In early December, a senior executive at Fannie Mae assured members of the Senate Banking Committee in Washington that the mortgage giant was doing everything possible to address the foreclosure crisis.
"Preventing foreclosures is a top priority for Fannie Mae," Terence Edwards, an executive vice president, told the panel. "Foreclosures hurt families and destabilize communities."
But confidential documents obtained by the Free Press show that Fannie Mae has pushed an agenda at odds with those public assurances.
The records cover Fannie Mae's foreclosure decisions on more than 2,300 properties, a snapshot from among the millions of mortgages Fannie handles nationally. The documents show Fannie Mae has told banks to foreclose on some delinquent homeowners -- those more than a year behind -- even as the banks were trying to help borrowers save their houses, a violation of Fannie's own policy.
Fannie Mae has publicly maintained that homeowners would not lose their houses while negotiating changes to mortgages under the federal Home Affordable Modification Program, or HAMP.
The Free Press also obtained internal records revealing that the taxpayer-supported mortgage giant has told banks that it expected them to sell off a fixed percentage of foreclosed homes. In one letter sent to banks around the country last year, a Fannie vice president made clear that Fannie expected 10%-12% of homes in foreclosure to proceed to sale.
Taken together, the documents offer an unprecedented window into how Fannie decides whether to allow borrowers to exhaust all options to keep their homes. "It's scary, it really is," said Leisa Fenton of Clarkston, who is among an untold number of people whose homes were sold in foreclosure even though they had been assured their homes were safe while they sought mortgage relief from Washington.
Her family's home was sold at auction in October. "We just keep praying the Lord is going to work it out," she said.
Alan White, a law professor at Valparaiso University and a leading national expert on the foreclosure crisis, reviewed the records for the Free Press and said they show Fannie Mae -- which is regulated by the Federal Housing Finance Agency -- is sabotaging the nation's foreclosure prevention efforts and helping drive down home values.
"Fannie just wants to clean up its balance sheet and get these loans off the books while taxpayers are eating these losses," White said, referring to the multibillion-dollar federal bailout of Fannie Mae in 2008 and the rising cost to taxpayers.
"And Treasury and the FHFA are letting them get away with it. It's a huge waste. Wealth is being destroyed, people are losing houses needlessly, and taxpayers are losing money."
Fannie Mae officials declined to be interviewed and would not address the issues raised in the records obtained by the Free Press, including a lengthy series of questions provided by e-mail.
But a former Fannie Mae executive, Javid Jaberi, whose name is on some of the documents, said the internal records merely reflect an effort by Fannie Mae to get banks to respond more quickly when loans are delinquent, even if that means pushing some foreclosed homes to sale.
In an interview Wednesday, Jaberi said there is plenty of blame to go around. Borrowers often didn't understand their options. Banks weren't doing enough to help borrowers to get mortgage relief. And HAMP's documentation rules, he said, were too complex.
"Everyone is to blame," Jaberi said, including Fannie Mae.
Fannie spokesman Andrew Wilson said in a statement Fannie is "committed to preventing foreclosures whenever possible."
"We encourage homeowners to reach out as early as possible ... to pursue modifications and other foreclosure prevention solutions."
Various lenders -- Bank of America, GMAC Mortgage, CitiMortgage and Chase -- would not discuss Fannie's policies.
Records reveal foreclosure tactics
Fannie Mae and many of the nation's top banks have faced considerable criticism for doing little to stem foreclosure sales, which grew by 1.6 million last year. Investigations by other news media outlets showed that Fannie Mae (and the banks that directly service home loans) help only a sliver of people promised relief, and often delay or bungle applications for modifications. Other reports showed Fannie has punished banks that were too slow to foreclose.
The documents obtained by the Free Press indicate, for the first time, that Fannie wasn't simply indifferent to helping homeowners, but launched a concerted effort to force seriously delinquent borrowers from their homes.
Fannie's foreclosure policy -- what an August 2010 document calls "our new delay initiative" -- focused on homeowners more than 12 months late on their mortgages, including people actively negotiating loan modifications. That stance conflicts with the government's (and Fannie's) rules, which are meant to insulate people while they seek loan relief under HAMP.
Mortgage companies, of course, can't wait forever for delinquent borrowers to catch up on their payments. But critics argue that Fannie Mae's confidential foreclosure policy is not only at odds with its public assurances, but adds to the inventory of vacant homes across the nation and lowers property values for everyone.
According to White, the Valparaiso professor, foreclosing on a home typically costs Fannie Mae far more than a successful loan modification. But, he and others say, Fannie is willing to absorb higher losses because it knows taxpayers -- not Fannie Mae -- will eventually reimburse the loss.
Since 2008, when the government took over Fannie Mae and its sister company, Freddie Mac, the mortgage giants have cost taxpayers $141 billion, with estimates that the bill could eventually reach as high as $389 billion.
Fannie Mae and Freddie Mac are significant players in the foreclosure crisis; they own or guarantee more than half of all existing single-family mortgages and about two-thirds of all new U.S. home mortgages. Fannie also administers the U.S. Treasury Department's $29.9-billion foreclosure prevention initiative -- Making Home Affordable, which includes HAMP -- that was launched by President Barack Obama in 2009.
Everyone loses
Fannie Mae doesn't lend directly to homeowners. It buys loans from banks, guarantees them, and relies on the banks to service the loans directly. Fannie funds its mortgage investments by issuing debt securities in domestic and international capital markets.
Fannie Mae, according to rules outlined on its Web site, has told banks that service its loans that they "should not proceed with a foreclosure sale" until a borrower has been evaluated for a loan modification under HAMP. That squares with HAMP's written rules, which forbid banks from completing foreclosures without first weighing a person's eligibility for a modification.
According to RealtyTrac, which tracks U.S. foreclosures, 1.6 million homes were sold in foreclosure last year, including 78,704 in Michigan. It's unclear from the records how many could have kept their homes had Fannie not enacted its confidential foreclosure policy.
Metro Detroit leaders say Fannie Mae's actions are destabilizing neighborhoods and driving down home values. They pleaded with federal regulators to help.
"Local governments are trying to keep people in their homes and keep property values up, and here you have a government bureaucracy ripping (those efforts) to shreds," said Wayne County Executive Robert Ficano.
"It doesn't make sense."
Adam Taub, a Southfield lawyer who works with people trying to save their homes, said Fannie is "being very, very aggressive, very proactive, in trying to kick people out. ... They're putting a lot of pressure on" the banks.
He said he had several cases in which banks were willing to modify loans but Fannie Mae was unwilling to cooperate. He said he had no way to know whether Fannie's policy affected those cases.
"They're making their books look better, and making neighborhoods look worse, and that hurts everybody's property values," Taub said.
The confidential records reviewed by the Free Press include notations on more than 2,300 homes in which banks asked Fannie to delay foreclosure sales while homeowners sought modifications or other relief, including short sales -- in which a lender lets the borrower sell a home for less than what is owed.
In one instance, from August 2010, Bank of America requested a 45-day delay for a Wisconsin homeowner who owed $124,610 and was 32 months delinquent. The bank said the borrower was applying for a loan modification through HAMP and "it appears that all financial documents have been received and we are waiting for an underwriter to be assigned."
Fannie Mae's response: "Per our new delay initiative, any loan over 12 months deliq must be on an active payment plan with monthly payments coming in. Therefore, this request to postpone is declined. Please proceed to sale."
IndyMac Mortgage Services sought a delay for a Hawaii borrower who provided all records required by HAMP. The homeowner, 22 months behind, owed $412,225. Fannie: "Proceed with foreclosure."
The records do not identify any homeowners by name.
Wilson, the Fannie Mae spokesman, would not address these or other specific documents, saying only that Fannie evaluates delay requests case by case and has approved some delays "if the situation warranted it."
Indeed, Fannie officials approved some brief delays, records show -- with conditions.
In October, Bank of America sought a delay for a California borrower who was 24 months behind, owed $230,449 and had filled out a HAMP loan package. Fannie agreed to delay sale until early November, but noted:
"BANK OF AMERICA RESPONSIBLE FOR ALL FEES/COSTS ASSOCIATED WITH THIS POSTPONEMENT DUE TO DELAY IN PROCESSING ... DOCS TIMELY."
Meg Burns, chief of policy at FHFA, which oversees Fannie Mae, said foreclosure sales are delayed "all the time. We suspend foreclosure processing all the time. ... There are plenty of postponements."
Burns said if anyone is to blame for home losses, it's the banks for not dealing sooner with homeowners.
FHFA officials also noted that Fannie and Freddie are adopting new rules in October that provide incentives and penalities to encourage servicers to work with delinquent borrowers at an early stage.
Edward DeMarco, FHFA's acting director, has said the new policies should give homeowners a greater understanding of the process and minimize taxpayer losses by ensuring loans are serviced efficiently and fairly.
FHFA also noted that since Fannie and Freddie were taken into conservatorship, they have completed more than 900,000 loan modifications.
Fannie Mae's foreclosure policy is also being applied to seriously delinquent borrowers in programs other than HAMP, records show.
In one case last October, Bank of America sought a delay for a Michigan borrower seeking a loan modification who owed $65,542 and was two years behind, but whose finances were improving.
"Borrower is reflecting positive monthly cash flow of $914.77 and may be able to afford a modified payment," the bank wrote. Fannie refused, noting the lengthy delinquency: "Proceed to sale."
Ira Rheingold, executive director of the National Association of Consumer Advocates, said, "It's rarely in anyone's best interest to kick out a struggling homeowner who is trying to stay in their home, particularly in cities like Detroit whose housing market is devastated."
He said it's absurd Fannie is taking actions "devastating to the homeowners and communities they're supposed to be serving. It really is obscene."
Jamison Brewer, a lawyer with Michigan Legal Services in Detroit, said Fannie's actions are contrary to what borrowers seeking modifications are being told -- that foreclosure sales are put on hold while they apply for HAMP.
"Our tax money went into Fannie," he said. "It's just ridiculous."
Requests for short sale delays are likewise being denied, the internal records show.
In October, Bank of America sought a delay for a California borrower who owed $416,786, was 13 months behind, and trying to close a short sale. "LOAN IS IN DOCUMENT COLLECTION PHASE," the bank noted. "FILE HAS HAD 0 PREVIOUS POSTPONEMENTS." Fannie Mae declined, noting simply, "Too delinquent."
Sticking taxpayers with the losses
White, the Valparaiso professor, said Fannie's decision to target homeowners who are more than a year delinquent doesn't allow for changes in some people's financial situations, such as a new job or higher pay.
He is among a bipartisan collection of critics who say Fannie is less concerned with helping homeowners than in pushing the cost of troubled mortgages to taxpayers.
For example, White said, if a home with a $200,000 mortgage is foreclosed and Fannie nets $80,000 from its sale, Fannie loses $120,000. But because Congress authorized the Treasury Department to reimburse Fannie as part of the government's takeover, taxpayers eat the losses.
"Fannie would rather foreclose all the bad and marginal mortgages now, even at very high loss rates, while losses are on the taxpayer, so that when it is once again a private company, these risky mortgages will be gone, and will not result in losses for its shareholders," he said.
"Treasury and Congress have given Fannie a blank check, but Fannie knows the checkbook will be taken away sooner or later."
Fannie Mae has made it difficult in other ways for borrowers to keep their homes.
Take the case of a woman represented by lawyer Lorray Brown of the Michigan Poverty Law Program.
The Eaton County woman lost her home in foreclosure and was facing eviction when she persuaded a bank to lend her $170,000 to buy the property back from Fannie Mae. Brown said Fannie initially rejected her client's offer, insisting on the full $184,000 the woman owed -- $14,000 more than the woman could raise.
Fannie did not accept the woman's offer until January, after months of wrangling. Had Fannie Mae won the fight, it would certainly have spent more than $14,000 on legal fees and foreclosures costs while displacing a family and leaving another home vacant.
Fannie lawyers referred questions to headquarters, which declined to comment.
Well before Edwards, the Fannie Mae executive, testified before the Senate committee that the mortgage giant was doing all it could to prevent foreclosures, Fannie Mae was making plans to punish banks that were not selling foreclosed homes quickly enough, records show. The records obtained by the Free Press buttress documents reported by the Washington Post earlier this year.
"Fannie Mae is suffering delays in the processing of its foreclosures," according to one unsigned, Aug. 31, 2010, memo. The memo, a "talking points" summary for Fannie Mae management, outlined its plans to fine banks for delaying foreclosure on seriously delinquent homeowners.
As an example, the memo notes, a bank would be fined $5,218 at the time of foreclosure on a house with a mortgage balance of $121,000 and 22 months late.
The memo said Fannie Mae was initially targeting mortgages 18 or more months delinquent to "scrub and clean up servicers' existing portfolios."
In a June 18, 2010, letter, Jaberi, then Fannie Mae's vice president, also cited fines in a letter to GMAC.
"Fannie Mae urges you to begin more closely managing delays in the processing of our foreclosure cases as soon as possible," Jaberi wrote, adding: "You must keep the contents of this letter and the requirements confidential."
In the interview Wednesday, Jaberi confirmed that versions of that letter went to all banks that serviced Fannie Mae mortgages.
Fannie Mae also sent letters in June 2010 warning at least six lenders that Fannie projected and expected "approximately 10%-12% of monthly foreclosure inventory will go to sale."
Bert Ely, a banking consultant based in Alexandria, Va., who reviewed the letters for the Free Press, said they show Fannie "wants to force these default situations into a foreclosure sale" and raised questions about whether Fannie is setting arbitrary targets.
"When you have a uniform approach like that, it makes you wonder whether they are just pushing action by the servicers irrespective of local market conditions," he said.
Kurt Eggert, a law professor at Chapman University in Orange, Calif., who has testified before Congress on mortgage issues, said it's unrealistic to expect banks to hit uniform targets because "they have a different mix of mortgages. ... And some are much better at modifying mortgages than others."
Jaberi denied that Fannie took a cookie-cutter approach with banks. Fannie was merely "trying to create a dialogue between Fannie Mae and the servicer. ... These are nonperforming assets and need to be resolved. ... We were putting more pressure on the servicers to do their jobs."
Alys Cohen, staff attorney for the National Consumer Law Center, noted that Fannie threatened no punishment to banks that denied a loan modification to qualified homeowners, but did threaten to punish banks that didn't foreclose fast enough.
"That results in many qualified homeowners ending up in foreclosure," she said.
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