The FHFA released a report on Tuesday acknowledging that Fannie Mae had been aware of foreclosure-related abuses as early as 2003, well before the previously-reported time frame.

The report details issues related to Fannie Mae’s Retained Attorney Network (RAN), which was established by Fannie in 1997 to handle legal issues related to default and foreclosure.

The earliest reported incident stems from a 2003 customer complaint. This led Fannie to conduct an independent investigation; in 2006, the investigation reported that RAN attorneys were, among other abuses, “routinely filing false pleadings and affidavits.”  

Despite these conclusions, FHFA finds that these incidents did not lead to changes in the selection of attorneys or in the firm’s approach to foreclosure proceedings, according to a report from Bank of America Merrill Lynch.

Although Fannie selected the attorneys and negotiated fees, management of individual foreclosure cases was left to the appropriate servicer.

"Given FHFA’s conclusion that servicers were steered by Fannie toward underperforming legal firms, this report could have a significant impact on several outstanding lawsuits," said BofAML analysts in the report. " It is less clear, however, what the end result might be on mortgages."

One possibility according to BofAML is Fannie and Freddie may be more willing to compromise with servicers on rep/warranty relief. Another possibility is that the FHFA concludes that they need to retain all legal options.

"In either case, FHFA’s conclusions regarding Fannie’s role in widespread foreclosure abuses are bound to impact the ongoing discussions around the government’s role in refinancing."

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