Because Fannie and its sister company, Freddie Mac, own or guarantee about half of U.S. mortgages and account for nearly all new mortgages, it is frightening to say the least that Fannie Mae turned a blindI eye to improper foreclosure practices for the better part of a decade. It appears that Fannie Mae not only was aware of improper foreclosure practices by law firms in 2003 but failed to take any action to stop them. In 2005, Fannie Mae hired a law firm to investigate improper foreclosure allegations. By 2006, that law firm found that foreclosure attorneys in Florida were routinely filing false pleadings and affidavits.
Starting in 1997, Fannie Mae used a broad network of attorneys to help handle foreclosures, evictions and bankruptcies. By 2008, this law firm network had grown to 140 nationwide. The number of foreclosures in Fannie’s portfolio was increasing exponentially: In 2008, the number of foreclosures was twice that in 2007 and in 2009 they increased another fifty percent.
In June 2010, FHFA found that the mortgage industry was completely overwhelmed by foreclosures. As a result, the average foreclosure processing time had nearly tripled from 150 days to over 400. More importantly, the FMGA found that lenders were overwhelmed with sub-par documentation; and that law firms were not devoting enough time to cases.
Many of these practices led some lenders to suspend their ongoing foreclosures last fall and has led to an ongoing investigation by nearly all of the state attorney generals. The question now is not even liability on the part of the lenders but the size of the settlements.