The real bombshell of the past 24 hours in housing was the report of the FHFA Inspector General, the second in two weeks damning the conduct of the GSEs. In this case, Fannie Mae was found to have known about foreclosure fraud, including serial fabrications of foreclosure documents and robo-signing, as far back as 2003.
Only after news reports in mid-2010 began to describe the dubious practices, like the routine filing of false pleadings in bankruptcy courts, did Fannie Mae’s overseer start to scrutinize the conduct. The report was critical of that overseer, the Federal Housing Finance Agency, and was prepared by the agency’s inspector general.
In one notable lapse, even after the agency reported problems to Fannie Mae in late 2010 about some of the approved law firms, it did not request a response from the company, the report said.
“American homeowners have been struggling with the effects of the housing finance crisis for several years, and they shouldn’t have to worry whether they will be victims of foreclosure abuse,” said Steve Linick, inspector general of the finance agency. “Increased oversight by F.H.F.A. could help to prevent these abuses.”
Fannie Mae had a retained attorney network with a select list of law firms that would perform any foreclosure operations with payment on a volume basis. These firms included notorious foreclosure mills like the Law Offices of David J. Stern. Even after whistleblowers, and even Fannie’s own outside law firm, identified persistent foreclosure abuses, Fannie never mentioned this to its regulator, nor did they stop using the law firms in their network. In fact, they required that their servicers ONLY use these law firms that Fannie knew were committing systemic abuses.
I asked Sen. Jeff Merkley about this disturbing report yesterday. “It raises new questions,” he said. “And hearings are the appropriate venue to examine that.” So I’d expect hearings at the Senate Banking Committee about this complete failure of oversight, and facilitation of systemic foreclosure fraud that steals homes from borrowers with fake documents. Elijah Cummings, the ranking member of the House Oversight Committee, also expressed outrage at this, and planned to take it up with the FHFA Acting Director in a meeting this week.
Just to expand on this briefly, the unifying thread in all of this is a total collapse of federal oversight over many years. The banks basically had free reign to do whatever they wanted on foreclosures and housing, and the federal agencies charged with regulating this either looked the other way or actively participated.
Relating this to the present, the feds may want to take over the foreclosure fraud settlement process. In fact the Office of the Comptroller of the Currency has its own regulatory “crackdown” on banks over the issue in the form of consent decrees. Anyone who thinks these will work need only look at the prior history.