AP: FANNIE AND FREDDIE BALK AT ANSWERING QUESTIONS — CA AG SUES THEM

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EDITOR’S NOTE: So the question is, if the GSE’s guaranteed and paid, then who is the creditor and how much is owed?

By NICK TIMIRAOS And RUTH SIMON

California Attorney General Kamala D. Harris filed suit against Fannie Mae and Freddie Mac on Tuesday, seeking to force the firms to answer a detailed list of questions after the firms’ federal regulator sought to block an open-ended inquiry by the state.

See the Lawsuits Against Fannie Mae and Freddie Mac

The lawsuits, filed in San Francisco County Superior Court, are the latest salvo by Ms. Harris against the mortgage-finance giants and their regulator, the Federal Housing Finance Agency.

Last month, the office issued subpoenas asking the firms to provide extensive answers to a range of questions about the mortgages they purchased and the foreclosed properties they own in California.

The FHFA earlier this month said it had directed Fannie and Freddie not to comply with the subpoenas, calling them “frequently vague and ambiguous,” and asked the attorney general to withdraw them, according to a letter included in Tuesday’s legal filings.

Among other things, the subpoenas asked for a record of every vacant home owned by the companies in the state and asked the firms whether they were aware of drug dealing, prostitution or the presence of explosives and radioactive material in those homes.

The FHFA said the state appeared to be “engaged in an open-ended exploratory investigation” that would undermine the FHFA’s authority while placing an extra burden on the operations of the firms. The effort required to collect the “voluminous amount of information” required to comply “would be nothing short of staggering,” the FHFA said in its letter.

Fannie and Freddie were taken over by the government through a legal process called conservatorship more than three years ago, and taxpayers are on the hook for at least $151 billion in losses.

Associated PressCalifornia Attorney General Kamala Harris’s action follows subpoenas.

The lawsuit sets up a battle over whether states can investigate the firms while they are under conservatorship by a federal regulator. In the lawsuit, the attorney general said the FHFA wasn’t within its rights to dismiss inquiries against private companies that operate in the state. Representatives for the companies and the FHFA declined to comment.

Ms. Harris has taken a leading role in pushing for greater scrutiny of the mortgage-market collapse. Many subprime-mortgage companies were headquartered in the state, and it has been among the hardest hit by the downturn.

Ms. Harris has also criticized Fannie and Freddie for resisting efforts to modify mortgages by reducing loan balances for borrowers who owe more than their homes are worth. Last month, she called on the FHFA’s acting director, Edward DeMarco, to “step aside” if he was unwilling to approve principal write-downs by the firms.

Attorneys general have in the past succeeded in shaping policy by taking action against Fannie and Freddie, which guarantee more than half of all $10.3 trillion in outstanding U.S. home loans. New York Gov. Andrew Cuomo used his position as attorney general in 2007 to force the firms to overhaul certain appraisal guidelines that have since become the industry standard.

Ms. Harris remains a key figure in an effort by the Obama administration and state attorneys general to forge a $25 billion settlement with banks over foreclosure-processing abuses, but she has resisted the proposal, calling it “inadequate” for California homeowners.

Tuesday’s lawsuits also allege state agencies may have lost money as a result of misrepresentations by Fannie and Freddie over mortgage-backed securities they issue. The firms don’t make loans but instead bundle them into securities that are issued to investors, with guarantees to make investors whole if loans default. Fannie and Freddie’s huge taxpayer aid ensured that investors in those securities would be repaid.

Write to Nick Timiraos at nick.timiraos@wsj.com and Ruth Simon at ruth.simon@wsj.com

 

20 Responses

  1. So,with all that; Now Nov-Dec 2011, recent….real recent……the comptroller has put forth this so-called “independent foreclosure Review. So…….what this supposed to do really…..and is it just another front. The deadline is April 2012. Any comments….anybody know anything?

  2. Studying Derecognition on Christmas

    I am real estate developer/investor not accountant not lawyer.

    Bank A originator sells to Investor D down the securitization path.

    There are specific accounting rules or tests that show whether an asset (pool of loans/security/ bond etc) meets the derecognition test. Essentially Bank A wants to get asset off its books and sell to Investor D down the path.

    There are many tests and they may be subject to grey area review by different accountants (similiar to any 2 accountants will come up with different tax return). However, there are tests.

    One test can be whether Bank A originator offers guarranty to repurchase Asset at original price given certain warranties to Investor D (the PSA and loan purchase agreements will show this). This can show that the asset fails the derecognition test meaning Bank A should keep asset on its books/tax return not Investor D. Investor D only getting cash flows from Asset.

    Other test could be Bank A or Sponsor/Depositor/Lehman writes me loan for 5.75 interest yet Investor B only gets 5.5 interest. This means Bank A/B/C retaining more risk/reward in transferred Asset than Investor D which can lead to failed derecognition/failed transfer.

    Other test could be that Bank A guarrantees the payments to Investor D (aka Fannie Mae) irrespective of loan/note/mortgage clauses. This could result in failed derecognition.

    Why is this important? It seems to me that if the loan purchase agreement and/or PSA show these guarrantees/warranties/ advance payments and you had an expert testify to them showing a failed derecognition then there is no way asset passed onto Trust/investor D via money trail/ tax accounting. No way.

    Failed derecognition = failed transfer of asset. Investor D has rights only to cash flow and to recover from Bank A/ Fannie Mae etc. Add this with the fact they don’t have paper trail and the result is they can’t prove Investor D has asset and is able to recover from borrower.

    Muddies up the waters of who the heck owns the obligation.

    My guess is Banks know this and Feds know this reason why they are lobbying to relax or modify GAAP accounting rules.

    How you prove this in court I would guess you need expert and also major discovery but I am also guessing that if you had a lawyer present this to a bank maybe they would fold as they know you are on the right path.

  3. foreclosureinfosearch,

    Hate to respond to you because you can be extremely nasty.

    But, you are right as to your comment — “focus on the origination procedures used for the last 20 years involving bank warehouse commercial lines to the lender.”

    You are wrong to limit your focus to the current or last refinance “commercial line.” Need to get GSE records. .
    You need to go back to the original GSE home purchase loan – and ALL subsequent records. Most relevant, records in full for refinances to original GSE home purchase loan.

    And, GSEs are not handing over — cowboy. GSEs are not handing over anything.

    Know you will come back and rant and rave — that is your way. But, until you get this, you are missing the crux of the fraud. Once you get this, it may be your oyster.

  4. I find it laughable that their objection was based on the volume of paperwork they would have to do! Let’s see a show of hands of all the people who applied for a modification SEVEN or more times, having been lied to by the bank who said they never received it. Now there’s a “paperwork burden” for you. Can you imagine a shute leading from the bank’s fax machine to a dumpster, because I can.

    Keep writing to your state AG and demanding that the proposed settlement be scrapped…and reminding them they need to start focusing on finding a new job if this thing solidifies.

  5. Merry Christmas!!!

    This battle belongs to the Lord. All things work together for the good of those who love the Lord and who are call according to his purpose. Each and Everyone of us has a God given purpose stay strong and encourage yourself. We must Believe we can do all things though Christ who strengthens us. I know this fight is not easy however, I don’t believe he brought us this far to leave us.

  6. “There have been so many flaws in mortgages that it’s been an unmitigated disaster.”

    -Jamie Dimon

    *I think he meant to say ‘fraud’

    http://livinglies.wordpress.com/2011/07/18/dimon-admits-mortgages-are-flawed-unmitigated-disaster/

  7. No Foreclosures at Christmas – the Right Approach

    Posted on December 23rd, 2011 by Mark Stopa

    Broward County, Florida has as many foreclosure cases as anywhere in the state. In a typical day, it’s not unusual for there to be more than 100 foreclosure sales – in ONE day. With that backdrop in place, I’m pleased to report there is not a single foreclosure sale scheduled in Broward County from December 21, 2011 through the end of the year. Don’t believe me? See for yourself at http://www.broward.realforeclose.com (the website which conducts all foreclosure sales for Broward County, as well as several other Florida counties).

    Trust me, this is no accident. Remember, just last year, the Broward courts entered an order which cancelled all foreclosure sales which had been scheduled over the holidays. Clearly, Judge Marina Garcia-Wood, who oversees the foreclosure cases in Broward, appropriately realized that foreclosure lawsuits are suits in equity and it was within her discretion not to schedule foreclosure sales during the holidays. I know my posts can sometimes come off as critical, so let’s give credit where credit is due. Kudos to Judge Garcia-Wood for having the sensitivity and foresight to ensure that no foreclosure sales were scheduled over the holidays.

    Unfortunately, it does seem that other Florida counties are proceeding with foreclosure sales during the holiday season, including the week between Christmas and New Year’s. To those counties, I urge you to think about and adopt the approach being implemented in Broward. Respectfully, there is never a good time for foreclosure, but doing so over the holidays is terribly inequitable and, in my view, borderline inhumane. I realize everyone has a job to do, but can you imagine being thrown out of your home at Christmas? The Broward County courts have prevented foreclosure sales over Christmas two years in a row … why can’t every county follow suit?

    Finally, I implore everyone to take a moment and think about what is is that makes foreclosure over the holidays so wrong. When you have that vision in your mind – that feeling of family and friends, together at home, ask yourself this – “Is there ever a good time for foreclosure?”
    Mark Stopa Esq.

    http://www.stayinmyhome.com

  8. I also wish everyone happy holidays and remind us all that resistance is victory!

  9. I want to wish everybody a Happy Holidays.

  10. Mortgage backed empty securities bundled, called CDO’s packaged and purchased all over the world. A empty package.
    Here’s another :

    Independent Foreclosure Review: Is It the Real Deal? http://www.huffingtonpost.com/anna-cuevas/foreclosure-review_b_1098840.html

    While I applaud the efforts to recognize that banks do err, resulting in great financial injury and the loss of a home to its customers, I also welcome these efforts with an ounce of caution. Simply put, I’ve learned that even the best intentions, coupled with stringent guidelines and government bureaucracy, can create additional problems. As I’ve said many times before, question authority.

  11. […] Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud Tagged: bankruptcy, borrower, countrywide, disclosure, foreclosure, foreclosure defense, foreclosure offense, foreclosures, fraud, LOAN MODIFICATION, modification, quiet title, rescission, RESPA, securitization, TILA audit, trustee, WEISBAND Livinglies’s Weblog […]

  12. HARRIS SUES—BUT THE FORECLOSURES ARE FULL SPEED AHEAD!!!

    HOW DO WE GET A MORATORIUM???

  13. I posted this yesterday. In case you didn’t see it,

    “Fatastic interview from Atty Shawn Newman on “Why nobody can actually foreclose on you” and plenty of advice for foreclosure defense attorney on stopping plaintiff’s attorneys right in their tracks.

    http://mandelman.ml-implode.com/2011/12/foreclosure-fraud-north-by-northwest-with-attorney-shawn-newman-a-mandelman-matters-podcast/

    The guy goes for the jugular and he does it well. Efective, efficient and proactive. Best hour-long interview you’ll ever hear”

    Shawn Newman goes into Fannie and Freddie and explains how he gets banks’ attorneys to back off and dismiss lawsuits when paperwork is faulty, fraudulent or they have no standing: very simple laws were intentionally breached and he warns them that… he’ll go after their first born, their license, they diploma and everything. Newman takes no BS. He can’t control what decisions judges will make but he does control what he presents to the court.

    Apparently, it really works!!!

  14. Maher Soliman is right, all the parties focus on securitization from the bottom up – when the real crime takes place from the top down. The deals are all dry funded by the first bank and they float on a warehouse until the shelf registration becomes effective, the certificates are sold and the money is replenished back down the chain. That is why even the smaller correspondent lenders could only lend so much and would typically have 2-5 warehouse lines to draw down while waiting for the money to be replenished by the Donor (SPV) bank from the pool investors, if any.

    Too bad they defrauded the investors as well. It is time for America to start over and put corporations back in their place.

  15. Here is the problem facing lenders that remains under lid from attorneys prosecuting claims for the homeowners as clients.
    I painstakingly try to get counsel to focus on the origination procedures used for the last 20 years involving bank warehouse commercial lines to the lender.

    The lender shown on the note is the party who will settle the borrowers account. The wire coming into escrow is an obligation held by the bank as a receivable for an amount due and payable by the lender originator.

    The lenders obligation offsets the borrowers loan, an asset. It for the most part nets out to a zero net asset value.

    Substantive arguments can be made for the warehouse line having a short lived term of usually 90 days. It is a separate obligation due Bof A from financing the CWHL Inc note and not conditioned by the note itself the consumer household signs at closing.

    The obligation of the lender is less than arms length in a defacto arrangement such as with CWHL Inc and BofA. They went to great lengths to conceal what was a subprime crime that duped borrowers into high cost mortgages for purposes of M&A financing.

    The real reason a major market leader N.A. and Dow Jones big cap will access an accredited investment in private placement is for financing their M&A activities…or moving the liabilities off balance sheet.
    B of A did both as can be verified in capital funds managers filings with the SEC where they boast they are paid to do just that.

    Now comes into play they horrific bad call and error made under GAAP and derecognition of assets and liabilities under a “Purchase and Sale Agreement” among parties. It is conclusive as the sole defining issue prohibiting foreclosure!

    Maher Soliman
    Expert.witness@live.com

  16. Let it go – will you . Come on

  17. For immediate release
    Saturday, December 24, 2011
    Soliman, M.
    Expert.witness@live.com

    Here is the problem facing lenders that remains under lid from attorneys prosecuting claims for the homeowners as clients.

    I painstakingly try to get counsel to focus on the origination procedures used for the last 20 years involving bank warehouse commercial lines to the lender.

    The lender shown on the note is the party who will settle the borrowers account. The wire coming into escrow is an obligation held by the bank as a receivable for an amount due and payable by the lender originator.

    The lenders obligation offsets the borrowers loan, an asset. It for the most part nets out to a zero net asset value.

    Substantive arguments can be made for the warehouse line having a short lived term of usually 90 days. It is a separate obligation due Bof A from financing the CWHL Inc note and not conditioned by the note itself the consumer household signs at closing.

    The obligation of the lender is less than arms length in a defacto arrangement such as with CWHL Inc and BofA. They went to great lengths to conceal what was a subprime crime that duped borrowers into high cost mortgages for purposes of M&A financing.

    The real reason a major market leader N.A. and Dow Jones big cap will access an accredited investment in private placement is for financing their M&A activities…or moving the liabilities off balance sheet.

    B of A did both as can be verified in capital funds managers filings with the SEC where they boast they are paid to do just that.

    Now comes into play they horrific bad call and error made under GAAP and derecognition of assets and liabilities under a “Purchase and Sale Agreement” among parties. It is conclusive as the sole defining issue prohibiting foreclosure!

    Maher Soliman
    Expert.witness@live.com

  18. This is great news. Fannie and Freddie need to be squeezed from all sides until the pus runs out…

  19. Wait, in CA lingo…..isn’t this a Default?

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