Fannie Mae's Return Policy

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Add this one to the "bank that thought it sold its assets" file.

Tucked away in Fannie Mae's (NYSE: FNM) earnings release last week was further evidence that mortgage assets that banks and lenders had thought were off their books might soon wind up back where they were created.

As Fannie put it:

[We will ramp up] recoveries from lenders, focusing especially on our Alt-A book. The objective is to expand loan reviews where the company incurred a loss or could incur a loss due to fraud or improper lending practices. To achieve this, we are increasing post-foreclosure loan reviews from 900 a month in January to 4,000 a month by the end of the year, expanding our quality-control reviews for targeted products and practices, and are on track to double our anti-fraud investigations this year.

In non-geek speak, this basically means Fannie is going to start honing in on mortgages it bought that disintegrated, retracing the steps to look for any fraudulent lending practices by the lender who originated the loan, and -- if there was an issue -- going back to retrieve some of the loss.

This practice is nothing new, but it could mean a nightmare for big pushers of Alt-A mortgages, a few big ones that come to mind being Countrywide -- now Bank of America (NYSE: BAC), Washington Mutual (NYSE: WM), and Wachovia (NYSE: WB).

And just how fraudulent might some of these lending practices have been? Back in April, The Wall Street Journal highlighted some of Countrywide's frighteningly loose lending practices, saying, "In many cases, Countrywide didn't even require loan officers to verify employment … That left the program vulnerable to abuse by Countrywide loan officers and outside mortgage brokers."

For the economy as a whole, it doesn't really matter -- whatever's done is done. The big issue going forward might be a trillion-dollar game of hot potato, where banks, brokers, and government-backed entities being chased by taxpayers with pitchforks battle over who ends up holding loans that never should have been made.

For further Foolishness:

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