Rotten service

23 September 2011 By Agnes T. Crane

Fannie Mae and Freddie Mac’s past failures make them easy targets. But the pile of lawsuits against private sector banks, notably over mortgage servicing, suggests they’re not yet ready to replace the government – at least until legal action, time and effort scrape away the rot.

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The inspector general of the U.S. Federal Housing Finance Agency, which regulates Fannie Mae and Freddie Mac, on Sept. 23 released a report blaming Fannie’s inadequate risk management for problems in the home foreclosure process.

Meanwhile, eight federal agencies are working to hash out new standards for U.S. mortgage servicing.

Any settlement of the allegations made by 50 state attorneys general against mortgage servicers including Bank of America, Wells Fargo, JPMorgan and Citigroup is expected to include pledges to improve servicing operations.

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