Letters from members of Congress released Friday urged President Obama and the Federal Housing Finance Administration (FHFA) to use aggressive administrative power to recover money from companies that used fraudulent and deceptive practices to shift losses on to Fannie Mae and Freddie Mac. Congressman Barney Frank (D-MA), Chairman of the House of Financial Services, and Congressman Paul Kanjorski (D-PA), Chairman of the Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises, authored the letters concerning the costs to American taxpayers to support the loss suffered by the government-sponsored enterprises (GSEs) due to fraudulent transactions. Frank cited that GSE loss already cost taxpayers almost $150bn to date and the bill looks set to rise. “These losses largely result from business decisions during the bubble years that were honest but flawed,” Frank wrote. “However, some of these losses result from deception. Private companies sold Fannie and Freddie loans or securities based on fraudulent documents… they should be fought with every tool at the companies’ and the agency’s disposal.” The FHFA has pursued two kind of legal claims to limit taxpayer loss in recent times. First, the FHFA demanded that lenders purchase mortgage buyback from the GSEs for mortgages that did not meet contractual representations and warranties. Kanjorski said in his letter, co-authored by Congressman Brad Miller (D-NC) and Congresswoman Jackie Speier (D-CA), that as of March 2010, Freddie Mac alone demanded lenders repurchase $4.8bn in mortgages. Fitch Ratings reported earlier this week the volume of GSE buybacks could increase to $180bn. Second, the FHFA issued 64 subpoenas in July to obtain information needed to determine if GSE losses are “the legal responsibility of others.” Documents subpoenaed include loan files, underwriting documents and property appraisals the FHFA tried to obtain voluntarily, according to Kanjorski. “It is critically important to protect taxpayer funds. It is equally important that the American people know that their government is acting on their behalf, no on behalf of powerful financial institutions,” Kanjorski wrote in his letter dated Aug. 13. “The failure to pursue legal claims to limit losses to taxpayers would be another indirect subsidy for an industry that has received too many such subsidies already.” Write to Christine Ricciardi.
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