Audit Recommends FHFA Tighten the Regulator Reins on Fannie and Freddie
The Federal Housing Finance Agency can improve its performance as conservator of Fannie Mae and Freddie Mac by exerting greater control over ensuring the two enterprises seek FHFA approval for business decisions, a report by the regulator’s Office of Inspector General said.
The OIG audited the process for approving such decisions after the FHFA delegated most of its conservatorship authority back to the enterprises in November 2008, after seizing Fannie and Freddie just two months prior.
The audit revealed that FHFA did not require approval for major business decisions such as Fannie Mae’s single family underwriting standards and its High Touch Servicing Program, which involved multiple transfers of mortgage servicing rights for more than 700,000 loans worth more than $130 billion.
Additionally, Fannie’s actions to seek approval from FHFA have been inconsistent. The mortgage liquidity provider executed seven insurance settlement discounts worth $306 million that, according to guidelines set by FHFA, should have been cleared first with the regulator.
The OIG also found that Fannie Mae took more than 4,500 actions to increase counterparty risk limits without seeking FHFA approval. The audit found that Freddie Mac, by contrast, did a better job of adhering to the approval process.
“FHFA-OIG believes that strengthening control over the Agency’s conservator approval process will help FHFA achieve its goals of preserving and conserving Enterprise assets,” the report said.