Fannie Mae’s current role

This spring, we reported that eight bills had been introduced to wind down Fannie Mae and Freddie Mac while a bill was introduced this summer to merge the two government sponsored entities that together own or guarantee the majority of home loans in America.

President Obama himself has said that housing is the biggest drag on the economy but has not quite admitted the colossal failure that is the Housing Affordable Modification Program (HAMP) which is well known for spending taxpayer money with little return- few homeowners have actually received a modification, most end up in limbo and there are even claims of lost paperwork and stall tactics from servicers unwilling to properly execute the program. On top of the internal drama, the House approved cuts to the HAMP program, potentially ending the taxpayer involvement in the long run.

Fannie Mae has publicly proclaimed they will protect consumers while in the process of applying for HAMP or other federally funded loan modification programs.

Fannie Mae’s blatant rule breaking

Confidential records obtained by The Detroit Free Press reveal that Fannie Mae has gone against that promise by violating the government’s own rules to protect homeowners in process of applying for federally funded loan modifications. Banks were directed to foreclose on mortgages over 12 months delinquent, despite loan modification status. Free Press notes that other confidential documents they have obtained show “that Fannie Mae made clear to banks that Fannie expected a certain percentage of delinquent borrowers to lose their homes.”

The Free Press “obtained copies of more than 2,300 requests from various banks asking Fannie Mae for permission to delay foreclosure sales. These excerpts show two requests from Bank of America and Fannie Mae’s response, which reveals a directive to deny postponements when borrowers are more than 12 months delinquent, even when homeowners are negotiating loan modifications.”

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Fannie Mae spent $27,000 on a $3,000 debt

Fannie Mae has admitted in a confidential internal memo also obtained by The Free Press that they are willing to go to extreme lengths to foreclose on a home, in one case spending $27,000 to foreclose on a $3,000 debt.

To top it all off, Fannie Mae has warned lenders of the possibility “fining lenders for unauthorized foreclosure delays,” The Free Press notes.

Disastrous results

Homeowners are making decisions about their future based on rules that govern their protection during applying for a home loan modification through the government, which in itself is already an extremely daunting and nearly impossible task given HAMP’s horrific track record.

The housing sector continues to hemorrhage and any impediment to recover must be dealt with, but it is unclear how to deal with this monstrosity given that Capitol Hill is inconsistent with the future of Fannie specifically but inconsistent with housing regulation in general.