In its third semi-annual report to Congress the Federal Housing Finance Agency's (FHFA) Office of the Inspector General (OIG) recapped its activities during the six month period ending April 30. OIG is charged with promoting transparency in FHFA's program administration and oversight of the operations of the two government sponsored enterprises (GSEs) which are in government conservatorship Fannie Mae and Freddie Mac as well as the third GSE, the Federal Home Loan Banking System (FHLBanks). OIG is also charged with preventing and detecting fraud, waste and abuse in the operation of the GSEs as well as FHFA itself.
In addition to enumerating the various reports it had issued on both FHFA and GSE activities and the recommendations resulting from them, Thursday's report contained a special section on the GSEs entitled "Fannie Mae and Freddie Mac - Where the Taxpayer's Money Went." As the title suggests, the section details the levels at which various areas of GSE operation contributed to their huge losses leading up to and following conservatorship. This section will be summarized in a separate article in MND later today.
During the reporting period OIG issued six reports addressing a variety of GSE issues. MND covered most of these reports as they were released including one giving an overall assessment of the FHFA's conservatorship of the GSEs on its third anniversary. There were reports on FHFA's oversight of two major functions of the GSEs, their supervision of mortgage servicing contractors working for both GSEs and their management of Fannie Mae's single-family underwriting standards .
Three reports dealt with the expenses of the GSEs, resulting in a number of recommendations for dealing with GSE legal expenses on behalf of its executives, travel and entertainment expenses growing out of questionable expenditures related to a large conference, and the operation of the GSE's considerable charitable activities. The sixth report evaluated FHFA's oversight of the FHLBanks, finding that the agency did not have or failed to implement formal written enforcement standards for holding the Banks and their officers sufficiently accountable for failing to correct identified risks.
OIG also engaged in investigative and outreach efforts which, among other things, resulted in a seventh conviction in the Taylor, Bean & Whitaker case, a $2.9 billion fraud that against Freddie Mac; indictments of three attorneys associated with the Flahive Law Corporation and five indictments against Horizon Property Holdings in cases involving defrauding homeowners with false promises of assistance with mortgage modifications.
The semi-annual report includes over 40 separate recommendations the OIG has made over the past months to improve the operations of the FHFA and the GSEs and the status of each. Fifteen of the recommendations are considered by OIG to be closed with final action taken by FHFA. The remainder have all been agreed to or partially agreed to by FHFA with implementation of the recommendations pending. Among those recommendations for which implementation is still pending are the following.
- Establishment of policies for review of Fannie Mae's underwriting standards and enhancement of existing examination guidance for assessing adherence to underwriting standards.
- Implementation of more robust guidance governing counterparty oversight and risk management for Freddie Mac mortgage services and improving coordination with other federal agencies that also oversee GSE mortgage servicers.
- Review of circumstances surrounding FHFA failure to identify foreclosure abuses at earlier stages and development of capacities to prevent new risks in this area.
- Development of procedures for identifying and addressing problems with default-related legal service vendors.
- Conducting a comprehensive review of GSE travel and entertainment policies, revising them to conform to OIG guidance.
- Monitoring the GSE's progress in phasing out all charitable activities.
- Working to limit GSE legal expenses by narrowing the reach of future indemnification agreements, making greater use of D&O insurance and continuing to enforce new regulations establishing the primacy of claims.
- FHFA should assess the extent to which its examination capacity shortfalls have adversely affected its examination program and develop potential strategies to mitigate the risk.
- FHFA should design and implement written policies governing the receipt, processing, and disposition of consumer complaints. The recommendations to assess the sufficiency of its resources to carry out this recommendation and a determination of unresolved consumer complaints involving fraud are considered to be addressed and closed.