From the Office of the New York State Attorney General
Andrew
M. Cuomo
http://www.oag.state.ny.us/press/2007/nov/nov7a_07.html
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Issues Notice of Martin Act Subpoenas to
Nation’s Two Largest Mortgage Financiers Fannie Mae and Freddie Mac Agree to Demand for
Immediate Independent Examiner to Review |
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NEW YORK,
NY (November 7, 2007) - Attorney General Andrew M. Cuomo today announced his
office has sent Letters of Notice and Demand, providing notice of the issuance
of Martin Act subpoenas and a demand for an Independent Examiner, to the
nation’s two largest financiers of home mortgages, Fannie Mae (NYSE: FNM) and
Freddie Mac (NYSE: FRE). Cuomo also announced that Fannie Mae and Freddie Mac
have agreed to the demand to retain an Independent Examiner, subject to the
Attorney General’s approval, to conduct a total review of all Washington Mutual
(NYSE: WM) appraisals and mortgages purchased by the companies.
The
Martin Act subpoenas sent by Cuomo seek information on the mortgage loans
Fannie Mae and Freddie Mac purchased from banks, including Washington Mutual, the
nation’s largest savings and loan. The subpoenas also seek information on the
due diligence practices of Fannie Mae and Freddie Mac, and their valuations of
appraisals.
Today’s
announcement marks the latest expansion of Cuomo’s industry-wide investigation
of mortgage fraud. Last week, Cuomo filed suit against First American
Corporation (NYSE: FAF), and its subsidiary eAppraiseIt,
one of the nation’s largest real estate appraisal management companies, for
colluding with Washington Mutual to inflate the appraisal values of homes.
“In
order to fulfill their duty to consumers and investors, Fannie Mae and Freddie
Mac must ensure that Washington Mutual’s mortgages
have not been corrupted by inflated appraisals,” said Attorney General Cuomo.
“Our expanding investigation into the mortgage industry has uncovered that
Washington Mutual improperly pressured appraisers to provide inflated values
that best served the lender’s interest. Knowing this, Fannie Mae and Freddie
Mac cannot afford to continue buying Washington Mutual mortgages unless they
are sure these loans are based on reliable and independent appraisals.”
The
subpoenas issued include requests for:
- Information
about all of the mortgage loans Fannie Mae and Freddie Mac have purchased
from any bank, including Washington Mutual, and the mortgage-backed
securities associated with those loans;
- Information
about due diligence practices of Fannie Mae, Freddie Mac;
- Information
about appraisals and valuations by the originating lenders;
- Policies
and procedures related to valuing properties and appraisals.
Fannie
Mae (Federal National Mortgage Association and Freddie Mac (Federal Home Loan
Mortgage Corporation) are two of the largest financiers of home mortgages in
the country, and both purchase loans from Washington Mutual. Washington Mutual
is the third largest provider of loans to Freddie Mac, selling $24.7 billion in
loans in 2007 alone. Washington Mutual is also the fourteenth largest provider
of loans to Fannie Mae, selling $7.8 billion in loans in 2007.
“The
integrity of our mortgage system depends on independent appraisers,” said
Cuomo. “Washington Mutual compromised the fairness of this system by illegally
pressuring appraisers to provide inflated values. Every company that buys loans
from Washington Mutual must be sure that the loans they purchased are not
corrupted by this systemic fraud.”
The
lawsuit filed last week details a scheme in numerous e-mails showing First
American and eAppraiseIT caved to pressure from
Washington Mutual to use appraisers who provided inflated appraisals on homes.
E-mails also show that executives at First American and eAppraiseIT
knew their behavior was illegal, but intentionally broke the law to secure
future business with Washington Mutual. Between April 2006 and October 2007, eAppraiseIT provided over 250,000 appraisals for Washington
Mutual.
“I
wish I could say I am shocked by the discoveries made by the Attorney General
and his staff. Sadly, what allegedly happened between First American and
Washington Mutual is not an isolated incident. Rather, it is symbolic of a
problem that has plagued the appraisal industry for years,” said Terry Dunkin,
President of the Appraisal Institute. “As the allegations against First
American show, the mortgage industry’s dirty secret has been that banks exert
tremendous pressure to extort appraisers.”
Cuomo’s
office has been conducting a nine month investigation into the mortgage
industry, which has identified two key areas of concern: appraisals and
securitization. On Monday, November 5, Attorney General Cuomo traveled to
Washington, D.C. to endorse the Escrow, Appraisal, and Mortgage Servicing
Improvements Act (H.R. 3837), sponsored by Representative Paul E. Kanjorski
(D-PA). This bill will create new protections for consumers and investors and
prohibit the improper coercion of appraisers to meet target appraisals.
This
investigation is under the direction Executive Deputy Attorney General for
Economic Justice Eric Corngold.
Attachments:
- Letter to Mr.Mudd ( http://www.oag.state.ny.us/press/2007/nov/letter_to_mr_mudd.pdf )
- Letter to Mr.Syron ( http://www.oag.state.ny.us/press/2007/nov/letter_to_mr_syron.pdf )
- AG Cuomo Press Conf - Fannie Mae Freddie
Mac (Audio File)
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AP
New York Probes Government Lenders
Wednesday November
7, 1:19 pm ET
By
Michael Gormley, Associated Press Writer
NY State
Probe of Mortgage Conflicts Hits Fannie Mae, Freddie Mac
ALBANY, N.Y. (AP) -- New York Attorney General Andrew
Cuomo said Wednesday that he has issued subpoenas to government-sponsored
lenders Fannie Mae and Freddie Mac in his investigation into what he claims are
conflicts of interest in the mortgage industry.
Cuomo
said he wants to know about loans Fannie Mae and Freddie Mac purchased from banks,
including Washington Mutual Inc. The subpoenas also seek to find out how the
government-sponsored companies handle appraisals.
Cuomo
said Fannie Mae and Freddie Mac have agreed to his demand that an independent
examiner, subject to the attorney general's approval, review all Washington
Mutual appraisals and mortgages done with the two government-sponsored lenders.
"In
order to fulfill their duty to consumers and investors, Fannie Mae and Freddie
Mac must ensure that Washington Mutual's mortgages have
not been corrupted by inflated appraisals," Cuomo said.
"Our
expanding investigation into the mortgage industry has uncovered that
Washington Mutual improperly pressured appraisers to provide inflated values
that best served the lender's interest," Cuomo said. "Knowing this,
Fannie Mae and Freddie Mac cannot afford to continue buying Washington Mutual
mortgages unless they are sure these loans are based on reliable and
independent appraisals."
Fannie
Mae and Freddie Mac were created by Congress to make home ownership affordable
for low- and middle-income people.
"If
true, the appraisal practices described in the complaint would violate Fannie
Mae's requirements for loans we purchase from lenders or securitize," said
Brian Faith of Fannie Mae.
"It
is against our interest to purchase or guarantee mortgages with inflated
appraisals, and so it is in Fannie Mae's interest that these appraisal
practices be investigated," he said. "If the examiner determines we
own or guarantee mortgages with inflated appraisals, our guide states that the
lender must buy back the loans that do not meet our standards and requirements.
Fannie
Mae and Freddie Mac companies pump money into the nearly $11 trillion home-loan
market by buying blocks of mortgages from lenders and then packaging them into
securities for sale to investors.
"We
are pleased to cooperate with the New York attorney general's investigation and
have agreed to appoint an independent examiner as requested," said Doug
Duvall, spokesman for Freddie Mac. "We depend upon accurate appraisals. In
fact, accurate appraisals are fundamental to our effective credit-risk
management as well as to the long-term success of homebuyers."
James
B. Lockhart, director of the Office of Federal Housing Enterprise Oversight,
which regulates Fannie Mae and Freddie Mac, said he will discuss the issue with
Cuomo.
"OFHEO
has supported cooperation by Fannie Mae and Freddie Mac with law enforcement at
all levels," Lockhart said. "In particular, for the past three years,
we have worked with the government-sponsored enterprises to enhance their
programs to combat mortgage fraud and to provide outreach to their
seller-services on best practices."
On
Tuesday, the federal government reached a $16.4 million settlement with Freddie
Mac's former CEO for his role in the company's multibillion-dollar accounting
scandal.
In
2004, massive accounting problems were found at its government-sponsored
sibling, Fannie Mae, and that company's chief executive, Franklin Raines, also
was forced out.
In
afternoon trading, Fannie Mae shares, which are down nearly 7 percent for the
year amid the subprime crisis, were down $4.74, or
8.6 percent, to $50.65.
Freddie
Mac shares were trading at $46.92, down $2.47 or 5 percent from its opening price.
The stock has fallen more than 27 percent for the year.
Cuomo's
announcement comes less than a week after the attorney general filed suit
against a major real estate appraisal company, accusing it of colluding with
the nation's largest savings and loan companies to inflate the values of homes,
thus contributing to the subprime mortgage crisis.
Cuomo
last Thursday announced a lawsuit against eAppraiseIT
that accuses the First American Corp. subsidiary of caving in to pressure from
Washington Mutual to use a list of "proven appraisers" who he claims
inflated home appraisals.
Washington
Mutual, which was not targeted in the suit, cut ties with eAppraiseIT
the following day.
AP
Writer Marcy Gordon contributed to this report from Washington.
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