UPDATE: FHFA: Fannie, Freddie Working On Tools To Catch Mtge Fraud
18 März 2009 - 9:01PM
Dow Jones News
The regulator for Fannie Mae (FNM) and Freddie Mac (FRE) said
Wednesday that the mortgage giants were working on new tools to
crack down on mortgage fraud.
Federal Housing Finance Agency Director James B. Lockhart said
he hopes to unveil the tools soon, which would be in addition to
rules aimed at catching fraud announced earlier by the
government-sponsored enterprises, or GSEs.
Reports of mortgage fraud have been on the rise in the aftermath
of the housing bust, as lenders have scrutinized mortgage
applications more carefully and reined in mortgage credit.
The number of mortgage fraud reports last year climbed 26% from
a year earlier, according to a study released this week by the
Mortgage Asset Research Institute.
In January, Fannie and Freddie announced new rules requiring
mortgage originators and appraisers to provide identifying data on
loans sold to the companies. The rules won't take effect until Jan.
1, 2010.
"Additional efforts to expand mortgage fraud prevention and
detection are under consideration by the enterprises and their
industry partners, and I hope to be reporting on them soon,"
Lockhart said in a speech he delivered at a Women in Housing and
Finance symposium.
Lockhart said the mortgage giants were playing an important role
in setting good standards for other mortgage market participants in
a variety of ways, including with regard to working to help
borrowers avoid foreclosure.
But he suggested the impact of that effort could be limited
because the bulk of troubled mortgages are packaged into securities
that the firms didn't issue. So-called private-label
mortgage-backed securities represent 50% of serious delinquencies.
Meanwhile, loans owned or guaranteed by Fannie or Freddie represent
only about 20% of seriously delinquent loans.
Lockhart acknowledged that he was "very optimistic" when he
announced a program in November for Fannie and Freddie to modify
the loans they own or guarantee. He said he soon realized that the
program wouldn't reach enough borrowers. During the fourth quarter
of 2008 - the first quarter of the conservatorship - Fannie and
Freddie completed 24,000 loan modifications.
"The numbers pale in comparison to the millions that we need to
help," Lockhart said.
Lockhart said the mortgage giants and the twelve Federal Home
Loan Banks also have been hurt badly by their roughly $250 billion
of investments in private-label securities, or PLS. More than half
of the firms' securities have seen their debt ratings sink from
triple-A to junk, Lockhart said. This drop also has eaten away at
the firms' capital cushions.
The private-label securities are "a major destroyer of capital"
at Fannie and Freddie, Lochart said. "If you add them up, they are
probably larger than the Treasury draw at this point," he added,
referring to the $60 billion the government will have pumped into
the firms by the end of this month.
Going forward, Lockhart said it might be possible to restructure
Fannie and Freddie as firms that tap private capital yet also
fulfill a public policy mission - an arrangement that critics said
led to their downfall.
He suggested it could be done if a fee were levied on the firms'
profits to support affordable housing goals, as opposed to meeting
them through making riskier investments or business decisions.
Lockhart said that regulators may have pushed the firms too hard on
such goals, helping to cause their downfall. He said, for example,
that the PLS the firms bought were "gold-rich" in terms of
affordable housing goals.
-By Jessica Holzer, Dow Jones Newswires; 202-862-9228;
jessica.holzer@dowjones.com