Bloomberg News

Fannie Mae Delayed Acting on Loan-Paperwork Abuse, Watchdog Says

October 04, 2011

Oct. 4 (Bloomberg) -- Fannie Mae waited for two years before acting on a tip from one of its shareholders about abuses by lawyers handling the mortgage firm’s foreclosures, a government watchdog reported.

The inspector general of the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, released a report today on outside law firms hired by the government- sponsored firm to handle mortgage defaults.

Among other things, the report said, Fannie Mae didn’t act on the December 2003 allegation from an unidentified shareholder until it hired a law firm two years later to look into the matter. In May 2006, the law firm reported to Fannie Mae that Florida-based foreclosure attorneys were “routinely filing false pleadings and affidavits.” Fannie Mae didn’t notify its regulator of the findings, according to the inspector general.

State attorneys general and federal regulators have been investigating whether banks and mortgage servicers used false documents and signatures, a practice known as robo-signing, to justify foreclosures as they coped with millions of defaults in the collapse of the subprime mortgage market in 2008. Settlement talks among the states, the Justice Department and banks have been under way for most of the year.

The inspector general’s report was prompted by a request from Representative Elijah Cummings of Maryland, the top Democrat on the House Oversight and Government Reform Committee. The inspector general found that the FHFA didn’t conduct a review of Fannie Mae’s and Freddie Mac’s legal vendors until late last year. Cummings in a letter dated today called the FHFA’s failure to oversee the law firms “a breach of the public trust.”

The FHFA “needs to boost its capacity to identify new and emerging areas of risk,” the inspector general concluded.

Fannie Mae spokeswoman Amy Bonitatibus declined to comment on the IG report. She said that Fannie Mae’s internal 2006 report “identified a specific issue with the practice of filing lost note affidavits, which was immediately addressed.”

--Editors: Lawrence Roberts, Maura Reynolds

To contact the reporter on this story: Lorraine Woellert in Washington at lwoellert@bloomberg.net.

To contact the editor responsible for this story: Lawrence Roberts at lroberts13@bloomberg.net.


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