Financial Answers

ATTENTION all investors.  If you have a governmental mortgage mutual fund in your investment portfolio, 401(k), or 403b program please read this now!

Fannie Mae (FNMA or The Federal National Mortgage Association) is not a governmental agency but rather a government sponsored enterprise.  It is chartered by the U. S. Congress and it is supposed to provide stability, liquidity, and affordability to the United States mortgage and housing markets.

Fannie Mae is one of two governmental mortgage companies that handles the majority of individual real estate mortgages in the United States.  Fannie Mae’s brother company,Freddie Mac, a smaller rival, also handles a large portion of individual mortgages in the United States.  Both these agencies are not part of the U. S. Government but are treated as such and project that image.

They both have an enormous effect on the mortgage industry in this country and both have been in financial trouble to the tune of $130+ billion and counting of home mortgage foreclosures.  It seems that in 2008 when the individual mortgage crisis started to pick up steam in the U.S., both agencies jumped on the bandwagon to help to accelerate home mortgage foreclosures and damn the circumstances.

Non Public Agencies

Back in 1938 , the Federal National Mortgage Association was established as a federal agency.  In 1968, Congress chartered FNMA (Fannie Mae) as a private shareholder owned company.  At one time Fannie Mae was an agency of the federal government but then became a for-profit corporation owned by shareholders.  With the serious mortgage problems experienced in the 2008-2009 mortgage meltdown, Fannie Mae and Freddie Mac both had to be bailed out by the United States Government.  The Federal Housing Finance Agency in effect took over Fannie Mae with the financial deep pockets of the United States Treasury Department.

Neither Fannie Mae nor Freddie Mac deal directly with the general public.  You can’t walk into one of their offices and have them finance your home.  Rather they act as the intermediary for your bank guaranteeing your loan to the bank.  Although you can’t walk into their offices you may be dealing with them indirectly without realizing it.

You may or may not have mutual funds in your 401(k), 403b, or your regular investment account.  If you do have mutual funds in any ofthese investment plans, you may have a mutual fund called a FNMA Governmental Mortgage Fund or some such name.  This means you do have an indirect stake in what Fannie Mae does or doesn’t do with their mortgages which directly affects the value of your investment account.  All of the major mutual fund companies offer these type of funds.  Fannie Mae packages or puts together thousands of mortgages that are the securities for these mutual funds.

Did Fannie Mae’s recent actions help exacerbate the mortgage meltdown?

Many real estate professionals, government regulators and financial people all agree that Fannie Mae’s actions added to the foreclosure mortgage mess that the United States is now experiencing.  So exactly what did they do and why should you care?  Let me address the second question first.  Fannie Mae handles the monitoring of most of the real estate mortgages in the United States.  This is an enormous responsibility and enormous power to be given to a “private” corporation.  They basically hold a hammer over your head on whether or not you will be able to remain in your home in the event of your having financial difficulties…financial difficulties that millions of Americans are now experiencing.  This power and responsibility can not be taken lightly.  So here’s what they did.

Being a regular for profit business, Fannie Mae decided that their existence was much more important than yours.  That means that a profit for them must be made at all costs.  Fannie Mae decided to hire a variety of law firms to handle the increasingly large volume of home foreclosures.  It actually named a select group of law firms to handle the paperwork and the foreclosure proceedings.  On the surface maybe this was the smart thing to do.  If you look at it from their point of view there were going to be millions of homes that would be foreclosed on which would be a daunting task and they needed help.

The problem began for Fannie Mae when they choose law firms that could expedite the foreclosure process at the lowest possible price.  They don’t seem to have thought about the old adage of “you usually get what you pay for”.  This decision is now at the very center of the federal and state investigation over the deficient foreclosure practices and incorrect and inadequate paperwork being filed to “kick” Americans out of their homes.

So what Happened?

It appears that Fannie Mae choose specific law firms that they felt could expedite the foreclosure process.  Getting the paperwork done in a timely fashion was essential so Fannie Mae wouldn’t lose any more money due to the foreclosure mess.  Plus the United States Treasury, using taxpayer money was now directly involved.

In Fannie Mae’s haste to save money they knew that one law firm they were working with had engaged in legally questionable practices.  This law firm in Florida had previously undergone a class action suit against it for allegedly charging borrows bogus fees which were based on fraudulent paperwork…the crux of the current foreclosure mess.

What Fannie Mae failed to realize or implement were procedures to protect against fraudulent paperwork procedures during the foreclosure process.  They were more interested in saving money than in doing it right and protecting the homeowners being foreclosed on.

Fannie Mae, according to industry sources, has prodded and threatened their foreclosure servicers to get things moving faster or be penalized.

When the foreclosure mess hit the front pages of the newspapers and was splashed all over the news on the Internet and TV, Fannie Mae tried to hide in the shadows and let the lending institutions take all the blame for the foreclosure paperwork mess.  Fortunately or unfortunately, however you want to look at it, when the paperwork mess began to clear Fannie Mae was standing out in the open with their hands in the cookie jar.

Because Fannie Mae deals with the vast majority of residential real estate mortgages in the United States and they hired a handful of law firms to handle millions of mortgages. It is no wonder that the mortgage paperwork mess got out of hand so quickly and to such a large extent.

Now with the federal government investigating Fannie Mae’s foreclosure procedures and also those law firms that they hired, Fannie has said it is making sure that their servicers would be doing the paperwork correctly moving forward.  I guess better late than never.  Fannie Mae also stated that when an individual mortgage becomes at least three hundred days delinquent than the mortgage foreclosure sale process kicks in.  This was not happening before.

Let’s hope with the intervention of the United States Treasury Department and a lot of adverse publicity that Fannie Mae will get its act together and do what they were intended and chartered to do…help to keep the residential real estate mortgage market liquid, stable, and affordable for all Americans.

What you need to do as an investor:  If you currently have a government mortgage mutual fund in your investment portfolio, 401(k), or 403b, you need monitor it by comparing your monthly statements to see where it appears to be going.  If you don’t feel comfortable with what you are seeing than contact your investment advisor and see what they have to say.  It’s your money and you need to protect it.  Who knows where this mess is headed.

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