FHFA Lacks Examination Resources, OIG Reports

Insufficient capacity has caused the Federal Housing Finance Agency (FHFA) to curtail its examination efforts relating to government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac. A lack of examiners has led to shortfalls in the agency's examination coverage, specifically the areas of default-related legal services and REO management, the FHFA's Office of Inspector General (FHFA-OIG) says in a new report.

The FHFA's examination program includes 120 non-executive employees and targets examinations, continuous supervision, supervisory analyses and remediation activities. The FHFA-OIG says the current staff lacks expertise and cannot effectively examine the GSEs' operations. (About one-third of the examiners are accredited federal financial examiners.) In turn, the agency has had to scale back planned work during examinations, and examinations take much longer than expected to complete, the report says.

Although the FHFA agrees with the claim that it has too few employees – the agency has developed a plan to hire about 26 examiners – it disagrees with the assertion that its undermanned unit is failing in its role.

‘The report offers no evidence to support the conclusion that an examination staff shortage has compromised examination quality and seems to rely on unattributed comments to support that conclusion without noting the context of the remarks or whether alternative views were expressed by other FHFA officials," the FHFA said in a formal response. The agency's examination and supervision efforts include more than 120 non-executive examiners cited in the report, the FHFA added.

The report notes that GSEs' REO management was a primary factor in the FHFA labeling their operational risks as "critical concerns." Despite the conservator's concerns, the FHFA has not examined the companies' REO management. This, the FHFA-OIG says, indicates the adverse impact of staffing shortages on the FHFA's examinations.

Furthermore, the FHFA-OIG says the FHFA did not examine Fannie Mae's retained attorney network or Freddie Mac's designated counsel program until late last year, after a widely circulated article reported that the GSEs had failed to monitor their legal networks.

"To date, the enterprises have incurred increased legal costs as a result of the foreclosure abuses of certain law firms within their networks," the report explains.

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