Fannie Mae ignored claims of foreclosure abuses, report says

Mortgage giant Fannie Mae knew about allegations of improper foreclosure practices by law firms in 2003 but did not act to stop them, a government watchdog says.

Similar allegations are the subject of an investigation by state attorneys general into how lenders and law firms ignored proper procedures to handle a crush of foreclosure paperwork.

An unnamed shareholder warned Fannie Mae of alleged foreclosure abuses in 2003, the inspector general for the agency that regulates Fannie says in a report being released Tuesday.

Fannie Mae responded by hiring a law firm to investigate the claims in 2005. The law firm reported in 2006 that it had found foreclosure attorneys in Florida “routinely filing false pleadings and affidavits.”

Fannie officials said they told a government official about the law firm’s findings in 2006. That unnamed official, who now works for Fannie’s regulator, the Federal Housing Finance Agency, said he couldn’t recall the conversation, the report says.

Fannie began using a network of attorneys in 1997 to help handle foreclosures, evictions and bankruptcies. In 2008, the network grew to 140 law firms. And the number of foreclosures in Fannie’s portfolio reached historic highs. Foreclosures more than doubled from 2007 to 2008, and they grew 50% in 2009.

In June 2010, FHFA officials went to Florida to study the foreclosure crisis. They found that the mortgage industry was overwhelmed by foreclosures, that the average foreclosure processing time had grown from 150 days to more than 400 days, and that lenders were beset by flawed documentation.

A broader report into missteps by Fannie Mae and Freddie Mac is expected this fall.