The Federal Housing Finance Agency (FHFA) has issued
subpoenas to 64 companies seeking loan documents and other information related
to private-label mortgage-backed securities (PLS). The PLS are those that the two government
sponsored enterprises (GSEs) Freddie Mac and Fannie Mae invested in during the
housing boom.
FHFA refused to divulge the identities of the parties to
whom the subpoenas have been addressed, beyond saying that they were directed to
the trustees and servicers controlling or holding the documentation. The purpose was to obtain loan files and
other transaction documents pertaining to the PLS in order to analyze them and
determine whether losses sustained by the GSEs from their investments are
"the legal responsibilities of others."
The subpoenas target only those documents related to the PLS
that the Conservator "currently intends to examine, which are not all of
the PLS owned by the Enterprise."
FHFA, however, did not rule out additional subpoenas in the future,
saying that would be determined by developments in connection with the current
set.
Plain and Simple: the FHFA is trying to determine if they can force some
lenders to cover GSE losses on certain private label MBS investments.
The agency said that Freddie and Fannie have been working
for many months to obtain the documents underlying the PLS to determine if they
met required standards and to assess many claims arising from the failure of
the loans or their servicing to meet those standards. "Specifically," the press release
states, "the Enterprises have attempted to determine whether misrepresentations,
breaches of warranties or other acts or omissions by PLS counterparties would
require repurchase of loans underlying the PLS by the counterparties and whether
other remedies might be appropriate." "Difficulty in obtaining the loan
documents has presented a challenge to the Enterprises' efforts" so FHFA
is issuing the subpoenas
FHFA was given subpoena powers by Congress under the Housing
and Economic Recovery Act of 2008. If a
company under subpoena refuses to supply the requested documents, an FHFA
spokesman said that the agency would examine its legal options and that, as
Conservator of the GSEs, FHFA also has broad enforcement powers.
The agency said it would be premature to speculate as to whether
the Conservator will bring lawsuits once it has obtained the subpoenaed documents
because they must first be inventoried, classified, and analyzed. While it is
not known how many documents might be involved, the Conservator said the
numbers could be "significant."
Acting FHFA Director Edward Demarco said that his agency was
taking the action "consistent with our responsibilities as Conservator of
each Enterprise. By obtaining these
documents we can assess whether contractual violations or other breaches have taken
place leading to losses for the Enterprises and thus taxpayers. If so, we will then make decisions regarding
appropriate actions."
Through the first quarter of 2010 GSE buyback requests were up 60 percent vs. Q1 2009. Based upon developments in connection with information obtained with these subpoenas, other subpoenas may be issued.