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GSE Regulator Subpoenas Non-Agency Issuers

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The regulator of Fannie Mae and Freddie Mac is conducting a financial inquiry into private-label mortgage-backed securities that the government-controlled enterprises invested in. Depending on what is uncovered, the issuers could be forced to repurchase defaulted loans.

A news release today from the Federal Housing Finance Agency indicated that 64 subpoenas have been issued to various entities. The agency seeks a “significant” amount of documentation including loan files and transaction documents.

FHFA is trying to determine whether private-label MBS issuers are liable for related losses at Fannie and Freddie. The two firms had already begun assessing their rights in the securities before being thrown into conservatorship in September 2008, but issuers have stonewalling Fannie and Freddie.

“The enterprises have attempted to determine whether misrepresentations, breaches of warranties or other acts or omissions by private-label MBS counterparties would require repurchase of loans underlying the private-label MBS by the counterparties and whether other remedies might be appropriate,” FHFA said. “However, difficulty in obtaining the loan documents has presented a challenge to the enterprises.”

So the regulator issued the subpoenas. The companies each have 30 days to produce the requested documents.

Any funds recovered will offset bailout payments made by the U.S. Department of the Treasury.

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