10:22 p.m. CDT, September 13, 2012
Strategic defaulters, beware. The feds are coming for you. And they are not happy.
Not the FBI. The Office of the Inspector General at the Federal Housing Finance Agency.
The OIG may not have the same fearsome “G-man” reputation as its better-known counterparts at the Federal Bureau of Investigation, but it is every bit as much a law enforcement agency, with the same powers to search, seize and arrest. Special OIG agents are even authorized to carry firearms.
The OIG’s mission is to seek administrative sanctions, civil recoveries and criminal prosecutions against anyone who abuses the FHFA’s programs. And it is pursuing its calling with passion, if not vengeance.
The FHFA is the supervisory agency of the two government-sponsored housing enterprises, Fannie Mae and Freddie Mac. Since Fannie and Freddie have been under federal conservatorship since 2008, the FHFA now regulates and all but operates the two companies.
Fannie Mae and Freddie Mac, which work in the secondary mortgage market and touch roughly 80 percent of all home loans in one way or another, are essential cogs in the American housing finance system. They keep the mortgage money flowing by buying loans from primary lenders, holding some in their own portfolios and packaging the rest into securities for sale to investors worldwide.
The Office of the Inspector General is a separate statutory agency within the FHFA that answers only to Congress. Its mission, in large part, is to root out fraud, waste and abuse within the FHFA. The agency has a staff of 130 investigators, auditors, attorneys and prosecutors that it describes as “extremely talented and seasoned.”
And because Fannie and Freddie are on the hook for the $187 billion in taxpayer money that the Treasury has invested so far to keep them afloat — by some estimates, the tab eventually could reach more than $360 billion — the OIG is on the prowl for people who owe it money.
Investigators are searching not only for lenders who have sold materially deficient loans to Fannie and Freddie, but also individuals, including those who reneged on their promises to repay their mortgages. So if you are a “strategic defaulter” who decided it was better to walk away from your obligation than to keep paying for a house that was worth substantially less than you owed, it’s time to start looking over your shoulder.
No one knows for certain how many borrowers fit the rather amorphous strategic defaulter mold. But credit repository Experian estimates that 20 percent of all foreclosures are the result of walkaways, people who could afford to make their payments but who decided not to.
These are not just borrowers who made a personal, strategic financial decision not to pay. In some cases, they remained in their houses for months or even years, living free on the government’s dime — and yours and mine — before moving on. In other instances, they profited handsomely by renting their properties to unsuspecting tenants, collecting rent for many months but never paying lenders.
Heath Wolfe, assistant inspector general for audits at the OIG, figures that these mortgage scofflaws owe more than $1 billion to Fannie and Freddie. It’s not a lot, perhaps, in the greater scheme of things. But Wolfe’s mission is to get back as much of it as he possibly can.
One way the mortgage police can find defaulters is to forage Fannie and Freddie’s records for borrowers who failed to mention on their loan applications that they had previous mortgages they did not pay. By Wolfe’s estimate, Fannie Mae alone has about 18 million total mortgages on its books.
“We are working with Fannie and Freddie to build a mechanism” to identify strategic defaulters, Wolfe said at a recent mortgage industry conference. So if you walked away from one property and bought another, chances are fairly good that the OIG is going to find you.
If you conveniently left off the fact that you have an outstanding mortgage you failed to pay, or that you have a deficiency judgment against you for the difference between what you owe and what the house sold for at foreclosure, you’ve committed mortgage fraud.
“Debts that haven’t been repaid don’t just go away,” said a Treasury Department official who asked not to be named. “It doesn’t matter whether it’s on your credit report or not.”
If there is any indication that you falsified information on your new loan application, the OIG is “absolutely” going to refer you for criminal prosecution, Wolfe said. “We’re not just going to demand repayment,” he said. “We’re going to lock (people) up.”
And if you think the mortgage cops won’t find you, think again. The OIG’s investigative office alone has a 45-person staff, “all experienced people with 15 to 20 years as investigators and prosecutors,” according to Peter Emerzian, deputy inspector general in the Office of Investigations.
They work out of 11 field offices, soon to be 14, nationwide, and they’re looking for you.