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Figure 3. Scoring of Investor Qualification Applications Bidder Score Given by Fannie Mae Contractor No. of Applications Correctly Scored Incorrectly Scored Low 9 8 1 Medium 31 23 8 High 7 4 3 Total Applications Scored 47 35 12 Bidder Score Given by Fannie Mae Contractor No. of Bidders with Incorrect Score that Resulted in an Unchanged Risk Score No. of Bidders with Incorrect Score that Resulted in a Changed Risk Score Low 0 1 Medium 2 6 High 3 0 Total Applications Scored 5 7 Bidder Score Given by Fannie Mae Contractor Medium Resultant Risk Score Low 1 0 Medium 0 6 High N/A N/A Total Applications Scored 1 6 High qualification process; and (3) issue formal guidance for the REO disposition program, including the REO Pilot Program, requiring a program plan with clearly defined goals and objectives, a program monitoring and oversight mechanism, criteria to measure and evaluate program success, and the means to assess alternative REO disposition strategies. FHFA generally agreed with OIG’s recommendations and will implement corrective action if transactions beyond the initial REO Pilot Program are pursued. FHFA Can Improve Its Oversight of Fannie Mae’s Recoveries from Borrowers Who Possess the Ability to Repay Deficiencies (AUD-2013-011, September 24, 2013) 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) If either a foreclosure sale’s proceeds or the value at which an enterprise records a property in its REO portfolio is less than the borrower’s mortgage loan Semiannual Report to the Congress • April 1, 2013–September 30, 2013 9
alance, the shortfall (or deficiency) represents a loss to the enterprise. Losses of this type can be reduced if the enterprises recover deficiencies from borrowers who possess the ability to repay. Enhanced deficiency management practices can also serve as a deterrent to those who would choose to strategically default on their mortgage obligations. In October 2012, OIG issued a report that assessed the agency’s oversight of the deficiency management efforts of the enterprises. In that audit, OIG found that FHFA had an unfulfilled opportunity to provide the enterprises with guidance about effectively pursuing and collecting deficiencies from borrowers who may possess the ability to repay. In these follow-up audits, OIG focused in more detail on the enterprises’ deficiency recovery practices for borrowers who possess the ability to pay amounts owed on foreclosed mortgages owned or guaranteed by the enterprises. OIG concluded that FHFA can improve its oversight of the enterprises’ deficiency recovery processes. First, OIG found that Freddie Mac did not refer nearly 58,000 foreclosures with estimated deficiencies of approximately $4.6 billion to its deficiency collection vendors to evaluate the borrowers’ ability to repay those deficiencies. Most of these foreclosed mortgages were associated with properties in states where Freddie Mac did not pursue deficiencies but where Fannie Mae did, with some success. The remainder were foreclosure sales to third parties rather than the enterprise; these third-party sales can result in deficiencies, but as a practice, Enhanced deficiency management practices can deter those who would choose to strategically default on their mortgage obligations. Freddie Mac—unlike Fannie Mae—did not pursue deficiencies arising from third-party sales. Second, delays in the deficiency collection vendors’ evaluation process limited Freddie Mac’s opportunity to pursue deficiencies related to more than 6,000 foreclosed mortgages for which state statutes of limitations had expired. The delays were caused by challenges associated with coordinating among Freddie Mac’s various foreclosure/deficiency collection counterparties—servicers, attorneys, and vendors. Specifically, the vendors did not timely receive from the servicers and attorneys the information needed to calculate deficiency balances and pursue collection. OIG also found that Fannie Mae’s deficiency collection vendors generally did not pursue deficiencies on foreclosure sales when, in their view, applicable statutes of limitation for filing deficiency claims against borrowers provided insufficient time to obtain the necessary information from servicers and foreclosure attorneys to evaluate if deficiency balances existed. OIG recommended that FHFA: (1) evaluate periodically the efficiency and effectiveness of Freddie Mac’s deficiency recovery strategies for pursuit of borrowers with the ability to repay; (2) review Freddie Mac’s monitoring controls over its servicers, foreclosure attorneys, and collection vendors involved in deficiency recovery activities to ensure that oversight across these counterparties is maintained; (3) direct Freddie Mac to establish and implement controls for its counterparties to deliver timely documents to deficiency collection vendors 10 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
Page 10 and 11: insures mortgages against credit lo
Page 12 and 13: Semiannual Report to the Congress
Page 14 and 15: in a number of criminal and civil i
Page 18 and 19: and provide for financial consequen
Page 20 and 21: Figure 5. Agreements Between Fannie
Page 22 and 23: 2010 to 2012, but the attrition rat
Page 24 and 25: Figure 8. Estimated Enterprise Aggr
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Page 28 and 29: poor financial condition, Appalachi
Page 30 and 31: fraud and wire fraud involving a fi
Page 32 and 33: This was a joint investigation with
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Page 36 and 37: Short Sale Schemes A short sale occ
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Page 40 and 41: at Appalachian concealed past due l
Page 42 and 43: indemnification payments that OIG p
Page 44 and 45: the SEC, and others. In July 2013,
Page 46 and 47: Figure 10. Overview of the Enterpri
Page 48 and 49: Figure 12. Enterprises’ Annual Ne
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Page 52 and 53: educe the principal balance of Trea
Page 54 and 55: Figure 17. FHLBanks’ Net Income f
Page 56 and 57: multifamily housing lending busines
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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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