FEDERAL

Civil Cases
During the reporting period, OIG continued to
actively participate in the RMBS Working Group,
which was established by the President in 2012
to investigate those responsible for misconduct
contributing to the financial crisis through the
pooling and sale of RMBS. The working group is a
collaborative effort of dozens of federal and state law
enforcement agencies.
OIG’s participation has included acting as a source
of information about the secondary finance market,
providing strategic litigation advice, supporting
witness interviews, and obtaining and reviewing
documents and other evidence. To date, OIG has
played a significant role in four cases brought by
members of the working group:
• The New York Attorney General instituted two
civil proceedings against Bear Stearns—and its
successor, JP Morgan Chase—and Credit Suisse,
alleging fraud in connection with the sale of
RMBS.
• The U.S. Attorney for the Western District of
North Carolina instituted a civil proceeding
against Bank of America alleging violations of
the Financial Institutions Reform, Recovery and
Enforcement Act of 1989 (FIRREA).
• The U.S. Attorney for the Southern District
of New York instituted a civil proceeding
against Bank of America and its predecessors,
Countrywide Financial Corporation and
Countrywide Home Loans, Inc., alleging
that they engaged in a scheme to defraud the
enterprises in connection with sales of mortgage
loans. The complaint seeks damages and civil
penalties under the False Claims Act and
FIRREA.
Systemic Implication Reports
Systemic Implication Reports identify possible risks
and exploitable weaknesses in FHFA’s management
control systems that OIG discovers during the course
of our investigations. We communicate these to the
agency promptly so it can strengthen both its systems
and those of the entities it supervises and regulates.
Servicer Mortgage Payment Remittance (SIR-
2013-5, June 17, 2013)
A mortgage servicer did not follow the Home
Affordable Modification Program (HAMP) directives
pertaining to processing payments for GSE-held
mortgages, resulting in financial losses to Fannie Mae
and potentially leading the enterprise to foreclose
on properties inappropriately. Rather than apply
borrowers’ payments to their mortgages while it
determined their eligibility for loan modification—a
process that could take the servicer up to two years
due to backlogs—a servicer held those funds in
suspense accounts. This made it appear to Fannie
Mae as though borrowers were delinquent—a
precursor for foreclosure proceedings. Further, if the
servicer found borrowers to be ineligible for HAMP,
it returned the held funds to the borrowers rather
than to Fannie Mae, as required. The enterprise did
not detect the issues due to oversight weaknesses.
We recommended that FHFA consider reviewing
Fannie Mae’s oversight of servicers to ensure
compliance with these HAMP directives.
Federal Home Loan Bank Collateral Verification
Reviews (SIR-2013-4, June 17, 2013)
To support $67 million in outstanding advances,
Appalachian Community Bank pledged fraudulent
and overvalued collateral to the FHLBank of Atlanta.
The problematic collateral pledges derived from
various schemes. In one scheme, senior managers
32 Federal Housing Finance Agency Office of Inspector General