Answers sought on fradulaent loans

By James Tyson

Bloomberg News



Three U.S. lawmakers want Fannie Mae Chief Executive Officer Franklin Raines to explain by mid-January why the company failed to disclose the sale of fraudulent loans by one of its authorized lenders.

Fannie Mae, the biggest source of money for U.S. home mortgages, was ordered by a federal judge in October to forfeit $6.5 million for failing to inform the Government National Mortgage Association (Ginnie Mae), a government agency, about the sale.

"We are very concerned that the U.S. taxpayers may have been put at risk," the three Republican members of the House Financial Services Committee said in a letter dated yesterday to Seattle native Raines and released by the panel.

The lawmakers are U.S. Rep. Richard Baker, D-La.; Rep. Sue Kelly, R-N.Y.; and Rep. Robert Ney, R-Ohio.

A spokesman for Fannie Mae, Brian Faith, declined to comment. Fannie Mae was chartered by Congress to buy mortgage loans from lenders, thereby expanding funding for home mortgages.

The U.S. District Court in Charlotte, N.C., issued its order in October in a sealed ruling after concluding that Fannie Mae sold back fraudulent loans by First Beneficial Mortgage of Charlotte without notifying regulators of the fraud.

First Beneficial subsequently resold some of the loans to Ginnie Mae, which lost about $30 million as a result of the purchase, according to The Wall Street Journal.

"Understanding that Fannie Mae was created to provide liquidity to the U.S. mortgage market, it is our hope that Fannie Mae would actively seek to prevent such fraud," the lawmakers said, requesting a reply from Raines by Jan. 14.

The legislators asked Raines to identify the Fannie Mae executives who knew about the fraudulent loans and who approved First Beneficial Mortgage as an authorized lender.