Issa launches probe of Fannie, BofA mortgage servicing deal
Rep. Darrell Issa (R-Calif.), chairman of the House Oversight and Government Reform Committee, opened an investigation into the reported Fannie Mae purchase of a Bank of America (BAC) mortgage servicing portfolio. According to The Wall Street Journal, the deal was finalized in August. The portfolio includes 400,000 loans with an unpaid principal balance of $73 billon and a delinquency rate of 13%, twice the national average. Fannie reportedly paid $500 million for it. "Some commentators have labeled this transaction as a back-door bailout of BofA by permitting the bank to shift part of its risky portfolio to American taxpayers. Under these circumstances, I am unclear why the Federal Housing Finance Agency allowed Fannie to proceed with the transaction," Issa wrote in a letter to FHFA Acting Director Edward DeMarco. Issa wants DeMarco to give a full explanation of the FHFA decision to approve the deal and provide all financial analyses Fannie conducted before the sale. He also asked in the letter if Fannie considered purchasing servicing rights from other institutions and what Fannie plans to do with those reportedly bought from BofA. Issa also asked for all documents and communication between Fannie and BofA relating to the portfolio purchase. "Bank of America periodically sells mortgage servicing rights (MSR) or transfers mortgage-related assets to third party business partners," a BofA spokesman said. "This is a commonly accepted, industry-wide practice that many mortgage loan servicers, including Bank of America, have engaged in for many years." BofA added that the purchaser in these transactions already holds the loss exposure on the loans, and through the sale of servicing rights, servicing responsibilities for these loans will be transferred to other loan service providers. Fannie and Freddie owe the Treasury Department roughly $142 billion in bailouts given since the two giants were taken into conservatorship in 2008. The Congressional Budget Office estimates the two firms will need an additional $51 billion between now and 2021. BofA received $50 billion through the Troubled Asset Relief Program but has paid it back. "Congress and the American people deserve a full explanation for what appears to be yet another bailout paid for by taxpayers benefitting businesses that made bad business decisions," he said. Neither Fannie nor the FHFA immediately replied to requests for comment. Write to Jon Prior. Follow him on Twitter @JonAPrior.