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Fannie Mae, Freddie Mac Sued by California Attorney General

Fannie Mae (FNMA) and Freddie Mac were accused in a lawsuit by California Attorney General Kamala Harris of hindering her probe into mortgage lending and foreclosure practices.

Harris wants to know if drug dealing and prostitution occur in foreclosed homes owned by the companies, whether taxes are being paid on those houses, and whether military families have been illegally evicted by loan servicers, according to the two lawsuits filed yesterday in state court in San Francisco.

Fannie Mae, the government-sponsored enterprise which issues almost half of all mortgage-backed securities, and Freddie Mac, the McLean, Virginia-based mortgage-finance company, haven’t responded to those and other questions Harris sent Nov. 15, according to the complaints.

Fannie Mae and Freddie Mac (FMCC) are “frustrating the Attorney General’s efforts to investigate and combat crime, blight and other threats to the health and safety of Californians,” according to the complaints.

768,000 Mortgages

From January 2007 through June of this year, more than 768,000 mortgages have been foreclosed in California, with Freddie Mac and Fannie Mae together owning more than 60 percent of mortgages in the state, according to the complaints.

California has withdrawn from settlement negotiations in which state attorneys general across the U.S. have been trying to reach an agreement with JPMorgan Chase & Co., Bank of America Corp. (BAC), Citigroup Inc. (C), Wells Fargo & Co. (WFC) and Ally Financial Inc. The states seek to resolve their probe into foreclosure practices of the five biggest mortgage servicers.

The investigation, which had involved attorneys general from all 50 states, began more than a year ago after disclosures that faulty documents were being used to seize homes. Harris said a proposed settlement was “inadequate” and would allow too few California homeowners to stay in their homes.

Michael Cosgrove, a spokesman for Freddie Mac, declined to comment on the California lawsuit.

Keosha Burns, a spokeswoman at Fannie Mae, referred questions about the lawsuit to the Federal Housing Finance Agency, the regulator of mortgage financiers. FHFA spokeswoman Stefanie Johnson declined to comment on the complaint.

The case is California v. Federal National Mortgage Association, CPF-11-511771, and California v. Federal Home Loan Mortgage Corp., CPF-11-511772, California Superior Court (San Francisco).

To contact the reporters on this story: Joel Rosenblatt in San Francisco at jrosenblatt@bloomberg.net; Karen Gullo in San Francisco at kgullo@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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