More federal investigations are cropping up as stories of fraud and abuse with loan and mortgage servicers Fannie Mae and Freddie Mac continue to be uncovered, and now the Inspector General (IG) is calling for the Federal Housing Finance Agency (FHFA) to remediate its oversight of the firms. The IG alleges that the FHFA knew of Fannie and Freddie’s dealings with law firms that were delinquent and reckless in their processing of foreclosures and did nothing to stop the abuses from taking place. The bulk of the blame is being focused on Fannie Mae, as it appears Freddie did take steps to sever ties with unscrupulous lawyers, whereas Fannie reps allowed its Retained Attorney Service Network to operate in a careless, abusive manner. For more on this continue reading the following article from The Street.
The Federal Housing Finance Agency's Office of Inspector General said in its latest report critical of the Fannie Mae (FNMA) and Freddie Mac (FMCC) regulator that the agency still had no policies to address abusive foreclosure practices by law firms representing the mortgage giants.
Fannie and Freddie were taken under government conservatorship in September 2008. As of June 9, according to the FHFA, the U.S. Treasury had "invested over $162 billion of public funds in [the two mortgage enterprises] to offset their losses and prevent their insolvency."
The FHFA's Inspector General began a review of Fannie Mae's Retained Attorney Service Network, or RAN, in late 2010, following a request from Representative Elijah E. Cummings (D-Md.) that the Inspector General investigate "widespread allegations of abuse" by law firms hired to process foreclosures for Fannie Mae, and FHFA's efforts "to investigate these allegations and implement corrective action."
The Inspector General found that "there were indicators prior to August 2010 [when various media reports surfaced, covering "robo-signing" and other sloppy or abusive foreclosure practices] that could have led FHFA to identify the heightened risk posed by foreclosure processing within Fannie Mae's RAN."
The Inspector General said that the "FHFA has not developed formal policies to address poor performance by law firms that have relationships," and has "identified instances where Freddie Mac terminated for poor performance law firms that processed foreclosures on its behalf, but Fannie Mae continued to use the firms."
In its response to the Inspector General's recommendations that the agency implement policies to address poor performance by law firms handling loan "default-related legal services" for Fannie Mae and Freddie Mac, the FHFA said it would "ensure that appropriate steps are taken by September 29, 2012 to remediate [Fannie Mae and Freddie Mac's] deficiencies in the management of risks associated with default-related legal services vendors."
This article was republished with permission from The Street.