Trials & Litigation

Calif. AG Subpoenas Fannie Mae and Freddie Mac in Wide-Ranging Lending and Foreclosure Probe


California’s attorney general has subpoenaed mortgage titans Fannie Mae and Freddie Mac in a wide-ranging probe of their lending, foreclosure and property management practices concerning the thousands of properties for which they now serve as landlords, reports the Los Angeles Times, citing an unidentified source.

Representatives of the two government-controlled finance companies declined to comment.

The probe may be a creative way of doing an end run around the Federal Housing Finance Agency, which regulates Fannie and Freddie but has not been willing to push for help for struggling homeowners that AG Kamala Harris wants to see, the article explains.

Harris “felt that Ed DeMarco,” the federal agency chief, “has not done enough to help homeowners and has undue influence over what changes are put in place at Fannie and Freddie,” analyst Edward Mills of FBR Capital Markets & Co. tells the newspaper. “If he’s not going to make those changes, she’s going to force those through the courts.”

Among the policy changes Harris has called for are reducing the principal mortgage balances of struggling borrowers as an alternative to foreclosure. While unpopular with loan servicers, who apparently fear an avalanche of less-lucrative writedowns, and some who see the move as a reward for irresponsible borrowers, reducing the amount that homeowners owe might increase the total amount paid to those holding the mortgages, according to published news reports and real estate data.

That’s because many properties are worth relatively little, due to a plunge in real estate values caused by the foreclosure crisis. Hence, if a property is repossessed by the loan servicer, perhaps vandalized and sold for a pittance to a cash buyer, the mortgage holder might get much less, especially after costs are subtracted, than would eventually be obtained from a homeowner’s mortgage payments, even after a reduction in principal.

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