GSE regulator raps Cuomo over investigation
WASHINGTON (Reuters) - New York Attorney General Andrew Cuomo was wrong to file subpoenas against Fannie Mae (FNM.N) and Freddie Mac (FRE.N) without consulting their regulator and may have overreached his authority, the regulator wrote in a letter on Thursday.
"I am disappointed that your office did not contact OFHEO before or even after subpoenaing the GSEs and issuing certain threats regarding their future business activity," wrote James Lockhart, director of the Office of Federal Housing Enterprise Oversight.
Cuomo announced on Wednesday that he had served the two mortgage finance firms with subpoenas in an investigation of what Fannie and Freddie might have known about possible home value inflation.
In his letter, Lockhart questioned the logic of Cuomo's allegations that Fannie and Freddie might have an interest in allowing inflated home appraisals.
The mortgage finance companies "have no economic incentive to knowingly purchase or guarantee mortgages with inflated appraisals," he wrote.
"I feel that you and your staff may not fully understand the differences between the mortgage-backed securities (MBS) issued by the GSEs and those issued by other entities," the letter said.
Fannie and Freddie are known as government-sponsored enterprises because the publicly traded companies hold federal charters to promote home ownership.
In a statement late Thursday, Cuomo's office defended the course if its investigation.
"Our office has a legal duty and unquestioned jurisdiction to protect New York consumers and investors. Our investigation will continue to root out fraud in the industry," said Jeffrey Lerner, Cuomo's spokesman.
INVESTIGATION QUESTIONED
In another portion of the letter, Lockhart questioned whether Cuomo's office has the authority to make demands of Fannie and Freddie. On Wednesday, the attorney general said he won a promise from the GSEs to examine their mortgage investments and to identify any possible fraud.
He warned them against failing to comply. In particular, Cuomo identified Washington Mutual Inc (WM.N) as the source of some questionable loans.
Lockhart questioned Cuomo's "demand that two federally chartered and federally regulated Enterprises cease doing business with a federally chartered bank, which you have not charged or subpoenaed, unless certain conditions stipulated by you are met."
Lockhart also requested a meeting with Cuomo to discuss these issues. Cuomo's office said the state attorney general would welcome such a meeting.
(Reporting by Patrick Rucker)
