The Federal Housing Finance Agency's (FHFA) complaints process is inadequate, according to a new report issued this week by the FHFA's Office of Inspector General (FHFA-OIG).
Among the shortcomings outlined in the report were that the FHFA kept shoddy records, failed to devote enough resources to the process and did not consistently follow up on tips, including those regarding potentially criminal allegations.
‘As a result, FHFA lacks assurance that complaints, including those alleging fraud, waste or abuse, such as improper foreclosures, were appropriately addressed in an efficient and effective manner in order to minimize risks," the FHFA-OIG said in a summary of the report's findings. ‘This is particularly important given FHFA's responsibilities as conservator for the enterprises.’
According to the report, the FHFA's predecessor, the Office of Federal Housing Enterprise Oversight (OFHEO), was alerted to fraudulent activity at Taylor, Bean & Whitaker Mortgage Corp. (TBW) a full year before the lending giant was closed by authorities.
"Although it is impossible to conclude what may have happened if FHFA's predecessor, OFHEO, or FHFA had contacted law enforcement authorities in 2008 – more than one year before the execution of the search warrant – its failure to do so vividly illustrates the importance of expeditiously and thoroughly following up on complaints of fraud and having procedures to ensure that such follow-up occurs," the report said.
In its response to the report, the FHFA agreed with most of the FHFA-OIG's recommendations, which include designing and implementing written policies and determining if there are unresolved complaints. The FHFA's response also admitted the agency was not well prepared for the influx of consumer complaints that it received. The OFHEA rarely dealt with such complaints, and the agency had no dedicated staff or procedures in place once consumer correspondence increased in early 2009 as a result of the Making Home Affordable program.
‘[T]he informal process that was established was expected to be temporary in nature and was not integral to the core regulatory responsibilities of the agency," the FHFA said in its response.
The FHFA additionally requested that the FHFA-OIG remove the TBW excerpts from the report, saying the events fell outside the scope of the audit. The FHFA-OIG disagrees with that assessment.
"Although the initial complaint was submitted to FHFA's predecessor organization, OFHEO, one month before the audit period (and one month before OFHEO was consolidated into FHFA), FHFA was in possession of the complaint and aware of it during the audit period," the FHFA-OIG said in response to the FHFA's request. "Further, the fraud continued well into the audit period. FHFA's failure to act on the complaint serves as a stark example of the consequences of failing to appropriately address complaints of fraud, waste or abuse."
