Reports Show Freddie Mac Deterred Refinance Loans
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UPDATED: Oct 26, 2012
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New reports released yesterday state that Freddie Mac deterred mortgage refinance loans which could have saved borrowers nearly $75 billion to date. The taxpayer-owned mortgage company resisted the company-wide refinance policy due to a fear of hurting the company’s bottom line and an unconfirmed partisan support.
During the most difficult years of the recent recession, homeowners could have refinanced their mortgages to a lower-rate. If brother and sister companies, Freddie Mac and Fannie Mae, would have agreed to the mortgage refinance loan program, they would have assisted nine million homeowners in the refinance process. According to Columbia University housing economist Christopher Mayer, this refinance would have saved homeowners nearly $75 billion in interest payments to date.
During the Obama administration, the Home Affordable Refinancing Program (HARP) was instituted to help homeowners refinance their mortgage loans at a lower rate. Freddie Mac highly restricted the program due to a fear of negatively impacting the bottom line, as well as the company’s capacity to repay taxpayers. When the housing market crashed in 2008, taxpayers bailed out both Freddie Mac and Fannie Mae to the cost of $142 billion. This was stated as one reason why the mortgage refinance loans were not supported: a fear that the company would not be able to repay their creditors (taxpayers).
The new report, submitted by ProPublica, delves into another, more hidden, reason for the decision. Although very few executives give quotes, the investigative report highlights an underlying Republican objective.
“In closed door meetings, two Republican-leaning board members and at least one executive resisted a mass refi policy for an additional reason, according to the interviews: They regarded it as a backdoor economic stimulus,” the article quoted.
John Koskinen, Freddie Mac’s chairman from 2008 to 2011, said the board decided that parts of the HARP refinance program were “designed to be a stimulus” for the economy. But board director Robert Glauber, head of risk management Paige Wisdom and director Linda Bammann all voted against the mortgage refinance loans on a large scale. An executive, who refused to be named, viewed their opinions as partisan. The executive said if the economy recovered, it would benefit the Obama campaign.
The goals were not shared by all. Koskinen does not agree that the meetings were directly partisan. “I don’t think we ever had a discussion of where this was good for a Democratic administration,” he said.
Whether or not a partisan plan was implemented, Republican beliefs did fuel several company directors. Board director Glauber was a Republican appointee to President George H. W. Bush’s Treasury Department and worked in Wall Street. Additionally, director Bammann donated money to the National Republican Congressional Committee. Neither director chose to directly comment on the matter.
Freddie Mac declined to comment on the internal discussions reported but the new CEO, Donald Layton, did state that changes to the company’s mortgage refinance loan program is a “major priority.”