Fannie & Freddie Repackage Defective Loans and sell them to Naive Investors.

By J. Guggenheim/Lendinglies staff

Fannie Mae and Freddie Mac have separately announced sales of non-performing loans this week.   Offsetting these toxic mortgage securities target smaller investors, including nonprofits and minority- or women-owned businesses who can’t afford to take the hit when they realize they bought defective repackaged securities the big lenders now avoid.

In 2017, through both Fannie Mae and Freddie Mac, the Treasury guaranteed 70% of all new mortgage lending. The taxpayer’s total exposure to housing is unfathomable, at over $6trn, or 30% of GDP, but it is hidden off the government’s balance-sheet. Reform is long overdue but until then- keep repackaging defective merchandise and selling it off to the highest bidder.

    The Senate Banking Committee, is considering a draft proposal to replace them with multiple privately capitalized firms, whose equity holders would suffer first during any slump. The government would maintain an insurance fund, supported by fees levied on the firms, to cover catastrophic losses—similar to how bank deposits are insured. The hope is that competition between the new firms would prevent any one entity from becoming too big to fail, and would encourage innovation.

A better idea would be to turn Fannie and Freddie into utilities, privately capitalized but with regulators capping returns. This would in theory prevent shareholders and executives from getting rich by selling mispriced taxpayer guarantees, as they did before the crisis.

LivingLies would prefer that the government get out of the housing market altogether. The state has no business subsidizing home buyers, let alone standing behind most mortgage lending.  Fannie and Mae and their lack of transparency and compliance with securitization practices has contributed to the foreclosure crisis.

In reality, a complete withdrawal is a political non-starter although the free market could easily find innovative solutions to these antiquated entities. Fannie and Freddie make possible the 30-year, fixed-rate, prepayable mortgages Americans have come to expect- but there is no reason smaller, more-agile firms couldn’t do the same thing.

The longer today’s system endures, the greater the risk to taxpayers and investors who don’t yet realize the product Fannie and Freddie is selling is defective.  Almost a decade after Fannie and Freddie were rescued, it is long past time for a clean-up.

Fannie Mae’s sale includes its eleventh and twelfth Community Impact Pools, which are typically smaller pools of loans that are geographically focused. The three larger pools include approximately 5,900 loans totaling $1.04 billion in unpaid principal balance (UPB) and the Community Impact Pools of approximately 190 loans totaling $35.68 million in UPB. What a deal!  Basically $1.4 billion in defective loan pools.  The Community Impact Pools consist of one pool geographically located in the metro area of Orlando, Fla., as well as one in the Tampa, Fla., area- areas where LPS and foreclosure mill David Sterns and Co. mucked up many chain of titles.

Meanwhile, Freddie Mac’s sale is an approximately $420 million transaction. The loans, which are currently serviced by Shellpoint Mortgage Servicing, are being marketed via three Standard Pool Offerings and one Extended Timeline Pool Offering.

Fannie and Freddie know that they shouldn’t be reselling these defective loan pools that didn’t comply with their selling and servicing standards- but they will sell off the toxic pools while under government conservatorship and when it ends, they will likely be reestablished as private corporations with enough distance from the fraudulent sales, that everyone will be protected except the small investors and taxpers who takes the hit.

11 Responses

  1. Interesting comment, Hammertime! Are they aware and do not care about the status? It’s all about passing the buck through the lens of unjust enrichment….at the expense of the unsuspecting taxpaying consumer! What is their overall purpose[FANNIE and Freddie] anyway? To keep banks afloat, no matter what or how these loans are originated? Where are the checks & balances, accountability, ethical considerations?
    FANNIE/FREDDIE prove themselves no more scrupulous than these TBTF banks.

  2. Res Judicata does not Trump Jurisdiction.

  3. @Ian: I had the occasion to actually speak to a so-called manager(Regis) at Freddie Mac some years ago. I completely agree with your assessment! I escalated my concerns to Regis’ manager who had the job title of Director. Her name escapes me but the lasting negative impression she left does not. Surely these must be the final days!!

  4. When banks are backed by FNMA on mortgages they’ve been told were fraudulently obtained, and sell them to FNMA as new owner, who sells them again, all the while original bank[BOA] got paid, knowing id theft and fraud, wha about the consumer who reports that fraud first to BOA? Left to pay or continue paying for loan never assumed and they then have right to foreclose when owner decides to stop being a patsy?

    How does the govt allow this to happen and banks are fully aware as well? Banks told its fraudulent, sell it off to someone else who continues chain of sales…….

  5. So, mortgages that list FNMA as ‘plaintiff’ and yet since owned/purchased by MTGLQ is no standing argument and essentially illegal or unethical at the least?
    How do homeowners fight back from this fake ownership?

  6. Has anyone here ever had the occasion to speak w anyone at Fannie or Freddie on the phone, or in person?
    While it has long been said that Fannie and Freddie are a full-employment scheme for minorities, when you speak with anyone there you start wondering “where do these people
    Come from? How do they even have jobs ?
    What is their IQ? Why were they never taught or trained to speak properly?
    It’s no wonder those places are both so screwed up. Hiring people who don’t have a clue as to what they are doing is a preplanned means of keeping taxpayers and or homeowners in the dark.

  7. […] « Fannie & Freddie Repackage Defective Loans and sell them to Naive Investors.ACLU: Debt Collection Companies Have Hijacked the Justice System » […]

  8. Reblogged this on California freelance paralegal and commented:
    i agree that the government should get out of the housing market entirely and that the free market would come up with innovative solutions but for the politically connected and wealthy that are making huge profits from the present system.


  10. Reblogged this on Deadly Clear and commented:
    Unfortunately, the investors are not naive. This is basically paper laundering. It has to stop because it is attached to fraudulent documents coast to coast.

  11. Are these investors, non profits buying the idea everything’s been fixed? Either negligence on investor’s part or next level of deception for coming crash.

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