Fannie, Freddie spend lots on lawyers
Tuesday, January 25, 2011
Taxpayer-backed Fannie Mae and Freddie Mac have made a lot of money for a lot of lawyers since the government seized them 21/2 years ago.
In that time, the companies have spent more than $160 million to defend themselves and their former executives in lawsuits and showered another $50 million on foreclosure lawyers who are now under investigation in Florida.
Most notably, Fannie Mae has spent $24 million to defend former chief executive Franklin D. Raines, former chief financial officer J. Timothy Howard and former controller Leanne G. Spencer, mostly in cases stemming from a huge accounting fraud at the company in the middle of the past decade.
The figures were contained in a document reviewed by The Washington Post and a statement released by Rep. Randy Neugebauer (R-Tex.), chairman of the House Financial Services Committee's oversight subcommittee who requested the information months ago. They were first reported Monday in the New York Times.
Fannie and Freddie provide liquidity to mortgage markets by buying and guaranteeing loans and packaging them into securities that can be sold to investors, which frees lenders to make more loans.
The legal fees, however, pale in comparison to what the companies have received from taxpayers to offset the massive losses they experienced during the financial crisis. To date, taxpayers have extended more than $130 billion in financial support.
To some critics of the companies, there is a sharp incongruity in the fact that Fannie and Freddie must use some of that taxpayer money to pay outside lawyers to defend the former executives who steered the firms in the wrong direction.
Neugebauer questioned whether the Federal Housing Finance Agency, which oversees the companies and approved the fee payments, was doing all it could to strengthen the companies' finances. Fannie and Freddie are under the FHFA's control in a legal form called conservatorship, whereby the FHFA is charged with preserving their assets.
"My investigation raises serious questions about the conservators' responsibilities to prevent any further losses to the American taxpayer," Neugebauer said in a statement. "Are the conservators looking out for the taxpayers? Do they have the right tools and structure to do so? My intent is to investigate other activities occurring within Fannie Mae and Freddie Mac that diminish the taxpayers' potential recovery and minimize capital infusion."
The Obama administration is set to release a plan to overhaul the nation's mortgage-finance system in the coming weeks.
Republicans have been sharply critical of Fannie's and Freddie's role in the financial crisis and want to eliminate them. Democrats have been more circumspect, critical of Fannie and Freddie but more supportive of the idea of the government providing support for the mortgage market.
The FHFA says many of the payments are contractually obligated.