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the SEC, and others. In July 2013, CIGFO published its Audit of the Financial Stability Oversight Council’s Designation of Financial Market Utilities. 6 Among other activities, FSOC designates financial market utilities, which provide infrastructure for processing transactions among financial institutions, as “systemically important” if their failure could create liquidity or credit problems in financial sectors. If designated as such, a utility is subject to enhanced monitoring. The report made several recommendations to FSOC, including that it consider foreign utilities, establish guidelines for monitoring activities, and conduct periodic reviews. Communicating with Congress In fulfilling our mission, OIG works in close partnership with Congress and is committed to keeping it fully apprised of our oversight of FHFA. The former Inspector General met regularly with members of Congress, and he and his staff provided frequent briefings to key congressional committees and offices. Briefing topics included recommendations from OIG reports and FHFA’s progress in implementing them, themes emerging in OIG’s body of work, OIG’s organization and strategy, and areas of ongoing work. Additionally, we endeavor to inform Congress through responses to numerous technical assistance and information requests. During the reporting period, the former Inspector General responded to formal written inquiries from members of Congress on various topics, including high-priority unimplemented recommendations, consumer protection laws, and FHFA progress and remaining challenges in reducing reliance on enterprise decision making. Further, the former Inspector General testified before the Senate Banking, Housing and Urban Affairs Committee on April 18, 2013, at a hearing entitled Oversight of Federal Housing Finance Agency: Evaluating FHFA as a Regulator and Conservator. The hearing covered a variety of topics, including enforcement of agency directives, examination capacity, FHFA’s ability to implement and oversee multiple new initiatives, implementation of OIG recommendations, PSPA amendments, and challenges stemming from ongoing uncertainty. Copies of the Inspector General’s written testimony to Congress are available at www.fhfaoig.gov/ testimony. Semiannual Report to the Congress • April 1, 2013–September 30, 2013 37
Section 2: FHFA and GSE Operations Overview In July 2008, HERA created FHFA to oversee vital components of our nation’s secondary mortgage market. 7 FHFA is responsible for the effective supervision, regulation, and housing mission oversight of Fannie Mae, Freddie Mac, the FHLBanks, and the FHLBanks’ Office of Finance to promote their safety and soundness and to support housing finance, affordable housing, and a stable and liquid market. 8 In this section, we provide an overview of FHFA and its relationship with the GSEs; a brief discussion of the GSEs’ business models and the primary reasons for their improved financial results; and a summary of selected FHFA and GSE activities. FHFA and the Enterprises Under HERA, FHFA was appointed conservator of the enterprises on September 6, 2008, and it serves as their regulator and conservator. As regulator, the agency’s mission is to ensure the enterprises operate in a safe and sound manner and that their operations and activities contribute to a liquid, efficient, competitive, and resilient housing finance market. 9 As conservator, the agency seeks to conserve and preserve enterprise assets. FHFA accomplishes its mission by performing onsite examinations of the enterprises; coordinating congressional, public, and consumer inquiries; assisting the enterprises with foreclosure prevention actions; and developing and implementing a strategic plan for the future of the enterprises’ conservatorships. 10 The enterprises were chartered by Congress to provide stability and liquidity in the secondary market for home mortgages. They fulfill this charter by purchasing residential loans from loan originators that can use the sales proceeds to make additional loans. Under HERA, the enterprises receive financial support from Treasury to prevent their liabilities from exceeding their assets, subject to a cap. 11 FHFA and the Enterprises’ Role in Housing Finance As the regulator of the enterprises, FHFA has a statutory responsibility to ensure that they operate in a safe and sound manner and that their activities support a stable and liquid housing finance market. 12 As Figure 10 (see page 39) illustrates, the enterprises support the nation’s housing finance system by providing liquidity to the secondary mortgage market. Liquidity is created when the enterprises purchase mortgages that lenders—such as banks, credit unions, and other retail financial institutions—originated for homeowners. These mortgages are securitized by pooling and packaging them into MBS and are either sold or kept by the enterprises as an investment. As part of this process, the enterprises—for a fee—guarantee payment of principal and interest on the mortgages. Historically, the enterprises have benefited from an implied guarantee that the federal government would prevent default on their financial obligations, and the enterprises assumed dominant positions in the residential housing finance market. 13 38 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
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Page 16 and 17: Figure 3. Scoring of Investor Quali
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 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
Page 66 and 67: Based on recent history, a reformed
Page 68 and 69: Figure 26. The Mortgage Servicing P
Page 70 and 71: Even though the FHFA senior examine
Page 72 and 73: assistance to homeowners and to use
Page 74 and 75: positive NPV, then the servicer is
Page 76 and 77: Siloed Practices: Harmonizing Busin
Page 80 and 81: overseen by FHFA. As conservator, F
Page 82 and 83: Interest Rate Swap: An interest rat
Page 84 and 85: References Federal Deposit Insuranc
Page 86 and 87: Department of the Treasury Financia
Page 88 and 89: Acronyms and Abbreviations Agency A
Page 92 and 93: 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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Semiannual Report to the Congress
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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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