Consumer Law

"Fannie and Freddie Start Returning Fraudulent Mortgages to Banks, But Crime Goes Unpunished"

By M. Stan Herring

ThePeoplesVoice.org has posted an article about Fannie Mae and Freddie Mac's intents to repay $21 billion worth of home mortgages to banks this year.

Four commercial banks now dominate the home mortgage market: Citigroup, JP Morgan Chase, Bank of America, and Wells Fargo, and they will receive the bulk of these repurchases. Since the banks sold these mortgages to these agencies for full value, they must buy them back at full value, but at least one bank, JP Morgan Chase, says these mortgages will then be immediately written down by 50%.

Fannie and Freddie have already written off $200 billion in mortgage portfolio losses and had a "$400 billion cap on losses removed by the Treasury, meaning the losses could be unlimited." The mortgages being returned to banks are from the 2006-07 housing boom and are supposed to be "cream of the crop," meaning that they are qualifying mortgages. They are being carefully considered and sold individually to banks. Errors are being found in paperwork such as over-appraisals and fraudulent income claims.

Banks aren't thrilled with accepting the repurchases. They go over each mortgage with Freddie and Fannie and have analysts looking at comparable housing at the time the mortgage was made. "Still, in this review process banks are able to decline half of the repurchase requests, forcing the government to absorb the losses."

What you can count on is that, between the Treasury and the Fed and the administration, very little will be said about this situation. As much as possible will be done to keep this out of the public eye and away from the hands of Congress. This might explain why there is no mention that Fannie and Freddie, who are now sitting on a prosecutors wet dream of information about criminal behavior in the mortgage market, are sending any of their files over to the Justice Department. The Attorney General seems to have no interest in this gold mine of prosecutable information, and no task force of lawyers and FBI agents has been set up in Washington to look into this cesspool of fraud, deceit, malfeasance, bribery, and theft, involving billions and billions of dollars.

If you would like more information on foreclosures, please check out our articles The Three Stages Of Foreclosure In Alabama and Wrongful Foreclosures In Alabama.

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Full post as published by Alabama Consumer Blog on March 26, 2010 (boomark / email).