FHFA Report Finds Lack of Compliance; Oversight

The Federal Housing Finance Agency (FHFA) Office of the Inspector General (OIG) released a report Wednesday, outlining conclusions drawn from a study done on the Servicing Alignment Initiative (SAI). The assessment of servicers provided by the FHFAOIG was far from glowing, citing specific areas of improvement for servicers of Government-Sponsored Enterprise (GSE) mortgages, specifically those who service Fannie Mae and Freddie Mac.

The survey covered FHFA's implementation and oversight of SAI during the period of January 1, 2011, through October 31, 2013.

In 2011, the FHFA established SAI for the initial purpose, as noted in the report, to "to improve mortgage servicing and limit Enterprise (Fannie Mae and Freddie Mac) financial losses." To that end, a series of contractual provisions were required by Fannie Mae and Freddie Mac. Servicers were required to comply with these new provisions when managing the accounts of financially distressed borrowers.

"For example, servicers are required to respond to borrowers' requests for assistance within specified timeframes, and conduct loan modifications and foreclosures pursuant to procedures and deadlines prescribed by FHFA," said the report.

The FHFAOIG study provided two specific conclusions: an inability to oversee compliance procedures required by SAI, and a lack of servicer compliance.

First, the FHFA's Division of Housing Mission and Goals (DHMG), primarily responsible for overseeing SAI and servicer compliance, noted limitations of the SAI and the Servicer Oversight Program (SOP).

The report commented that "DHMG has neither reviewed nor evaluated the servicers’ overall compliance with numerous SAI-related guidelines and performance goals even though they have been in place since 2011." The report says that DHMG is not in a position to assess the effectiveness of the GSE's initiatives to identify servicer’s compliance with SAI.

The report continued: "Moreover, DHMG does not require the Enterprises to submit critical internal reports and reviews on servicers' SAI compliance that would be of benefit to the division’s oversight program."

Second, Fannie Mae and Freddie Mac indicated the existence of "considerable servicer non-compliance with SAI’s requirements."

In October, 2013, Fannie Mae and Freddie Mac found 63 SAI non-compliance findings in multiple areas, including untimely referrals to foreclosure and completed foreclosures, failure to solicit borrowers to consider foreclosure alternatives, and failure to respond timely to requests for foreclosure alternatives.

An August, 2012, a servicer performance scorecard revealed 9 out of 34 servicers garnered a rating of "needs significant improvement."

The report commented that "DHMG did not develop and implement a process to determine whether servicers were complying with the numerous requirements contained in the SAI-related servicing guidelines and meeting related performance goals."

The FHFAOIG called for more monitoring and oversight in order to ensure provisions of SAI are followed.