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insures mortgages against credit losses, which recently announced a cessation of its mortgage premium increases. • Home Affordable Refinance Program: A Mid-Program Assessment (EVL-2013-006, August 1, 2013), in which we analyzed FHFA’s administration and oversight of HARP, which is a streamlined refinance program for loans owned or guaranteed by the enterprises. HARP is designed to assist borrowers who are current on their loans but have not been able to refinance because they have little or no equity in their homes. • FHFA’s Oversight of the Federal Home Loan Banks’ Compliance with Regulatory Limits on Extensions of Unsecured Credit (EVL-2013-008, August 6, 2013), in which we examined the agency’s implementation of its 2012 horizontal review of unsecured credit risk management practices and supervisory and enforcement responses to violations identified during the review. • FHFA Can Improve Its Oversight of Freddie Mac’s Recoveries from Borrowers Who Possess the Ability to Repay Deficiencies (AUD-2013-010, September 24, 2013), in which we assessed Freddie Mac’s deficiency recovery practices for borrowers who possess the ability to pay amounts owed on foreclosed mortgages owned or guaranteed by the enterprise. We also discuss numerous OIG investigations, which resulted in indictments and convictions of individuals responsible for fraud, waste, or abuse in connection with FHFA’s and the regulated entities’ programs and operations, and in fines and restitution orders totaling more than $104.6 million. Further, this section addresses our: • Audit and Evaluation Plan, which focuses on areas of FHFA operations posing the greatest risks to the agency and to Fannie Mae, Freddie Mac, and the FHLBanks (collectively, the GSEs); • Systemic Implication Reports, which identify potential risks and weaknesses in FHFA’s management control systems that we discovered during the course of our investigations; • Regulatory Activities, which include our assessment of proposed legislation, regulations, and policies related to FHFA; and • Communications and Outreach Efforts, which educate stakeholders—FHFA, Congress, policymakers, and the public—about OIG, FHFA, and GSE developments, as well as broader issues of fraud, waste, and abuse. Section 2: FHFA and GSE Operations This section describes the organization and operations of FHFA, the enterprises, and the FHLBanks, as well as notable developments for each during the reporting period. Among the most notable developments during the semiannual period was the unprecedented size of the dividends the enterprises paid Treasury under the PSPAs for the six months ended June 30, 2013— Fannie Mae and Freddie Mac paid $63.6 billion and $12.8 billion, respectively. Fannie Mae’s extraordinary dividend payment resulted from the release of a valuation allowance on deferred tax assets, as well as its improved profitability. Moreover, the $76.4 billion Semiannual Report to the Congress • April 1, 2013–September 30, 2013 3
in quarterly dividend payments does not reduce the outstanding balance of Treasury’s investment. Additionally, over the last six months, FHFA and the enterprises made significant progress in their efforts to develop a common securitization infrastructure for residential mortgage-backed securities (RMBS); the agency released reports from the enterprises assessing the viability of their multifamily lending businesses in the absence of a government guarantee; Freddie Mac—in compliance with FHFA’s directive to test credit risk sharing transactions—made the first in a series of bond offerings that are not guaranteed by the enterprise; and lawmakers introduced two major bills intended to reform housing finance and the Administration announced core principles that it believes should underlie such reform. These and other developments and OIG’s efforts in relation to them are summarized in Section 2. Section 3: Lessons for Housing Finance Reform: Five Years After the Federal Government’s Takeover of Fannie Mae and Freddie Mac a multi-trillion-dollar industry? As policymakers debate these and other issues, we offer, in Section 3, a discussion of three factors that are important to a safe, stable, and liquid mortgage market—whatever its ultimate structure. First, soundness. The recent housing crisis has shown that, at minimum, the secondary mortgage market needs quality underwriting, robust risk assessment, and market-aligned servicing. Second, oversight. Our work demonstrates that effective housing finance oversight requires well-equipped regulators to verify decision making and enforce compliance. Third, balance. Whatever the future mortgage market’s structure, participants will have to balance between interrelated laws, roles, and practices. Section 3 draws on our experience and is not intended to take sides. Rather it is intended to provide our stakeholders with information that will be useful during the debate on housing finance reform. It is no longer a question of if the nation’s housing finance system will be reformed, but how. Will the government continue to play a role, or will it exit the secondary mortgage market entirely? How will the government reduce its huge footprint in 4 Federal Housing Finance Agency Office of Inspector General
Page 2 and 3: Federal Housing Finance Agency Offi
Page 4 and 5: Section 3: Lessons for Housing Fina
Page 6 and 7: OIG’s Accomplishments from 2010 t
Page 8 and 9: A Message from the Acting Inspector
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Page 36 and 37: Short Sale Schemes A short sale occ
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Page 42 and 43: indemnification payments that OIG p
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mortgage credit. For its part, the
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Figure 20. Reform Models and Reform
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Multifamily We have also found indi
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Based on recent history, a reformed
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Figure 26. The Mortgage Servicing P
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Even though the FHFA senior examine
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assistance to homeowners and to use
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positive NPV, then the servicer is
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Siloed Practices: Harmonizing Busin
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Semiannual Report to the Congress
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overseen by FHFA. As conservator, F
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Interest Rate Swap: An interest rat
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References Federal Deposit Insuranc
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Department of the Treasury Financia
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Acronyms and Abbreviations Agency A
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Figure 29. Summary of OIG Recommend
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No. Recommendation Report Status AU
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No. Recommendation Report Status EV
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Audit and Evaluation Reports with R
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Appendix D: OIG Reports See www.fhf
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Appendix F: Description of OIG Offi
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Strategic Goal 2—Operating with I
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Figure 17. Federal Home Loan Banks
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15 Federal Housing Finance Agency,
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33 Fannie Mae, “Multifamily Busin
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Federal Home Loan Banks Office of F
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to FHFA Scorecard Directive, at 48,
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it is preferable to limit our discu
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Position in the Housing Finance Sys
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144 Fannie Mae, “Comparison of Mu
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157 Id., “Mortgage Servicing,”
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184 Federal Housing Finance Agency,
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Transparency and Certainty for Lend
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