Wednesday, October 5, 2011

Inspector General: FHFA Was Aware of Robo-Signing and Other Abuses

The Federal Housing Finance Agency (FHFA) had knowledge of such foreclosure procedural abuses as robo-signing and falsified documentation years before these infractions made front-page headlines and triggered industry-wide investigations, according to the agency’s own inspector general. The Federal Housing Finance Agency Office of Inspector General (FHFA-OIG) focused its investigation on Fannie Mae’s Retained Attorney Network, which was established by the GSE in 1997 to perform default-related legal services associated with foreclosure, bankruptcy, loss mitigation, eviction, and REO closings. According to the inspector general’s report released Tuesday, FHFA documented its receipt of consumer complaints citing “inappropriate foreclosure practices” involving Fannie Mae loans at least as early as August 2009. However, FHFA did not act on these reports until a full year later, when allegations of abuse by law firms within Fannie Mae’s attorney network – such as routinely filing false documents in court proceedings and robo-signing – surfaced in the media in August of 2010. “FHFA had not previously considered risks associated with foreclosure processing to be significant,” the inspector general said in his report. But according to the FHFA-OIG, there were clear warning signs even before the consumer complaints started coming in during 2009 that should have prompted the GSEs’ conservator to take action. The inspector general cites highly visible, mainstream news coverage that began to circulate as far back as 2008, in which allegations were raised about so-called “foreclosure mills” managing defaulted loans for the GSEs. One New York Times article, in particular, revealed that several courts had imposed “significant financial sanctions” against various firms in Fannie Mae’s Retained Attorney Network and in some cases, their clients, which included the GSE. These penalties stemmed from such abuses as unlawful evictions and inaccurate loan information, and dated back to 2006. In 2005 Fannie Mae hired an outside firm to investigate allegations regarding foreclosure processing. The report of the findings stated: “[F]oreclosure attorneys in Florida are routinely filing false pleadings and affidavits…. The practice could be occurring elsewhere. It is axiomatic that the practice is improper and should be stopped. Fannie Mae has not authorized this unlawful conduct.” The FHFA-OIG also pointed out that in June 2010, FHFA’s Office of Conservatorship Operations performed a two-day field visit to Florida and found that documentation problems were evident, and law firms were not devoting the time necessary to their cases due to Fannie Mae’s fee structure. As a result of the visit, FHFA staff developed a listing of actionable items to address the issues, but the inspector general says he “has found no evidence that action was taken” on any of the items advised. Beyond the specific red flags of consumer complaints, media reports, and public court filings in Florida, FHFA-OIG says the sheer nature of market conditions – including significant increases in foreclosures and the deterioration seen in the housing sector – should have led FHFA to recognize the heightened risk posed by foreclosure processing. FHFA commenced a special review of Fannie Mae’s Retained Attorney Network in late 2010. To date, FHFA has not released the results of its review. FHFA has repeatedly stressed that its primary obligation as conservator of Fannie Mae and Freddie Mac is to ensure the safety and soundness of the two GSEs, but according to FHFA-OIG, the federal overseer “lacks assurance that law firms with histories of performance deficiencies do not jeopardize the safety and soundness of the Enterprises.” FHFA’s inspector general has been churning out reports in recent weeks scrutinizing the agency’s oversight of the nation’s two largest mortgage companies and calling into question such core responsibilities as recovering taxpayer dollars from loan repurchases and evaluating the GSEs’ strategies for managing their growing REO inventories.

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