The fifth Semiannual Report from the
Office of Inspector General (OIG) of the Federal Housing Finance Agency (FHFA)
was released to Congress today. The
report, prepared under the direction of Steve A. Linick, Inspector General,
catalogues the audit and evaluation work done by OIG between October 1, 2012
and March 31, 2013 and the current status of FHFA, the government sponsored
enterprises (GSEs) Fannie Mae and Freddie Mac, and the Federal Home Loan Banks
(FHLBanks). It also recounts investigative
activities in support of federal and state prosecutors pursuing instances of
fraud in the housing industry.
In a letter accompanying the report
Linick said that his office is mindful that the long term success of FHFA is
necessarily affected by the uncertainty surrounding the fate of the GSEs and
that of the housing finance industry.
"Until the uncertainty is resolved," Linick said, "we will continue to
focus on housing finance matters such as managing risks and repaying taxpayers,
that will remain useful to stakeholders - FHFA, Congress, and the public -
whatever reform may come.
OIG calls the current reporting period a
significant one as it was the first time since 2008 that the GSEs under FHFA
conservatorship returned to profitability. This shows the results of previous FHFA
actions such as reforming the GSEs' executive pay practices and significant
progress toward continuing financial stability.
Developments during the period also reflect efforts to reduce and manage
risk, such as through foreclosure prevention efforts, toward the goal of
repaying taxpayer investment in the GSEs.
At the same time OIG says the reporting
period marks a crossroads for the GSEs.
FHFA facilitated amendments to the Senior Preferred Stock Purchase
Agreements (PSPAs) between the GSEs and Treasury which means the GSEs are no
longer drawing on the Treasury in order to pay dividends back to them. FHFA has also assisted the GSEs to reduce the
volume of their owned real estate (REO) through the REO sales initiative.
Between October and March the OIG
conducted a number of audits, evaluations, and investigations. These included:
Case Study of Freddie Mac's Unsecured Lending to Lehman Brothers prior to the
Oversight of the Asset Quality of Multi-Family Housing Loans Financed by the
Oversight of the GSE's Efforts to Recover Losses from Foreclosure Sales
audits and evaluations were covered extensively by MND at the time they were
the reporting period OIG also:
an Audit and Evaluation Plan focusing on areas of FHFA operations posing the
greatest risks to the agency and the GSEs;
Systematic Implication Reports which identify potential risks and weaknesses in
FHFA's management control system discovered by OIG during investigations;
proposed legislation, regulations, and policies related to FHFA,
a broad audience on OIG, FHFA, and GSE issues and on wider issues of fraud,
waste, and abuse.
FHFA and GSE operations during the period the OIG noted the significant
improvement in the GSEs' financial results with Fannie Mae reporting a net
income of $17.2 billion in 2012 compared with a net loss of $16.9 billion in
2011. Freddie Mac reported smaller but
similar results. In addition, for the first time since the beginning of the
conservatorships both GSEs were able to pay dividends to the Treasury without
any draw under the PSPAs, something they each did in the second, third, and fourth
quarters of 2012.
affecting the GSEs improved financial condition included enhanced oversight,
reform, rebuilding, and risk management and reduction. During this period FHFA issued new appraisal
requirements for higher-priced loans, created a new national database, and
developed a new infrastructure for the secondary mortgage market.
The OIG also
discussed the recovery of losses for Fannie Mae due to loan origination and
servicing defects in mortgages it purchased between 2000 and 2008 and at
activities related directly to FHFA's involvement in increased prevention of
foreclosure and the REO pilot initiative. OIG also details is efforts to track performance
and accountability through FHFA's updated strategic Plan.
section of the Semiannual report summarizes conservatorship reform and various
reform proposals including the work that has been done to stabilize the GSEs
since conservatorship and the reforms the GSEs have implemented to improve
overall business operations and encourage greater private-sector participation
in the secondary mortgage market. The
section also discusses how FHFA is preparing for change and its five year
strategic plan which focuses on actions to organize, rehabilitate and wind down
the GSEs in order to make way for a new secondary mortgage market.