Fannie Mae Knew of Foreclosure Abuses in 2003
The inspector general for the Federal Housing Finance Agency this week said that Fannie Mae, which the FHFA now oversees, was aware of allegations concerning improper foreclosures as far back as 2003, but did nothing to stop them. The report showed that an unnamed investor warned Fannie of the foreclosure abuses in 2003, but the agency didn't react to those allegations until two years later.
Fannie did react to the allegations in 2005 by hiring a law firm, who reported back in 2005 that numerous foreclosure attorneys in Florida had "routinely filed false pleadings and affidavits." Fannie officials say they told a government official about the findings, but that official, who now works for Fannie's regulator, the FHFA, says he cannot recall the conversation.
In 1997, Fannie Mae began using a network of attorneys to help handle foreclosures, evictions and bankruptcies. By 2008, that network had expanded to include 140 law firms as the number of foreclosures in Fannie's portfolio reached record numbers. Between 2007 and 2008, foreclosures doubled, then grew by another 50 percent in 2009.
Last June, FHFA officials began looking into the foreclosure crisis. They found that the mortgage industry was being overwhelmed by a flood of new foreclosures, made worse by the fact that the average processing time for seizures had ballooned from 150 days to more than 400. The agency also found that the process was deeply flawed, and that law firms were simply not devoting enough time and resources to cases.
Last fall, a wide-spread use of so-called "robo-signers," or employees who routinely signed off on hundreds of documents without verifying their contents came to light. The practice spawned a probe by the attorneys general of all 50 states, for which a settlement is still being worked out with several major US banks. Some states, like California, Delaware and New York, oppose the proposed settlement on the grounds that it would offer unfair immunity from civil claims to the banks.
Fannie and its sister company Freddie Mac own or guarantee about half of all US mortgages. Between them, they control more than 30 million loans valued at more than $5 trillion, and account for nearly all new mortgages. The two entities were seized by members of the Bush administration in 2008 and placed under a conservatorship controlled by the FHFA in an attempt to stabilize the housing market. A final report on mistakes and abuses at Fannie and Freddie is expected this fall.
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