Back in 2006, Fannie Mae officials knew that attorneys representing the GSE were filing false documents in foreclosure proceedings but did nothing about it, according a new inspector general report.
An audit by the IG of the Federal Housing Finance Agency late this week revealed that Fannie hired an outside law firm in 2005 to investigate allegations of foreclosure processing abuses.
The investigators found that certain law firms representing Fannie filed false documents in Florida and elsewhere. The law firm reported back to Fannie in May 2006 that such “unlawful” practices should be stopped.
According to the OIG's report, the GSE regulator learned about the law firm's findings during a special review regarding Fannie's oversight of its foreclosure attorneys. But that review was launched in late 2010 in response to reports about robosignings of foreclosure documents.
“FHFA stated that it found no evidence that Fannie Mae's receipt of this information [in May 2006] caused the Enterprise to make any improvements in its oversight of the law firms,” the OIG report says.
The OIG audit report mainly focuses on FHFA's lackluster efforts to get Fannie to create an effective operations risk management program.
From 2006 through early 2011, the GSE regulator cited Fannie for weaknesses in its capacity to identify and correct operational risks. (See related story on the NMN website.)
The OIG maintains FHFA should have been more forceful and compelled the GSE to set up an effective operational risk program. In the meantime, Fannie may have “missed opportunities” to prevent some of the foreclosure abuses.
“FHFA-OIG contends that strengthened law firm oversight by Fannie Mae could have detected – if not prevented—these abuses by attorneys,” the OIG report says.
FHFA associate director Elizabeth Scholz disagrees. “Clearly there were breakdowns in a number of areas within the industry that contributed to the well-publicized foreclosures abuses,” she says. “An effective operational risk program would not have prevented servicing personnel and licensed attorneys from engaging in improper, unethical or fraudulent practices.”
