Fannie Mae, the taxpayer-backed mortgage giant, knew as early as 2003 that foreclosure attorneys were illegally filing falsified documents in court, according to a new government investigation. Eight years later, the company and its regulators still have not taken the steps needed to protect taxpayers and homeowners from the practice, the report found.
“Fannie Mae could have reacted to foreclosure deficiencies sooner,” according to the report by the inspector general for the Federal Housing Finance Agency, which oversees Fannie Mae.
After Fannie Mae first heard of its attorneys using falsified documents, in 2003, it took the company two years to hire an outside law firm to investigate.
“[F]oreclosure attorneys in Florida are routinely filing false pleadings and affidavits,” according to the firm’s report, which Fannie Mae received in May 2006. “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 practice eventually led to a full-blown scandal over “robo-signing” in 2010. A number of former employees at some of the nation’s largest banks admitted that they forged thousands of mortgage documents a day. The documents were used to prove that the banks owned the mortgages, even though the process of recording transfer of ownership from loan origination to the final investors had broken down, according to an investigation by Florida Attorney General Pam Bondi.
That process often requires a mortgage to change hands five to seven times. But the people putting together the deals often skipped those steps, leaving banks without the documents to prove who owned what, Bondi said.
Bondi released her report in January 2011. Fannie Mae knew about the problem years earlier but did little to stop it, according to the inspector general’s report. In fact, Fannie Mae did little to detect or prevent abuses by lawyers working on its behalf until the problems were exposed in a magazine article in August 2010, the inspector general found.
Controversy over the article prompted FHFA to send a team of investigators to Florida to find out whether Fannie Mae had improved its system of handling foreclosures. They found that if anything, the situation is only getting worse.
“[A]ttorneys are increasingly unprepared when they enter the courtroom (e.g., they don’t have the note, don’t know if the borrower has been offered …[a loan modification], service has been cancelled, etc.) which cause foreclosure sale cancellations and ultimately lengthens timelines,” the investigators wrote.
Even after improving their oversight of law firms working on its behalf, Fannie Mae still lacks the procedures necessary to make sure they are following the law in foreclosure cases, the inspector general found.
Image: kingary, via Flickr.com
Christopher Maag Contributing writer for Credit.com, Chris graduated with honors from the Columbia University Graduate School of Journalism, and has reported for a number of publications including The New York Times, TIME magazine and Popular Mechanics. Have a question for our experts? Email them at CreditExperts@Credit.com.
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