Inside Fannie Mae: Confidential records show how Fannie Mae breaks the rules

Confidential records obtained by the Free Press show that Fannie Mae pressed lenders to foreclose on homeowners, even if they were negotiating for a loan modification — a violation of the government’s own rules.

Those rules tell banks they “may not refer a loan for foreclosure sale or proceed with a foreclosure sale” while homeowners are seeking loan changes under the federal Home Affordable Modification Program, which was designed to provide mortgage relief.

The confidential records are at odds with that promise. They directed banks to foreclose on mortgages more than 12 months delinquent, regardless of whether homeowners were applying for relief. Other documents show that Fannie Mae made clear to banks that Fannie expected a certain percentage of delinquent borrowers to lose their homes.

What Fannie told banks

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.

Foreclosure targets

In this June 2010 letter to PNC, a Fannie Mae vice president, Javid Jaberi, outlines third-quarter projections for the bank. Fannie Mae officials “project and expect” roughly 10%-12% of the bank’s monthly foreclosure inventory to be sold in the third quarter. Jaberi said in an interview that the letters reflect an effort by Fannie Mae to get banks to respond more quickly when loans are delinquent, even if that meant pushing some homeowners seeking changes to their loans to foreclosure sale.

Related PDF: This excerpt is from the second of six letters Fannie Mae sent to different banks.

Fannie’s foreclosure costs exceed debt

This internal Fannie Mae memo, labeled confidential, shows how far Fannie Mae is sometimes willing to go to foreclose on a home. In this case, Fannie (FNMA) spent $27,000 to foreclose on a debt of $3,000.

Be sure to check out the rest here…