By Kevin Chiu
In an effort to recover some of the billions of dollars in mortgage losses Fannie Mae and Freddie Mac have sustained, the Federal Housing Finance Agency (FHFA) has opened an inquiry into mortgage fraud in the real estate crash. The inquiry was announced almost two full years after the agency was established.
Subpoenas for 64 entities have been issued by the agency seeking documents related to “private label mortgage backed securities,” which Fannie and Freddie purchased. The documents will enable the FHFA to determine whether lenders or others are liable to the agencies for losses.
Government officials say the inquiry is expected to lead to a trail of transactions that led to the demise of the housing market as Fannie and Freddie supplied the majority of money to purchase millions of home mortgages that triggered the foreclosure crisis.
However, obtaining any money from banks and mortgage companies involved in the alleged frauds are another matter since nearly 400 banks and mortgage companies have gone out of business since the real estate collapse. The Obama administration and Congress gave the FHFA subpoena power to investigate any wrong doing in the collapse when it was formed. The Federal Housing Finance Agency was started with a merger of the Office of Federal Housing Oversight (OFHEO), the Federal Housing Finance Board and the U.S. Housing and Urban Development Department (HUD).
Fannie Mae and Freddie Mac have come under heavy criticism for their part in the nation’s real estate collapse after instituting aggressive procedures in their purchase of mortgages at the direction of politicians, including Congressman Barney Frank (D-MA) to increase the number of home mortgages made to subprime borrowers and the less advantaged.
The agency did not disclose any of the companies or individual files subpoenaed as part of the inquiry, but speculation centers around some of the worst offenders of home mortgage fraud, including mortgage brokers and some of the nation’s largest mortgage providers.
The government is attempting to determine whether misrepresentations, breaches of warranties or other acts or omissions were made in applications for home mortgages. Fannie Mae and Freddie Mac officials attempted to obtain mortgage files related to the inquiry without success, triggering the subpoenas by the government.
“FHFA is taking this action consistent with our responsibilities as conservator of each enterprise,” said FHFA Acting Director Edward J. DeMarco. “By obtaining these documents we can assess whether contractual violations or other breaches have taken place leading to losses for the enterprises and thus taxpayers. If so, we will then make decisions regarding appropriate actions.”
Congress provided the agency with broad subpoena authority in the Housing and Economic Recovery Act of 2008. FHFA officials anticipate compliance with the subpoenas, but it is prepared to take action to ensure compliance if forced to do so.