Fannie Mae and Freddie Mac made some investments that regulators are now questioning. Image from Flickr.
This morning, the Federal Housing Finance Agency announced that it will be investigating the investments of mortgage companies Freddie and Fannie. The subpoenas issued cover files on the secured loans and bank loan information used in securities purchased by the companies. The FHFA believes that some of the liability for these securities may be with the sellers.
Fannie and Freddie’s investments
The investments made by mortgage lenders Fannie and Freddie during the housing boom included many mortgage securities. These “packaged” securities saw huge drops in value when the market crashed. Many of these packaged securities included mortgage installment loans for people with bad credit. There is a belief that Fannie and Freddie fanned the flames of the bubble by being so willing to purchase these securities.
Subpoenas for loan information
The Federal Housing Finance Agency, which recently took over control of Fannie and Freddie, has issued 64 subpoenas to sellers of these poor credit loans. The agency has been attempting to get information on these loans for a while, but has encountered resistance. There is some concern that the sellers of these packaged securities obscured the reality of the risk behind the loans.
Possible result of the loan subpoenas
The subpoenas issued to sellers of these debt loans seek to determine whether some information was not shared. If the loan documents do reveal that information was hidden, the Wall Street firms that sold the securities could be on the hook. Thus far, Fannie and Freddie have lost more than $145 billion of taxpayer money. If there was obscured information or lies in the loan documents, the lenders might be asked to reimburse the taxpayers for money lost because of these loans. The most difficult thing will be actually recovering money, since many of the lenders offering these quick cash loan products are now out of business.
