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Washington
IG says FHFA lagged in oversight supervision
WASHINGTON (12/14/11)--The Federal Housing Finance Agency (FHFA) "was not proactive in oversight and enforcement" of government-sponsored entities (GSEs) Fannie Mae and Freddie Mac, and did not adequately process consumer complaints that may have "contained important information about alleged foreclosure processing abuses and fraud," FHFA inspector General Steve Linick said in his semi-annual report to Congress.

The FHFA failed to develop and maintain a system for receiving or processing consumer complaints. Linick said the agency also failed to:

  • Consistently follow up on complaints referred to the GSEs;
  • Prioritize complaints or assess the timeliness of responses to complaints;
  • Refer complaints to law enforcement for evaluation or possible investigation; and
  • Perform substantive analyses to identify overall trends in complaints.
"These deficiencies occurred because FHFA did not establish adequate internal controls and did not assign sufficient priority and resources to complaint processing," Linick said, adding that the FHFA did not feel it needed to address consumer complaints.

The FHFA was also slow to react to foreclosure related issues, Linick said, noting that the FHFA did not schedule comprehensive examination of foreclosure issues until reports of foreclosure abuses surfaced in mid-2010. "FHFA had not previously considered risks associated with foreclosure processing to be significant," the report said.

Linick also said the FHFA gave "undue deference" to the GSEs by relying on their opinions on mortgage repurchase claim issues, executive compensation, and various GSE transactions, "without independently testing and validating them."

He said the FHFA's Office of the Inspector General is currently assessing whether FHFA has an effective supervisory control structure and sufficient examination coverage to adequately and timely identify and mitigate mortgage servicing risks, and assessing the FHFA's oversight of Enterprise controls over real estate owned (REO) operations, including management and sales activities and contractor performance. 

Amid the criticism, the Inspector General's report did commend the FHFA for its progress in eliminating golden parachute compensation awards to terminated Fannie Mae and Freddie Mac executives, taking steps to mitigate its shortage of qualified examiners, increasing its underwriting standards and raised guarantee fees, and reducing its vulnerability to fraud, waste, and abuse.
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