Freddie Mac was designed to help homeowners—but in 2010 and 2011 it wagered billions against them. The company invested in security packages that meant more cash for Freddie when homeowners couldn't refinance their mortgages. But Freddie itself regulates refinancing—and in fact has been increasingly denying refinances to struggling homeowners—prompting questions over a conflict of interest, reports NPR and ProPublica. "We were actually shocked they did this," says an exec at a firm that trades in mortgage-backed securities. "It seemed so out of line with their mission, out of line with what Congress wanted them to do."
In short, "Freddie Mac prevented households from being able to take advantage of today's mortgage rates—and then bet on it," adds an ex-bond trader. What's more, the move means the company would be hit hard by mass refinancing programs that President Obama has pushed for—programs that an economist says could put "tens of billions of dollars back in consumers' pockets." "If there was a mass re-fi program, the bets they made would get absolutely wiped out," notes the securities exec. Freddie reps, for their part, said the company keeps its investment heads "walled off" from its mortgage regulators. Click through for the full investigation. (Read more Freddie Mac stories.)