Are Fannie Mae & Freddie Mac (Government Controlled Lenders) At the “Heart” of the Mortgage Mess?

Are Fannie Mae & Freddie Mac (Government Controlled Lenders) At the “Heart” of the Mortgage Mess?
Posted by BEREL News Team on Thursday, December 23rd 2010

Objective real estate investors have been saying it for years: government-controlled Fannie Mae and Freddie Mac have been involved in questionable practices when it comes to mortgage regulation. And now, there’s significant support for this position in the major press. According to a Washington Post article published this morning, the two GSEs set the precedent for fast, perhaps overly-effective and aggressive foreclosure methods that ultimately led to Foreclosure-Gate and the robo-signing fiascos currently being endured and investigated on multiple fronts throughout the country.

In 2008, Fannie Mae and Freddie Mac “named an exclusive group of law firms that would rapidly carry out…filing legal paperwork to remove homeowners from their homes.” Prior to this time, this type of step was “unprecedented,” the reporting team says. Now, while many lenders followed suit and created their own foreclosure issues, the “heart of federal and state probes over faulty foreclosure practices that now threaten to further undermine the housing market” is squarely located with Fannie and Freddie. According to an anonymous source, the GSEs not only “urged swift foreclosures,” but also green-lighted a firm that had engaged in documented, “legally questionable practices.”

In further efforts to speed the foreclosure process, the GSEs offered incentives and threatened fines on law firms and servicers that took too long to foreclose, while neglecting to implement safeguards for the homeowners themselves. When asked about the existence of these safeguards, Fannie Mae associate general counsel Susan Reid simply stated, “I don’t know of any policies and procedures.”

It seems clear that other lenders and lawyers took their cues from Fannie and Freddie when it came to their foreclosure processes, but that does not change the fact that each individual corporation should have installed some type of protections to insure that foreclosures were valid. Do you think Fannie Mae and Freddie Mac should bear a greater burden of blame than other lenders involved in the robo-signing scandals?