California Attorney General sues Fannie, Freddie demanding answers
Published: December 27, 2011
Time posted: 4:16 pm
Tags: California attorney general, Fannie Mae, Freddie Mac
SAN FRANCISCO – California’s attorney general filed lawsuits against mortgage giants Fannie Mae and Freddie Mac last week, demanding that the companies that own some 60 percent of the state’s mortgages respond to questions in a state investigation.
Attorney General Kamala Harris, whose office filed the lawsuits in San Francisco Superior Court, is investigating Freddie Mac’s and Fannie Mae’s involvement in 12,000 foreclosed properties in California where they served as landlords. She also wants to find out what role the companies played in selling or marketing mortgage-backed securities.
The essentially identical lawsuits ask the mortgage firms to respond to 51 investigative subpoenas that call on Fannie Mae and Freddie Mac to identify all the California homes on which they foreclosed. They also want the mortgage firms to reveal whether they have information on the decreased value of those homes because of drug dealing or prostitution, as well as explosives and weapons found on those vacant properties.
Harris also called on Fannie Mae and Freddie Mac to disclose whether they have complied with civil rights laws protecting minorities and members of the armed forces against unlawful convictions and foreclosures.
The suits also seek to determine whether the companies are in compliance with California’s securities and tax laws.
The companies were taken over by the federal government and put into conservatorship under the Federal Housing Finance Agency in September 2008 to save them from collapse.
An attorney representing the FHFA said in a letter attached to the lawsuits that the 51 subpoenas were “frequently vague and ambiguous” and said state attorneys general did not have the authority to issue subpoenas against the federal conservator.
“The burden to collect that information would be nothing short of staggering,” the letter said.
Representatives of Fannie Mae and Freddie Mac said the companies would not comment on the lawsuits.
The lawsuits could determine whether states have a right to investigate the mortgage firms while they are under federal control. Harris argues that since the mortgage companies own properties in California, they are subject to state law and demands.
Fannie Mae and Freddie Mac buy home loans from banks and other lenders, package them into bonds with a guarantee against default and then sell them to investors around the world. The two own or guarantee about half of U.S. mortgages, or nearly 31 million loans.
The companies have so far cost American taxpayers more than $150 billion — the largest bailout of the financial crisis. They could cost up to $259 billion, according to the FHFA.
Two former CEOs at Fannie Mae and Freddie Mac this month became the highest-profile individuals to be charged in connection with the 2008 financial crisis. In a lawsuit filed in New York, the Securities and Exchange Commission brought civil fraud charges against six former executives at the two firms, including former Fannie CEO Daniel Mudd and former Freddie CEO Richard Syron.
The executives were accused of understating the level of high-risk subprime mortgages that the companies held just before the housing bubble burst.
Copyright 2013 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.