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Report says Fannie Mae overlooked errors

Report says Fannie Mae overlooked errors
The Fannie Mae logo is seen outside of their corporate headquarters in Washington on September 8, 2008. (UPI File Photo/Kevin Dietsch) | License Photo

WASHINGTON, Sept. 24 (UPI) -- An inspector general's office in Washington said a major U.S. mortgage broker failed to act when it found foreclosure documents were mishandled in 2006.

A report issued by the Federal Housing Finance Agency Office of Inspector General -- which oversees the Federal Home Loan Mortgage Corp. known as Freddie Mac, and the Federal National Mortgage Association, known as Fannie Mae -- said officials at Fannie Mae were informed about foreclosure paperwork abuses in 2006, but did not takes steps to address the issue, the Palm Beach (Fla.) Post reported Saturday.

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The issue came back as a national controversy in the fall of 2010, when attorneys in courtrooms took notice of shortcuts made in critical paperwork.

The issue became known in part for its euphemisms. "Robo-signing" was the term used to describe cutting corners in paperwork, while "foreclosure mills" was the term used for law firms that handled thousands of foreclosures for major lenders.

As the housing market slumped, foreclosures mounted up nationwide. Nevertheless, major banks were suddenly forced to stop processing foreclosures to review their paperwork processes, or the processes at law firms that were hired to handle the paperwork.

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At that point, the problem went from bad to worse, as a huge number of foreclosures piled up in courts.

Fannie Mae and Freddie Mac both buy bundled mortgages from banks then resell them with a government guarantee against default. As such, the companies set the tone for mortgage practices. What the firms say is acceptable is quickly adopted by mortgage lenders.

"Strengthened law firm oversight by Fannie Mae could have detected -- if not prevented -- these abuses by attorneys," the report said.

In Florida, several so-called foreclosure mills have been caught up on the controversy, including the David J. Stern law firm that closed, leaving 100,000 mortgages "in limbo," the newspaper said.

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