Fannie Mae Promises to Keep Families in Homes… But Instead Pressures Banks to Foreclose

By: Jennifer Dixon, Detroit  Free Press
Published:  Monday, Aug. 22, 2011 –  5:11 am
Last Modified: Monday,  Aug. 22, 2011 – 11:52 am

DETROIT —     In early December, a senior  executive at Fannie Mae assured members of the Senate Banking Committee in Washington that the mortgage  giant was doing everything possible to address the foreclosure crisis.

“Preventing foreclosures is a top priority for Fannie Mae,” Terence  Edwards, an executive vice president, told the panel. “Foreclosures hurt  families and destabilize communities.” But confidential documents obtained by the Detroit Free Press show that Fannie Mae has pushed an agenda  at odds with those public assurances.

The records cover Fannie Mae’s foreclosure decisions on more than  2,300 properties, a snapshot from among the millions of mortgages Fannie handles  nationally. The documents show Fannie Mae has told banks to foreclose on some  delinquent homeowners – those more than a year behind – even as the banks were  trying to help borrowers save their houses, a violation of Fannie’s own  policy.

Fannie Mae has publicly maintained that homeowners would not lose their  houses while negotiating changes to mortgages under the federal Home Affordable  Modification Program, or HAMP.

The Detroit Free Press also obtained internal records revealing  that the taxpayer-supported mortgage giant has told banks that it expected them  to sell off a fixed percentage of foreclosed homes. In one letter sent to banks around the  country last year, a Fannie vice president made clear that Fannie expected 10  percent-12 percent of homes in foreclosure to proceed to sale.

Taken together, the documents offer an unprecedented window into how  Fannie decides whether to allow borrowers to exhaust all options to keep their  homes.

“It’s scary. It really is,” said Leisa Fenton of Clarkston, Mich., who  is among an untold number of people whose homes were sold in foreclosure even  though they had been assured their homes were safe while they sought mortgage  relief from Washington.

Her family’s home was sold at auction in October. “We just keep praying  the Lord is going to work it out,” she said.

Alan White, a law professor at Valparaiso University in Valparaiso, Ind., and a leading  national expert on the foreclosure crisis, reviewed the records for the Detroit Free Press and said they show Fannie Mae – which is  regulated by the Federal Housing Finance Agency, or FHFA – is sabotaging the  nation’s foreclosure prevention efforts and helping drive down home values.

“Fannie just wants to clean up its balance sheet and get these loans off the books while  taxpayers are eating these losses,” White said, referring to the  multibillion-dollar federal bailout of Fannie Mae in 2008 and the rising cost to  taxpayers.

“And Treasury and the FHFA are letting them get away with it. It’s a  huge waste. Wealth is being destroyed, people are losing houses needlessly, and  taxpayers are losing money.” Fannie Mae officials declined to be interviewed and would not address  the issues raised in the records obtained by the Free Press, including a lengthy series of questions provided  by email.

But a former Fannie Mae executive, Javid Jaberi, whose name is on some  of the documents, said the internal records merely reflect an effort by Fannie  Mae to get banks to respond more quickly when loans are delinquent, even if that  means pushing some foreclosed homes to sale.

In an interview last Wednesday, Jaberi said there is plenty of blame to  go around. Borrowers often didn’t understand their options. Banks weren’t doing  enough to help borrowers to get mortgage relief. And HAMP’s documentation rules,  he said, were too complex.

“Everyone is to blame,” Jaberi said, including Fannie Mae.

Fannie spokesman Andrew Wilson said in a statement Fannie is “committed  to preventing foreclosures whenever possible.” “We encourage homeowners to reach out as early as possible … to pursue  modifications and other foreclosure prevention solutions.”

Various lenders – Bank of America, GMAC Mortgage, CitiMortgage and Chase –  would not discuss Fannie’s policies.

Fannie Mae and many of the nation’s top banks have faced considerable  criticism for doing little to stem foreclosure sales, which grew by 1.6 million  last year. Investigations by other news media outlets showed that Fannie Mae  (and the banks that directly service home loans) help only a sliver of people promised relief, and  often delay or bungle applications for modifications. Other reports showed  Fannie has punished banks that were too slow to foreclose.

The documents obtained by the Free Press indicate, for the first time, that Fannie wasn’t  simply indifferent to helping homeowners, but launched a concerted effort to  force seriously delinquent borrowers from their homes.

Fannie’s foreclosure policy – what an August 2010 document calls “our  new delay initiative” – focused on homeowners more than 12 months late on their  mortgages, including people actively negotiating loan modifications. That stance  conflicts with the government’s (and Fannie’s) rules, which are meant to  insulate people while they seek loan relief under HAMP.

Mortgage companies, of course, can’t wait forever for delinquent  borrowers to catch up on their payments. But critics argue that Fannie Mae’s  confidential foreclosure policy is not only at odds with its public assurances,  but adds to the inventory of vacant homes across the nation and lowers property values for everyone.

According to White, the Valparaiso professor, foreclosing on a home  typically costs Fannie Mae far more than a successful loan modification. But, he  and others say, Fannie is willing to absorb higher losses because it knows  taxpayers – not Fannie Mae – will eventually reimburse the loss.

Since 2008, when the government took over Fannie Mae and its sister  company, Freddie Mac, the mortgage giants have cost taxpayers $141  billion, with estimates that the bill could eventually reach as high as $389  billion.

Fannie Mae and Freddie Mac are significant players in the foreclosure  crisis; they own or guarantee more than half of all existing single-family  mortgages and about two-thirds of all new U.S. home mortgages. Fannie also  administers the U.S. Treasury Department’s $29.9 billion foreclosure prevention  initiative – Making Home Affordable, which includes HAMP – that was launched by  President Barack Obama in 2009.

Fannie Mae, formally known as the Federal National Mortgage Association, doesn’t lend directly  to homeowners. It buys loans from banks, guarantees them and then relies on the  banks to service the loans directly. Fannie funds its mortgage investments by  issuing debt securities in domestic and international capital  markets.

Fannie Mae, according to rules outlined on its website, has told banks  that service its loans that they “should not proceed with a foreclosure sale”  until a borrower has been evaluated for a loan modification under HAMP. That  squares with HAMP’s written rules, which forbid banks from completing  foreclosures without first weighing a person’s eligibility for a  modification.

According to RealtyTrac, which tracks U.S. foreclosures, 1.6 million  homes were sold in foreclosure last year. It’s unclear from the records how many  could have kept their homes had Fannie not enacted its confidential foreclosure  policy.

Detroit-area leaders say Fannie Mae’s actions are destabilizing  neighborhoods and driving down home values. They pleaded with federal regulators to  help.

“Local governments are trying to keep people in their homes and keep property values up, and here you have a government  bureaucracy ripping (those efforts) to shreds,” said Wayne County, Mich., Executive Robert Ficano.

“It doesn’t make sense.”

Adam Taub, a Southfield, Mich., lawyer who works with people trying to  save their homes, said Fannie is “being very, very aggressive, very proactive,  in trying to kick people out. … They’re putting a lot of pressure on” the  banks.

He said he had several cases in which banks were willing to modify loans  but Fannie Mae was unwilling to cooperate. He said he had no way to know whether  Fannie’s policy affected those cases.

“They’re making their books look better and making neighborhoods look  worse, and that hurts everybody’s property values,” Taub said.

The confidential records reviewed by the Free Press include notations on more than 2,300 homes in  which banks asked Fannie to delay foreclosure sales while homeowners sought  modifications or other relief, including short sales – in which a lender lets  the borrower sell a home for less than what is owed.

In one instance, from August 2010, Bank of America requested a 45-day delay for a Wisconsin  homeowner who owed $124,610 and was 32 months delinquent. The bank said the  borrower was applying for a loan modification through HAMP and “it appears that  all financial documents have been received and we are waiting for an underwriter  to be assigned.”

Fannie Mae’s response: “Per our new delay initiative, any loan over 12  months deliq must be on an active payment plan with monthly payments coming in. Therefore, this  request to postpone is declined. Please proceed to sale.”

IndyMac Mortgage Services sought a delay for a Hawaii borrower who  provided all records required by HAMP. The homeowner, 22 months behind, owed  $412,225. Fannie: “Proceed with foreclosure.”

The records do not identify any homeowners by name.

Wilson, the Fannie Mae spokesman, would not address these or other  specific documents, saying only that Fannie evaluates delay requests case by  case and has approved some delays “if the situation warranted it.”

Indeed, Fannie officials approved some brief delays, records show – with  conditions.

In October, Bank of America sought a delay for a California borrower who  was 24 months behind, owed $230,449 and had filled out a HAMP loan package.  Fannie agreed to delay sale until early November, but noted:


Meg Burns, chief of policy at FHFA, which oversees Fannie Mae, said  foreclosure sales are delayed “all the time. We suspend foreclosure processing  all the time. … There are plenty of postponements.”

Burns said if anyone is to blame for home losses, it’s the banks for not  dealing sooner with homeowners.

FHFA officials also noted that Fannie and Freddie are adopting new rules in October that  provide incentives and penalties to encourage servicers to work with delinquent  borrowers at an early stage.

Edward DeMarco, FHFA’s acting director, has said the new policies should  give homeowners a greater understanding of the process and minimize taxpayer  losses by ensuring loans are serviced efficiently and fairly.

FHFA also noted that since Fannie and Freddie were taken into conservatorship, they have  completed more than 900,000 loan modifications.

Fannie Mae’s foreclosure policy is also being applied to seriously  delinquent borrowers in programs other than HAMP, records show.

In one case last October, Bank of America sought a delay for a Michigan borrower  seeking a loan modification who owed $65,542 and was two years behind, but whose  finances were improving.

“Borrower is reflecting positive monthly cash flow of $914.77 and may be  able to afford a modified payment,” the bank wrote. Fannie refused, noting the  lengthy delinquency: “Proceed to sale.”

Ira Rheingold, executive director of the National Association of Consumer Advocates, said, “It’s rarely in anyone’s best  interest to kick out a struggling homeowner who is trying to stay in their home,  particularly in cities like Detroit whose housing market is devastated.”

He said it’s absurd Fannie is taking actions “devastating to the  homeowners and communities they’re supposed to be serving. It really is  obscene.”

Jamison Brewer, a lawyer with Michigan Legal Services in  Detroit, said Fannie’s actions are contrary to what borrowers seeking  modifications are being told – that foreclosure sales are put on hold while they  apply for HAMP.

“Our tax money went into Fannie,” he said. “It’s just  ridiculous.”

Requests for short sale delays are likewise being denied, the internal  records show.

In October, Bank of America sought a delay for a California borrower who  owed $416,786, was 13 months behind, and trying to close a short sale. “LOAN IS  IN DOCUMENT COLLECTION PHASE,” the bank noted. “FILE HAS HAD 0 PREVIOUS  POSTPONEMENTS.” Fannie Mae declined, noting simply, “Too delinquent.”

White, the Valparaiso professor, said Fannie’s decision to target  homeowners who are more than a year delinquent doesn’t allow for changes in some  people’s financial situations, such as a new job or higher pay.

He is among a bipartisan collection of critics who say Fannie is less  concerned with helping homeowners than in pushing the cost of troubled mortgages  to taxpayers.

For example, White said, if a home with a $200,000 mortgage is  foreclosed and Fannie nets $80,000 from its sale, Fannie loses $120,000. But  because Congress authorized the Treasury Department to reimburse Fannie as part of the  government’s takeover, taxpayers eat the losses.

“Fannie would rather foreclose all the bad and marginal mortgages now,  even at very high loss rates, while losses are on the taxpayer, so that when it  is once again a private company, these risky mortgages will be gone, and will  not result in losses for its shareholders,” he said.

“Treasury and Congress have given Fannie a blank check, but Fannie knows  the checkbook will be taken away sooner or later.”

Fannie Mae has made it difficult in other ways for borrowers to keep  their homes.

Take the case of a woman represented by lawyer Lorray Brown of the  Michigan Poverty Law Program.

The Eaton County, Mich., woman lost her home in foreclosure and was  facing eviction when she persuaded a bank to lend her $170,000 to buy the  property back from Fannie Mae. Brown said Fannie initially rejected her client’s  offer, insisting on the full $184,000 the woman owed – $14,000 more than the  woman could raise.

Fannie did not accept the woman’s offer until January, after months of  wrangling. Had Fannie Mae won the fight, it would certainly have spent more than  $14,000 on legal fees and foreclosures costs while displacing a family and  leaving another home vacant.

Fannie lawyers referred questions to headquarters, which declined to  comment.

Well before Edwards, the Fannie Mae executive, testified before the  Senate committee that the mortgage giant was doing all it could to prevent  foreclosures, Fannie Mae was making plans to punish banks that were not selling foreclosed homes quickly enough, records show. The records  obtained by the Free Press buttress documents reported by the Washington Post earlier this year.

“Fannie Mae is suffering delays in the processing of its foreclosures,”  according to one unsigned memo from Aug. 31, 2010. The memo, a “talking points”  summary for Fannie Mae management, outlined its plans to fine banks for delaying  foreclosure on seriously delinquent homeowners.

As an example, the memo notes, a bank would be fined $5,218 at the time  of foreclosure on a house with a mortgage balance of $121,000 and 22 months  late.

The memo said Fannie Mae was initially targeting mortgages 18 or more  months delinquent to “scrub and clean up servicers’ existing portfolios.”

In a June 18, 2010, letter, Jaberi, then Fannie Mae’s vice president,  also cited fines in a letter to GMAC.

“Fannie Mae urges you to begin more closely managing delays in the  processing of our foreclosure cases as soon as possible,” Jaberi wrote, adding:  “You must keep the contents of this letter and the requirements  confidential.”

In the interview last Wednesday, Jaberi confirmed that versions of that  letter went to all banks that serviced Fannie Mae mortgages.

Fannie Mae also sent letters in June 2010 warning at least six lenders  that Fannie projected and expected “approximately 10 percent-12 percent of  monthly foreclosure inventory will go to sale.”

Bert Ely, a banking consultant based in Alexandria, Va., who reviewed  the letters for the Free Press, said they show Fannie “wants to force these  default situations into a foreclosure sale” and raised questions about whether  Fannie is setting arbitrary targets.

“When you have a uniform approach like that, it makes you wonder whether  they are just pushing action by the servicers irrespective of local market  conditions,” he said.

Kurt Eggert, a law professor at Chapman University in Orange, Calif., who has testified  before Congress on mortgage issues, said it’s unrealistic to expect banks to hit  uniform targets because “they have a different mix of mortgages. … And some  are much better at modifying mortgages than others.”

Jaberi denied that Fannie took a cookie-cutter approach with banks.  Fannie was merely “trying to create a dialogue between Fannie Mae and the  servicer. … These are nonperforming assets and need to be resolved. … We  were putting more pressure on the servicers to do their jobs.”

Alys Cohen, staff attorney for the National Consumer Law Center, noted  that Fannie threatened no punishment to banks that denied a loan modification to  qualified homeowners, but did threaten to punish banks that didn’t foreclose  fast enough.

“That results in many qualified homeowners ending up in foreclosure,”  she said.





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1 response to Fannie Mae Promises to Keep Families in Homes… But Instead Pressures Banks to Foreclose

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