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Time for an Independent Audit of Freddie Mac

Posted by Larry Doyle on November 3, 2011 3:20 PM |

Freddie Mac On December 24, 2009 President Barack Obama and Treasury Secretary Tim Geithner provided a blank check to the wards of the state known as Freddie Mac and Fannie Mae. I highlighted that ‘Christmas’ gift in writing at the time, Fannie and Freddie’s Huge Christmas Bonus.

That blank check runs throughout 2012. Do not think for a second that the administration will not keep adding zeros to this check throughout next year. Why do I make that assessment?

Well, let’s review the fact that today Freddie announced a third quarter 2011 loss of a mere $6 billion!! What is behind this loss of our American taxpayer funds? 

Let’s navigate and ask the hard questions, as Yahoo! News reports, Freddie Mac Reports Q3 Loss, Asks for $6B in Aid,

Freddie Mac said Thursday that it lost $6 billion, or $1.86 per share, in the July-September quarter. That compares with a loss of $4.1 billion, or $1.25 a share, in the same quarter of 2010.

This quarter’s $6 billion request from taxpayers is the largest since April 2010.

How is this possible? Is the decline in the housing market with subsequent increase in delinquencies and defaults actually worsening thus generating this loss? I do not buy that. The pace of decline has been slowing. Freddie’s losses should be lessening. Let’s continue.

Freddie’s losses are increasing mainly for two reasons: Many homeowners are paying less interest because they are able to refinance at lower mortgage rates. And failing and bankruptmortgage insurers are not paying out as much money when homeowners default.

I do not buy Freddie’s first reason. Having engaged with this company for many years Freddie would always enter into a variety of hedging strategies to mitigate a loss from a shift in interest rates. Have they stopped engaging in hedging? I have never seen nor heard this argument used to explain an impact on Freddie’s earnings, especially of such a sizable magnitude.

In terms of mortgage insurers not performing, this is not a new development.

I would like to know how aggressively Freddie’s books are being audited and whether its earnings —or dare I say—its losses are being managed or rather manipulated. Why do I inquire? Let’s navigate a little deeper.

The government rescued McLean, Va.-based Freddie Mac and sibling company Fannie Mae in September 2008 after massive losses on risky mortgages threatened to topple them. Since then, a federal regulator has controlled their financial decisions.

Taxpayers have spent about $169 billion to rescue Fannie and Freddie, the most expensive bailout of the 2008 financial crisis. The government estimates it could cost up to $51 billion more to support the companies through 2014.

With the government effectively calling the shots at Freddie and Fannie and simultaneously trying to nurse our banking institutions back to life, my instincts lead me to believe that Freddie and Fannie remain a conduit to funnel funds into our banks.

Who is minding the store and protecting taxpayer interests?

How about an audit?

Questions, comments, constructive criticisms encouraged and appreciated.

Larry Doyle

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