FHFA pushes for direct power to sue for mortgage fraud

The Federal Housing Finance Agency (FHFA) and Director Bill Pulte are asking Congress for the power to bring civil lawsuits against individuals suspected of mortgage fraud.

In its newest Annual Report to Congress, released Monday, the FHFA recommended new authority to directly sue for mortgage market fraud. This would allow the agency to file the same types of lawsuits in state or federal courts that Fannie Mae, Freddie Mac or the Federal Home Loan Banks (FHLBanks) can.

Alternatively, the FHFA suggested Congress could create a new federal law against mortgage fraud that the agency could enforce in federal court. This would explicitly mirror the Securities and Exchange Commission (SEC)’s direct power to sue for insider trading.

The FHFA did not reply to HousingWire’s request for comment.

Pulte, who was appointed earlier this month as acting director of national intelligence (DNI), has aggressively targeted mortgage fraud as part of leading a major overhaul of the government-sponsored enterprises (GSEs). He has filed multiple criminal referrals to the Department of Justice (DOJ), alleging mortgage fraud against Federal Reserve Governor Lisa Cook, New York Attorney General Letitia James, and Sen. Adam Schiff (D-Calif.).

Last year, the FHFA also announced a partnership with Palantir Technologies to launch an artificial intelligence-powered crime detection unit at Fannie Mae. Around the same time, the agency established an official mortgage fraud tip line for whistleblowers and the public.

The agency said that all federal regulators overseeing mortgages should be empowered to take action against fraud but noted that its current authorities are “indirect or limited.”

Right now, the FHFA is legally required to get reports when fraud is suspected, but it must pass these cases on to other agencies for potential action. It can also block the organizations it regulates from doing business with anyone convicted or sanctioned in the past three years. But only in very specific circumstances can it bring an enforcement action against a partner who fails to ensure the eligibility of loans.

The FHFA is also asking Congress for the legal authority to set safety standards for outside services provided to the organizations it regulates. The agency wants the ability to directly examine the records, operations and facilities of key third-party service providers.

“FHFA’s regulated entities rely on third-party service providers for a wide range of services, some of which are critical to their operations,” the FHFA stated in its Annual Report. “FHFA has limited authority to assess the impact of third-party relationships on the safe and sound operations of its regulated entities.”

According to the agency, the Government Accountability Office (GAO), the Financial Stability Oversight Council (FSOC), and the FHFA’s own Inspector General have all identified this lack of oversight as a top risk and recommended that Congress close the gap.