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and provide for financial consequences to those counterparties that fail to meet delivery deadlines; and (4) direct the enterprises to implement a control to consider time frames in state statutes of limitations in prioritizing, coordinating, and monitoring deficiency collection activity for borrowers with the ability to repay. FHFA provided comments agreeing with the recommendations in these reports. Action Needed to Strengthen FHFA Oversight of Enterprise Information Security and Privacy Programs (AUD-2013-009, August 30, 2013) Recent reports have emphasized the growing threat of cyber attacks against government and privatesector computers and networks. These attacks pose a significant risk to the safety and soundness of financial organizations, including the enterprises, which store personal protected information (PPI) for 28 million active borrowers, as well as other sensitive financial information. If that PPI is compromised, the enterprises, FHFA, and Treasury could be exposed to significant financial risk; trust in the enterprises would also suffer greatly. The objective of this audit was to assess the effectiveness of FHFA’s oversight of enterprise information security and privacy programs. Key aspects of FHFA’s oversight of these programs were ineffective during our January 2010 to November 2012 audit period. The agency did not issue formal information security and privacy guidance to the enterprises, complete a risk assessment for information security and privacy necessary to support the annual examination plan, conduct ongoing monitoring of some key IT security issues, or address some previously identified findings regarding information security. Further, FHFA did not have an adequate process to support its reliance on the work of the enterprises’ internal audit divisions related to information security. Although guidance states that FHFA examiners review outstanding issues and assess staff levels and skills of internal auditors, these activities alone are insufficient for establishing reliance. FHFA’s reliance on enterprise internal audit work—without properly establishing and documenting grounds for such reliance—increases the risk that examination analysis and results could be based on inaccurate or unsubstantiated work. To strengthen FHFA’s oversight of enterprise information security and privacy programs, we recommended that the agency: (1) establish formal program requirements, (2) implement a workforce plan for IT examination staffing, (3) complete required risk assessments, (4) consistently deploy tools for monitoring IT security activities, and (5) establish and document a process for relying on enterprise internal audit activities. FHFA agreed with these recommendations and stated that it has adopted a new approach to supervision activities. Evaluations Evaluation of Fannie Mae’s Servicer Reimbursement Operations for Delinquency Expenses (EVL-2013-012, September 18, 2013) This report evaluates Fannie Mae’s servicer reimbursement operations for delinquency expenses. Fannie Mae relies on servicers to make various payments on behalf of delinquent borrowers. Generally, these payments are for property preservation expenses, insurance, taxes, and foreclosure costs and expenses. Figure 4 (see page 12) provides examples of the line items covered by these payments. Fannie Mae uses a contractor to administer major aspects of the servicer reimbursement function, including manually processing claims. OIG assessed FHFA’s oversight of Fannie Mae’s servicer reimbursement operations. Semiannual Report to the Congress • April 1, 2013–September 30, 2013 11
Figure 4. Examples of Reimbursement Categories and Line Items Category Property Preservation Expenses Insurance Taxes Foreclosure Costs and Expenses Line Item • Landscaping • Trash Removal • Locksmith • Hazard Premium • Mortgage Insurance Premium • Title Insurance • State Taxes • Property Taxes • Eviction Costs • Sheriff’s Fees and Costs (2) require Fannie Mae to quantify and aggregate its overpayments to servicers regularly and implement a plan to reduce these overpayments by identifying their root causes, creating reduction targets, holding managers accountable, and reporting its findings and progress to FHFA periodically; and (3) publish Fannie Mae’s reduction targets and overpayment findings. FHFA agreed with the first and second recommendations. Reducing Risk and Preventing Fraud in the New Securitization Infrastructure (EVL-2013-010, August 22, 2013) We concluded that Fannie Mae’s oversight of its contractor’s manual claim processing focuses on measuring contractual performance rather than minimizing overpayments to servicers. Currently, FHFA is not aware of the impact of this approach; neither FHFA nor Fannie Mae aggregates the amount of overpayments to servicers that result from its contractor’s processing errors. OIG estimates that the enterprise’s contractor incorrectly approved 3.1% of servicer reimbursements in 2012. These processing errors prompted Fannie Mae to pay servicers $89 million in overpayments. We recommended that FHFA: (1) ensure Fannie Mae takes the actions necessary to reduce processing errors, including utilizing its process accuracy data in a more effective manner and implementing a red flag system; Fannie Mae’s oversight of its contractor’s processing of servicers’ claims for reimbursement focuses on measuring the contractor’s performance rather than minimizing overpayments to servicers. The objective of this evaluation was to assess risks and fraud threats in the securitization infrastructure that FHFA and the enterprises are developing, and to address such risks by recommending countermeasures for the emerging policies, procedures, internal controls, and organizational structures as they are designed. Because information in this report could be used to exploit vulnerabilities and circumvent recommended countermeasures, it was not released publicly. FHFA’s Oversight of Fannie Mae’s 2013 Settlement with Bank of America (EVL-2013- 009, August 22, 2013) In January 2013, FHFA approved an $11.6 billion settlement with Bank of America (see Figure 5, page 13) that resolved issues involving repurchase claims and servicing penalties. In addition, FHFA allowed the transfer of 12 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 16 and 17: Figure 3. Scoring of Investor Quali
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
Page 34 and 35: y falsified, forged, and altered do
Page 36 and 37: Short Sale Schemes A short sale occ
Page 38 and 39: This was a joint investigation with
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
Page 50 and 51: Figure 14. Home Price Index 2011 Th
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
Page 58 and 59: The bill would replace the enterpri
Page 60 and 61: mortgage credit. For its part, the
Page 62 and 63: Figure 20. Reform Models and Reform
Page 64 and 65: Multifamily We have also found indi
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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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