House lawmaker calls for probe of Fannie Mae allegations

WASHINGTON Sat Aug 7, 2010 12:38am EDT

WASHINGTON (Reuters) - The top Republican on the House Financial Services Committee called on Friday for an investigation into charges that mortgage finance giant Fannie Mae pushed borrowers into a mortgage aid program so it could receive incentive payments from the U.S. government.

Spencer Bachus, the top Republican on the House Financial Services Committee, asked panel chairman Barney Frank to hold a hearing to investigate allegations made in a lawsuit filed in June by former Fannie Mae consultant Caroline Herron.

The Center for Public Integrity, a government watchdog group, disclosed the lawsuit on Friday. In it, Herron said she was fired in January after she raised questions about delays and missteps in President Barack Obama's $50 billion Home Affordable Modification Program (HAMP).

The HAMP program, which is administered by Fannie Mae, helps subsidize new terms for borrowers struggling to keep up with their mortgage payments.

"If true, it would help explain why HAMP has been such a failure," said Bachus.

"It would mean that thanks to Fannie Mae's executives' misfeasance, particularly a preoccupation with short-term financial gain, HAMP was only able to permanently modify about 230,000 mortgages, instead of the 3 million modifications that the Obama Administration promised," he said.

Janis Smith, a spokeswoman with Fannie Mae, said it was notified in early March of Herron's allegations and later had an independent investigation conducted.

The review, led by Michael Bromwich, a former inspector general at the Justice Department "found no merit to her allegations," Smith said.

Herron, a former vice president at Fannie Mae, returned in 2009 as a consultant where she earned $200-an-hour. She said in the lawsuit she was fired after saying the HAMP program was characterized by "mismanagement and gross waste of public funds."

Treasury spokesman Mark Paustenbach said on Friday the department "remains confident in Fannie Mae" as the program's administrator.

Treasury on July 20 said that the number of borrowers dropping out the program grew in June at almost twice the pace of those getting a permanent modification. Those figures were not revised.

The dropout rate could signal a rise in foreclosures in the second half of the year at a time when the housing market is still fragile and analysts fear another housing slump could threaten the nascent economic recovery.

The data showed more than 40 percent of the roughly 1.3 million borrowers who have started in the program since its March 2009 inception have since dropped out, while just over 30 percent have received permanent new terms for their loan.

(Reporting by Corbett B. Daly, writing by Christopher Doering, editing by Jackie Frank)

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