About four years after the Federal Housing Finance Agency (FHFA) directed the GSEs to develop a uniform collateral data portal, the Office of the Inspector General of the Federal Housing Finance Agency (FHFA OIG) finds the portal is not being used to its potential, and the GSEs continue to purchase loans with red flags.
After “extensive” development and testing, the OIG concluded in a recent audit, “more remains to be done to use the portal’s data to minimize the risk of loss.”
Both enterprises continue to purchase loans despite warning messages from the portal, according to a report the OIG released Thursday.
Fannie Mae purchased 56,000 loans for a total of $13 billion from January through June of last year despite warnings from the portal indicating the loans might not meet the GSE’s underwriting requirements, according to the OIG.
Meanwhile, Freddie Mac purchased 29,000 loans for a total of $6.7 billion from June through September despite warnings regarding the properties’ valuations, according to the OIG.
Each of the 56,000 loans purchased by Fannie Mae came with between one and nine caution messages regarding the loan’s quality.
The messages dealt with such issues as confirmation of repairs and “unauthorized use of single-family loan funds,” according to the OIG, and in each case the warning message was disregarded using an automatic override.
Fannie Mae purchased the loans and “focused its efforts on reviewing the loans for conformance with its requirements after it bought them,” according to the OIG.
Fannie Mae reportedly “did not require lenders to explain or resolve potential problems ranging from formatting issues to violations of its underwriting requirements,” according to the OIG.
Similarly, Freddie Mac purchased more than 29,000 loans despite the portal’s warning that “either no property value could be provided or the value of the property was in question,” according to the OIG. In fact, in some cases the portal could not even verify that the address existed.
Like Fannie Mae, Freddie Mac’s approach was to override the warnings and review the loans for issues after purchasing them.
In fact, Fannie Mae and Freddie Mac both claimed they did not want to “burden lenders with having to respond to messages,” according to the OIG.
The OIG audit also detected 414,000 instances in which the portal found that an appraiser’s license could not be verified.
The “uniform collateral data portal is intended to improve appraisal data quality and risk management for the Enterprises by collecting appraisal data to help them make informed decisions about the loans they buy,” the OIG reported.
“However, as demonstrated by the results of this audit, these goals are at risk of not being achieved,” the OIG stated.
On the bright side, the audit did cause the GSEs to consider 23 loans totaling $3.4 million for repurchase.