FEDERAL

More documents

Recommendations

Info

Based on recent history, a reformed housing market should include a commitment to aggressively manage risks associated with underwriting both single-family and multifamily loans. Robust Risk Management: Assessing and Mitigating Housing Market Risk Managing risk is at the heart of what regulators do. Through our work, we have found instances where proactive risk management would have increased FHFA’s awareness of and confidence in the enterprises’ business practices. For example, in one report we found that there were indicators as early as 2006 that could have led FHFA’s predecessor agency to identify the heightened risk posed by processing abuses within Fannie Mae’s default-related legal services network, which handles foreclosures for the enterprise. These indicators included rising foreclosures, deteriorating housing market conditions, consumer complaints, and media reports of foreclosure abuses. Despite such warning signs, the agency did not schedule comprehensive examination coverage of foreclosure issues until the middle of 2010. 147 The enterprises have faced surging foreclosure rates—for example, through 2011, they had an REO inventory of 180,000 units with related expenses of $8.5 billion; and as shown in Figure 25 (see above), there were over 717,000 mortgages as of December 31, 2012, on which payments had not been made for more than six months—over 4.5 Figure 25. Enterprises’ REO Properties and Shadow Inventory Through 2012 800,000 700,000 600,000 500,000 400,000 300,000 200,000 100,000 times more than the enterprises’ REO inventory for 2012. 149 FHFA oversees the enterprises’ REO risk management. At stake are both additional credit risk that may accrue to the enterprises as well as negative impacts on local communities, such as increased blight and crime, that may result where large We have also reviewed FHFA’s oversight of how the numbers of foreclosures occur. 150 enterprises manage their REO properties (i.e., how they secure, repair, and sell foreclosed properties). Figure Until recently, FHFA was not proactive in overseeing 148 25. Enterprises’ REO Properties and Shadow Inventory Through 20 0 REO Inventory Shadow Inventory REO Properties (154,737) Loans 180-364 Days Delinquent (213,176) Loans 365+ Days Delinquent (504,665) how the enterprises manage their REO risk. In one report, for example, we found that since 2008, FHFA has consistently listed the enterprises’ large inventories of REO as a “critical concern,” its most negative rating. But, despite identifying REO as a prominent and increasing risk, it did not conduct targeted examinations or other focused reviews regarding REO until 2011. 151 Semiannual Report to the Congress • April 1, 2013–September 30, 2013 59
Were the housing market to weaken again, the enterprises could be exposed to large losses from their REO inventory. For example, 2012 ended with the enterprises estimating that a 5% decline in nationwide home prices could increase their losses by over $17 billion. 152 This REO risk of loss may have lately diminished due to improvement in the housing market. However, history has shown that the housing market can unexpectedly rise or fall. It is, therefore, critical for current and future regulators to manage risks robustly and proactively in order to provide for a continuing stable, liquid, and accessible mortgage market. Similarly, it is important for other market participants to be prepared to operate during good times and bad and to strive to align their interests. Market-Aligned Mortgage Servicing: Congruent Incentives for Market Participants The foreclosure crisis highlighted that it is important for the mortgage servicing industry to be prepared to operate efficiently under different market conditions. As our recent report showed, servicers generally do not have much incentive to help prevent foreclosures in bad times, which can cost homeowners and mortgage owners who do. 153 For example, consider what servicers are paid. They receive relatively small fees for their work—e.g., $250 annually for every $100,000 in mortgage debt serviced, or 25 basis points. 154 That fee is typically The enterprises could be exposed to large losses from their REO inventory; they estimated that a 5% decline in home prices could increase their losses by over $17 billion. sufficient provided a mortgage remains current and the servicer’s duties involve easily automated functions, such as receiving and passing along mortgage payments. 155 (See Figure 26, page 61, for a description of the mortgage servicing process.) However, servicing troubled mortgages requires more individualized attention and results in higher costs. For example, in the case of delinquent loans, the servicer may need to contact borrowers to understand their financial situation, educate them about the impact of not paying a mortgage, explain options for avoiding foreclosure, and ultimately initiate foreclosure proceedings. 156 Interests between the enterprises and servicers may misalign when the enterprises have $100,000 at stake for every $250 the servicer stands to earn. 157 Fannie Mae determined that specialty servicers—which operate pursuant to an alternative payment structure—might be able to improve outcomes for mortgages at risk of default. These servicers intensively contact borrowers, educate them on the impact of not paying, and explain options to avoid foreclosure. In general, we found the program to be sound but in need of closer FHFA oversight. 158 In summary, our reports have repeatedly identified this need for closer, hands-on supervision and oversight by FHFA. In our experience, proactive oversight of each element of the housing finance system (e.g., originating, securing, and servicing loans and handling REO) is needed to ensure the system functions soundly. 60 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 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
Page 26 and 27: operations that pose the greatest r
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
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 78 and 79: Semiannual Report to the Congress
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
Page 94 and 95: No. Recommendation Report Status AU
Page 104 and 105: No. Recommendation Report Status EV
Page 114 and 115: Audit and Evaluation Reports with R
Page 116 and 117:
Appendix D: OIG Reports See www.fhf
Page 118 and 119:
Appendix F: Description of OIG Offi
Page 120 and 121:
Strategic Goal 2—Operating with I
Page 122 and 123:
Figure 17. Federal Home Loan Banks
Page 124 and 125:
Semiannual Report to the Congress
Page 126 and 127:
15 Federal Housing Finance Agency,
Page 128 and 129:
33 Fannie Mae, “Multifamily Busin
Page 130 and 131:
Federal Home Loan Banks Office of F
Page 132 and 133:
to FHFA Scorecard Directive, at 48,
Page 134 and 135:
it is preferable to limit our discu
Page 136 and 137:
Position in the Housing Finance Sys
Page 138 and 139:
144 Fannie Mae, “Comparison of Mu
Page 140 and 141:
157 Id., “Mortgage Servicing,”
Page 142 and 143:
184 Federal Housing Finance Agency,
Page 144 and 145:
Transparency and Certainty for Lend
show all

FEDERAL

You also want an ePaper? Increase the reach of your titles

Delete template?

Save as template?