FHFA-OIG Outlines Six Months Accomplishments in Congressional Report

by devteam November 29th, 2012 | Share

The Federal Housing Finance Agency’srnOffice of Inspector General (FHFA-OIG) submitted its fourth semi-annual reportrnto Congress on Wednesday.  The Office,rnwhich serves as a watchdog over FHFA in its capacity as regulator of the FederalrnHome Loan Banks (FHLBanks) and both regulator and conservator of Fannie Mae andrnFreddie Mac, (the GSEs) reported on its activities during the period April 1 tornSeptember 30, 2012. </p

FHFA-OIG said that the numerous reportsrnit issued during the six month period continued to reflect two themes it has identifiedrnin its overall body of work.  The firstrnis that, with regard to the conservatorships of the two GSEs, “FHFA has oftenrnrelied on determinations of the GSEs without independently testing andrnvalidating them, thereby giving undue deference to GSE decision making.”  Second, “With regard to its regulatoryrnresponsibilities, FHFA faces challenges in risk management, including itsrnability to identify new and emerging risks potentially impacting the GSEs,rnissue guidance and regulations governing risk management oversight at the GSEs;rnand provide strong consistent enforcement for violations of policy.”</p

OIG has prioritized work involving thernconservatorship and issued four reports that deal with the first issue.  One was a report on an audit of FHFA’srnprocess for approving matters under the conservatorships that concluded thatrnFHFA should exert greater control over the GSEs.   A second report found that FHFA had notrnconducted reviews of many servicing transfers under Fannie Mae’s High TouchrnServicing Program.  Two other reportsrnfound FHFA’s certifications to Treasury regarding the Preferred Stock PurchasernAgreements between Treasury and the GSEs were lacking but noted that FHFA hasrnnow corrected that deficiency.</p

OIG also followed up on a report onrnFreddie Mac’s loan repurchase process that was issued in a previous period andrnfound that Freddie Mac and FHFA had acted on OIG’s recommendations and that thernimproved process should result in additional recoveries in the range of $0.8rnbillion to $1.2 billion this year and $2.2 billion to $3.4 billion overall.</p

OIG produced five reports dealing withrnFHFA’s regulatory function.  One lookedrnat FHFA’s oversight of the GSE’s management of high risk sellers and servicersrnand recommended strengthening the GSE’s counterparty risk management.  Another audit found that despite FHFA’srnidentification of the GSE’s owned real estate portfolios (REO) as a prominentrnand ascending risk, FHFA did not conduct targeted examinations of REO untilrn2011.  OIG recommended changes to thosernexaminations but these have not been fully implemented by FHFA.</p

Two of the reports dealt with oversightrnof FHLBanks.  OIG found that FHFA canrnimprove its framework for supervising advances and collateral risk managementrnfor those banks presenting supervisory concerns and found a lack ofrnappreciation among member banks for the risks associated with unsecuredrnlending.</p

In its law enforcement capacity OIGrnengaged in what it termed significant investigative and outreach efforts.  Its investigations resulted in the indictmentrnof 11 former employees of Abacus Federal Savings bank and guilty pleas from 8rnformer employees in connection with a scheme to sell hundreds of millions ofrndollars in fraudulent loans to Fannie Mae. rnThere were indictments of 10 persons accused of fraudulently obtaining $39rnmillion in mortgages to purchase units at a Florida condo complex.  Eleven employees of 21st CenturyrnReal Estate Investment Corporation were indicted for allegedly collecting overrn$7 million from 4,000 homeowners in a loan modification scheme.  In addition, guilty pleas were obtained fromrnthe former President of American Mortgage Field Services and the former chiefrncredit officer for Appalachian Community Bank. rnThe former admitted to taking part in a scheme involving property flipsrnand the latter to submitting approximately $13.5 million in fraudulentrninspection reports related to GSE REO.

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About the Author


Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, is a PASBA member accountant located in Londonderry, New Hampshire.

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