United States District Court, D. Nevada
UNITED STATES OF AMERICA ex rel. James R. Adams et al., Plaintiff,
WELLS FARGO BANK NATIONAL ASSOCIATION et al., Defendants.
The Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”) (collectively, “the GSEs”) are government sponsored entities (“GSE”) created by Congress to purchase mortgage loans from originating lenders so that the lenders can continue to make additional loans. (See Third Am. Compl. ¶¶ 5, 9-10, Jan. 18, 2013, ECF No. 43). As of 2008, the GSE had purchase approximately 80% of al home mortgages in the United States. (Id. ¶ 11). In 2008, Congress passed the Housing and Economic Recovery Act of 2008, which act created the Federal Housing Finance Agency (“FHFA”), a federal agency with the power to take control of the GSE, which it did on September 6, 2008, placing the GSE under its conservatorship. (See id. ¶¶ 12-15).
When the GSE purchase home loans from lenders, they often package groups of loans into mortgage-backed securities (“MBS”), which are placed into trusts (“MBS Trusts”), shares of which are in turn sold to investors, who receive certificates representing their pro rata shares in the MBS Trusts, and according to which the certificate holders are paid interest and principal. (Id. ¶¶ 17-22). The GSE guarantee these payments, regardless of the financial health of the mortgages in the MBS. (Id.¶¶ 23-25). Part of the guaranty by the GSE includes a promise to repurchase defaulted mortgages from MBS Trusts in order to avoid any losses to certificate holders that would otherwise result from the default of mortgages in the certificate holders’ respective MBS Trusts. (See id. ¶ 26). The incidence of this procedure has soared since the real estate crash. (See id. ¶¶ 27-28). The GSE often approve “short sales” of homes, i.e., sales for less than the amount owed to the GSE by the mortgagor, but the GSE are required to make the certificate holders whole. (See id.¶¶ 29-31). The GSE are also required to make certificate holders whole in cases where the GSE foreclose on a home and receive less at auction than the amount due on the loan. (Id. ¶¶ 32-33). In either case, the GSE repurchases the defaulted mortgage from the MBS Trust for 100% of the principal amount and suffers the loss from the foreclosure or short sale itself. (See id. ¶¶ 34-35).