Frank, Grayson Grill Fannie on "Foreclosure Mills"

| Fri Sep. 24, 2010 12:14 PM EDT

Three House Democrats, including Barney Frank of Massachusetts, the chair of the powerful financial services committee, took government housing corporation Fannie Mae to task on Friday. In a sternly worded letter, the three Dems grilled the company on its use of powerful law firms—some of which have been accused of breaking the law—to handle foreclosures. The letter, co-signed by Frank, Reps. Alan Grayson (D-Fl.) and Corinne Brown (D-Fl.) and addressed to Fannie CEO Michael Williams, cites the criticism and investigations of these firms, often called "foreclosure mills," and charges that "Fannie Mae seems to specifically delegate its foreclosure avoidance obligations out to lawyers who specialize in kicking people out of their homes."

The letter raises many of the same issues as a recent investigative story of mine, "Fannie and Freddie's Foreclosure Barons," which focused in part on one powerful firm in southern Florida, the Law Offices of David J. Stern. As I wrote,

Backdated documents, according to a chorus of foreclosure experts, are typical of the sort of shenanigans practiced by a breed of law firms known as "foreclosure mills." While far less scrutinized than subprime lenders or Wall Street banks, these firms undermine efforts by government and the mortgage industry to put struggling homeowners back on track at a time of record foreclosures. (There were 2.8 million foreclosures in 2009, and 3.8 million are projected for this year.) The mills think "they can just change things and make it up to get to the end result they want, because there's no one holding them accountable," says Prentiss Cox, a foreclosure expert at the University of Minnesota Law School. "We've got these people with incentives to go ahead with foreclosures and flood the real estate market."

The Stern firm, which I describe in great detail, is one of four Florida foreclosure firms now under investigation by the state attorney general's economic crimes division. Stern's firm is also retained by Fannie to handle foreclosures in the Sunshine State. That a conflict might be present when a firm accused of ripping off homeowners and under investigation for subverting the law is getting paid by Fannie, a ward of the federal government surviving on nearly a hundred billion dollars in taxpayer money, isn't lost on Frank, Grayson, and Brown:

Why is Fannie Mae using lawyers that are accused of regularly engaging in fraud to kick people out of their homes? Given that Fannie Mae is at this point a government entity, and it is the policy of the government that foreclosure are a costly situation best avoided if there are any lower cost alternatives, what steps is Fannie Mae taking to avoid the use of foreclosure mills? What additional steps is Fannie Mae going to take to ensure that foreclosures are done only when necessary and only in accordance with recognized law?

Here's the full letter. While it (surprisingly) doesn't mention Mother Jones outright—the last letter from Congress on the foreclosure mills did—rest assured that at least the folks in Rep. Grayson's office have followed our foreclosure reporting.

Letter to Fannie on Foreclosure Fraud