The Federal Housing Finance Agency (FHFA) Office of the Inspector General (OIG) released a report detailing the results of an audit performed on pre-foreclosure property inspections. The audit was conducted after the FHFAOIG learned of fraudulent property inspections reports submitted to the FHFA, Fannie Mae, and Freddie Mac by a contractor resulted in $12.7 million in payouts.
The report noted that Fannie Mae and Freddie Mac had more than 923,000 mortgages that were more than 90 days past due, with total credit losses over $25 billion in 2012 due to foreclosures and other actions that addressed delinquencies.
The report found, "There is limited assurance that the Enterprises have effective controls in place to ensure the quality of inspections conducted and that inspectors issue reports consistent with contractual requirements."
Additionally, "Overall, several servicers reviewed during the audit did not have quality controls in place to ensure contractors provided accurate, complete, and consistent information in property inspection reports," the report said.
The FHFAOIG was particularly interested in pre-foreclosure inspections—servicers were reimbursed approximately $91.2 million in 2011-2012 for property inspections performed by contractors related to delinquent loans.
A list of offenses compiled by the OIG include "inspection reports with inconsistent and inaccurate information; missing or blurry photographs; manipulated date and time stamps on the photographs; and unnecessary inspections that did not provide useful information about the properties."
In one instance cited by the report, a contractor copied and pasted the same comments relating to the condition of the property's lawn, noting grass had been eight inches for seven consecutive months.
Another example listed in the report was false time stamps applied to five pictures of the same property which had the exact same time and date, suggesting each picture had been taken simultaneously in vastly different areas of the property.
The FHFAOIG found that "servicers reviewed by OIG inconsistently adopted requirements for inspectors to complete and pass criminal background checks."
Furthermore, "OIG found that servicers dedicated most of their control efforts to ensuring that inspections were ordered timely and little effort was spent on actual inspection performance and quality."
The OIG recommended that the FHFA direct Fannie Mae and Freddie Mac to establish uniform pre-foreclosure inspection quality standards, as well as quality control mechanisms for inspectors. The OIG report was also optimistic to note, that when done correctly, pre-foreclosure property inspections are beneficial.