgage market and prevent losses at Freddie Mac and Fannie Mae are good for all Americans in the long run. Of course you do.

And by the way, the comment about  ” preventing further losses to the American taxpayer’ is the height of dis-ingenuity. If anyone thinks that for one second, Freddie Mac’s or Fannie’s profits are coming back to it’s shareholders (aka, the American People) they need to see a talking doctor, cause it ain’t ever gonna happen!

Marine Fights Freddie Mac to Save His Home.

Arturo de los Santos, a 46-year-old Marine who lives in Riverside, California, doesn’t usually listen to National Public Radio, but a friend told him to pay attention to a disturbing report broadcast Monday on NPR’s “Morning Edition.” The report disclosed that Freddie Mac, the government-sponsored mortgage company, whose mission is “to expand opportunities for homeownership,” invested billions in mortgage securities that profited when homeowners were unable to refinance.

De los Santos is one of those homeowners that Freddie Mac bet against. Sunday night he got a court summons at his door from Freddie Mac stating that the mortgage giant was going to evict him.

But he’s fighting back, pledging to get arrested rather than leave voluntarily if Riverside County sheriff’s deputies try to remove him, his wife and four children from the home they’ve lived in for almost a decade. He is part of a growing movement of Americans inspired by Occupy Wall Street to stop banks and other lenders from foreclosing on their homes. On Thursday at noon, de los Santos, his friends and neighbors, and activists from the Alliance of Californians for Community Empowerment (ACCE) will protest at Freddie Mac’s west coast headquarters (444 South Flower St.) in downtown Los Angeles. They will call on Freddie Mac CEO Charles Haldeman to get the mortgage giant to renegotiate a fair modification of de los Santos’ loan, including reducing the mortgage principal.

The NPR investigation of Freddie Mac, done in cooperation with ProPublica (an independent, nonprofit newsroom), uncovered another aspect of the unfolding scandal of Wall Street abuse of struggling homeowners that has led to a nationwide epidemic of foreclosures.

De los Santos and his family moved into their modest three-bedroom house on a cul de sac in Riverside’s La Sierra neighborhood in 2003. It was their first home and represented the American dream they had worked their whole lives for. He has worked for over 21 years as a supervisor at a Santa Ana metal finishing company that makes parts for the aerospace industry.

In 2009, the economic crisis led the factory to reduce his work hours, reducing his income and making it harder to make his monthly payments. He applied for a loan modification with JP Morgan Chase, the giant Wall Street bank that services many of Freddie Mac ‘s loans. Chase told de los Santos that in order to negotiate a loan modification he had to be in default on his loan. Chase notified de los Santos that it was rejecting him for a permanent modification, that they would refuse to accept further payments, and that they intended to foreclose on his home, even after he provided the bank with evidence showing that his income had recovered to its previous level. De los Santos was caught in a Catch-22, but it turns out that — according to the NPR/Pro-Publica investigation — this was not an anomaly but part of Freddie Mac’s strategy.

Last June, the family was evicted from their home and moved to an apartment in Orange County. The bank put the house up for sale, but in Riverside County’s devastated housing market, found no buyers. Seeing his home sit empty infuriated de los Santos. He continued contacting Chase, hoping to persuade the bank to renegotiate the mortgage. After the Occupy Wall Street movement spread to California, de los Santos heard about other homeowners who faced similar abuses and contacted ACCE, a community organizing group that has been helping homeowners throughout California and is part of a national effort to get Congress and the Obama administration to force banks to modify “underwater” mortgages, especially for homeowners victimized by lender manipulation, such as predatory loans.

On December 6, de los Santos took the courageous step of re-occupying his Riverside home, where he has been living since then. He was one of many homeowners around the country who took similar actions that day as part of a nationwide “Occupy Our Homes” campaign. On December 24, de los Santos moved his wife and children back into the house. That day he was joined at a media event by local clergy, members of ACCE and the Service Employees International Union, and other supporters.

“We’re glad to be back in the house,” de los Santos told the Valley News, a local paper. “My kids are happy. They have a place to ride their bikes and play. Their school is just around the corner. They don’t understand what’s going on.”

“The foreclosure crisis has been devastating to the Inland Empire,” said Reverend Matthew Crary of Inland Congregations United for Change, referring to the Riverside and San Bernardino County area that has one of the nation’s highest foreclosure rates. “As faith leaders it is our responsibility to stand with the residents of our community to force Wall Street to take action to help people stay in their homes.”

Rosanna Cambron, a national executive board member of Military Families Speak Out, also spoke at the Christmas Eve protest:

Art de los Santos served this country as a marine and he is again serving this country by standing up to Wall Street greed. My son just returned from his third tour of duty in Iraq fighting to protect the principles of justice and democracy. But I think that the greed of Wall Street bankers like (Chase CEO) Jamie Dimon is more of a threat to our country in many ways than any foreign power. We will stand up to them as long as it takes to create a fair society for all Americans.

“We have celebrated Christmas in our home since 2003 when we bought it,” de los Santos said at the same event. “I wasn’t going to let this holiday season be any different. I owed it to my kids. If JPMorgan Chase and Freddie Mac had dealt with us fairly at the beginning of the loan modification process, we wouldn’t be in this situation.”After de los Santos heard the NPR/Pro-Publica report on Monday, he understood why he was in this quagmire not of his own making. It strengthened his resolve to fight to keep his home.

“Nobody likes to get arrested,” said de los Santos. “I didn’t do anything wrong. I’m doing this for my family and for the millions of other families in similar situations. We can’t let the Wall Street banks and Freddie Mac get away with these kinds of practices.”

Last month in California alone, there were over 52,000 foreclosures. A recent report sponsored by bank reform groups reveals that if banks lowered the principal balance on all underwater mortgages to their current market value, it would pump over $70 billion per year back into the economy, allow millions of families to stay in their homes, and create over one million jobs. They want Congress and the Obama administration to pass legislation requiring banks to reduce the principal for homeowners facing foreclosure. So do I.

Freddie Mac Profiting From Your Distress? You Betcha!

Freddie Mac, the taxpayer-owned mortgage giant, has placed multibillion-dollar bets that pay off if homeowners stay trapped in expensive mortgages with interest rates well above current rates. Freddie began increasing these bets dramatically in late 2010, the same time that the company was making it harder for homeowners to get out of such high-interest mortgages.

No evidence has emerged that these decisions were coordinated. The company is a key gatekeeper for home loans but says its traders are “walled off” from the officials who have restricted homeowners from taking advantage of historically low interest rates by imposing higher fees and new rules.

Ah, the old Chinese wall. I remember it well from the dotcom bubble days, when investment banks supposedly erected an impenetrable barrier between the bankers who helped Pets.com go public and the analysts who told clients whether Pets.com was a good investment. After it all blew up, of course, it turned out the wall wasn’t quite as impenetrable as everyone thought.

So how is Freddie doing this? After telling me the story of the Silversteins, who want to get a refi on their current high-interest loan but can’t because of Freddie Mac policies, the authors explain:

Here’s how Freddie Mac’s trades profit from the Silversteins staying in “financial jail.” The couple’s mortgage is sitting in a big pile of other mortgages, most of which are also guaranteed by Freddie and have high interest rates. Those mortgages underpin securities that get divided into two basic categories.

One portion is backed mainly by principal, pays a low return, and was sold to investors who wanted a safe place to park their money. The other part, the inverse floateris backed mainly by the interest payments on the mortgages, such as the high rate that the Silversteins pay. So this portion of the security can pay a much higher return, and this is what Freddie retained.

In 2010 and ’11, Freddie purchased $3.4 billion worth of inverse floater portions — their value based mostly on interest payments on $19.5 billion in mortgage-backed securities, according to prospectuses for the deals. They covered tens of thousands of homeowners. Most of the mortgages backing these transactions have high rates of about 6.5 percent to 7 percent, according to the deal documents.

So as long as homeowners have to keep paying high interest rates on their loans, Freddie’s investment is gold. If they refi into a lower-interest loan, the value of the inverse floater goes down and Freddie is in trouble. Naturally, it’s all just a big coincidence that Freddie is simultaneously making it hard for families to refi into lower-interest loans. Chinese wall, you know.

It’s good to see that the American finance industry hasn’t lost a step just because of that whole financial collapse thing a couple of years ago. Isn’t it?

Rate on 30-year Mortgage Down to Record 3.88%.


The average rate on the 30-year fixed mortgage fell again this week to a record low. The eighth record low in a year is attracting few takers because most who can afford to buy or refinance have already done so.

Mortgage buyer Freddie Mac said Thursday that the average rate on the 30-year fixed mortgage dipped to 3.88 percent this week, down from the old record of 3.89 percent one week ago.

The average on the 15-year fixed mortgage ticked up to 3.17 percent from 3.16 percent, which was also a record low. Records for mortgage rates date back to the 1950s.

Mortgage rates tend to track the yield on the 10-year Treasury note, which fell below 1.9 percent this week.

For the past three months, the 30-year fixed mortgage rate has hovered near 4 percent. Yet cheap rates on the most popular mortgage option have done little to boost home sales.

High unemployment and scant wage gains have made it harder for many people to qualify for loans. Many don’t want to sink money into a home that they fear could lose value over the next few years.

Previously occupied homes are selling just slightly ahead of 2010’s dismal pace. New-home sales in 2011 will almost certainly be the worst on records going back half a century.

Builders are hopeful that the low rates could boost sales next year. Low mortgage rates were cited as a key reason the National Association of Home Builders survey of builder sentiment rose strongly in December and January.

So far, the low rates have had minimal impact. Mortgage applications have risen about 6 percent on a seasonally adjusted basis over the past four weeks, according to the Mortgage Bankers Association. But they are coming off extremely low levels.

To calculate the average rates, Freddie Mac surveys lenders across the country Monday through Wednesday of each week.

The average rates don’t include extra fees, known as points, which most borrowers must pay to get the lowest rates. One point equals 1 percent of the loan amount.

The average fee for the 30-year loan rose to 0.8 from 0.7; the average on the 15-year fixed mortgage was unchanged at 0.8.

For the five-year adjustable loan, the average rate was unchanged at 2.82 percent. The average on the one-year adjustable loan fell to 2.74 percent from 2.76 percent.

The average fee on the five-year adjustable loan rose was unchanged at 0.7; the average on the one-year adjustable-rate loan was unchanged at 0.6.