Housing

Report: Federal housing regulator was lax on foreclosure abuses

by Vicki Needham - 10/04/11 9:00 AM ET

“In August 2010, news reports alleged that RAN attorneys had engaged in inappropriate foreclosure practices such as routinely filing false documents in court proceedings and ‘robo-signing,’ ” the report said.

The report outlines multiple instances beginning as early as December 2003 when Fannie Mae, FHFA and its predecessor, the Office of Federal Housing Enterprise Oversight, were alerted by several sources that there were serious problems with the legal services provided by law firms in the program, yet they failed to take corrective action.

“However, FHFA did not schedule comprehensive examination coverage of foreclosure issues,” until after that time those news reports started.

Nearly every state is investigating foreclosure practices.

“Instead, FHFA focused its examination resources on assessing high-risk areas” such as the government-sponsored enterprises’ “management of credit risk,” the report said.

The program was expanded in August 2008, and Fannie Mae “required that loan servicers refer foreclosures and bankruptcy cases only to attorneys included in the system.” Currently, 191 firms participate in 45 states.

The report is set for release only two days before Cummings is to meet with DeMarco to discuss ways to help homeowners who are underwater on their mortgages, as well as other issues plaguing the housing sector.

“In addition to the absence of effective oversight, the report finds that some firms violated state laws governing the foreclosure process,” Cummings wrote. “As a result, it appears that an untold number of borrowers with loans owned or guaranteed by Fannie Mae may have suffered abuses that violated their legal rights.”

Addressing the joint session of Congress last month, President Obama drew cheers from some Democrats when he acknowledged the ongoing housing crisis and vowed to strengthen his efforts to help struggling homeowners.

“We’re going to work with federal housing agencies to help more people refinance their mortgages at interest rates that are now near 4 percent,” Obama said on Sept. 8. “That’s a step that can put more than $2,000 a year in a family’s pocket, and give a lift to an economy still burdened by the drop in housing prices.”

In response to Obama’s speech, FHFA decided to review policies of its two-year-old refinancing initiative — the Home Affordable Refinance Program (HARP) — “to identify possible enhancements that would reduce barriers for borrowers already otherwise eligible to refinance” their mortgage loans.

House Democrats were initially heartened by the administration’s renewed focus on housing. But the cheers were short-lived. Just a week after Obama’s speech, a number of lawmakers — already critical of the administration’s efforts to help underwater homeowners — grew infuriated when their request for a briefing with DeMarco was denied.

Instead, Cummings said at the time, “[FHFA] sent us some career employees, and they were not able to answer the questions that we were most concerned about.”

Rep. Dennis Cardoza (D-Calif.) was even more terse.

“The administration has been AWOL on this issue,” he told The Hill last month, “and the American people are suffering because of the mismanagement.”

The outcry was effective: DeMarco is scheduled to meet with the concerned Democrats on Thursday.

Cummings has requested documents from FHFA by Oct. 21, such as a May 2006 report by an outside firm looking into the allegations of abuse as well as the results of other audits completed last year.

He also requested a couple of other reports including one from June 2010, when FHFA staff conducted a field visit to Florida to observe foreclosure processes in the state.

In June, FHFA staff issued a report saying “servicers, attorneys and other supporting personnel were overloaded with the volume of foreclosures,” that “documentation problems were evident” and that they “were not devoting the time necessary to their cases due to Fannie Mae’s flat fee structure and volume-based processing model.”

FHFA has agreed to make changes recommended in the inspector general’s report.

Mike Lillis contributed.