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WASHINGTON – Three House Financial Services Subcommittee Chairman sent a letter to Franklin Raines, chairman and CEO of Fannie Mae, asking him to answer six questions pertaining to the company’s sale of fraudulent loans to Ginnie Mae and allegations that the company failed to blow the whistle on a mortgage fraud scam. The Dec. 1 letter to Raines was signed by Rep. Richard Baker (R-La.), chairman, Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises; Rep. Sue Kelly (R-N.Y.), chairwoman, Subcommittee on Oversight and Investigations; and Rep. Robert Ney (R-Ohio), chairman, Subcommittee on Housing and Community Opportunity. In their letter, the congressmen specified that the loans in question were “criminally derived from illegal activities by First Beneficial Mortgage Company” in a fraud scam and that Fannie Mae accepted $6.5 million for the sale of the loans. “We are very concerned that the U.S. taxpayers may have been put at risk when certain loans were sold by First Beneficial Mortgage to Ginnie Mae after many of the same loans were determined to be fraudulent by executives at Fannie Mae,” the letter stated. “Understanding that Fannie Mae was created to provide liquidity to the U.S. mortgage market, it is our hope that Fannie Mae would actively seek to prevent such fraud,” they continued. Raines was asked to respond to six questions by Jan. 14, 2005: 1 “Who at Fannie Mae was responsible for approving First Beneficial Mortgage Company as a qualified lender? When did Fannie Mae discover that the loans in question were fraudulent, and what actions did it take to seek repayment? Which Fannie Mae executives had knowledge of the fraudulent loans?” 2 “When did Fannie Mae learn that the First Beneficial Mortgage Company intended to sell the fraudulent mortgages to Ginnie Mae in order to repay Fannie Mae? Did Fannie Mae seek to inform OFHEO, HUD, Ginnie Mae, or the Department of Justice that First Beneficial Mortgage Company was attempting to sell fraudulent loans? If not, why not?” 3 “What actions does Fannie Mae take when it discovers that a lender has sold the enterprise a fraudulent mortgage? Does Fannie Mae notify the proper State or Federal authorities? Does Fannie Mae suspect lenders that sell fraudulent mortgages? Does Fannie Mae disclose the fact that it has suspended a fraudulent lender putting others on notice of potential criminal activity? If Fannie Mae does not make such disclosure, why does it not?” 4 “Fannie Mae claims to have a highly sophisticated system for approving lenders and determining the qualify of the loans it purchases. Please describe this system for the Committee, and how this system failed in the case of First Beneficial Mortgage Company. What changes is Fannie Mae making to ensure that this failure does not occur again?” 5 “Is Fannie Mae aware of any other instances where an entity of the Federal government was sold fraudulent loans held at one time by the enterprise?” 6. “Were the loans purchased from First Beneficial Mortgage Company counted toward Fannie Mae’s efforts to reach its affordable housing goals? If so, has Fannie Mae adjusted its affordable housing goals, removing the fraudulent loans from its calculation?” According to the letter, Fannie Mae was ordered by the U.S. Court for the Western District of North Carolina to forfeit the $6.5 million in funds. -

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