Yesterday Alejandro Lazo and Jim Puzzanghera of the Los Angeles Times reported that California Attorney General Kamala Harris has subpoenaed government sponsored entities (GSEs) Fannie Mae and Freddie Mac as part of an investigation in mortgage origination, securitization, and foreclosure practices.
Harris announced that she was withdrawing from the proposed 50-state Attorney General mortgage settlement back in October, saying that the settlement was “inadequate for California homeowners”, and that the settlement would “excuse conduct that has not been properly investigated”. Attorneys General from Nevada, Arizona, Massachusetts, Illinois, Delaware, and New York have all indicated that they will conduct independent investigations into mortgage abuses, effectively dooming the broader settlement.
The subpoenas will look into details on the GSEs’ roles in the housing bubble, mortgage originations during the bubble years, mortgage securitizations, as well as their foreclosure practices in subsequent years.
It is believed that these subpoenas could be an effort to create leverage over the GSEs and force them into adopting policies including principal write-downs, which are opposed by Ed DeMarco, the head of the Federal Housing Finance Agency, which has overseen the housing giants since they were seized by the federal government in 2008 in order to prevent them from collapsing.
While the California investigation is only in its infancy, I will be interested to see what details emerge. More as this situation develops.