Fannie/Freddie v. the Banks

Posted by kevin on September 7, 2011 under Foreclosure Blog | Comments are off for this article

A few weeks ago, things were looking good for the “too big to fail” predatory banks.  The feds (FDIC) were ready to make a deal.  Most of the State AG’s were backing off.  The carnivore, Schneiderman, was dumped from the leadership group of AG’s.  In NJ, the big lenders got the OK to continue foreclosing with new and improved certifications (looked eerily like the old and unimproved certifications to me).  A couple of zigs and a couple of zags, and the banks could get out of this mess.  Then, last Friday the Federal Housing Finance Agency, the overseer of FANNIE MAE and FREDDIE MAC, filed lawsuits against every major lender in sight claiming fraud and demanding upwards of $50B.

Many newspapers were hailing these lawsuits because the federal government was finally stepping up to the plate.  Others, like the WSJ, were complaining that these lawsuits threaten the health of the banking system (that was on page 1 of the WSJ- and I thought only the NYT editorialized on page 1).  Well, my take is that these are going to be tough, drawn out lawsuits.  Why?  Because FANNIE and FREDDIE suffer from what lawyers call, “unclean hands”.  FANNIE and FREDDIE claim that the banks that sold them loans misrepresented the quality of the loans.  Two retorts to that allegation.  First, should FANNIE and FREDDIE have done some due diligence before they bought loans that were supposedly based on their underwriting guidelines?  Second, wasn’t it FANNIE and FREDDIE that lowered the standards for loans so that more people can reach the American dream and, more importantly, more income would roll into FANNIE and FREDDIE for employee  bonuses?  I think the answer to both questions is yes.  So, the banks have defenses, it appears.

But what does this mean to the homeowner in foreclosure  in Hackensack, New Jersey.  Well, it means that more of the truth will come out.  The more truth, the more the public will see that the lenders and the overseers were complicit on  the biggest fraud on the American people.  The more truth that comes out means that the banks will have to stop the charade, mark their loans to market, and start marking deals with homeowners that include a write-down of principal.

Well, that’s just my opinion.  But, I like to look at the glass as half full.