Issa Launches Investigation of Fannie Mae Loan Purchase from BofA

Representative Darrell Issa (R-CA), has requested informationrnfrom the Federal Housing Finance Agency on what he said might be a “back-doorrnbailout” of Bank of America (BofA).   The request came in a letter dated Septemberrn15 questioning Fannie Mae’s reported purchase of the servicing rights for a largernportfolio of loans from the bank.   Issa,rnChairman of the Committee of Oversight and Government reform wrote in responsernto an article in The Wall Street Journal whichrnalleges that the Fannie Mae had bought rights to a pool of 400,000 residentialrnmortgages with an unpaid principal balance of $73 billion.  The purchase price was said to be $500,000.  According to information from an RSS feed outrnof Issa’s office, the letter signals the opening of an investigation into thernpurchase.   </p

As quoted by Issa, the August 10 Journal articlernsaid that the sale was part of BofA’s “strategy to sell noncore holdings, ridrnitself of mortgage problems, and preserve capital as it repositions its balancernsheet to withstand future economic shocks.” rnThe paper, quoted an unnamed source familiar with the deal who said thernbank sold the portfolio at a loss because its value is expected to deterioraternfurther.  The loans, over half of whichrnare in troubled markets, have a current delinquency rate of 13 percent.</p

Issa cited past and on-going federal support to Fannie Mae sincernit was put into federal conservatorship under FHFA in August 2008, includingrn$150 billion from the Treasury and a Federal Reserve Board commitment tornpurchase $1.25 trillion in mortgage backed securities (MBS) from Fannie Mae andrnFreddie Mac.  Issa said that FHFA wasrncreated to guarantee that Fannie Mae operate in a safe and sound manner andrnhave the financial strength and operational capacity to fulfill its role in thernnation’s housing finance system which requires minimizing credit losses fromrndelinquent mortgages.</p

The purchase is worrisome, Issa said, both because Fannie Maerndoes not service mortgages and because the transaction appears to have shiftedrna significant amount of risk from BofA to Fannie Mae.  In addition BofA recently announced it wouldrncut at least 3,500 jobs in the next few months. rnThe purchase, Issa said, gives the bank additional liquidity and allows itrnto shed severely distressed assets.  “Somerncommentators,” Issa stated, “have labeled this transaction as a back-doorrnbailout of BofA by permitting the bank to shift part of its risky portfolio tornthe American taxpayers.”</p

Issa is requiring FHFA to furnish information on thernfollowing lines of inquiry by September 29, 2011.</p<ul class="unIndentedList"<liA full explanation of FHFA'srndecision to allow the purchase to take place including all documents andrncommunications between FHFA and Fannie Mae relating to the decision.</li<liFull details regarding Fannie'srnevaluation of the portfolio including all documents and communications betweenrnFannie Mae and BofA.</li<liWhether Fannie Mae took intornaccount the risk of further degradation of the portfolio, and on what basis itrndetermined to expand its portfolio given its conservatorship status and ongoingrnneed for taxpayer funding. </li<liWhether Fannie Mae or Freddie Macrnhave considered or are considering the purchase of additional servicing rightsrnfrom BofA or other financial institutions. Does Fannie plan to sell these servicingrnrights and if so to whom and when?</li<liWere there other bidders for the portfolio?</li<liWere any of the loans in thernportfolio among those that Fannie Mae and Freddie Mac transferred to BofA onrnJanuary 3, 2011</li<liWhat communications passed amongrnFHFA and other federal agencies or departments regarding the purchase?</li</ul

MND requested a statement from FHFA regarding the Chairman’srnletter but had not received a reply when this went to press.

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