In this Section
News & Advocacy
Since Fannie Mae and Freddie Mac were taken under government conservatorship in 2008, taxpayers have spent almost $50 million on legal fees to defend former executives of the two government-sponsored enterprises, The New York Times reported Feb. 22.
According to a recent analysis by the Federal Housing Finance Agency’s inspector general, $37 million alone was spent defending three former Fannie Mae executives against claims of securities fraud.
FHFA Inspector General Steve A. Linick told the Times that the GSEs need to do a better job of limiting legal costs — costs passed onto taxpayers because agreements that were in place before the GSEs were taken under conservatorship allowed for the defense of executives against lawsuits.
Linick’s report indicated that the legal contracts requiring taxpayers to foot the bill for lawsuits could have been repudiated when the GSEs first came under government conservatorship.
The FHFA submitted a proposal to Congress Feb. 21 outlining its plan for shrinking Fannie and Freddie, and the Inspector General would like a reduction of legal expenditures added to the plan. He suggested that Fannie and Freddie write new agreements to reduce taxpayer obligation for future legal costs.
FHFA officials agreed to work on implementing the Inspector General’s suggestions and are expected to have a summary report completed by June, the Times reported.
While the Federal Housing Administration blasted claims that its $1 billion settlement with Bank of America was a bailout, the agency admitted the money, which is part of the $26 billion settlement with the nation’s biggest banks, will shore up its mortgage insurance fund, National Mortgage News reported Feb. 23.
Speaking Feb. 23 in Orlando, Fla., at a conference for the Mortgage Bankers Association, FHA Acting Commissioner Carol Galante said the settlement was not a “gift,” and that the FHA was being compensated for its losses, National Mortgage News reported.
Galante added that the settlement will keep the agency’s mortgage insurance fund from going broke. FHA will apply $750 million from the Bank of America payment to address a $688 million shortfall in the fund.
In related news, the FHA announced Feb. 27 that it will raise mortgage insurance premiums in April to further beef up its emergency fund — by approximately $1 billion.
Mortgage insurance premiums will increase from 1 percent to 1.75 percent of the base home loan amount, regardless of the term or loan-to-value ratio. Additionally, the annual mortgage insurance premium will increase by 10 basis points for loans under $625,500 beginning April 1 and by 35 basis points for loans exceeding $625,000 starting in June.
These increases come on the heels of recent increases on FHA jumbo loans by 25 basis points and premiums on lower balance loans by 10 basis points.
California Attorney General Kamala Harris asked the Federal Housing Finance Agency on Feb. 24 to halt California foreclosures and to consider debt forgiveness for homeowners, Bloomberg reported.
Harris addressed her request to Edward J. DeMarco, acting director of the FHFA, and asked that foreclosures in California — where more than 60 percent of home loans are owned or guaranteed by Fannie Mae and Freddie Mac — be suspended until the FHFA completes a “thorough and transparent analysis of principal reduction,” Bloomberg reported.
More than 500,000 Californians have lost their homes to foreclosure since 2008, and another 500,000 homes are in the process, or at “imminent risk,” of foreclosure in 2012, Harris noted in her letter to DeMarco, Bloomberg reported.
Harris’s letter referenced the $26 billion settlement with Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial where the banks committed $20 billion in various forms of mortgage relief plus payments of $5 billion to state and federal governments. The settlement does not cover loans owned or guaranteed by Fannie or Freddie because, as Harris wrote, DeMarco has “consistently declined to authorize principal reduction programs,” Bloomberg reported.
On Dec. 20, 2011, Harris sued Fannie Mae and Freddie Mac, saying they were stonewalling her effort to learn if drug dealing and prostitution occur in foreclosed homes, whether taxes were paid on the properties and whether military families were illegally evicted by servicers. She demanded that they respond to 51 investigative subpoenas asking them to identify all California homes on which they foreclosed.
In her Feb. 24 letter, Harris noted that principal reductions offer the most help for homeowners and investors and, according to the FHFA’s own data, are in the best interest of taxpayers, Bloomberg reported.
Fannie Mae offered investors a package of 2,490 real estate-owned properties in the first of several bulk REO packages promised by the Federal Housing Finance Agency, which oversees Fannie and Freddie, National Mortgage News reported Feb. 27.
As many as 83 percent of the properties included in the package are occupied, which means investors will take control of cash producing, single-family homes. Credit Suisse is serving as Fannie’s investment banker on the deal.
The package includes homes in Atlanta, Arizona, Chicago, Florida, Los Angeles and Riverside, Calif.
The FHFA said only prequalified investors will be allowed to submit bids on the REO portfolio; investors were invited to prequalify starting Feb. 1.
FHFA Acting Director Edward J. DeMarco called the auction an “important milestone” designed to reduce taxpayer losses and stabilize neighborhoods, National Mortgage News reported.
Together, Fannie Mae and Freddie Mac possess more than 180,000 REO properties; Fannie alone owns more than 122,000.