So, the federal regulator overseeing Fannie Mae and Freddie Mac hired a law firm specializing in litigation to help recoup billions of dollars on soured mortgage-backed securities purchased from banks and Wall Street firms. Fannie and Freddie purchased $227 billion on bonds backed by subprime and other risky loans in 2006 and 2007. The value of these securities plunged along with housing prices and the government has injected $148 billion to keep these government-sponsored entities above water unlike the mortgages on so many Fannie and Freddie backed homes with outstanding balances that are as much as twice the amount of the value of the underlying property. The bailout of these institutions may grow to $363 billion before all is said and done. This all comes on the heels of recent disclosures about the use of “robo signers” to process thousands of documents in an inordinate period of time and without proper review of documentation prior to processing foreclosures. Moreover, institutional bond investors are stepping up to the plate to claim wrongdoing by the banks and servicers for failing to carry out their responsibilities in underwriting the original loans. Some of these investors are seeking to have loans that didn’t meet underwriting requirements repurchased and to be compensated for losses due to inadequate mortgage servicing.
Is it just me or are others shaking their heads about the collapse of the ethical ozone layer that is supposed to protect the free market economy from fraud and corruption in the marketplace. The question is: What can we do about it? More regulation may help to deter wrongdoing but we've had laws on the books for years without any measurable improvement in business ethics. In fact, recent examples of improper behavior abound including Enron, WorldCom and the failure of financial analysts at investment banks to carry out their due diligence responsibilities to investors. Then there is Bernie Madoff and other purveyors of the "Ponzi scheme." And now, the mortgage industry is in disgrace for its underwriting, servicing, and other policies that put their own selfish interests ahead of those of investors and homeowners. The bottom line is we can't regulate ethics. It comes from within and a desire to be a good person and act in a way that protects the interests of others and not solely in our own self-interests.