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Meet the man who investigated Fannie Mae

Nye Lavalle, the man who predicted the rise of NASCAR and figure skating in the 1990s, had been warning about the recent mortgage crisis years before it occurred.

After dealing with foreclosure on a family home, Lavalle became a mortgage sleuth and began in 2003 to compile a dossier of improprieties by mortgage industry giant Fannie Mae, reports the New York Times. He found that some of the loan-servicing companies that worked with Fannie Mae had filed false foreclosure documents, and that the electronic mortgage registry was playing fast and loose with laws and banking regulations.

He presented his evidence to Fannie Mae executives and lawyers over the course of two years, prompting the agency to hire lawyers to investigate his claims. In May 2006, a confidential report issued by Fannie Mae lawyers supported many of Lavalle’s concerns. There is little evidence, however, that Fannie Mae ever took action.

“Fannie Mae, its directors, servicers and lawyers appeared to have an institutional policy of turning a willful blind eye to evidence of mortgage origination and servicing fraud,” Lavelle told the Times.

“When confronted directly with this evidence, Fannie not only failed to correct and remedy the abuses, it assisted in continuing the frauds via institutional practices that concealed fraudulent foreclosures.”

Fannie Mae also never disclosed Lavalle’s case with the agency that regulated its operation, the Office of Federal Housing Enterprise Oversight. The regulatory agency now overseeing Fannie Mae, the Federal Housing Finance Agency, issued a report in 2011 that briefly mentioned Lavalle’s concerns and faulted Fannie Mae for failing to deal with foreclosure improprieties from years before.

Ironically, in a 2010 Securities and Exchange Commission filing, Fannie Mae said, “The failure of our servicers or a law firm to apply prudent and effective process controls and to comply with legal and other requirements in the foreclosure process poses operational, reputational and legal risks for us.”

This is a far different position from what Fannie articulated in 2005 when it continued to do business with firms issuing “sham pleadings” in foreclosure cases.

The law firm of Baker & Hostetler found that oversight at Fannie Mae was lacking. For example, when Fannie found fraud by a lender or servicer, it didn’t notify the homeowners, nor did it ever police the the activities of lawyers and servicers it hired.

The Mortgage Electronic Registration System (MERS) program was created in 1995 with the help of Freddie Mac, Fannie Mae and big banks. The program currently holds title to half the nation’s home mortgages.

Some judges and lawmakers have questioned the legality of MERS-initiated foreclosures.

For example, New York recently sued MERS, arguing that the system led to fraudulent foreclosure filings. Lavalle even warned Fannie that a few years ago MERS couldn’t even legally foreclose because it didn’t actually own notes for the underlying properties.

Lavelle hopes these practices will end. “Any attorney general, lawyer, bank director, judge, regulator or member of Congress who does not open their eyes to the abuse, ask pertinent questions and allow proper investigation and discovery,” he said, “is only assisting in the concealment of what may be the fraud of our lifetime.”

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