Fannie Mae and Freddie Mac Subpoenaed

Nov 10th, 2007 @ 4:10 PM by Alden Smith

It seems to me that when times get bad, like they currently are in the mortgage market, that everyone goes on a witch hunt to root out the bad guys.  I have to think that this should also be done in the best of times.  And also have to ask myself if someone is looking fir a scapegoat to hang this whole mess on.  Now, it appears that federally funded Fannie Mae and Freddie Mac are in trouble.

The Players

Fannie Mae and Freddie Mac have been subpoenaed by the State of New York by New York attorney general, Andrew M. Cuomo.  Mr. Cuomo is seeking information on home loans purchased by Fannie Mae and Freddie Mac because evidence shows that some loans might have been based on fraudulent appraisals.  Mr. Cuomo also subpoenaed investment banks, but would not comment on who they are.

The Problem

It seems that Fannie Mae and Freddie Mac are not the only players here.  It appears that there is a pattern of collusion between lenders and appraisers.  Washington Mutual and First American Corporation are also involved.  Fannie Mae and Freddie Mac have bought loans from Washington Mutual, and are supplying documents about these transactions to Mr. Cuomo.  Apparently, First American Corporation   had artificially increased appraisals to secure Washington Mutual’s business.  Fannie Mae and Freddie Mac own or else guarantee 40 percent of the $11.5 trillion of United States residential mortgage debt.

Why The Subpoena?

Data from the Mortgage Bankers Association has shown an increase in delinquencies among sub-prime borrowers and a record rate of late payments by buyers.  This is what has prompted the investigation.  First American, the largest United States title insurer, had apparently inflated home appraisals through its eAppraiseIT unit, acting on pressure from Washington Mutual.  Washington Mutual immediately suspended business with eAppraiseIT.

In Conclusion

How many heads will roll before this is sorted out?  It makes you wonder why this has gone unnoticed for so long, and why investigations have just now begun to arise.  Somehow, it seems like it is always business as usual until something fails, and the economy suffers.  And then, we see things like this happen.  Do you think maybe it might be nice to stop this before it begins?