I’m not inclined to believe the conservative argument that Fannie Mae and Freddie Mac somehow caused the housing crisis by lending to poor people. I am inclined to believe that Fannie and Freddie are as responsible as the major banks for the abuse and fraud in mortgage servicing, in fact more so, because as a quasi-federal entity they had the ability to use regulatory means to put a stop to it. And now, we have pretty incontrovertible proof that Fannie Mae, at least, knew about mortgage servicing problems as far back as 2006.
Fannie Mae was warned in a 2006 internal report of abuses in the way lenders and their law firms handled foreclosures, long before regulators launched investigations into the mortgage industry’s practices.
The report said foreclosure attorneys in Florida had “routinely made” false statements in court in an effort to more quickly process foreclosures and raised questions about whether some mortgage servicers or another entity had the legal standing to foreclose.
The report found no evidence that borrowers were improperly placed in foreclosure.
“Fannie Mae took the necessary steps to address the specific issues identified by the 2006 report and regularly evaluates and enhances oversight of its retained attorney network,” said a Fannie Mae spokeswoman.
I don’t know how Fannie Mae can say that. They were using bogus document processors and foreclosure mill law firms right up until very recently. They didn’t stop using David J. Stern, the most notorious of the foreclosure mills, until last fall, and they were still using foreclosure mill Ben-Ezra & Katz until this February. The report hints at problems with MERS, which Fannie also continued to use until recently. So that’s a very CYA statement.
The report found no illegal foreclosures in 2006; that says nothing about the past five years, when foreclosures spiked and servicers became overwhelmed with delinquencies. To this day, unexplainable things like this happen:
Two weeks before Glen Ables’ new, modified mortgage payment was to go into effect, a mysterious letter arrived in the mail. It threatened to derail the plan to save his house from foreclosure.
That letter, from a Tampa lawyer, said he and his wife had 30 days to send them the balance of their mortgage. And it came with what looked like a copy of a court document filed in the case […]
The letter implies the document was filed in court. It even says, “13th Judicial Circuit In and for Hillsborough County” at the top. It lists the plaintiff as BB&T, and it’s signed by a lawyer.
The only thing missing is the case number, and no court document is filed without one. In fact, the form was never filed, and there has never been a foreclosure case filed against the Ables, according to a records request by The Tampa Tribune.
“I would say it’s fake,” Ables said. “I would say that it’s nothing more than a scam to scare people. And I believe that the group that does this did not do its homework.”
It’s unclear whether this was intentional or a mistake. But either way, real estate experts say it’s a symptom of the vast number of foreclosures on the market and the factory-like way law firms are working through cases.
Let’s just repeat: this kind of thing should never, ever happen. It results from a total breakdown in the mortgage servicing system and the multiple checks and fail-safes that are supposed to be built into the process. The only way this happens is if accuracy gets sacrificed for speed, which is exactly what the Fannie Mae report assumed in 2006. By the way, this mortgage is held by Freddie Mac.
So no, I don’t believe that Fannie Mae acted on this information in 2006. And the consequences of that are pretty obvious.