OFHEO Director Weighs In On Cuomo Probe
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James B. Lockhart, III, Director of the Office of Federal Housing Enterprise
Oversight (OFHEO) took the New York State Attorney General
to task Thursday for involving Freddie Mac and Fannie Mae in his investigation
of subprime lending.
OFHEO is, of course, the Federal agency charged with regulating the two government
sponsored enterprises (GSEs) and, with all of the internal problems the two
Corporations have had in the last three years, what was a "nowhere"
political appointment for Lockhart has become a highly visible and moderately
influential position.
As we have reported here twice in the last week, Attorney General Andrew
Cuomo has filed
suit against a First American, parent company of one of the country's largest
appraisal management companies, charging them with folding under pressure from
Washington
Mutual, a major client, to use only those appraisers that provided property
values acceptable to WaMu.
WaMu has not yet been included in the suit but earlier this week Cuomo demanded
that Freddie Mac and Fannie Mae each appoint an Independent Examiner to review
mortgages and the underlying appraisals that the two GSEs have
purchased with particular emphasis on those purchased from WaMu.
On November 8 Lockhart fired off a letter to Cuomo which may
be the best example of how to chasten and shrink an opponent since Cyrano DeBergerac
taught the course. First he patiently reminded Cuomo, former Secretary of the
Department of Housing and Urban Development of the role of OFHEO as the federal
safety and soundness regulator of Freddie Mac and Fannie Mae.
Lockhart then went on to say that, after reviewing the letters and subpoenas
sent to the GSEs, he felt that "you and your staff may not fully understand
the differences between the mortgage-backed securities (MBS) issued by the GSEs
and those issued by other entities." The lesson then followed: "unlike the issuers
of private label MBS," Fannie and Freddie retain the credit risk by guaranteeing
repayment to purchasers of MBS. "Consequently, they have no economic incentive
to knowingly purchase or guarantee mortgages with inflated appraisals." Lockhart
said that the two firms have programs in place to prevent this and other kinds
of mortgage fraud and have been actively working with OFHEO to improve these
safeguards.
The Direct said he was disappointed that Cuomo had not contacted
OFHEO before or even after subpoenaing the GSEs because of their mutual goals
of ensuring that fraud is not perpetrated on mortgage borrowers or on market
participants. He then suggested that OFHEO and the AG's office need to meet
and discuss several issues including the following:
- The GSE's efforts to prevent appraisal fraud and OFHEO's
oversight of that activity;
- Cuomo's demand that "two-federally-chartered and federally-regulated
Enterprises cease doing business with a major federally-chartered bank, which
you have not charged or subpoenaed, unless certain conditions stipulated by
you are met." (In other words, Mr. Cuomo, you are a state official, quit
messing around in the federal sandbox.)
- The scope, authority and supervision of the independent examiner, "which
we will also be discussing with the Enterprises."
This is likely to be an interesting turf fight. Andrew Cuomo, son of former
NY Governor Mario and very ex-spouse of one of Robert Kennedy's kids,
was not known in his Washington days for his ability to cooperate or compromise.
Lockhart, in addition to his talent with the written word, has one more thing
on his side - this really is not a state matter.
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