The Office of Federal Housing Enterprise Oversight today released a letter that finds OFHEO director James Lockhart taking New York AG Andrew Cuomo to task for failing to involve OFHEO before issuing subpoenas to Fannie Mae and Freddie Mac over his widening appraisal fraud investigation. "Taking to task" might be too kind a characterization, actually. In the letter, Lockhart asserts that Cuomo and his staff "may not fully understand" differences between agency and non-agency MBS markets, and argues that both Fannie and Freddie "have no economic incentive to knowingly purchase or guarantee mortgages with inflated appraisals." Lockhart also flexes some federal regulatory muscle as part of a clear attempt to remind Cuomo that the majority of the mortgage market -- particularly as it relates to Fannie and Freddie -- is regulated federally and subject to federal law (and not New York state law). He notes, for example, that he wants to discuss with Cuomo's office why the NY AG is demanding that "two federally-chartered and federally-regulated Enterprises cease doing business with a major federally-chartered bank." Federal banking laws prevent state attorneys general from bringing suit against banks, and Lockhart is also noting that the same laws also likely prevent similar action against either Fannie or Freddie -- and it's clear the OFHEO is none too happy about Cuomo's apparent decision to circumvent the federal regulator in its letters of demand to each GSE. The full letter is available here.