Regulator Criticizes Subpoenas of Fannie Mae, Freddie Mac

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Associated Press
Friday, November 9, 2007

A federal regulator yesterday objected to the New York state attorney general's subpoenas of Fannie Mae and Freddie Mac, saying he misstated risks the mortgage finance companies face from faulty home appraisals.

James B. Lockhart III, director of the Office of Federal Housing Enterprise Oversight, sent a letter to Andrew M. Cuomo a day after Cuomo announced the subpoenas as part of a widening investigation of inflated appraisals. Lockhart's agency regulates the two companies.

Cuomo said he wants to know about home loans that Fannie Mae and Freddie Mac bought from banks, including the largest U.S. savings and loan, Washington Mutual. The subpoenas also seek to find out how Fannie Mae and Freddie Mac, the two largest buyers and financiers of mortgages, handle appraisals to determine whether lower-income home buyers were stuck with mortgages based on inflated appraisals.

In his letter, Lockhart said he needed to discuss Cuomo's demand that the companies "cease doing business with a major federally chartered bank, which you have not charged or subpoenaed, unless certain conditions stipulated by you are met." The bank in question is Washington Mutual.

Lockhart told Cuomo in the letter that the companies "have no economic incentive to knowingly purchase or guarantee mortgages with inflated appraisals."

The two companies "already have programs in place to prevent this and other types of mortgage fraud," Lockhart wrote. "I am disappointed that your office did not contact OFHEO before or even after subpoenaing [Fannie Mae and Freddie Mac] and issuing certain threats regarding their future business activity."

Jeffrey Lerner, a spokesman for Cuomo, said there was clear evidence of pressure on home appraisers to inflate assessments and that tainted mortgages were purchased by Fannie Mae and Freddie Mac.


© 2007 The Washington Post Company

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