In 2007, New York State Attorney General Andrew Cuomo set out to investigate whether Fannie Mae and Freddie Mac purchased home mortgages based on fraudulently inflated appraisals — and then issued those spiked loans as mortgage-backed securities sold to the public on Wall Street.
It’s unclear what Cuomo found. But as part of Cuomo’s agreement to drop the investigation, Fannie and Freddie quickly agreed to new rules that aim to cure inflated appraisals — and to shell out $24 million for an institute to help implement the rules.
But so far, Cuomo has declined to disclose the findings of his investigation. In response to a Center for Public Integrity request for records under New York State’s Freedom of Information Law, Cuomo’s office declined to make the records available, arguing the documents were “compiled for law enforcement which, if disclosed, would… interfere with law enforcement investigations or judicial proceedings.”
That’s a tough argument to make since the investigation is closed, said Camille Jobin-Davis, assistant director of the New York State Committee on Open Government. By law, that exemption only works if Cuomo’s investigation is still open, Jobin-Davis said. The Center has appealed Cuomo’s decision to shield the records from the light.
Why does it matter what Fannie or Freddie knew about the loans they purchased? According to letters Cuomo sent in 2007 to the heads of Fannie and Freddie — along with subpoenas — if the two bought mortgages with fraudulently inflated appraisals and passed them on to Wall Street, they harmed both shareholders and investors who purchased the securities that later tanked.
And like the mortgage brokers and lenders who made money off spiked loans, Cuomo wrote that “the investment banks and GSEs [government sponsored enterprises, such as Fannie and Freddie] may also have an interest in inflating (or at least in not questioning) the value of the pooled loans.”
Whether or not that happened is what we would like to know. Cuomo’s office did not immediately respond to calls for comment.