Let’s get this out of the way: Freddie Mac hasn’t broken any laws. Its employees just gamble your money on the assumption you won’t be able to keep paying your mortgage.
Freddie Mac, for those lucky enough to forget, is one of the taxpayer-owned mortgage companies bailed out after the 2007 housing market crash. In order to keep them from going bankrupt and causing millions of Americans to lose their homes, we gave them a few hundred million dollars. They’ve reinvested the money so they can make more and pay taxpayers back. Unfortunately, in order for them to make a return on their investment, Americans have to be unable to pay back their mortgages.
It works like this: Freddie Mac has taken part of its money and invested it in what’s called an “inverse floater.” Essentially, they earn money on interest payments, but not payments on principle. But Freddie Mac still owns all the “risk” of the principle payments, it just doesn’t make money on them. So if homeowners are able to pay off their mortgages, or refinance to get a lower interest rate Freddie Mac loses money.
Now remember that Freddie Mac hasn’t broken the law, because this is the part that sounds illegal.
Freddie Mac has been changing the rules on home refinancing. The company has made it tougher for Americans to refinance their mortgages for better rates. It’s not impossible, but it is more difficult.
When did Freddie Mac start tightening the rules? Around 2010, close to when it started investing in the “inverse floaters.” Freddie Mac said it’s not a conflict of interest, thanks to what the business world calls a “firewall” (basically the company promises not to have a conflict of interest).
This is all legal. Just like it was legal when mortgage firms like Freddie Mac invested in risky subprime loans to pay CEOs multi-million dollar salaries with the money made from inflating housing prices by selling homes to people who couldn’t afford them.
It is, after all, a victimless crime. The only people hurt were homeowners, taxpayers and those who believe in what used to be called the “American Dream.” None of those people fund Congressional campaigns anyway.
Conservatives call this small government, the invisible hand of the free market, the success of capitalism.
The Treasury Department announced Tuesday it would begin a probe into Freddie Mac’s practices. The pattern might seem familiar. A deregulated industry is allowed to do what it likes with little or no government scrutiny. When it turns out that the industry had practices that were unethical or illegal, there’s a government probe and perhaps some Congressional hearings. The Republicans claim this is big government trying to destroy the free market. Then things go back to the way they were and in a few years the cycle repeats itself.
Time and again we see that deregulation hurts Americans, hurts our economy and hurts our environment.
How much longer will the right wing insist that less regulation is the solution to all our ills? Something needs to change, and it needs to change now.