Last week, Congressmen Paul Kanjorski (D-PA) and Barney Frank (D-MA) sent letters to President Obama encouraging the Federal Housing Finance Administration (FHFA) to pursue claims against private companies that used fraudulent practices to sell loans or securities to Fannie Mae and Freddie Mac.
Rep. Kanjorski’s letter noted that since the placement of Fannie Mae and Freddie Mac in conservatorship in September 2008, the GSEs have incurred losses of $164 billion and have received more than $145 billion in taxpayer funding. The letter acknowledged that the FHFA had already begun to pursue certain legal claims against lenders that failed to satisfy contractual representations and warranties, but encouraged the agency to continue examining "claims similar to the claims asserted by private mortgage investors against issuers of private-label mortgage-backed securities, generally Wall Street firms and the largest banks."
Rep. Frank’s letter reiterated the views contained in Rep. Kanjorski’s letter: "Private companies sold Fannie and Freddie loans or securities based on fraudulent documents. These transactions created private profits at public expense, and they should be fought with every tool at the companies’ and the agency’s disposal."
The House Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises will hold a hearing on this subject next month. It most recently held a hearing on housing finance in July.