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California attorney general sues Fannie Mae, Freddie Mac


(Reuters)—California Attorney General Kamala Harris sued Fannie Mae and Freddie Mac on Tuesday in an effort to expand her probe into the companies' mortgage foreclosure practices.

The lawsuits, filed in California Superior Court in San Francisco, seek to force the companies to turn over documents they refused to provide earlier.

Harris served the housing finance companies with administrative subpoenas on Nov. 15.

Fannie's and Freddie's regulator, the Federal Housing Finance Agency, told her office on Dec. 9 that "no state Attorney General had the authority" to issue such a subpoena, according to court papers.

"The conservator's position is incorrect," Harris said in the lawsuit. No law exempts the companies from responding to her requests, she added.

FHFA declined to comment on the filings. Spokespeople for Fannie Mae and Freddie Mac also declined comment.

The subpoenas ask for details about vacant properties that Fannie and Freddie technically own after they were foreclosed.

The subpoenas request information about "criminal activity such as drug dealing and prostitution" and about the general upkeep at the foreclosed properties.

Fannie Mae and Freddie Mac were taken over by the government more than three years ago and have stayed afloat with about $169 billion in taxpayer funds.

In recent months, Harris has stepped up pressure on the government-supported companies, calling for FHFA director Edward DeMarco to step down if he was unwilling to reduce mortgage debt for underwater borrowers.

The companies have resisted that idea and the FHFA has forbidden principal writedowns.

After calling for DeMarco's resignation in November, Harris served the companies with subpoenas.

Tuesday's filings also allege Fannie and Freddie may have violated securities laws over the housing-related debt they issue. The largest source of home funding, Fannie and Freddie, don't make loans, but instead buy loans from lenders and repackage them into securities for sale to investors.

The lawsuits come as state and federal officials are close to signing a $20 billion settlement with five banks—Bank of America Corp., JPMorgan Chase & Co., Wells Fargo & Co., Citigroup Inc. and Ally Financial Inc.—to resolve allegations of improper foreclosures and other misconduct.

Harris withdrew from those talks in September and said the proposed deal failed to provide enough relief for her state's homeowners and released the banks from too many claims, but she left open the option of returning to sign an improved settlement.

Fannie and Freddie are not a part of the discussions.

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