Separately, New York Attorney General Eric Schneiderman has undertaken an investigation into the way banks packaged and sold securities in an effort to determine the extent of any wrongdoing.
The FHFA’s actions against the banks aren’t unprecedented. In July, the agency filed a similar suit against UBS Americas Inc. in a federal court in New York, alleging federal securities law violations. The case accuses UBS of misleading investors who bought into pools of loans that had been packed together into mortgage-backed securities. The suit alleges that the company misstated certain facts and omitted others, including information about the creditworthiness of the borrowers and the underwriting practices used in making the loans. UBS has said it will “vigorously” defend the charges.
Fannie and Freddie loaded up on mortgage-backed securities during the years of the housing boom, many of them backed by risky loans, and suffered staggering losses when the real estate market collapsed.
Those losses largely have been plugged with more than $150 billion in federal aid under a deal arranged in September 2008, when the government seized the two firms to keep them from failing.
FHFA is an independent regulator, theoretically insulated from political influence in much the same way as the Federal Reserve. Still, the agency has been under pressure recently from the Obama administration, which has sought new measures to boost the weak housing market. Those ideas include a generous refinancing program that lets struggling borrowers get new mortgages at existing low rates.
So far, the FHFA has proved to be a reluctant partner in those efforts. While initiatives that speed a housing recovery ultimately shore up Fannie and Freddie’s bottom line, they also could cause further losses in the short term. As a regulator, FHFA might prefer the former. As a conservator of Fannie and Freddie in charge of protecting shareholders — who happen to be taxpayers — it has shown deep concern about the latter.
“I think it’s an irresolvable conflict,” Karen Shaw Petrou, managing partner of Federal Financial Analytics, said of the fact that FHFA’s acting chief, Edward DeMarco, must play dual roles as a regulator and a chairman of the board. “It’s like asking [J.P. Morgan Chief Executive] Jamie Dimon to be Ben Bernanke. You don’t, because it’s an inherent conflict.”
Loading...
Comments