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Figure 5. Agreements Between Fannie Mae and Bank of America ($ billions) Agreement Representation and Warranty Settlement Cash “Make-Whole” Payment Settlement Cash Proceeds $3.6 Repurchases 6.7 Total Representation and Warranty Settlement Compensatory Fees for Failure to Meet Delinquency Timelines Transfer of Mortgage Servicing Rights 10.3 1.3 No funds to or from Fannie Mae Total $11.6 servicing rights on about 1.1 million mortgages from Bank of America to other servicers. When approving the settlement, FHFA employed a new policy governing the review of repurchase claim settlements that it developed in part as a response to an earlier OIG evaluation and recommendation. 2 Because FHFA’s policy applied to one, but not all, portions of the settlement, the 2013 settlement enabled OIG to evaluate FHFA’s oversight under its settlement policy in the context of its oversight of matters that fell outside of that policy. OIG found that FHFA adhered to its new policy when reviewing the settlement of repurchase claims between Fannie Mae and Bank of America. This policy did not apply, however, to the resolution of claims related to servicing penalties or the transfer of mortgage servicing rights (MSR). Consequently, FHFA’s consideration of these aspects of the settlement did not benefit from an established review process. OIG recommended that FHFA establish a formal review process for claims related to servicing deficiencies and significant MSR transfers. FHFA agreed with this recommendation and committed to establish guidelines by January 31, 2014. Fannie Mae’s Compliance with FHFA Email Retention Requirements (EVL-2013-011, August 16, 2013) In November 2011, while conducting an investigation, OIG special agents learned that although Fannie Mae permanently retained the email of most employees in sensitive positions, it automatically deleted the unsaved email of other employees after 60 days. In October 2012, FHFA directed Fannie Mae to immediately begin saving all employee email records and establish and implement a corporate five-year email retention policy. OIG reviewed Fannie Mae’s compliance with the email retention directive and confirmed that the enterprise is now in compliance. OIG will continue to monitor FHFA’s oversight of the enterprises’ email retention practices and records management policies to ensure that they fulfill their intended purposes. 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 addition to making secured loans, known as advances, to member financial institutions, the FHLBanks extend short-term, unsecured credit to domestic and foreign-owned financial institutions. In June 2012, we reported that some FHLBanks followed potentially risky unsecured credit management practices, including undertaking large exposures to counterparties located in the financially troubled Eurozone. 3 Furthermore, we found that some FHLBanks violated FHFA’s regulatory limits on unsecured credit extensions. We recommended that FHFA: (1) assess the extent of such violations in its 2012 horizontal review of unsecured credit risk Semiannual Report to the Congress • April 1, 2013–September 30, 2013 13
Figure 6. FHFA’s Supervisory Actions Taken in Response to Unsecured Credit Violations FHLBank Violations Supervisory Action Remediation Date FHLBank A 474 MRA 3/31/2013 FHLBank B 201 Primary, 201 Secondary MRA 12/31/2012 FHLBank C 33 a MRA 3/31/2013 FHLBank D 9 MRA 10/31/2012 FHLBank E 6 MRA 3/31/2013 FHLBank F 1 Primary, 1 Secondary MRA 12/31/2012 FHLBank G 1 Violation 9/30/2012 a FHFA determined that FHLBank C’s aggregate term extensions of credit to two counterparties exceeded the regulatory limits for a combined total of 33 months, 15 months of which are attributable to one counterparty and 18 months of which are attributable to the other. The number of individual transactions in excess of the regulation is likely higher. management practices and (2) consider revising its regulations to mitigate associated risks. In this follow-up evaluation, we assessed FHFA’s (1) implementation of the 2012 horizontal review and (2) supervisory and enforcement responses to identified violations. We found that FHFA conducted a proactive and thorough review that identified over 900 unsecured credit violations at seven FHLBanks and risk management deficiencies at the other five. We also found that FHFA’s responses to the violations at the seven FHLBanks were consistent with its policy. The agency issued matters requiring attention (MRAs), among other actions, requiring the banks to remediate deficiencies within specified time periods. See Figure 6 (above) for a list of FHFA’s supervisory actions in response to FHLBank unsecured credit violations. As FHFA began to monitor compliance with MRAs, however, it found that one FHLBank had difficulty implementing the required remedies. Although FHFA had not yet decided on a supervisory strategy for the FHLBank, the case shows the importance of continued, diligent monitoring and enforcement of compliance with MRAs and other requirements. We recommended that FHFA assess the FHLBanks’ compliance with its unsecured credit supervisory requirements during the 2013 and 2014 examination cycles, and take enforcement actions as required to ensure that corrective and remedial actions are implemented over time. FHFA agreed with these recommendations. FHFA’s Oversight of Capital Markets Human Capital (ESR-2013-007, August 2, 2013) The enterprises’ combined capital markets businesses, which include their funding, hedging, and investment activities, manage portfolios of more than $1.1 trillion of mortgage-related assets. Although generally profitable, certain elements of these businesses have incurred tens of billions of dollars in losses since September 2008, the start of FHFA’s conservatorships. For this reason, we initiated a series of evaluations relating to FHFA’s supervision of the enterprises’ capital markets businesses. This evaluation began after the enterprises disclosed concerns about voluntary attrition among employees with specialized skills in their 2011 annual filings. Since the start of the conservatorships, voluntary attrition of staff with specialized skills has risen markedly. However, as of late 2012, human capital risk posed by such attrition, while still a concern, appears to have dissipated. Specifically, the Fannie Mae group that manages the enterprise’s investment activity saw a rise in its rate of voluntary attrition from January 2010 to September 2012, but the group grew over the same period, suggesting that the human capital risks posed by the increase in attrition rate were mitigated. The attrition rate for Freddie Mac’s investment management group also rose from 14 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
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Page 8 and 9: A Message from the Acting Inspector
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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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