BLOG: Betting against troubled homeowners
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- Published on 01/31/2012 - 9:20 am
- Written by Gabriel Dillard
I had never heard the term "inverse floater" before today, and having heard it and Googled it, I'm still not sure what it is. But I do know it's a type of investment that Freddie Mac has taken to the tune of $5 billion, and it pays off when homeowners stay stuck in toxic mortgages.
This is the finding of an investigation by NPR News and ProPublica: Government-sponsored mortgage company Freddie Mac essentially "bet" against beleagured homeowners, purchasing complicated mortgage-backed securities that pay off when borrowers are trapped in high-interest loans typical of the housing boom.
And of course, Freddie Mac is in a position to to refinance such loans to throw homeowners a lifeline. Or, it can do nothing. While I don't believe there was any concerted effort hatched in a smoky back room to block refinancing efforts in order to cash in, the perception of a conflict of interest is unsettling. It's all the more disappointing given that Freddie Mac is government-backed, and its core mission is to make homeownership more accessible.
Indeed, given this news, the Occupy movement's core issue and the tenor of the GOP presidential primary, it certainly seems like an us vs. them mentality is brewing in this country. The narrative now is that fat-cat bankers are making their chips off the backs of hardworking Americans. Freddie Mac's insensitivity only fuels the fire.
The narrative has come home with news yesterday that the Federal Deposit Insurance Corp. is suing former County Bank officers over $42 million in bad real estate loans. For those that don't remember, County Bank went insolvent and was closed by regulators in 2009 after 32 years serving the Central Valley from its Merced headquarters.
The banking and finance industry needs to realize how its actions have hurt American homeowners. While it doesn't share all the blame, the working narrative of class warfare doesn't allow for such nuance. It's an election year, and banks might just find themselves barring the doors against fed-up customers with torches and pitchforks.
