Congressmen Frank, Kanjorski Release Letter Calling for Federal Housing Finance Administration to Protect Taxpayers
Aug 20, 2010
The U.S. House of Representatives’ Financial Services Committee issued the following news release today, August 20, 2010:
Frank, Kanjorski Release Letter Calling for Federal Housing Finance Administration to Protect Taxpayers
Washington, DC – Today, Congressman Barney Frank (D-MA), Chairman of the House Financial Services Committee, and Congressman Paul E. Kanjorski (D-PA), Chairman of the Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises released letters to the White House calling for the Federal Housing Finance Administration (FHFA) to use all of its powers to recover money from companies that used fraud and deceptive practices to shift losses on to Fannie Mae and Freddie Mac.
This issue will be a major focus at an oversight hearing on FHFA held by the Capital Markets Subcommittee next month. The House Financial Services Committee and Capital Markets Subcommittee have held five hearings on housing finance in 2010, and the FHFA oversight hearing is one of two new hearings on the topic planned for September.
“This week, the debate on the future structure of the U.S. housing finance system advanced greatly during the conference at the Treasury Department,” said Chairman Kanjorski, “In winding down Fannie Mae and Freddie Mac, we must carefully craft a solution that stabilizes our mortgage markets and ensures the continued availability of reasonably priced loans and affordable housing opportunities for all Americans. Simultaneously, FHFA must continue its efforts to protect taxpayers by recouping funds from the underwriters of faulty mortgages and the issuers of underwater securities purchased by Fannie Mae and Freddie Mac.”
On August 13, Chairman Kanjorski and committee members Brad Miller (D-NC) and Jackie Speier (D-CA) addressed a letter to President Obama asking that any new Director of the FHFA aggressively pursue claims on behalf of Fannie Mae and Freddie Mac.
“We must pursue legitimate legal claims to limit losses to taxpayers,” Rep. Brad Miller (D-NC) said. “Americans need to know that their government is acting on their behalf, not on behalf of powerful financial institutions.”
Today, Chairman Frank joined his colleagues by addressing a letter to the President strongly supporting his colleagues’ request.
AUGUST 13 LETTER
August 13, 2010
The White House
Dear Mr. President:
We are writing to urge that any new Director of the Federal Housing Finance Agency (“FHFA”) vigorously pursue all available legal claims as conservator of Fannie Mae and Freddie Mac to limit losses to taxpayers.
In consultation with Secretary of the Treasury Henry Paulson, FHFA placed Fannie Mae and Freddie Mac in conservatorship on September 6, 2008. According to a letter dated February 2, 2010, from Edward DeMarco, Acting Director of FHFA, to the chairmen and ranking members of the relevant congressional committees, Fannie Mae and Freddie Mac had then suffered losses of $164 billion under the conservatorship. The enterprises’ losses had exhausted shareholder equity and the enterprises had drawn more than $110 billion in taxpayer funds. The two enterprises have now drawn $145 billion in taxpayer funds, and undoubtedly will draw much more. This week Freddie Mac requested an additional $1.8 billion.
FHFA has pursued two kinds of legal claims to limit taxpayer losses. First, FHFA has demanded that lenders from which the enterprises purchased mortgages buy back mortgages that did not satisfy contractual representations and warranties. As of March of this year, Freddie Mac had demanded that lenders repurchase $4.8 billion in mortgages.
In addition, the two enterprises own approximately $255 billion in “private-label” or “non-agency” mortgage-backed securities. The enterprises have suffered significant losses on those private-label mortgage-backed securities.
Last month FHFA issued 64 subpoenas to obtain information needed “to determine whether losses sustained by the enterprises on [private-label securities] are the legal responsibilities of others.” The documents subpoenaed include “the contents of loan files, which include documents used in the underwriting process, such as loan applications and property appraisals.” FHFA issued the subpoenas after trying for months to obtain the documents voluntarily.
FHFA appears to be considering claims similar to the claims asserted by private mortgage investors against issuers of private-label mortgage-backed securities, generally Wall Street firms and the largest banks. Many private mortgage investors are pension funds upon which working and middle-class families depend for retirement. The efforts by private investors to pursue those claims have been largely stymied by the inability to obtain the kind of information sought by the FHFA subpoenas. Trustees and servicers required to act on private investors’ behalf are often affiliates of the firms that issued the securities in question, a questionable alignment of interests.
FHFA must vigorously pursue all available legal claims for losses sustained from the conservatorship of Fannie Mae and Freddie Mac. It is critically important to protect taxpayer funds. It is equally important that the American people know that their government is acting on their behalf, not on behalf of powerful financial institutions. The failure to pursue legitimate legal claims to limit losses to taxpayers would be another indirect subsidy for an industry that has received too many such subsidies already.
As you consider the nomination of a permanent FHFA Director, we ask that you take appropriate steps to assure that efforts to investigate and assert legal claims to limit taxpayer losses from the enterprises’ conservatorship will continue to be pursued vigorously.
Paul Kanjorski, Member of Congress
Brad Miller, Member of Congress
Jackie Speier, Member of Congress
AUGUST 20 LETTER
August 20, 2010
The White House
Dear Mr. President:
I am writing to endorse and reinforce the views in the letter sent to you recently by my colleagues on the House Committee on Financial Services. As conservator of Fannie Mae and Freddie Mac, the Federal Housing Finance Agency (FHFA) has the power to pursue legal claims against private companies that shifted losses on to Fannie and Freddie. The FHFA must use this power aggressively. I am pleased that they have begun to do so, and I will be monitoring to make sure this continues.
The losses suffered by Fannie and Freddie have created great cost for the taxpayers – almost $150 billion to date. These losses largely result from business decisions during the bubble years that were honest but flawed. Taxpayers have continued to suffer anew for poor underwriting by these companies during the bubble years.
However, some of these losses result from deception. Private companies sold Fannie and Freddie loans or securities based on fraudulent documents. These transactions created private profits at public expense, and they should be fought with every tool at the companies’ and the agency’s disposal. These deals must not be allowed to get lost in the shuffle.
I have been pleased at the steps both the FHFA and the companies have taken so far, but it must continue. The extraordinary measures taken to stabilize the financial system over the last two years were done for the benefit of ordinary Americans. We owe it to them to make every effort to make sure that the money is not diverted instead into the pockets of others. I hope you will continue to keep this in mind as you chart the future of FHFA and these companies.