Fannie Mae missed chances to catch law firms illegally signing foreclosure documents and its government overseer did not take the right steps to ensure Fannie was doing its job, according to a federal watchdog.
The Federal Housing Finance Agency's inspector general said in a report Friday that Fannie failed to establish an "acceptable and effective" way to monitor foreclosure proceedings between 2006 and early 2011. FHFA then failed to ensure it was complying with demands that it clean up its programs.
Mortgage industry employees — including law firms employed by Fannie Mae — signed documents they hadn't read and used fake signatures on foreclosure cases across the country. The practices, known collectively as "robo-signing," resulted in a suspension of foreclosures last fall and a probe by all 50 state attorneys general into how corners were cut to keep pace with the crush of foreclosure paperwork.
In 2005, Fannie hired outside investigators to look into allegations about faulty foreclosure documents. A year later, Fannie received a report from the investigators that found law firms working for Fannie had filed false documents.
Fannie said it was developing a computer system to improve communication and monitor its attorneys but the inspector general said they found no evidence Fannie had made any improvements in overseeing its attorneys.
FHFA was created in 2008 to oversee mortgage buyers Fannie Mae and Freddie Mac. To make sure Fannie was doing its job, FHFA has the authority to fire and replace employees; issue cease and desist orders; and impose fines. To date, the agency has not taken any of those actions, the inspector general's report said.
Fannie and Freddie own or guarantee about half of all U.S. mortgages, or nearly 31 million home loans worth more than $5 trillion. As part of a nationalized system, they account for nearly all new mortgage loans. So anyone looking to buy a home would be forced to pay higher rates on new loans.
The Bush administration seized control of the mortgage giants in September 2008, hoping to stabilize the beleaguered housing industry.
In a separate report released Friday, the inspector general says the FHFA lacks examiners to monitor Fannie. Just a third of its 120 non-executive examiners are federally accredited, the report found. Other federal regulators, such as the Federal Deposit Insurance Corp., usually require all of their examiners to be accredited.