Fannie, Freddie Leave $4.6B on Table; Fail to Hunt Down Many Foreclosures

The Washington Times (Washington, DC), September 26, 2013 | Go to article overview

Fannie, Freddie Leave $4.6B on Table; Fail to Hunt Down Many Foreclosures


Byline: Phillip Swarts, THE WASHINGTON TIMES

Fannie Mae and Freddie Mac, the two mortgage finance giants whose financial woes required massive taxpayer bailouts in recent years, could be missing out on as much as $4.6 billion in payments from foreclosed mortgages in their portfolios, a federal investigator said.

Freddie Mac alone has not dealt with about 58,000 foreclosures on single-family homes, letting the borrowers go into default instead of paying back the loans, according to the investigation conducted by the inspector general of the Federal Housing Finance Agency.

The inspector general said many of those in default are not disenfranchised families down on their luck. Instead, they have the financial capability to pay back their loans, and investigators say the mortgage companies should be more aggressive in getting their money back.

Among those not pursued were real estate investors and others who failed to repay their housing loans while staying current on other bills, the inspector general's review found.

Freddie Mac eliminated any possibility of recovery when it did not refer foreclosed mortgages for evaluation of collectibility, the inspector general said, and disorganization cost the mortgage company 6,000 potential foreclosures because the statute of limitations expired.

The numbers are even worse for Fannie Mae, which the watchdog agency

said did not pursue 44,600 cases because the statute of limitations expired. The inspector general said it's uncertain how many of those mortgage holders would have been able to repay.

Inaction by Fannie Mae, Freddie Mac and other companies causes a high level of non-recourse lending. This type of lending carries few consequences because businesses legally can't or won't pursue people who default on their mortgages, said Edward Pinto, a housing finance analyst at the American Enterprise Institute, a conservative think tank.

That leads to moral hazards because people look around and say, 'Well, no one's going to come after me,' so they walk away, he said.

Foreclosures are supposed to be rare, but the level of foreclosures in the U.S. remains high four years after the end of the Great Recession, Mr. Pinto said. There is a danger that the federally backed housing finance system will send the wrong message to the market by not aggressively going after people who default on loans.

People view it as an entitlement instead of a debt they're supposed to pay back, he said, adding that the number of defaults on mortgages was one of the chief causes of the recession, which started in late 2007.

Dealing with 'deficiencies'

The official term for such cases is deficiencies - the difference between what the companies have lent out and what they have yet to be repaid. …

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