News Column

Still haven't learned: Freddie, Fannie taking new mortgage risks with questionable appraisals

February 6, 2014

By John Solomon, The Washington Times

Feb. 06 --In a fresh sign that lessons from the fiscal crisis six years ago haven't been fully learned, the government-backed mortgage giants Fannie Mae and Freddie Mac bought billions of dollars of mortgages last year despite red flags about the nature of their appraisals, investigators disclosed Thursday. The report from the Federal Housing Finance Agency inspector general provided a fresh warning that both mortgage giants, which had to be bailed out by taxpayers, are still engaged in risky practices in the aftermath of the housing market crisis that threw the entire economy into a tailspin in 2007-08. Freddie and Fannie are currently supervised by FHFA as part of a taxpayer conservatorship, and the inspector general, the agency's internal watchdog, has been asked to play the role of beat cop in ensuring both mortgage giants avoid risky behaviors. Thursday's report stressed the dangers of Fannie's and Freddie's failure to follow their own rules in ensuring appraisals are accurate and complete so the mortgage giants buy and accept loans based on the best possible estimates of the property values. "Assessing the value of collateral securing mortgage loans is one of the pillars in making sound underwriting decisions," the IG said. The investigation found that both mortgage underwriters routinely allowed lenders to override automated computer warnings that were designed to guard against appraisal troubles. Specifically: -- Fannie Mae bought 56,000 home loans worth $13 billion despite warnings the files potentially did not conforming to its appraisal requirements. -- Freddie Mac bought 29,000 loans worth $6.7 billion despite questions about their appraised value. The mortgage giants combined bought nearly $88 billion in loans when system logic errors in the computer system did not allow them to determine if the appraiser was properly licensed to assess the value of the properties. The report described in detail the laissez faire attitude toward computer warnings in the mortgage portals that are supposed to protect taxpayers from another mortgage bailout. Fannie and Freddie "had set such warning messages as automatic overrides allowing lenders to disregard the problems signaled by the portal before selling the associated loans to the" mortgage giants, the report said, noting officials cited such reasons as not wanting to force loan officers to deal with clicking on warning messages. "The portal is a vital tool to minimizing the risk of loss and should be fully used to improve loan quality,' the report noted. The IG made numerous recommendations to tighten up the appraisal check process at both mortgage firms, and FHFA agreed that the improvement are necessary and have already begun. You can read the full report here. ___ (c)2014 The Washington Times (Washington, DC) Visit The Washington Times (Washington, DC) at Distributed by MCT Information Services

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Source: Washington Times (DC)

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