Former Fannie Mae Exec Claims GSE Mismanaged HAMP

A former Fannie Mae VP has gone public with accusations that the nation's largest mortgage company mishandled its stewardship of the federal government's signature foreclosure-prevention campaign, the Home Affordable Modification Program (HAMP).

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Whistleblower Caroline Herron claims that HAMP was impeded by intentional delays and slip-ups because Fannie executives placed their institution's short-term financial interests above helping homeowners avoid foreclosure, in what Herron called a ""mismanagement and gross waste of public funds.""

A spokesperson for ""Fannie Mae"":http://www.fanniemae.com told DSNews.com that there is ""no merit to her allegations.""

Herron held a variety of senior-level positions at Fannie Mae from 2000 to 2007, ranging from marketing and project management to multifamily housing finance. She returned to the company in 2009 in a consultancy role to help the GSE coordinate the execution of HAMP.

In June, Herron sued Fannie Mae and several key executives, alleging that they terminated her $200-an-hour consulting work in January 2010 and then sabotaged her pending appointment to the U.S. Treasury staff because she raised questions about the GSE's administration of the federal modification program.

Fannie Mae's spokesperson says Herron's attorney notified the GSE in early March of her potential allegations. At that time, Fannie commissioned an independent, third-party investigation, led by a former inspector general of the Department of Justice, Michael Bromwich.

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""Ms. Herron was invited to participate in that investigation but she declined to do so,"" Fannie Mae said. ""The investigation found no merit to her allegations.""

According to the ""Center for Public Integrity"":http://www.publicintegrity.org/articles/entry/2305/, a nonprofit investigative organization that exposed the lawsuit after reviewing interviews and documents related to the case, ""[Heron's] allegations provide a rare account from a former insider willing to tell what was going on behind closed doors with the government's handling of the $50 billion HAMP program.""

Herron charges that Fannie Mae received a $113 million contract from the government to administer HAMP, and then tried to cash in on additional incentive payments by pushing as many borrowers as possible into short-term trial modifications.

She says the GSE ignored her recommendations to require applicants to provide more extensive income documentation and encouraged servicers to approve trial mods without the paperwork to verify a homeowner's financial situation â€" a short-cut that has stalled trial-to-permanent modification conversion rates and since been disallowed by the Treasury.

Herron also claims Fannie Mae and Treasury officials obstructed, and later terminated, the development of a ""borrower portal"" technology aimed at streamlining the HAMP application process and alleviating the logjam of homeowners struggling to document and complete their modification requests.

HAMP permanently modified about 230,000 mortgages in 2009 - the equivalent of 8 percent of new foreclosures filed during that same year, according to the Center for Public Integrity.

A chief House Republican on Friday called for a congressional hearing to explore Herron’s allegations.

""Rep. Spencer Bachus"":http://bachus.house.gov/index.php?option=com_content&task=view&id=1030&Itemid=104 (Alabama), sent a letter to Rep. Barney Frank, urging the House Financial Services Committee to look into whether Fannie Mae executives improperly implemented HAMP in order to benefit from incentive payments offered by the Treasury Department for mortgage modifications.