DETROIT — 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 tol
d the panel. “Foreclosures hurt families and destabilize communities.”
But confidential documents obtained by the Detroit 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.
The Detroit 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 percent-12 percent 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.
Alan White, a law professor at Valparaiso University in Indiana and a leading national expert on the foreclosure crisis, reviewed the records for the Detroit 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.
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 last 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 the modification program’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.
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.
Foreclosures expected to increase
The number of Americans at risk of foreclosure is rising, reflecting the U.S. economy’s continued struggles.
The Mortgage Bankers Association says 8.44 percent of homeowners missed at least one mortgage payment in the April-June quarter. That figure, which is adjusted for seasonal factors, rose 0.12 percentage point from the January-March period.
In a normal market, the percentage of delinquent borrowers is about 1.1 percent, according to the trade group.
Delinquent mortgages have plummeted from a record high of more than 10 percent of residential mortgages a year ago. But the end of an investigation into faulty foreclosure paperwork will likely lead to increased foreclosures later this year.