“Fannie officials’ inaction and irresponsibility has cost taxpayers millions,” Schatz says

(Washington, D.C.) – Less than one week after being named Citizens Against Government Waste’s (CAGW) 2004 Corporate Turkey of the Year, the mortgage giant proved once again why it deserved that designation.  Fannie Mae has been found guilty in one of the largest mortgage fraud schemes ever perpetrated.  Recently unsealed court documents in the western district of North Carolina allege that high-level Fannie Mae officials knowingly allowed the owners of First Beneficial Mortgage Co. to sell fraudulent mortgages to Ginnie Mae, a government-owned corporation which is explicitly backed by taxpayers.

James McLean and his wife, along with others at First Beneficial, who had been trained and certified as Fannie Mae-backed lenders, initially sold the sham mortgages to Fannie Mae.  When Fannie Mae officials discovered that the loans were fraudulent, instead of contacting the authorities they forced First Beneficial to repurchase them from Fannie Mae.  First Beneficial found another buyer, Ginnie Mae, which was unaware that they were sham loans.  First Beneficial received payment for the loans from Ginnie Mae and within hours wired the payoff directly to Fannie Mae.  Newspaper reports place Ginnie Mae’s losses at between $30 and $35 million.  The court ordered Fannie Mae to forfeit $6.5 million, saying that the company accepted the funds knowing they were the product of illegal activities.  In addition, McLean, his wife and other First Beneficial employees have been sentenced to lengthy prison terms on charges ranging from wire fraud to money laundering and conspiracy.

“When CAGW named Fannie Mae the 2004 Corporate Turkey of the Year, we had no idea just how fowl the situation really was,” said CAGW President Tom Schatz.  “Now, it appears that Fannie Mae officials knowingly allowed a group of scam artists at First Beneficial to unload bad loans on Ginnie Mae in order to make their money back, but never bothered to inform any law enforcement authorities that these lenders were ripping off the taxpayers.  Fannie Mae essentially lent a helping hand to a mortgage scheme which has cost taxpayers $30 million.

“During the course of Fannie Mae’s current accounting scandal, in which Fannie’s accountants would not certify the company’s third quarter report due to, in part, to a Securities and Exchange Commission investigation into a $9 billion ‘error,’ officials tried to argue that it was a difference of opinion.  In the bad loan scandal, there’s no amount of backpedaling that can hide the wrongdoing.  What remains to be resolved is which officials knew about the illegal activity, when did they know it, and how did they hide it?  Nonetheless, Fannie Mae CEO Franklin Raines and his colleagues will probably make yet another trip to Capitol Hill to try to put some spin on this latest outrage.  This is the pattern at Fannie Mae.  As long as Fannie executives can fatten their own bottom lines and their own compensation packages, taxpayers are just collateral damage.  If this latest revelation doesn’t light a fire under members of Congress to immediately act on a reform package upon their return in January, they should all be ashamed of themselves.”

Citizens Against Government Waste is the nation's largest nonpartisan, nonprofit organization dedicated to eliminating waste, fraud, abuse, and mismanagement in government.