National Public Radio reported allegations Jan. 30 that Freddie Mac bet against struggling borrowers looking to refinance mortgages, and now the Federal Housing Finance Agency is under pressure to explain a Collateralized Mortgage Obligation tool known as an “inverse floater.”

According to an investigation by NPR and ProPublica, an independent, nonprofit newsroom, Freddie Mac allegedly invested billions of dollars betting that a certain segment of U.S. homeowners will not be able to refinance their mortgages at today’s historically low rates. NPR further alleged that Freddie has instituted strict underwriting standards that barred homeowners from refinancing for financial gain; the more high-interest loans the government-sponsored enterprise holds the more money it makes.

NPR reported that in 2010 and 2011, Freddie sold home loans packaged as mortgage-backed securities but held back a potion of high-risk loans unlikely to qualify for refinancing due to stricter financing guidelines. As a result, those loans provided the GSE with a steady stream of income — income that would decrease if homeowners were allowed to refinance at lower rates. These types of CMOs are called “inverse floaters.”

FHFA officials released a statement Jan. 30 refuting the allegations and re-emphasizing the GSE’s commitment to helping struggling borrowers. “Freddie Mac’s retained portfolio investment in inverse floaters did not have any impact on the recent changes to the Home Affordable Refinance Program,” the statement noted. “In evaluating changes to HARP, FHFA specifically directed both Enterprises not to consider changes in their own investment income as part of the HARP evaluation process.” The FHFA statement also noted that Freddie no longer retains inverse floaters.

Chris Mayer, a Columbia University economist, told NPR that, “A widespread refinancing program would have many benefits … not only helping the economy and putting tens of billions of dollars back in consumers’ pockets, the equivalent of a very long-term tax cut.” While he acknowledged that inverse floater trades give GSEs a short-term incentive to deny refinancing, they don’t make sense in the long term because of the increased likelihood of foreclosures and resultant financial losses.