Ex-Freddie Mac, Fannie Mae chiefs sued by SEC over loans


COMBO Title and Securitization Search, Report, Documents, Analysis & Commentary CLICK HERE TO GET COMBO TITLE AND SECURITIZATION REPORT

EDITOR’S COMMENT: In my opinion they should not be just sued by a regulatory agency with a civil result. And whatever Obama says he has been told, the acts committed were illegal and probably criminal, despite reports to him to the contrary. Yet this is a good step forward.

Although it is a premature, I have been working on a Fannie Mae Loan Analysis and I think it is appropriate to share my notes, so far: ANALYSIS OF FNMA LOANS. By the way, this is not on the store. If you want this type of work from me it takes 8-10 hours and the cost is very high. You can write to neilfgarfield@hotmail.com if you want this done for you. I only do perhaps one per month. At such time that I can reduce it to a template and have assistants or volunteers create reports out of it, like we do with the COMBO, I will post it as something you can buy as a commoditized version directed at your loan.


Richard Syron, the former chief executive officer of Freddie Mac, and Daniel Mudd, ex-CEO of Fannie Mae, were sued by the U.S. Securities and Exchange Commission over disclosures they made about subprime loans.

Complaints were filed against the two men today in Manhattan federal court. Also sued by the regulator were Enrico Dallavecchia, who was chief risk officer for Fannie Mae; Thomas Lund, Fannie’s Mae’s former executive vice president; Patricia Cook, Freddie Mac’s former executive vice president; and Donald Bisenius, who was a senior vice president at Freddie Mac.

“This action arises out of series of materially false and misleading public disclosures,” the SEC said in the complaint filed against Syron. The agency seeks unspecified damages against the defendants. Fannie Mae or Freddie Mac aren’t named as defendants in the case.

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24 Responses

  1. chas404

    Believe. There is so MUCH undisclosed. The biggest problem we have is- “No Jurisdiction.” Everyone, in any power, wants to escape responsibility, and that goes from banks, to the distressed debt “investors”, to government agencies, to attorney generals, to department of justices, to our Congress, to our President, to our courts. No one wants to address – they shift the blame. But, sooner or later, they will have to – as the situation is worsening. .

  2. Servicing Guide, Part I, Section 202: Servicer’s Basic Duties and Responsibilities and Section 202.04: Written Procedures

    As provided in the Servicing Guide, servicers service Fannie Mae mortgage loans as independent contractors, not as agents, assignees, or representatives of Fannie Mae.

    Servicers are independent contractors. During default, the default is assigned to third party Servicer-subservicer (c/o MERS-ServiceLink) and the firm who also has the special real estate lawyers/brokers who handle as vendor/contractor Fannie/Freddie loan collection.

    You paid monthly the Master Servicer ‘seller of loans’ passed to a $1,000,000,000 Billion dollar REMIC (Fannie/Freddie). The real estate lawyers/brokers are the independent agents and act as Servicers (debt collectors). They are allowed to use the national bank name via power of attorney – attorney in fact documents. As the Servicer they get back from Master Servicer fee. The Master Servicer takes care of investors/trustees. The Servicer takes care of Lender/Beneficiary:homeowner.

  3. The schedule of notes and loans are passed via Master Bailee Letter Indenture Trustee purchased notes for REMIC passes custody c/o Conduit is bailee manager.and depositor who accepted cash, the bank holding company also known as depository trust company assignee transfers servicing servicing rights to its assigness successors – nominees.

  4. The Title Policy is for the LENDER its LENDER/TITLE and the insurance is for the coveted default.

    Wells Fargo is the Master Servicer.

    Wells Fargo commercial client was the lender an unknown third party to you. During default the insurance proceeds benefit covering costs of the new ‘servicer’ ‘sub-servicer’ of the current default debt will get to settle up afer sheriff sale and hold in trust the insruance proceeds or credits pending new origiantion. The proceeds of sale are held in trust for a pending sale and new origination.

  5. Z: more GSE double-speak:

    Excerpt from a Fannie Prospectus Supplement:

    “The certificates are issued under the terms of the trust indenture dated as of November 1, 1981, as amended. We have executed the trust indenture in our corporate capacity and as Trustee. An issue supplement supplements the trust indenture and has the same date as the issue date shown in the pool statistics of this prospectus supplement.”

    Excerpt from Fannie Trust Indenture:

    “Article IV Mortgage Loans. Section 4.01. Conveyance of Mortgage Loans. Concurrently with the execution and delivery of an Issue Supplement, FNMA shall transfer, assign, set over and otherwise convey to the Trustee, on behalf of Holders of Certificates evidencing Fractional Undivided Interests therein, all of FNMA’s right, title and interest in and to the Mortgage Loans identified in the attached Mortgage Loan Schedule, including all payments of principal and interest thereon received after the respective date or dates…”

  6. Anonymous. Your Fannie false default refi concept intrigues me. I did not believe it at first but now I am open minded to everything possible done by banks. I bought in 2003 and refied in 2005 (dumbest move I ever made althought hindsight 20/20). Some funny things I notice is that I had the SAME title agency/settlement agency in both yet I used different mortgage brokers. Coincidence? Also I found on my 2005 refi i am 99% sure that title agency NEVER funded the lender title insurance policy for Stewart Title Ins. (stewart is 23% owned by my servicer Wells Fargo). Means someone pocketed $1500 off the HUD. You can tell that Fannie Mae is NOT hands on for the loans. The underwriting was crap and they also just send those useless guides to servicers but let them do whatever they wish.

  7. Ah — those false F/F defaults before refinance. What did they do with them?? Retained — in WHAT portfolio??

  8. Thanks chas. I doubt the judge will appreciate the argument’s straightforward logic, but one never knows. Thanks for the link to dissolved pools.

  9. zurenarrh. Your comments on Fannie are appreciated and I believe dead on. How it plays in court I have no idea. It is amazing to me that something as straightforward as a note and a mortgage instrument and simple contracts have come to this. The idea that a servicer can vaguely reference fannie mae is the ‘investor’ and then not reveal the true creditor to me as borrower is criminal. As you state, the note promises to pay someone. Also the mortgage instrument has clear notice/address requirements for the ‘lender’ same as the borrower. I believe that the true hidden lender is in simple breach of contract of these original contracts.

  10. Ahh, if it were on so easy. The “securitization web” only thickens around the conservator companies. In many cases loans were not sold directly to FNM or FRE. The clever minds on Wall Street added a new twist to these structures.

    During 2005, FRE and FNM found themselves in the precarious situation of actually having to compete with private money pools/investors. As publicly traded entities, they not only were forced to lower underwriting guidelines to compete, they actually had Wall Street cut a tranche directly into the pools they were securitizing to continue the illusion these companies had steady growth, thus supporting a 12x trading multiple on the NYSE.

    Look into GSE Certificates before assuming any loans were underwritten and sold direct to FNM or FRE. Many mortgage loans took the same winding journey through four different banks (marked-up along the way) before finally ending in the WFHB 2005 ABS mortgage pass through Series 2005-9 (this series is a figment..) The former GSE’s had wall street carve a tranche out for them and the alleged “good loans” were absorbed by this tranche. “that is what is so frightening”. “If these loans / tranches are alleged to be the cream of the entire series, and they are not being paid as certificate holders, how bad are the subordinate certificates with the trust?

    Ultimately, the former quasi-governmental agencies acted in a manner far outside the original scope of their intended purpose and congressional charter. The officers were in it for the same thing as wall street, cash flow and exaggerated “PE” multiples which allowed officers huge option cash-outs and politicians a huge cash-cow that was ripe for campaign milking.

    Enter Goldman Sachs, (you knew something devious could not be happening without their name involved). They would routinely write the swap insurance tied to the REPO’s which allowed these companies to carry out the fraud for 10 years. In fact, they all paid a fine back in 2002, but simply changed the verbiage of the agreement and continued on. Goldman Sachs was instrumental to FRE and FNM to sandbag cash flow from coming securitization so they could spread it out over several quarters, giving the appearance of strong quarterly growth versus hit and miss. The derivative monster!

    I am just some regular schmo from NY – so you should review all this information yourself. I do have a background in the industry; but still, just a regular schmo all the same. Now in the spirit of America, oh when the schmo’s come marching in… oh when the schmo’s come marching innnnn….. oh lord.

  11. Does anyone think it’s odd that the only players who are being sued are EX-players? Oh, and the CEO’s of small state banks, when the real perpetrators are the big Wallstreet sleezebags like Jamie Dimwit, and they are still gettin busy stealing homes. There’s no justice being served up by the department of just-us.

  12. I see Franklin Raines is not wearing orange.

  13. Dny,
    I agree with you. The Fannie docs say they are subject to MS’s favorite accounting principle, FAS 140. Not sure of the significance of that, though, or how to use it against them. The docs also say “pools” are to considered “fixed investment trusts.” Not sure how to use that either.

  14. Oddly FNMA claims that they bought my house on the courthouse steps (they weren’t there) the day after the sale date.(?) Or maybe it was a couple of days before the sale, depending on which “document” you want to believe. FNMA also claims that they paid the entire price including all the penalties… It says so in the “exhibits” the the FNMA eviction attorney sent me. My property isn’t worth anywhere near what FNMA claims they paid for it! So on one hand FNMA is suing the banks for fraudulently representing the value of the mortgages and THEN they buy houses at more than the market value and more than the loan amount???? Is this a “back door” bailout for BofA?

  15. Z – Here’s a thought… If Fannie admits that “the note is in the pool” (perhaps to comply with REMIC tax laws????), then how can Fannie be the transferee (instead of the purported trust “pool”) of the note via any mechanation? Is REMIC satisfied by having the notes “held” by a “custodian” who has an agreement with and for a third party? Remember that CW admitted that it never transferred any notes. The “custodian” label seems another way to “have your cake and eat it to” for the banks as well. (I’ll expect a verbal spanking from M.S.)

  16. @ zurenarrh rharris22@earthlink.net.

  17. Dee, I’d prefer not to say on this open forum which state I’m from because this site is obviously monitored by the bad guys and I am actively involved in litigation. I will say that it is a non-judicial state and it is not California. I will be glad to privately email you the info if you’ll give me an email address.

    Charles, the way I found out my pool is from the MERS MIN summary given to me in discovery. And I wanted to add this, too:

    When I asked Fannie in discovery about the pool over year ago, they denied multiple times that my Note was in a pool. It wasn’t until this past month that they finally admitted it was, and in fact produced Fannie Form 2005 (which is the schedule of loans in the pools). They produced Form 2005 in order to try to disprove something else that I had them on–they did not produce it because I asked them to.

  18. The SEC’s Fraud Suits Against Fannie & Freddie Executives

    By Abigail Caplovitz Field | December 16, 2011


  19. Can anyone tell me/us the answers.

    1. If the SEC is suing fannie/ What are the Damages?

    How were they damaged?

    2. If the FDIC is suing-example, “K. Hovnanian” How is the FDIC damaged?

    If the FDIC claims they had to damages, as they “Insured” all these pools, then that means the “Insurance -PAID, as such then the “Investors” they are not damaged, if the FDIC insurance paid.

    No one has been damaged except Joe and Jane American!

  20. @zurenarrh what state are your from?

  21. I’m glad Neil is really digging deep into Fannie Mae and Freddie Mac. I am in a lawsuit with Fannie Mae over my loan and have read their trust documents multiple times. I am not a lawyer and what I say below is not legal advice.

    My feeling about all this is that we signed a contract, i.e. a Note, that has a “floating” term. That is to say, the identity of the “Note Holder” per the contract/Note is or can be “floating” in the sense that the Note Holder can be literally ANY person, so long as that person fulfills BOTH of the following criteria which are spelled out in the Note itself: 1) take the Note by transfer, and 2) be entitled to receive payments under the Note. Rather simple criteria, actually, but of course the problem begins when, as in my case, two or more parties make the claim that they are BOTH the person that fulfills those criteria.

    As my case is winding down, however, it has become clear from discovery that all of the Defendants, including Fannie Mae, agree that Fannie Mae is the “Note Holder” even though none of the Defendants have actually said so in so many words. So it becomes necessary to apply the test of whether or not Fannie Mae meets the two criteria required of a Note Holder.

    1. Transfer

    Did Fannie take my Note by transfer? In a word, no. That is to say, Fannie Mae never took actual physical possession of my Note. This has been sworn to in discovery. Fannie’s alleged document custodian is apparently the person who now has and has always had physical possession of my Note. But of course, as usual, the law has split “possession” into at least two parts–physical possession and constructive possession (like the split of “title” into legal vs. equitable, and so forth).

    So does Fannie Mae have “constructive” possession of my Note? They have offered NO evidence that they do. They have not used the term “constructive possession.” But based on their statements, they’re clearly arguing that Fannie has, at most, constructive possession of my Note. In Kemp v. Countrywide, the BK judge ruled that lack of physical possession precluded ownership. But apparently that ruling was somewhat of an aberration. My personal opinion is that I don’t think it should be an aberration and certainly the UCC is silent on whether “transfer of possession” means physical possession or constructive possession, or either/both. But of course my personal opinion is of no consequence.

    At any rate, my argument is that Fannie Mae has not fulfilled the first criteria of “Note Holder” because it has not taken my Note by transfer, at least in a physical sense. And Fannie has admitted this much. But, even if my judge decides that constructive possession is sufficient to fulfill this first criteria, there is still the issue of the second criterion, which is whether or not Fannie Mae is entitled to receive payments under the Note.

    2. Entitled to Receive Payments

    So is Fannie Mae entitled to receive payments under the Note? Again, I say no. And I say no because in Fannie Mae’s own documents, which Neil dissected in the link to his FNMA Analysis, Fannie clearly states that they will give borrower’s principal and interest payments to the certificate holders of the pools whether or not the borrowers actually make said payments. That’s enough right there to establish that Fannie Mae is NOT entitled to receive payments under the Note.

    But there’s an even stronger argument that Fannie Mae is not entitled to receive payments, and that is because, at least in Fannie’s 2007 Single-Family Master Trust Agreement (which is easily found online), Fannie Mae states that upon creation of the pool and issuance of a single certificate, Fannie becomes merely the Trustee of the pools AND the kicker, Fannie Mae “unconditionally, absolutely and irrevocably” conveys all Fannie Mae’s beneficial interest in the Notes (which they refer to as “mortgage loans”) to the pool! This is not my opinion, this is what the Master Trust Agreement says, in no uncertain terms.

    So Fannie Mae is clearly telling the certificate holders one thing, i.e., that the certificate holders/pool own the entitlement to payment under the Notes in the pool, but are telling me and the court another thing, i.e., that Fannie Mae owns the entitlement to payment under the Notes. Obviously the idea is for Fannie Mae to be able to have their cake and eat it too–that is, Fannie Mae attracts investors by telling them that not only will Fannie guarantee payment whether or not the borrowers make the payments, but also that the certicate holders/pool actually own the loans (which they call “undivided beneficial interest”). That’s the “cake” part.

    The part where Fannie gets to “eat it too” is when Fannie is NOT receiving payments from the borrowers and Fannie gets tired of fulfilling its guarantee to the certificate holders and then tries to take the borrower’s property. That’s the point at which Fannie tries to pretend that they DIDN’T “unconditionally, absolutely and irrevocably” convey all of Fannie’s beneficial interest in the Notes to the pools. That’s the point at which Fannie would like the courts and the world to believe that these securitized loans are really just good old-fashioned, straightforward mortgages and that Fannie holds both the Note and Mortgage/Deed of Trust and has taken the Note by transfer AND is entitled to receive payments under the Note. The problem for Fannie, however, is that Fannie completely contradicts that interpretaion of the situation in its own documents, and in no uncertain terms.

    So that takes us back to the beginning–who is the “Note Holder?” Who is the person who meets both criteria in that floating term of the contract/Note? Fannie Mae’s attorney suggested to me that since I am not a party to whatever Fannie Mae contracts has regarding my Note, such contracts are none of my business. I disagree, because of the floating term of the contract. I signed a contract stating that 1) I had to pay a certain sum and 2) pay it to the person who meets BOTH the transfer/entitled to receive payment criteria. Therefore, what Fannie (or ANY person) does with the Note and specifically what person becomes entitled to receive payment under the Note is of utmost concern to me, because that’s who my contract is ultimately with.

    And as Neil alluded to in the link to the FNMA Analysis, I believe it is quite possible, nay, even probable that NO ONE fulfills BOTH criteria required of the “Note Holder.” That leaves me with the open and quite concerning question of who to pay. I am only obligated under the contract/Note to pay the person that meets BOTH criteria. If no such person exists–and based on the above it’s pretty clear that Fannie Mae is not such a person, then my argument is that my obligation no longer exists. How can it? How am I supposed to pay a Note Holder who doesn’t exist? A Note Holder, who, based on Fannie and her co-conspirators’s behavior and handling of the documents, CAN no longer exist or be caused to exist?

    Again, not legal advice. I’m not a lawyer. Just food for thought.

  22. Please comment on dissolved FNMA trusts.. (or type into google comes up on FNMA website plain as day)>>>>


    FNMA says…

    Although treated like a prepayment in full of the underlying mortgage pools for purposes of dissolving the Fannie Mae MBS certificates, the actual mortgage loans may remain outstanding. Hence, the data in the dissolved securities may not be indicative of actual borrower prepayment activity.

    My question is… if you can figure out your loan is within a dissolved trust then what? It looks like the investor from a tax perspective has written off your loan as if it were prepaid ie investor has no interest in it.

    It seems to me clear enough that possibly a defense lawyer could assert that when there is a FNMA loan there has to be discovery as to simply whether the subject loan is within one of those dissolved trusts (which add up to billions of dollars). Trust XYZ can’t foreclose if it is one of the dissolved trusts right there on FNMA’s website.

    I don’t see HOW banks can move forward not revealing the true creditor/damaged party in court.

  23. I have a FNMA loan. I read the same prospectuses before also, Neil, and came to the same amazing conclusion. Your little paper is great and follows up exactly what I was thinking. It seems so CLEAR that the investors in FNMA certificates are being guarranteed payments by FNMA. I was never a party to this transaction. If the investors stop getting paid they can call FNMA. There can be no default from Charles to the investors. Also FNMA has buyback guarrantees from Deutsch Bank etc which they can pursue (which they are now doing). In the beginning I called FNMA and asked for the trust info and they said call Wells Fargo. I called WF they said call FNMA. It took me a couple months but I decided to stop paying. I am not going to pay a creditor who won’t reveal himself. WF won’t reveal despite 3 QWRs. Please keep commenting on FNMA as no one talks about them. I would love to find out where exactly my loan is but I have not been able to.

  24. Powerful questions. What if…?

    I don’t know that guy. Never heard him before. The questions he asks are extremely relevant today.


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