Essay on Freddie Mac Ethics

1107 Words 5 Pages
Freddie Mac is in the home mortgage business. It is their jobs to help low income families find affordable housing. Freddie Mac has been in business since 1970. They were created in order to get more American families in to their own homes. Their mission statement says, “Our statutory mission is to provide liquidity, stability and affordability to the U.S. housing market” (FreddieMac.com, 2014). Despite this honorable mission statement, Freddie Mac was involved in a case of accounting fraud that went on from 1998 to 2002. The lack of ethics at this company started with top brass setting the tone, and the rest of the company following suit.
Rather than being sticklers for following GAAP accounting principles and internal controls, this
…show more content…
According to HUD Freddie Mac and Fannie May are both GSE’s, government sponsored enterprises, and in the U.S. they are the two largest providers of home mortgages. They were created primarily to provide loans to underprivileged and lower economic areas. They are not subject to taxes. They do not fall under the jurisdiction of the Securities Exchange Commission. They have direct access to a 2.25 billion line of credit, and their rates are significantly lower than their competitors, because of their government backing, (Housing and Urban Developement, 2001).
The reason the company bought these risky loans was because they have a much higher interest rate. Rather than paying 3.53 or 4% interest on a home loan these people were forced to pay almost double that, between 6 and 7%. The conflict of interest arose from the fact that Freddie Mac was the one whom the recipients of these loans had to try to get refinancing from. They did not want to refinance the high interest mortgages into lower interest ones. This caused them to have a conflict of interest. They were not interested in helping people to save their homes because they were making money off the interest. Many people were in need of refinancing, which would effectively pay off the higher interest rate loan and create a new loan with more affordable prices. Freddie Mac refused to help these people out of their mortgages, effectively because they

More about Essay on Freddie Mac Ethics

Open Document