The Office of the Inspector General for the Federal Housing Finance Agency (FHFA-OIG) submitted its semiannual report to Congress reviewing FHFA's actions from April 2011 through September 2011. This semiannual report included findings from 10 audit and evaluation reports.[IMAGE]
The FHFA-OIG pointed out several positive developments over the six-month period, including an elimination of the ""golden parachute"" compensation packages often offered to terminated GSE executives. However, these were balanced by a list of areas in need of improvement Ã¢â‚¬" most notably that the FHFA defers too much to information provided by the GSEs rather than conducting its own reviews.
According to the OIG, FHFA has worked to reduce losses by improving GSE repurchase claims.
The OIG also says FHFA ""has positively responded to FHFA-OIG's recommendations to improve FHFA's effectiveness and efficiency and reduce its vulnerability to fraud, waste, or abuse.""
The OIG gives FHFA credit for attempting to address its shortage of qualified examiners.
However, the OIG advises that the agency ""move quickly and aggressively in this area,"" as FHFA does not have enough examiners to meet its regulatory responsibilities; and furthermore, of the examiners it does have, only 34 percent are accredited federal financial examiners.
One major shortcoming the OIG identified is that the FHFA ""often relied on determinations of the Enterprises without independently testing and validating them, thereby giving undue deference to Enterprise decision-making.""[COLUMN_BREAK]
For example, the inspector general points to a $1.35 billion settlement of mortgage repurchase claims between Freddie Mac and Bank of America in which FHFA neglected to look into concerns raised by one of its senior examiners.
The examiner felt Freddie Mac's loan review process did not take into account changes in foreclosure patterns during the housing boom, which could have cost the GSE ""a considerable amount of money.""
Additionally, because FHFA ""believed its appropriate role was to ensure the Enterprises were legally authorized to administer HAMP, not to participate actively in negotiations between the Enterprises and Treasury,"" FHFA did not evaluate the GSEs' participation in the program or its negotiations with Treasury.
This lack of oversight resulted in the GSEs spending ""substantial time and resources to resolve ambiguities,"" according to the OIG.
FHFA also deferred to the GSEs' recommendations on compensation for Fannie and Freddie executives, allowing the GSEs to pay their top six executives more than $35 million.
FHFA did not review the compensation packages to determine ""whether compensation awards should be discounted to reflect the significant level of federal financial support to the Enterprises.""
The OIG also noted that a senior manager at the FHFA revealed FHFA does not complete necessary transaction testing but relies on information from Fannie and Freddie for this as well.
The OIG report included several recommendations for FHFA, including working quickly to address its shortage of accredited examiners, improving its loan review process, and closely monitoring Fannie Mae's operational risk management program.
The inspector general also called for increased transparency. Specifically, ""FHFA should post on its website information about executive compensation packages, the Enterprises' corporate performance goals and performance against those goals, related trend data, and provide links to the Enterprises' securities filings.""