Three U.S. lawmakers have asked Fannie Mae to explain dealings with a North Carolina firm that led a court to order the mortgage giant to forfeit $6.5 million.
“We are very concerned that the U.S. taxpayers have been put at risk when certain loans were sold by First Beneficial Mortgage to Ginnie Mae after many of the same loans were determined to be fraudulent by executives at Fannie Mae,” Republican Reps. Richard Baker, Sue Kelly and Robert Ney said in a letter to Fannie Mae CEO Franklin Raines.
The three Representatives are chairpersons of subcommittees of the House Financial Services Committee.
Ginnie Mae guarantees mortgage-backed securities composed of federally insured or guaranteed loans.
A federal court ordered Fannie Mae to forfeit $6.5 million in funds determined to have come from fraudulent activities by First Beneficial Mortgage Corp. in North Carolina, according to news reports. First Beneficial obtained the funds to repay Fannie Mae by selling them to Ginnie Mae.
In the 1990s, Fannie Mae bought millions of dollars worth of mortgages from First Beneficial. When Fannie Mae learned the mortgages were fraudulent, it demanded that First Beneficial buy them back, which it did by selling the same loans to Ginnie Mae, according to the Washington Post.
Fannie Mae did not blow the whistle on the scheme, according to news reports.
The lawmakers asked Raines when Fannie Mae knew that First Beneficial might try to sell the loans to Ginnie Mae to raise the funds to repay Fannie. They also asked Raines whether executives took any action to inform regulators about the questionable loans.
In a written statement, Fannie Mae spokesman Brian Faith said the company suffered millions of dollars in losses as a result of the fraudulent activities of First Beneficial’s principals. He said Fannie has worked with the various government offices and agencies looking into First Beneficial’s activities and will respond fully to the lawmakers’ request.
“Fannie Mae will work cooperatively with all relevant governmental entities that have an interest in this matter,” Faith said.
James E. McLean, who was president of First Beneficial Mortgage, and other defendants were convicted on federal charges in 2002, the Washington Post reported. The borrowers named on the mortgages were phony and the loan proceeds were not used to purchase the properties described on the notes.
Fannie Mae, a shareholder-owned corporation chartered by the federal government, has already been the subject of much scrutiny this year in unrelated allegations of improper accounting.
The Securities and Exchange Commission launched a formal investigation of Fannie Mae after the Office of Federal Housing Enterprise Oversight released a scathing 211-page report revealing evidence of improper accounting at the company. The company also has been the target of shareholder lawsuits and a Congressional hearing.
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