WASHINGTON (10/1/12)--The Federal Housing Finance Agency (FHFA) has held government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac under government conservatorship since 2008, and the FHFA's oversight of them would be improved by tighter control of their individual business decisions, the FHFA's Office of the Inspector General (OIG) said in a report.
The OIG report noted that the FHFA requires the GSEs to obtain approval for decisions involving legal settlements over $50 million, risk limit increases and other business decisions. However, the OIG found, the FHFA does not review and approve Fannie Mae's single-family underwriting standards or its High Touch Servicing Program, which, according to the OIG release, involved multiple transfers of mortgage servicing rights for more than 700,000 loans with an unpaid principal balance in excess of $130 billion.
"As conservator, FHFA has a responsibility to ensure that the [GSEs'] underwriting standards appropriately balance credit risk and return. FHFA can further fulfill its conservator responsibility by ensuring sound oversight of underwriting standards through more active involvement and detailed guidance governing its review process," the OIG said.
The report also recommended the FHFA ensure that significant GSE business decisions are sent to the conservator for approval and encouraged the FHFA to properly analyze, document, and support the decisions it makes as conservator. The agency should also work to confirm that the GSEs have complied with FHFA instructions.
The GSEs agreed with most of the OIG recommendations. For the full OIG report, use the resource link.