"Is Fannie Mae Pressuring Banks To Foreclose On Troubled Borrowers?"
The Detroit Free Press released a blockbuster story yesterday noting that — despite its public assurances to the contrary — mortgage giant Fannie Mae has been pushing banks to put seriously delinquent borrowers into foreclosure, even when the banks are examining those borrowers for mortgage modifications:
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.
The nation’s banks have been awful when it comes to implementing the Obama administration’s signature foreclosure prevention program, the Home Affordable Modification Program (HAMP). One of the principal problems has been that the banks were foreclosing on homeowners who were waiting to see if they qualify for HAMP, in what’s known as “dual tracking.” The government has supposedly ended dual tracking on loans that it owns, but documents obtained by the DFP indicate the Fannie Mae may be doing just that:
In one instance, from August 2010, Bank of America requested a 45-day delay for a Wisconsin homeowner who owed $124,610 and was 32 months delinquent. The bank said the borrower was applying for a loan modification through HAMP and “it appears that all financial documents have been received and we are waiting for an underwriter to be assigned.”
Fannie Mae’s response: “Per our new delay initiative, any loan over 12 months deliq must be on an active payment plan with monthly payments coming in. Therefore, this request to postpone is declined. Please proceed to sale.”
“Fannie just wants to clean up its balance sheet and get these loans off the books while taxpayers are eating these losses,” said Valparaiso Prof. Alan White. “And Treasury and the FHFA are letting them get away with it. It’s a huge waste.” Ira Rheingold, executive director of the National Association of Consumer Advocates, added, “It’s rarely in anyone’s best interest to kick out a struggling homeowner who is trying to stay in their home, particularly in cities like Detroit whose housing market is devastated.”
If Fannie Mae is indeed pushing borrowers into foreclosure whose homes can be saved, it needs to stop. Even if there is something going on here that the Free Press missed, Fannie needs to step forward and to be transparent for its reasons. The foreclosure prevention programs that have been put in place so far have been weak enough, without Fannie Mae undermining them.