The Wall Street Journal-20080131-Tensions Rise in Lending Probes
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Tensions Rise in Lending Probes
Full Text (469 words)WASHINGTON -- Tensions are beginning to rise between state and federal authorities as the number of agencies investigating mortgage fraud continues to grow.
New York Attorney General Andrew Cuomo is in a tussle with the Office of Federal Housing Enterprise Oversight, the federal regulator that oversees mortgage giants Fannie Mae and Freddie Mac. Their dispute is over who should be the investigating allegations of fraudulent appraisals and mortgage fraud.
The interaction of state and federal oversight has long been a political hot potato. Friction is expected to increase as rising number of participants -- including the Justice Department and Securities and Exchange Commission -- probe the mortgage area.
Also contributing to tension is congressional scrutiny on the role of regulators during the housing boom. A number of senators have become critical of Washington regulators for not being aggressive enough in taking action against certain subprime-lending practices.
Mr. Cuomo's predecessor, Eliot Spitzer, now governor of New York, also made waves with federal regulators when he moved swiftly on Wall Street investigations, overshadowing efforts by the SEC in particular.
On Nov. 7, Mr. Cuomo's office announced it had sent subpoenas to Fannie and Freddie and called for an independent examiner to review loans the two government-sponsored entities bought from Washington Mutual, a large mortgage lender.
The next day, Ofheo director James Lockhart shot off a response noting "for the past several years, Ofheo has been working with the two firms as they have continued to improve . . . anti-fraud programs." He added he was "disappointed" that New York didn't seek to cooperate with Ofheo.
A person close to the investigation said shortly thereafter Fannie and Freddie's cooperation with the New York probe ceased. A representative for Fannie declined to comment. A spokeswoman for Freddie had no comment.
A spokesman for Mr. Cuomo's office declined to comment. A spokeswoman for Ofheo said the agency "continues to work" with Mr. Cuomo's office.
New York Sen. Charles Schumer, a senior Democrat on the Senate Banking Committee, which has oversight authority of banking and securities regulators, is now stepping into the mix. In a letter dated Jan. 30, he urged Ofheo "in the strongest possible way" to partner with New York prosecutors and be "part of the solution not part of a perpetuation of the problem."
"It is my understanding that Fannie Mae and Freddie Mac have agreed to comply with the . . . subpoenas, but that your agency may be seeking to block the companies from complying with the requests," according to the letter.
Mr. Schumer said he believed the two mortgage buyers attempted to enter into "productive discussions" with Mr. Cuomo's office and were working toward "immediate positive conclusions but for OFEO's opposition."
Mr. Cuomo's office is precluded by law from investigating federally chartered banks, where federal oversight pre-empts state interest.
