Fannie Mae Knew About Toxic Mortgages in 2003!

Could they have stopped the credit crunch? Fannie Mae knew about dodgy mortgages in 2003, says report (Daily Mail, Oct. 4, 2011):

Mortgage giant Fannie Mae knew about allegations of improper foreclosure practices by law firms as early as 2003 but did not act to stop them, a government watchdog has said.

But it wasn’t until mid-2010 before the company’s overseer began to scrutinise the conduct of some of the law firms when news reports emerged of dubious practices, a report revealed today.

An unnamed shareholder warned Fannie Mae of alleged foreclosure abuses in 2003, the inspector general of the Federal Housing Finance Agency (FHFA) said in the report.

Fannie Mae responded by hiring a law firm to investigate the claims in 2005, which reported it had found foreclosure attorneys in Florida ‘routinely filing false pleadings and affidavits’ the following year.

Officials from the mortgage company said they told a government figure about the findings, but that official – who now works for the FHFA, said he could not recall the conversation.

Steve Linick, inspector general at the FHFA, told the New York Times: ‘American homeowners have been struggling with the effects of the housing finance crisis for several years, and they shouldn’t have to worry whether they will be victims of foreclosure abuse.

‘Increased oversight by FHFA could help to prevent these abuses.’

Fannie Mae began using a network of attorneys in 1997 to help handle foreclosures, evictions and bankruptcies.

In 2008, the network grew to 140 law firms and the number of foreclosures in its portfolio reached historic highs.

Foreclosures more than doubled from 2007 to 2008 and they grew 50 per cent in 2009.

In June 2010, FHFA officials went to Florida to study the foreclosure crisis.

They found that the mortgage industry was overwhelmed; that the average foreclosure processing time had grown from 150 days to more than 400; that lenders were beset by flawed documentation and that law firms were not devoting enough time to cases.

The worst practices, known collectively as ‘robo-signing’, led some lenders to suspend foreclosures last fall and an ongoing investigation by all 50 state attorney generals.

Several states, including California, Delaware and New York, oppose a proposed settlement with the lenders.

They complain that the lenders would receive unfair immunity from civil litigation under the deal.

Fannie Mae and its sister company, Freddie Mac, own or guarantee about half of U.S. mortgages. That equals nearly 31million loans worth more than $5trillion and accounts for nearly all new mortgages.

The Bush administration seized control of the mortgage giants in September 2008, hoping to stabilise the housing industry.

The inspector general’s report says FHFA plans to change its oversight policies by the end of 2012.

It is the second in two weeks in which he has outlined lapses at both the FHFA and the companies it oversees.

Elijah E. Cummings, Maryland Democrat who requested the report, said in a statement: ‘As a member of Congress and an attorney, I find the systemic failures by FHFA and Fannie Mae to adequately oversee these foreclosure law firms to be a breach of the public trust and an assault on the integrity of our justice system.’

Amy Bonitatibus, a Fannie Mae spokeswoman, declined to comment on the inspector general’s report, but said that the 2006 legal analysis identified a specific issue with the practice of filing lost-note affidavits, which the company immediately addressed.

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