[StBernard] Frank, Kanjorski Release Letters Calling for FHFA to Protect Taxpayers

[Westley Annis]

Frank, Kanjorski Release Letters 

Calling for FHFA to Protect Taxpayers

 

Washington, DC - Today, Congressman Barney Frank (D-MA), Chairman of the
House Financial Services Committee, and Congressman Paul E. Kanjorski
(D-PA), Chairman of the Subcommittee on Capital Markets, Insurance, and
Government Sponsored Enterprises released letters to the White House calling
for the Federal Housing Finance Administration (FHFA) to use all of its
powers to recover money from companies that used fraud and deceptive
practices to shift losses on to Fannie Mae and Freddie Mac. 

 

This issue will be a major focus at an oversight hearing on FHFA
<http://financialservices.house.gov/press/PRArticle.aspx?NewsID=1345>  held
by the Capital Markets Subcommittee next month.   The House Financial
Services Committee and Capital Markets Subcommittee have held five hearings
<http://financialservices.house.gov/Hearings/>  on housing finance in 2010,
and the FHFA oversight hearing is one of two new hearings on the topic
planned for September.

 

"This week, the debate on the future structure of the U.S. housing finance
system advanced greatly during the conference at the Treasury Department,"
said Chairman Kanjorski, "In winding down Fannie Mae and Freddie Mac, we
must carefully craft a solution that stabilizes our mortgage markets and
ensures the continued availability of reasonably priced loans and affordable
housing opportunities for all Americans. Simultaneously, FHFA must continue
its efforts to protect taxpayers by recouping funds from the underwriters of
faulty mortgages and the issuers of underwater securities purchased by
Fannie Mae and Freddie Mac."

 

On August 13th, Chairman Kanjorski and committee members Brad Miller (D-NC)
and Jackie Speier (D-CA) addressed a letter to President Obama asking that
any new Director of the FHFA aggressively pursue claims on behalf of Fannie
Mae and Freddie Mac.  

 

"We must pursue legitimate legal claims to limit losses to taxpayers," Rep.
Brad Miller (D-NC) said. "Americans need to know that their government is
acting on their behalf, not on behalf of powerful financial institutions."

 

Today, Chairman Frank joined his colleagues by addressing a letter to the
President strongly supporting his colleagues' request.

 

 




AUGUST 13 LETTER

 

August 13, 2010

 

 

The President

The White House

Washington, DC

 

 

Dear Mr.  President:

 

We are writing to urge that any new Director of the Federal Housing Finance
Agency ("FHFA") vigorously pursue all available legal claims as conservator
of Fannie Mae and Freddie Mac to limit losses to taxpayers. 

 

In consultation with Secretary of the Treasury Henry Paulson, FHFA placed
Fannie Mae and Freddie Mac in conservatorship on September 6, 2008.
According to a letter dated February 2, 2010, from Edward DeMarco, Acting
Director of FHFA, to the chairmen and ranking members of the relevant
congressional committees, Fannie Mae and Freddie Mac had then suffered
losses of $164 billion under the conservatorship. The enterprises' losses
had exhausted shareholder equity and the enterprises had drawn more than
$110 billion in taxpayer funds. The two enterprises have now drawn $145
billion in taxpayer funds, and undoubtedly will draw much more. This week
Freddie Mac requested an additional $1.8 billion.

 

FHFA has pursued two kinds of legal claims to limit taxpayer losses. First,
FHFA has demanded that lenders from which the enterprises purchased
mortgages buy back mortgages that did not satisfy contractual
representations and warranties. As of March of this year, Freddie Mac had
demanded that lenders repurchase $4.8 billion in mortgages. 

 

In addition, the two enterprises own approximately $255 billion in
"private-label" or "non-agency" mortgage-backed securities. The enterprises
have suffered significant losses on those private-label mortgage-backed
securities.

 

Last month FHFA issued 64 subpoenas to obtain information needed "to
determine whether losses sustained by the enterprises on [private-label
securities] are the legal responsibilities of others." The documents
subpoenaed include "the contents of loan files, which include documents used
in the underwriting process, such as loan applications and property
appraisals."  FHFA issued the subpoenas after trying for months to obtain
the documents voluntarily. 

 

FHFA appears to be considering claims similar to the claims asserted by
private mortgage investors against issuers of private-label mortgage-backed
securities, generally Wall Street firms and the largest banks. Many private
mortgage investors are pension funds upon which working and middle-class
families depend for retirement. The efforts by private investors to pursue
those claims have been largely stymied by the inability to obtain the kind
of information sought by the FHFA subpoenas. Trustees and servicers required
to act on private investors' behalf are often affiliates of the firms that
issued the securities in question, a questionable alignment of interests.

 

FHFA must vigorously pursue all available legal claims for losses sustained
from the conservatorship of Fannie Mae and Freddie Mac. It is critically
important to protect taxpayer funds. It is equally important that the
American people know that their government is acting on their behalf, not on
behalf of powerful financial institutions. The failure to pursue legitimate
legal claims to limit losses to taxpayers would be another indirect subsidy
for an industry that has received too many such subsidies already.

 

As you consider the nomination of a permanent FHFA Director, we ask that you
take appropriate steps to assure that efforts to investigate and assert
legal claims to limit taxpayer losses from the enterprises' conservatorship
will continue to be pursued vigorously.

 

Sincerely,

 

Paul Kanjorski

Member of Congress

 

Brad Miller


Member of Congress                                                    

 

Jackie Speier

Member of Congress

 




AUGUST 20 LETTER

 

August 20, 2010

 

 

The President

The White House

Washington, DC 

 

Dear Mr. President:

 

I am writing to endorse and reinforce the views in the letter sent to you
recently by my colleagues on the House Committee on Financial Services.  As
conservator of Fannie Mae and Freddie Mac, the Federal Housing Finance
Agency (FHFA) has the power to pursue legal claims against private companies
that shifted losses on to Fannie and Freddie.   The FHFA must use this power
aggressively.  I am pleased that they have begun to do so, and I will be
monitoring to make sure this continues.  

 

The losses suffered by Fannie and Freddie have created great cost for the
taxpayers - almost $150 billion to date.  These losses largely result from
business decisions during the bubble years that were honest but flawed.
Taxpayers have continued to suffer anew for poor underwriting by these
companies during the bubble years. 

 

However, some of these losses result from deception.  Private companies sold
Fannie and Freddie loans or securities based on fraudulent documents.  These
transactions created private profits at public expense, and they should be
fought with every tool at the companies' and the agency's disposal.  These
deals must not be allowed to get lost in the shuffle.  

 

I have been pleased at the steps both the FHFA and the companies have taken
so far, but it must continue.  The extraordinary measures taken to stabilize
the financial system over the last two years were done for the benefit of
ordinary Americans.  We owe it to them to make every effort to make sure
that the money is not diverted instead into the pockets of others.  I hope
you will continue to keep this in mind as you chart the future of FHFA and
these companies.

 

BARNEY FRANK

Chairman

 

 

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