Gov't Tries to Recoup Some Fannie, Freddie Losses
July 12, 2010A federal regulator is taking steps that could lead to the recovery of some losses sustained by mortgage giants Fannie Mae and Freddie Mac.
The Federal Housing Finance Agency said Monday it may try to get back money that the two government-controlled companies have lost on mortgage securities packaged and sold by Wall Street firms.
During the housing market's boom years, the two government-sponsored companies snapped up those securities, which contained some of the riskier loans made during the housing boom years. But they declined dramatically in value after the market went bust.
The regulatory agency said it has issued 64 subpoenas seeking loan files and other documents to determine whether the sellers of those securities made any false statements or omissions. Fannie and Freddie had tried to do so themselves but have faced resistance in getting the loan documents, said the agency, which was given subpoena power two years ago.
The agency said in a statement that it is "prepared to take appropriate action to ensure compliance, if necessary."
But the government's ability to recover money will depend on whether the mortgage companies that made the loans are still operating, said Scott Buchta, chief mortgage strategist with Braver Stern Securities. Many of the lenders who made the worst-performing loans have gone out of business.
"It's going to be a long process," Buchta said.
These mortgage-backed investments, known as "private label" securities, are separate from those issued by Fannie Mae and Freddie Mac themselves. Fannie and Freddie have also been trying to recover money on their own securities by forcing lenders to buy loans that have gone into default.
Any money recovered by the government would offset taxpayer losses on Fannie and Freddie. Rescuing the two mortgage finance companies, which the government seized in September 2008, has cost taxpayers $145 billion so far.
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