Foreclosure Problems was Forecasted by Fannie Report in 2006
Long before the regulators started investigations into the practices of the mortgage industry, an internal report in 2006 already warned Fannie Mae of abuses in the manner lenders and their law firms administered foreclosures.
The report stated that foreclosure attorneys in Florida had “routinely made” incorrect statements in court in an effort to speed up the processing of foreclosures. It raised some questions about whether some mortgage servicers or a different entity had the legal position to foreclose.
The report did not find any evidence that borrowers were inappropriately placed in foreclosure.
A Fannie Mae spokeswoman stated, “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.”
The agency is the biggest U.S. mortgage investor based on the amount of mortgages guaranteed. Loans from banks are being bought by Fannie and Freddie Mac then sell them to investors, giving them guarantees to cover losses in case the loans default.
Mainly, Fannie Mae and Freddie Mac rely mainly on banks and other firms to service such loans, as well as handle day-to-day management, including foreclosures. In 2008, the government took over the firms as loan losses rapidly soared and cost taxpayers some $134 billion.
In the past months, state and federal officials began probes into whether foreclosure law firms and banks have inappropriately seized homes through the use of fraudulent or incomplete paperwork.
Foreclosures were temporarily halted by some U.S. banks to evaluate the processes employed and face the likelihood of a multibillion-dollar settlement with federal and state officials.
In the past 6 months, Fannie Mae has also disassociated itself with two Florida law firms because of concerns regarding how they conducted the foreclosures. Federal and state officials are also seeking to institute new rules for the industry.