Wednesday, April 06, 2005

An Error Was Made, For 21 Years

Wall Street gave Fannie Mae a pass today. But before you start buying the stock, you may want to read the OFHEO report. "When Fannie Mae purchases mortgage loans from lenders, it either securitizes the loans or retains them in its mortgage portfolio."

"During a system upgrade in 2004, the Enterprise discovered a major programming error..Since the program with this error had been created in 1983, but was not detected and corrected until 2004, faulty re-designations of loans continued for 21 years. The fact that Fannie Mae operated a faulty and inaccurate system for more than two decades reveals serious system weaknesses."

That last line indicates the OFHEO has a sense of humor and understatement. It gets better. Or worse? "Prior to November 2003, Fannie Mae was performing a sorting and sifting process..that allowed the Enterprise to retain high quality loans for its portfolio. The Enterprise referred to this process internally as "keep the best; sell the rest." Do you suppose there may be a few lawsuits by those stuck with "the rest"? This was illegal, by the way. Just another day for the multi-billion dollar laughing-stock.


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