oversight

Audit of the Federal Housing Finance Agency's Consumer Complaints Process

Published by the Federal Housing Finance Agency, Office of Inspector General on 2011-06-21.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

      FEDER
          RAL HOUSIN
              H    NG FIN
                        NANCE
                            E AGEN
                                 NCY
         OFF
           FICE OF
                O INSPECTO
                         OR GE
                             ENERA
                                 AL


     Audit
     A     of the Feederal Housin
                                ng Finaance Aggency’s
             Consu umer Complai
                         C      ints Proocess




AUDIT REPORT
      R    T: AUD-2
                  2011-001           DA
                                      ATED: JJUNE 21,, 2011
                            Federral Housinng Financee Agency                                     Audit Repport: AUD-2011-001
                            Officee of Inspecctor Geneeral                                                            June 221, 2011

                            Aud
                              dit of th
                                      he Fedeeral Housing F
                                                          Financee Agenccy’s
                            Con
                              nsumerr Complaints P Processs
                                                        At a Glan
                                                                nce
Why F
    FHFA-OIG Did
             D This Auditt                                                       What FHFA
                                                                                         A-OIG Foun
                                                                                                  nd

In Septtember 2008, thet Federal Ho   ousing Financce Agency (FH HFA or          FHFA did nott adequately pprocess consum      mer
Agencyy) placed the Federal
                      F        Nation nal Mortgage Association (F Fannie         complaints. S Specifically, F FHFA did not:
Mae) aand the Federaal Home Loan Mortgage Corrporation (Freeddie Mac)            (1) sufficientlly define its roole in processiing
(collecttively, the Entterprises) into conservatorsh
                                                   hips in an effo
                                                                 ort to          complaints reeceived by the Agency or the
restore their financiaal health. As of
                                     o March 31, 2011,
                                                   2     the                     Enterprises; ((2) develop annd maintain a
U.S. Department of the t Treasury hadh invested nearly
                                                  n       $154 billlion in the   consolidated ssystem for recceiving and prrocessing
Enterprrises, and the Federal
                       F        Reserrve has taken major
                                                   m      steps to support       complaints; (33) establish efffective proceddures for
the Entterprises, such
                     h as committin  ng to purchase up to $1.25 trrillion of     evaluating complaints allegging potential criminal
their seecurities.                                                               conduct and ffor referring suuch complaintts to law
                                                                                 enforcement aauthorities; (44) consistently follow-
The cuurrent national housing finannce crisis has left
                                                  l millions of existing         up on consum mer complaintss referred to thhe
borrowwers, communiities, and investors strugglin ng with delinq
                                                               quent and         Enterprises; ((5) comply witth its records
defaultted mortgages, loan modificcations, and fooreclosures. At
                                                               A the same        management ppolicy; (6) perrform routine
time, consumers sufffering from the effects of the crisis increaasingly          substantive annalyses to idenntify overall trrends in
filed coomplaints withh the Enterprisses and FHFAA, the conservaator and         complaints; (77) comply witth safeguards ffor
regulattor of the Enteerprises. FHFAA staff estimated that 70% - 75% of          personally ideentifiable infoormation receivved
all com
      mplaints to the Agency pertaained to the En nterprises.                    from complaiinants; and (8)) prioritize com   mplaints
                                                                                 or assess the ttimeliness of rresponses to
In lightt of these even
                      nts, Congress and
                                     a others exp  pressed interesst in          complainants.
whetheer FHFA adequ   uately respondded to consum mer complaintss
includiing, but not lim
                      mited to, compplaints of fraudd, waste, or ab
                                                                  buse.          These deficiencies occurredd because FHF     FA did
These ccomplaints run n the gamut frrom difficultiees obtaining innformation     not establish a sound internnal control
from thhe Enterprises to allegationss of potential criminal
                                                   c         activiity. The      environment ggoverning connsumer compllaints,
FHFA Office of Insp   pector Generall (FHFA-OIG) initiated thiss audit to        including form mal policies annd proceduress for
assess hhow FHFA prrocessed consu   umer complain   nts.                         complaints reeceived by FH  HFA and the
                                                                                 Enterprises. A Additionally, FHFA did nott assign
What F
     FHFA-OIG Recommends
              R                                                                  the complaintt processing fuunction sufficiient
                                                                                 priority, did nnot allocate addequate resourrces to
FHFA--OIG recommends that the Agency: A         (1) deesign and imp
                                                                  plement        the function ((it assigned twwo individuals from its
writtenn policies, proccedures, and controls
                                     c         governning the receippt,          public relationns staff to carrry out the funcction),
processsing, and dispo osition of consumer complaaints and alleg  gations of     and did not prrovide effectivve oversight inncluding
fraud, tthat, among otther things, deefine the relateed roles and                performance rreporting on thhe resolution oof
responssibilities for FHFA
                      F      and the Enterprises an  nd provide forr             complaints (itt was unable to identify the total
consulttation with FH HFA-OIG to prrocess allegatiions of fraud; (2) assess      number of com   mplaints receiived during thhe audit
the suff
       fficiency of ressources allocaated to the commplaints process; and (3)    period and repport the disposition of each
determ
     mine whether th  here are unreso olved complaiints alleging fraud
                                                                  fr    or       complaint). A  As a result, FHHFA lacks assuurance
other ppotential criminnal activity.                                             that complainnts, including tthose allegingg fraud,
                                                                                 waste, or abusse, such as immproper forecloosures,
In response to FHFA A-OIG’s findin
                                 ngs and recommmendations, FHFA
                                                            F                    were appropriiately addressed in an efficiient and
provideed written com
                    mments, datedd June 6, 2011.. The Agencyy agreed             effective mannner in order too minimize rissks.
with thhe recommend dations. The complete text of
                                               o the written comments
                                                             c                   This is particuularly importaant given FHFA’s
can be found in Appendix A of thiis report.                                      responsibilitiees as conservaator for the
                                                                                 Enterprises.
TABLE OF CONTENTS
Preface..............................................................................................................................................1

Background ......................................................................................................................................2

              Overview of Consumer Complaints..................................................................................2

              FHFA’s Consumer Complaints Process ...........................................................................3

              FHFA Debated Its Role in the Complaints Process for Two Years .................................5

Results of the Audit .........................................................................................................................8

Finding: FHFA’s Oversight of the Receipt, Processing, and Disposition of Consumer
         Complaints Was Inadequate .............................................................................................8

              1. FHFA Did Not Sufficiently Define Its Role in the Consumer Complaints Process .....8

              2. FHFA Did Not Develop and Maintain a Consolidated System for Receiving and
                 Processing Consumer Complaints ..............................................................................10

              3. FHFA Did Not Establish Effective Procedures for the Evaluation and Referral
                 of Consumer Complaints Alleging Fraud, Waste, or Abuse .....................................10

              4. Follow-up on Consumer Complaints Referred to the Enterprises was Inconsistent ..11

              5. FHFA Did Not Follow Essential Records Management Policies ...............................12

              6. FHFA Did Not Perform Routine Substantive Analyses to Identify Trends and Risk
                Areas............................................................................................................................13

              7. FHFA Did Not Comply with Safeguards for Personally Identifiable Information
                 Received from Complainants ....................................................................................14

              8. FHFA Did Not Prioritize Consumer Complaints or Assess the Timeliness of
                 Responses to Complainants ........................................................................................14

Conclusion .....................................................................................................................................15

Recommendations ..........................................................................................................................16

Objective, Scope, and Methodology ..........................................................................................…17

Appendix A: FHFA’s Comments to FHFA-OIG’s Draft Report ..................................................19



     Federal Housing Finance Agency Office of Inspector General|AUD-2011-001|06/21/2011
Appendix B: FHFA-OIG’s Response to FHFA’s Comments........................................................22

Appendix C: Summary of Management’s Comments on the Recommendations .........................23

Report Distribution ........................................................................................................................24




     Federal Housing Finance Agency Office of Inspector General|AUD-2011-001|06/21/2011
                                              ii
ABBREVIATIONS/ACRONYMS
Fannie Mae……………………………….........................Federal National Mortgage Association

FBI .................................................................................................. Federal Bureau of Investigation

FHFA or Agency.......................................................................... Federal Housing Finance Agency

FHFA-OIG ...................................... Federal Housing Finance Agency Office of Inspector General

FHLBanks ...............................................................................................Federal Home Loan Banks

Freddie Mac…………………………………………..Federal Home Loan Mortgage Corporation

HERA .......................................................................Housing and Economic Recovery Act of 2008

MS .................................................................................................................................... Microsoft®

OCAC ……………………………..............Office of Congressional Affairs and Communications

OCO ...................................................................................... Office of Conservatorship Operations

OFHEO ................................................................. Office of Federal Housing Enterprise Oversight

OGC ........................................................................................................ Office of General Counsel

TBW................................................................................ Taylor, Bean &Whitaker Mortgage Corp.




     Federal Housing Finance Agency Office of Inspector General|AUD-2011-001|06/21/2011
                                              iii
                                 Federal Houssing Financce Agency

                                    Office of Inspector
                                              I         G
                                                        General

                                          Wash
                                             hington, D.C
                                                        C.



                                         PRE
                                           EFACE
                                               E
FHFA-O  OIG was estab   blished by th
                                    he Housing and
                                                 a Econom    mic Recoveryy Act of 20008 (Public Laaw
No. 110-289), which   h amended th  he Inspector General Actt of 1978 (Puublic Law N  No. 95-452), to
conduct audits,
         a        invesstigations, an            vities of the programs annd operationns of FHFA; to
                                    nd other activ
recommeend policies that promotee economy and   a efficienccy in the adm  ministration oof such proggrams
and operaations; and tot prevent an nd detect frau
                                                 ud and abus e in them. T  This is one oof a series off
audits, ev
         valuations, and
                      a special reeports publisshed as part of FHFA-O    OIG’s oversigght
responsibbilities to pro
                       omote econo  omy, effectivveness, and eefficiency inn the adminisstration of
FHFA’s programs.

The objective of this performance audit was to assess how      w FHFA proocessed conssumer
complain nts. The aud dit found thatt FHFA did not have an adequate coomplaints proocess. For
example,, FHFA assig    gned only tw
                                   wo individuaals to processs complaintss; did not seggregate
complain nts from otheer correspon ndence within n its systemss; did not reffer potentiallly criminal
allegationns to law enfforcement au uthorities; an
                                                 nd did not coonsistently llog telephonee complaintss.
FHFA-O  OIG believes that the reco  ommendatio  ons containedd in this repoort will help the Agencyy
develop and
          a adopt more
                     m      economical, effectiv ve, and efficiient operatioons. FHFA-OIG appreciiates
the assisttance of all those
                       t     who coontributed too the audit.

        ort has been distributed to
This repo                        t Congress,, the Office oof Managem
                                                                   ment and Buddget, and othhers
and will be
         b posted onn FHFA-OIG  G’s website: http://www .fhfaoig.govv/.




Russell A.
        A Rau
Deputy Inspector General for Au
                              udits




    Federral Housing Finance Agency Office of Inspectorr General|AU
                                                                  UD-2011-0001|06/21/20111
BACKGROUND
On July 30, 2008, the Housing and Economic Recovery Act of 2008 (HERA) established FHFA
as regulator of the three housing-related government-sponsored enterprises: Fannie Mae, Freddie
Mac, and the Federal Home Loan Banks (FHLBanks). FHFA’s mission is to promote their
safety and soundness, support housing finance and affordable housing goals, and facilitate a
stable and liquid mortgage market.

On September 6, 2008, just five weeks after its creation, FHFA became conservator of Fannie
Mae and Freddie Mac, and the U.S. Department of the Treasury (Treasury) began providing the
Enterprises substantial financial support. As conservator, FHFA preserves and conserves the
assets and property of the Enterprises, ensures they focus on their housing mission, and
facilitates their financial stability and emergence from conservatorship. As of March 31, 2011,
Treasury had invested almost $154 billion in the Enterprises in an effort to stabilize their
operations and the mortgage market generally. The Federal Reserve also took steps to support
the Enterprises, such as committing to purchase up to $1.25 trillion of their securities.

On October 12, 2010, FHFA’s first Inspector General was sworn in, and FHFA-OIG commenced
operations. In November 2010, FHFA-OIG initiated this audit to assess how FHFA processed
consumer complaints. For purposes of this report, consumer complaints include, but are not
limited to, those involving allegations of fraud, waste, or abuse. These complaints run the gamut
from difficulties obtaining information from the Enterprises to allegations of potential criminal
activity. The time period covered by this audit begins with the creation of the Agency on July
30, 2008, and continues for two years and three months, through October 31, 2010, when FHFA-
OIG’s operations began.

Overview of Consumer Complaints

       Consumer Complaints Pertaining to FHFA and the Enterprises

The current national housing finance crisis has left millions of existing borrowers, communities,
and investors struggling with delinquent and defaulted mortgages, loan modifications, and
foreclosures. FHFA reported in its Fiscal Year 2010 Performance and Accountability Report
that continued uncertainty about economic conditions, employment, housing prices, and
mortgage delinquency rates were likely to result in additional losses and Treasury investments in
the Enterprises.

The deteriorating financial conditions in the housing market have been accompanied by a
substantial increase in consumer complaints, including those about the Enterprises. While both
Enterprises developed internal controls to manage these complaints, a December 2, 2010, FHFA
review of the Enterprises’ consumer complaints procedures – when describing the rationale for
conducting the review – reported an “increased number of repeat complaints and increased
number of consumers who claim Fannie Mae or Freddie Mac are not responsive.” Consumers
file complaints with FHFA, the Enterprises, or both. In some instances, consumers elevated to
FHFA their complaints that were initially filed with the Enterprises. Although FHFA personnel


   Federal Housing Finance Agency Office of Inspector General|AUD-2011-001|06/21/2011
                                             2
were unable to identify the total number of complaints received during the audit period, they
stated that the number of individuals who contacted the Agency with complaints increased
dramatically. Further, more than 70% of all consumer complaints received by FHFA during the
audit period were submitted by individuals who claimed they were experiencing problems with
the Enterprises.1

        Complaints of Fraud, Waste, or Abuse

During the audit period, the nation also witnessed a dramatic surge in mortgage fraud cases.
According to statistics released by the Federal Bureau of Investigation (FBI) in July 2009, there
was a 36% increase in reports of mortgage fraud in fiscal year 2008 compared to fiscal year
2007.2 Further, financial institutions estimated that they lost at least $1.4 billion to mortgage
fraud in fiscal year 2008, an increase of 83% in estimated losses over fiscal year 2007.

FHFA received complaints alleging fraud, waste, or abuse through the same processes as
consumer complaints. Many of these allegations involved possible improper foreclosure actions
on single family residential mortgages, which is an area of considerable risk because of the
potential adverse impact on the consumer.

FHFA’s Consumer Complaints Process

Beginning in late 2008, FHFA assigned the task of handling consumer complaints to two
individuals who worked in the Office of Congressional Affairs and Communications (OCAC),
the unit responsible for handling most of the Agency’s external correspondence. The two
employees were given consumer complaint processing duties in addition to their existing
significant responsibilities.

FHFA’s practices for processing consumer complaints varied according to the means of their
communication and their subject matter. Written, email, and telephone complaints were
processed separately and differently. Additionally, depending upon the subject matter, OCAC
forwarded complaints to the Enterprises or processed them internally.

        Written Complaints

During the audit period, FHFA received written correspondence by U.S. mail, private express
mail carrier, and telefax. All such correspondence, including written complaints, was delivered
to the Office of the Director and entered into FHFA’s internal electronic information system,
known as TRAKKER.3

1
  Sometimes the Agency received complaints from current and former employees of the Enterprises. This audit did
not extend to complaints from employees related to personnel issues.
2
  See, 2009 Mortgage Fraud Report “Year in Review,” FBI National Press Release, dated July 7, 2009, available at
http://www.fbi.gov/stats-services/publications/mortgage-fraud-2009.
3
  FHFA developed this electronic system in 2008 to serve as a document storage system for hard copy, written
correspondence received by the Agency.


    Federal Housing Finance Agency Office of Inspector General|AUD-2011-001|06/21/2011
                                              3
Within TRAKKER, FHFA did not prioritize consumer complaints. FHFA’s external
correspondence was subdivided into categories or classifications. One such category was
“public inquiries,” which included consumer complaints. Other categories included
Congressional correspondence and stakeholder inquiries. FHFA did not assign any priority to
the public inquiries category. Further, although FHFA advised that all written complaints were
filed within the public inquiries category, FHFA-OIG’s random review of correspondence
retained throughout the TRAKKER system revealed that complaints were also filed among other
categories in the system, including the “Presidential” communications category. Thus, even if
the Agency had manually culled complaints from the public inquiries category, it still would not
have identified all written complaints for this audit.

Complaints logged into the public inquiries category of the TRAKKER system were
commingled with other general correspondence. TRAKKER did not provide FHFA with the
capability to separate complaint correspondence from all other correspondence. No sub-
classifications, codes, or categories were entered at the time of logging that would allow FHFA
later to identify correspondence containing complaints. As a result, FHFA cannot efficiently and
accurately report – or even provide summary information – concerning the volume or type of
written complaints received by the Agency, the number of unresolved complaints, the average
amount of time to resolve a complaint, or how complaints were resolved. Because complaints
were commingled with multiple types of general correspondence, the Agency was also unable to
analyze trend data and identify risk areas. Accordingly, the Agency was unable to efficiently
fulfill FHFA-OIG’s request for complaints received during the audit period. FHFA had no
capability – short of a manual inspection – to access the written complaints it had received over
the course of the 27 month audit period. This inability was a limitation in the scope of the audit.

       Electronic Mail Complaints

FHFA also commingled email complaints with other external email communications, which
again, inhibited its ability to report efficiently and accurately on the volume, types, timing, and
resolution of complaints. In late 2008, FHFA established a public email account
(FHFAInfo@fhfa.gov) and posted the address on the Agency’s website. The subject matter of
the emails received from the public varied and included, among other things, comments,
questions, and complaints. Emails received from the public were retained in the Agency’s email
system. However, similar to the Agency’s practice with respect to written correspondence,
FHFA did not adopt a system or procedures to preserve and retain separately emails containing
complaints from the entire universe of external emails that it received. Accordingly, FHFA’s
email complaints suffer from some of the same deficiencies noted with respect to written
complaints retained in the TRAKKER system.

FHFA-OIG manually reviewed all emails that were received and designated as a complaint by
the Agency for the specified audit period. The Agency formulated the emails into a database that
FHFA-OIG used for the audit. FHFA-OIG determined that 585 consumer email complaints were
received during the audit period. Of these complaints, 115 were retained by the Agency for




   Federal Housing Finance Agency Office of Inspector General|AUD-2011-001|06/21/2011
                                             4
internal processing4 and the remaining 470 complaints were referred to the Enterprises.
FHFA-OIG also determined that 27 complaints included allegations of fraud,5 and 68 contained
allegations of improper foreclosures.

According to the Office of General Counsel (OGC) staff, it was FHFA’s practice to refer email
complaints containing allegations of possible fraud, waste, or abuse to OGC for review and
appropriate action. But, according to OGC, no records exist showing how many such complaints
were referred for review to OGC, the nature of the complaints reviewed, or their disposition.
Further, OGC confirmed that no complaints were referred to law enforcement authorities during
the audit period.

         Telephone Complaints

Telephone complaints that came into the Agency were transferred to OCAC staff. However,
prior to June 2010, incoming telephone calls from individuals who registered complaints about
the Agency or the Enterprises were not recorded. As a result, the nature of each complaint was
not described, and the complainant’s information was not retained. Further, a description of the
disposition of each complaint was not preserved. In June 2010, however, one OCAC employee
began logging telephone complaints by entering and saving complainant contact information on
a spreadsheet. This practice was not uniformly followed. Specifically, no other OCAC or FHFA
staff member logged telephone complaint information. Therefore, overall information on the
number of these complaints was not available, which, similar to the situation with written
complaints, posed a scope limitation for the audit. Moreover, the inadequate recordkeeping
represents a significant shortcoming in the complaint resolution process.

FHFA Debated Its Role in the Complaints Process for Two Years

Although FHFA recognized the importance of properly handing complaints in its Fiscal
Year 2010 Performance and Accountability Report – stating that it was committed to providing
accurate information to industry stakeholders and the public in a timely way – it debated the
nature and scope of its role for two years and did not implement needed improvements.

In March and April 2009, FHFA senior managers engaged in a debate recorded in emails
concerning FHFA’s role in the complaints process. An individual complained to FHFA about
having difficulties obtaining information related to a home sale under Freddie Mac’s “Home
Steps” program. The series of internal FHFA emails concluded with the following reply email,
dated April 1, 2009, from an FHFA senior manager to seven other FHFA officials and staff:

     My own view – we are the regulator and conservator. It is a slippery slope for us to be
     responding to complaints about individual transactions like this. If we think this is

4
  In some cases, internal processing constituted a summary determination that no action was required.
5
  The scope of this audit did not include assessing the validity of the allegations received by FHFA. Additionally,
although FHFA-OIG was able to track and analyze the disposition of email complaints, it was unable to perform
similar analyses on telephone and written complaints due to the lack of documentation.


    Federal Housing Finance Agency Office of Inspector General|AUD-2011-001|06/21/2011
                                              5
     evidence of a more general problem or concern we have, we should use it to
     communicate with the appropriate regulated entity about the problem. Otherwise, I see
     no merit to responding to (Mr. X) beyond perhaps a stiffly worded “we received your
     communication and have forwarded your concern to an appropriate party. As a general
     matter we do not intervene in individual transactions” or something like that … The
     response should come from OER.6 OCO7 can then send the email trail to Fannie … and
     simply say we are passing along this communication for your information. You may
     take whatever action you deem appropriate. We plan no follow-up.

Debate within the Agency continued through 2009 and into 2010. In September 2010, consistent
with the FHFA senior manager’s conclusion quoted above, the Agency posted on its website an
item entitled, “FHFA: Frequently Asked Questions,” which included two sample questions
concerning complaints.8 After describing the facts of the underlying complaint, the first inquiry
concluded, “Can FHFA resolve this situation for me?” FHFA replied that:

        Under conservatorship, FHFA has delegated certain authorities to Fannie Mae and
        Freddie Mac, including responsibility for day to day business operations. FHFA
        generally does not intervene in matters involving individual mortgages, property
        sales or transfers, foreclosures, or other actions.

The second inquiry asked:

        I have spent long periods of time trying to reach a representative at Fannie Mae or
        Freddie Mac by phone, or I have had unsatisfactory interactions with
        representatives once I have gotten through to one of the companies. As regulator
        and conservator of the Enterprises, will FHFA resolve the issue or help me reach
        a person who will help solve my problem?

FHFA responded with the same explanation about FHFA’s delegation to the Enterprises, but
elaborated as follows:

        Both Enterprises have experienced unprecedented levels of calls, emails, and letters
        in the past two years since the housing crisis began and phone call centers are
        sometimes overwhelmed. We urge borrowers to be patient as they attempt to contact
        the Enterprises directly to resolve mortgage-related issues.

Throughout this period, the Agency’s posture was that the Enterprises, not FHFA, should handle
complaints, and that FHFA’s handling of complaints was simply a “courtesy” provided to
consumers. Further, FHFA did not clarify what role it should play in overseeing the Enterprises’
resolution of complaints. For example, FHFA issued no guidance concerning the content and
format of resolution reports, did not routinely reconcile reports, and obtained and reviewed

6
  “OER” was the acronym that FHFA used to refer to its Office of External Relations, which was the predecessor to
OCAC.
7
  “OCO” is an acronym used to describe the Office of Conservatorship Operations.
8
  See http://www.fhfa.gov/Default.aspx?Page=316.


    Federal Housing Finance Agency Office of Inspector General|AUD-2011-001|06/21/2011
                                              6
disposition documentation in only two cases (even though such documentation was requested for
complaints forwarded to the Enterprises for a response).9

In October 2010, OCO began a review of the consumer complaints process at Fannie Mae and
Freddie Mac. OCO’s decision to conduct the review purportedly was “based on the increased
number of repeat complaints and the increased number of consumers who claim Fannie Mae or
Freddie Mac are not responsive.”10 Based on its review, OCO recommended that FHFA address
long-standing questions concerning its role in resolving consumer complaints. OCO rhetorically
asked, “What role does FHFA want or need to play in the consumer complaint arena?” Should
FHFA play an active role in complaint resolution, “or determine that they are an intermediary”
and simply refer complaints to the Enterprises? Responding to its questions, OCO observed that
FHFA must determine whether to involve itself only with complaints sent to FHFA or to play
some role in reviewing the resolution of all complaints sent to the Enterprises. The OCO
report’s final section, entitled “OCO Minimum Suggestions,” urged FHFA to “take a more active
monitoring position in the complaint process.” Specifically, the report concluded that FHFA
should better manage its consumer complaint referral process, including doing the following: (1)
actively monitoring the weekly reports11 to ensure that sufficient information is obtained; and (2)
obtaining and reviewing at least a sample of the actual documentation for sufficiency in
addressing the complaints.

Additionally, in response to recommendations by FHFA’s former Office of Internal Audit, the
Agency engaged a contractor to assess its internal controls over the handling of external
stakeholder correspondence, including consumer complaints. As of the Agency’s June 6, 2011,
comments to a draft of this report, the Agency had neither fully resolved the internal debate
concerning its role in the consumer complaint process nor implemented any of the
recommendations included in its contractor’s final report received on May 5, 2011.12




9
  FHFA-OIG did not assess the processes used by the Enterprises to handle complaints received either directly or
from FHFA.
10
   The reasons for the review are unclear, but there is evidence that it may have been prompted by FHFA-OIG’s
inquiries on the subject. Although FHFA claims that its decision was prompted by the volume of complaints and
concerns about the Enterprises’ responsiveness, the Agency’s meeting minutes indicate that an OCO staff member
explained to one of the Enterprises that “FHFA is trying to gain a better understanding of the consumer complaints
process at both Enterprises, especially in light of a recent IG request.”
11
   In late 2009, FHFA began receiving weekly reports from the Enterprises that outlined the status of the referred
complaints. However, the weekly reports were strictly narrative and were not supplemented by supporting
documentation. Also, FHFA did not conduct adequate and/or timely reconciliations of the weekly reports to ensure
that proper action was taken to address the complaints. FHFA officials stated that informal reconciliations of the
complaints were performed; however, this process was not documented. Furthermore, OCAC staff explained that
they were at one point up to five weeks behind in conducting the reconciliations.
12
   We did not assess the status of FHFA’s implementation of the recommendations in the contractor’s report, but
instead relied on statements included in FHFA’s June 6th comments.


    Federal Housing Finance Agency Office of Inspector General|AUD-2011-001|06/21/2011
                                              7
RESULTS OF THE AUDIT
Finding: FHFA’s Oversight of the Receipt, Processing, and Disposition of Consumer
        Complaints Was Inadequate

For the period of July 30, 2008, through October 31, 2010, FHFA did not adequately process
consumer complaints, including those alleging fraud, waste, or abuse. Specifically, FHFA did
not:

         (1) Sufficiently define its role in processing complaints received by the Agency or by the
             Enterprises;
         (2) Develop and maintain a consolidated system for receiving and processing complaints;
         (3) Establish effective procedures for evaluating complaints alleging potential criminal
             conduct and for referring such complaints to law enforcement authorities;
         (4) Consistently follow-up on consumer complaints referred to the Enterprises;
         (5) Comply with its records management policy;13
         (6) Perform routine substantive analyses to identify overall trends in complaints;
         (7) Comply with safeguards for personally identifiable information received from
             complainants; or
         (8) Prioritize complaints or assess the timeliness of responses to complainants.

This occurred because the Agency did not establish a sound internal control environment14 that
included formal policies and procedures regarding complaints processing. Further, FHFA did
not assign the complaint processing function sufficient priority, allocate adequate resources, or
perform effective oversight, including performance reporting on the resolution of complaints. As
a result, FHFA lacks assurance that complaints, including those alleging fraud, waste, or abuse,
were appropriately addressed in an efficient and effective manner.

     1. FHFA Did Not Sufficiently Define Its Role in the Consumer Complaints Process

As the regulator and conservator of the Enterprises, FHFA did not sufficiently define its role and
responsibilities for the receipt, processing, and disposition of consumer complaints. For
example, FHFA has not:

        Clearly defined its role in resolving consumer complaints;
        Developed and adopted a formal policy establishing organizational responsibilities for
         receiving, processing, and resolving complaints. FHFA-OIG found no written policies or
         procedures governing the complaints process;



13
  FHFA Policy No. 207: Records Management Policy, dated January 9, 2009.
14
  The Government Accountability Office published Standards for Internal Control in the Federal Government,
dated November 1, 1999, which discusses the control environment in terms of management’s framework for
planning, directing, and controlling operations to achieve objectives.


     Federal Housing Finance Agency Office of Inspector General|AUD-2011-001|06/21/2011
                                               8
      Provided the necessary resources to address complaints and instead – without providing
       additional needed training – assigned the task of processing all complaints to two
       employees who already had significant responsibilities within OCAC;
      Conducted appropriate follow-up on the disposition of complaints referred to the
       Enterprises, nor has it obtained and reviewed the supporting documentation reflecting
       such disposition; or
      Actively monitored all pending complaints or developed the capacity to do so.

FHFA-OIG concluded that FHFA’s failure was largely the result of its inability to decide
whether to handle consumer complaints, and how to address those complaints it decided to
handle. From the onset, FHFA treated its complaints processing function more as a public or
external relations task, as opposed to a core regulatory or conservator function.

To date, FHFA has not published formal policies and procedures that could serve as a guide to its
employees and could inform the public regarding whether FHFA is prepared to intervene on
behalf of citizens who experience difficulties in matters involving the Enterprises. FHFA has
been aware of the problem; indeed, it has debated the issue for two years.

FHFA assigned the responsibility for the receipt, processing, and disposition of complaints to
two OCAC employees. Both individuals had significant responsibilities in addition to
processing the complaints coming into the Agency. As a result, the OCAC employees were
limited in their ability to focus attention on complaint processing even though the Agency
reported that complaint activity was increasing. Moreover, the OCAC staff members did not
have a clear statement of FHFA’s intent to address complaints, as would be the case if the
Agency had written policies and procedures for processing complaints. Indeed, one of the two
OCAC employees who handled complaints advised an OCAC senior manager that she was
concerned that FHFA’s procedures for handling complaints could become “an emergency
situation or embarrassing PR nightmare.”

Additionally, the two OCAC staffers who managed FHFA’s complaints process routinely made
ad hoc, important decisions regarding complaint referrals from FHFA to other government
agencies, external organizations, and the Enterprises. These decisions were not governed by an
Agency-wide policy, there were no required approvals or management oversight of such actions,
and there were no procedures to provide supervisors with evidentiary support for their decisions
or to perform follow-up. The OCAC staffers received no specific training regarding how to
evaluate complaints or how to identify allegations requiring further action by the Agency or
referral to law enforcement authorities, such as the Department of Justice or the FBI.




   Federal Housing Finance Agency Office of Inspector General|AUD-2011-001|06/21/2011
                                             9
     2. FHFA Did Not Develop and Maintain a Consolidated System for Receiving and
        Processing Consumer Complaints

FHFA used three separate systems to log complaints: (1) a Microsoft® (MS) Excel spreadsheet to
log telephonic complaints;15 (2) an MS Outlook email account to log email complaints; and (3)
the TRAKKER system to log hard copy complaints, including letters and faxes. Further, FHFA
did not monitor complaints sent directly to the Enterprises. This decentralized methodology
limited oversight of the total population of complaints because there was no consolidated
management reporting system.16 In fact, FHFA was unable to identify the total number of
complaints the Agency and Enterprises received during the audit period. Without such a
consolidated system, the Agency was unable to provide transparency of the complaints
environment, including management reporting and appropriate access to Agency staff to
facilitate effective oversight of the complaints process.

Additionally, FHFA lacked formal procedures governing its process for tracking and reconciling
complaints using the three systems identified above, as well as the Enterprises’ reports. This
lack of procedures impaired the consistency and usefulness of the information maintained and
oversight of the complaints process.

FHFA also did not establish minimum information requirements necessary to make
well-supported and documented decisions regarding the processing of complaints. Consumer
complaints received by the Agency covered a variety of topics and contained a wide range of
information – from as little as the complainant’s first name to more than a year’s worth of
written correspondence and documentation, sometimes including complete loan packages.
FHFA, however, took no action to establish a consolidated management reporting system for
complaints, standard complaint documentation, data elements for required information, or
consistent categories and classifications of complaints that would be useful in controlling the
complaints process and ensuring Agency and Enterprise responsiveness to complainants.

Rather than develop a consolidated management reporting system for complaints, FHFA
tolerated an inefficient, decentralized complaints process. As a result, it lost track of more than
two years of written, telephone, and email complaints and lacks assurance regarding the
adequacy of responses.

     3. FHFA Did Not Establish Effective Procedures for the Evaluation and Referral of
        Consumer Complaints Alleging Fraud, Waste, or Abuse

FHFA-OIG determined that there were 585 email complaints submitted during or in close
proximity to the audit period. These complaints were received by FHFA and, in some cases, one
of its predecessor agencies (the Office of Federal Housing Enterprise Oversight (OFHEO)).
Among the complaints reviewed by FHFA-OIG, there were 95 complaints containing allegations
of fraud and/or improper mortgage foreclosure. Of these 95 complaints, 27 involved allegations
15
  As previously discussed, the spreadsheet was used by only one employee, and its use began in June 2010.
16
  A reporting system must meet the requirements in FHFA Policy No: 207: Records Management Policy, dated
January 9, 2009.


     Federal Housing Finance Agency Office of Inspector General|AUD-2011-001|06/21/2011
                                              10
of fraud, and the remaining 68 related to allegations of improprieties in the handling of
foreclosures.

According to OGC staff, it was FHFA’s practice during the audit period to refer consumer
complaints containing allegations of possible fraud, waste, or abuse to OGC for review and
appropriate action. However, neither OCAC nor OGC maintained records of complaints
forwarded by OCAC to OGC. Thus, OGC was unable to verify that OCAC had forwarded any
allegations of fraud and/or improper mortgage foreclosure to OGC, and, if it did, what became of
the referrals. OGC was able to confirm, on the other hand, that it had not referred any
complaints to law enforcement during the period covered by this audit.

Failure to recognize and quickly provide law enforcement authorities with information about
allegations of fraud and other potential criminal conduct presents a significant risk for the
Agency. For example, in June 2008, serious allegations of fraud were reported to FHFA’s
predecessor agency, OFHEO, by an investigative reporter who claimed – in an email – to be in
contact with a former employee of Taylor, Bean &Whitaker Mortgage Corp. (TBW), once one of
the nation’s largest mortgage lenders. The former employee alleged that TBW was fraudulently
selling loans to Freddie Mac that TBW had not yet purchased, and that TBW was using the
proceeds paid by Freddie Mac to re-pay advances it received. The information was circulated
among OFHEO’s senior managers (who became FHFA senior managers when OFHEO was
consolidated into FHFA at the end of July 2008). OFHEO decided to follow-up on the
allegations, but no standard procedures were in place to assure prompt follow-up. As a result,
the complaint was neither pursued to completion, nor was it referred to law enforcement
authorities for evaluation or possible investigation.

A little more than a year after FHFA’s predecessor agency received the email alleging fraud at
TBW, federal law enforcement authorities executed a search warrant on TBW’s offices in
Florida. Warrants were also executed simultaneously at TBW’s primary bank, Colonial Bank of
Orlando, Florida. Criminal charges followed against multiple individuals, and in April 2011 the
former Chairman of TBW was convicted on federal charges of participating in a multi-billion
dollar scheme that defrauded Freddie Mac and contributed to the failures of Colonial Bank and
TBW. Six other individuals from TBW or Colonial Bank entered pleas of guilty for their roles in
the scheme. Although it is impossible to conclude what may have happened if FHFA’s
predecessor, OFHEO, or FHFA had contacted law enforcement authorities in 2008 – more than
one year before the execution of the search warrant – its failure to do so vividly illustrates the
importance of expeditiously and thoroughly following-up on complaints of fraud and having
procedures to ensure that such follow-up occurs.

Based on the above, FHFA should determine if there are other unresolved complaints alleging
fraud to ensure that appropriate action is taken.

   4. Follow-up on Consumer Complaints Referred to the Enterprises Was Inconsistent

As previously mentioned, the Agency conducted a limited review of its complaints procedures in
late 2010. Although this review did not result in the establishment of a written policy setting


   Federal Housing Finance Agency Office of Inspector General|AUD-2011-001|06/21/2011
                                            11
forth FHFA’s role and responsibilities with respect to complaints, it led to the adoption of some
improvements. For example, FHFA required both Enterprises to submit weekly reports setting
forth in narrative form the current status of each complaint that FHFA had previously referred to
them for disposition.

Without written policies, however, OCAC staff and the Enterprises continued to lack clear
direction regarding the objectives that FHFA intended to achieve in the management and
oversight of the weekly reports and the complaints process in general. Each of the Enterprises
used different formats for their respective reports and did not categorize them in the same
manner. Moreover, OCAC staff did not routinely and promptly reconcile the weekly reports
submitted by the Enterprises with the original complaints that FHFA had referred to them in the
first place. As a result, OCAC performed no meaningful analysis of the information provided by
the Enterprises and did not adequately monitor the Enterprises’ handling of complaints. Indeed,
OCAC staffers advised that they considered complaints to be resolved or disposed of at the time
that they were referred to the Enterprises. Thus, follow-up served no procedural purpose; the
complaints were already “closed.”

Although FHFA’s standard referral letter to the Enterprises requested copies of disposition
documentation, in nearly every instance where the Enterprises reported a complaint’s status,
FHFA took no steps to obtain and review the actual documentation of the transactions that were
the subject of the complaint.17 Of the 470 complaints referred to the Enterprises, FHFA actually
obtained all correspondence and disposition documentation in only 2 instances.

     5. FHFA Did Not Follow Essential Records Management Policies

FHFA did not follow its records management policy with regard to email complaints it received.
FHFA Policy No. 207: Records Management Policy (January 9, 2009) requires the following:

        FHFA shall create, maintain, and preserve information as records, regardless of physical
        format, which contain adequate and proper documentation of the organization, functions,
        policies, decisions, procedures, and essential transactions of the Agency to protect the legal
        and financial rights of the Government and of persons directly affected by the Agency's
        activities.

Further, FHFA guidance implementing FHFA Policy No. 207 explains that MS Outlook is not an
approved recordkeeping system and should not be used as one. Nonetheless, FHFA retained
email complaints submitted to the Agency via FHFAInfo@fhfa.gov in MS Outlook. This
resulted in two related deficiencies.

First, the Agency did not ensure that the email records were safely stored for efficient retrieval
by authorized users. FHFA has not implemented procedures that enable staff to retrieve
complaints in an automated fashion. For the Agency to create a universe of email complaints for

17
  When FHFA forwarded a complaint to an Enterprise, it included the following standard language in the referral
email “...please copy back all correspondence, supporting documentation, and resolution to FHFAInfo@fhfa.gov so
that we may track” the complaints.


     Federal Housing Finance Agency Office of Inspector General|AUD-2011-001|06/21/2011
                                              12
FHFA-OIG, OCAC staff had to conduct a labor-intensive manual review of the MS Outlook
emails. Furthermore, the Agency has not established how these email records will be managed,
transferred, or destroyed at the end of their lifecycle, in accordance with other Agency policy.18

Second, the Agency did not create records19 that adequately documented the actions and
decisions made regarding incoming email complaints. As previously mentioned, FHFA obtained
all correspondence and disposition documentation for email complaints in only two instances.
Importantly, FHFA also did not document or retain all actions and decisions made regarding
complaints alleging fraud, waste, or abuse. The Agency lacked records documenting its review
of these complaints for possible referral to OGC. Furthermore, OGC confirmed that no
complaints were forwarded to law enforcement during the audit period. As a result, FHFA was
unable to demonstrate full compliance with its records management policy and achieve its intent
that the rights of the government and individuals were protected.

     6. FHFA Did Not Perform Routine Substantive Analyses to Identify Trends and Risk
        Areas

FHFA-OIG found no evidence that FHFA staff analyzed the complaints the Agency received,
and its systems and lack of procedural guidance inhibited its ability to perform such analysis.
Identifying trends and risks is important for a regulator and conservator with limited resources.
Reality dictates that a regulator and conservator cannot reasonably hope to have the capacity to
cover fully all potential risks; rather, priorities must be established and resources allocated
accordingly. Thus, a key focus for a regulator or conservator needs to be the collection of data
and the analysis of trends and risks. FHFA missed an opportunity to use complaint information
to inform its decision-making.

FHFA did not actually analyze the complaints that it received during the audit period. Further,
without information requirements and a consolidated complaint reporting system, FHFA had
limited capacity to track particular categories of complaints, such as those involving loan
modifications, mortgage disputes, short sales, real estate owned, improper foreclosures, or
alleged mortgage fraud. Moreover, because the Agency did not establish uniform record formats
or standardize the data elements to be used by FHFA and the Enterprises, the Agency’s ability to
share information across organizational components and record and track the processing of
complaints by subject matter was impaired.

As a result of its unconsolidated systems and deficient procedures, FHFA was unable to perform
routine substantive analyses or identify the emergence of trends in the subject matter of
complaints received. Such a capacity could have served as an “early warning system” for
emerging problems, such as the foreclosure document controversy. As previously discussed,
18
   See http://www.archives.gov/records-mgmt/ardor/records-schedules.html.
19
   A record is any document or information which is “…made or received by an agency of the United States
government under federal law or in connection with the transaction of public business…by the agency.” A record
must be relevant to Agency business. Additionally, the Agency should have continually retained complete email
records. A complete record would consist of the following, at a minimum: the email itself, the response, any
attachments to the email, and the transmission information.


     Federal Housing Finance Agency Office of Inspector General|AUD-2011-001|06/21/2011
                                              13
FHFA-OIG’s analysis of complaints received by email identified a number of complaints that
involved allegations of improper foreclosure activities. The substance of these complaints and
actions taken in response to them, if any, were not recorded for analysis. Such analysis could
have been used by Agency managers to identify supervisory and regulatory issues at the
Enterprises, allocate resources, prepare management reports, and assess the effectiveness of
complaint disposition efforts.

     7. FHFA Did Not Comply with Safeguards for Personally Identifiable Information
        Received from Complainants

On August 22, 2010, the Agency issued FHFA Policy No. 301: Use and Protection of Personally
Identifiable Information Policy, which requires that it:

        Be able to identify personally identifiable information in its possession and take
         appropriate safeguards to protect it; and

        Instruct users on the proper use, security, and records retention requirements for the
         systems and records.

In some cases, consumer complaints included personally identifiable information such as
complete loan packages with the complainant’s name, Social Security number, address, and loan
account information. FHFA-OIG found no evidence that FHFA complied with Policy No. 301,
which required it to safeguarded personally identifiable information in order to minimize the risk
of unauthorized disclosure.

The FHFA staff member who began maintaining the spreadsheet log of telephonic complaints in
June 2010 raised questions about the security of personally identifiable information contained in
the spreadsheet, and additional instructions were disseminated to remove certain information
from the log. Moreover, in October 2010, FHFA noted that suitable protection was still not in
place for personally identifiable information received in consumer complaints that were later
exchanged with the Enterprises.20 FHFA must ensure that personally identifiable information
provided by complainants and forwarded to the Enterprises is properly protected by complying
with Policy No. 301 and implementing safeguards commensurate with the potential risk and
magnitude of harm that could result from unauthorized disclosure.

     8. FHFA Did Not Prioritize Consumer Complaints or Assess the Timeliness of
        Responses to Complainants

FHFA did not follow a practice of establishing priorities among the complaints received.
Complaints such as the 95 emails alleging fraud or improper foreclosure, discussed above, by
their very nature, were worthy of special treatment and more intensive management oversight.
However, FHFA did not accord them any observable priority to ensure that they were reviewed,

20
  FHFA-OIG did not the test FHFA’s systems controls related to the protection of personally identifiable
information for the three systems used to capture complaints.


     Federal Housing Finance Agency Office of Inspector General|AUD-2011-001|06/21/2011
                                              14
evaluated, and properly referred in a timely manner. Importantly, FHFA’s Fiscal Year 2010
Annual Performance Plan stated that the Agency will cooperate, collaborate, and communicate
with other government agencies, the Congress, and the public. Timely and effective resolution
of consumer complaints is key to achieving this objective. In addition, there were no observable
practices by which OCAC identified any complaints as requiring resolution in advance of time-
sensitive events like foreclosure or other legal proceedings.

Although it afforded no priority to complaints, FHFA recognized the importance of properly
handing them. FHFA’s Fiscal Year 2010 Performance and Accountability Report stated that the
Agency was committed to providing accurate information to industry stakeholders and the public
in a timely way. The Report also stated that FHFA continued to respond promptly to inquiries
from the public, including complaints, during Fiscal Year 2010. However, no specific
performance goal concerning complaints was established for 2010. For those inquiries that did
not come within the Agency’s purview, the Report stated that FHFA staff made every effort to
direct the inquirer to the appropriate source. FHFA’s Fiscal Year 2008 and 2009 Reports
similarly emphasized the importance of timely responses to public inquiries. Nonetheless,
FHFA’s procedures were inconsistent with its stated intentions.21

FHFA-OIG analyzed the 470 complaints referred to the Enterprises. On average, FHFA took
approximately 16 days to refer such complaints. However, a significant number of complaints
took much longer to be referred: 86 complaints, or 18% of the 470, took more than 30 days for
FHFA to forward the complaint to the Enterprises. Moreover, after the complaints were referred,
FHFA did not routinely monitor the substance or timeliness of the responses to complainants by
the Enterprises. Finally, when the Enterprises provided FHFA with a copy of their response to a
complainant, the Agency accepted the Enterprises’ responses at face value and performed no
independent evaluation of the sufficiency or timeliness of the responses. Indeed, FHFA retrieved
all disposition records and correspondence from the Enterprises in only 2 of 470 cases reviewed.
As a result, FHFA lacks assurance regarding the responsiveness of the Agency and Enterprises to
complainants.

Conclusion

FHFA’s Performance Accountability Reports demonstrate that it recognizes the importance of
responding appropriately to complaints from members of the public, including consumer
complaints pertaining to the Enterprises. Further, OCO recently conducted a review of
complaint procedures and encouraged the Agency to assume a more active role in the monitoring
of complaints. Notwithstanding this, FHFA historically relegated processing complaints to a
public or external relations function rather than treating it as a core supervisory and regulatory
responsibility; thus, it provided minimal emphasis and resources to the task. FHFA needs to
define clearly its complaint-related objectives, its role and responsibilities for meeting those

21
  FHFA considered a complaint “closed” or “responded to” upon referral to either of the Enterprises, regardless of
whether a substantive disposition had been achieved. Because approximately three quarters of FHFA’s complaints
were referred to the Enterprises, this resulted in the appearance that complaints were resolved more quickly than was
the case.


     Federal Housing Finance Agency Office of Inspector General|AUD-2011-001|06/21/2011
                                              15
objectives, and its means for gauging its performance in meeting its objectives. This is
particularly important given FHFA’s responsibilities as conservator for the Enterprises. FHFA
would also benefit from establishing better oversight of the Enterprises’ complaint procedures,
including conducting periodic substantive reviews of statistically sound random samples of
complaints processed and following-up on all complaints to help ensure appropriate disposition.
FHFA should also be cognizant of the need to assign appropriate resources to the complaints
process.

Recommendations

FHFA-OIG recommends that the Senior Associate Director for Congressional Affairs and
Communications, in coordination with other appropriate FHFA officials:

1A.      Design and implement written policies, procedures, and controls governing the receipt,
         processing, and disposition of consumer complaints that:

                Define FHFA’s and the Enterprises’ roles and responsibilities regarding
                 consumer complaints;
                Require the retention of supporting documentation for all processing and
                 disposition actions;
                Require a consolidated management reporting system, including standard record
                 formats and data elements, and procedures for categorizing and prioritizing
                 consumer complaints;
                Ensure timely and accurate responses to complaints;
                Facilitate the analysis of trends in consumer complaints received and use the
                 resulting analyses to mitigate areas of risk to the Agency;
                Safeguard personally identifiable information; and
                Ensure coordination with FHFA-OIG regarding allegations involving fraud,
                 waste, or abuse.

1B.      Assess the sufficiency of allocated resources, inclusive of staffing, in light of the
         additional controls implemented to strengthen the consumer complaints process.

1C.      Determine if there are unresolved consumer complaints alleging fraud to ensure that
         appropriate action is taken promptly.




      Federal Housing Finance Agency Office of Inspector General|AUD-2011-001|06/21/2011
                                               16
OBJECTIVE, SCOPE, AND METHODOLOGY
The objective of this performance audit was to assess how FHFA processed consumer
complaints. Specifically, FHFA-OIG assessed the Agency’s procedures and controls for
receiving, processing, and resolving complaints from the public prior to the commencement of
FHFA-OIG’s operations.22 When designing the scope of this audit, FHFA-OIG’s plan was to
include all complaints received by FHFA from its inception on July 30, 2008, through October
31, 2010, a period of 27 months. However, that plan could not be carried out because FHFA was
unable to provide a comprehensive analysis and adequate records of complaints that it had
received.

Field work for this audit was performed from December 2010 through April 2011. FHFA-OIG
conducted this audit at FHFA’s three offices located in Washington, D.C., and reviewed
available information on the processing of complaints. FHFA-OIG also interviewed FHFA
personnel. To achieve its objective, FHFA-OIG relied on computer-processed and hard copy
data from FHFA. This included data contained in the TRAKKER system, plus a spreadsheet and
the Agency’s MS Outlook email account. FHFA used the MS Outlook account to create an
MS Access database of the emails that it considered to be complaints, and FHFA-OIG relied on
this database. FHFA-OIG assessed the validity of the computerized data and found it to be
generally accurate, but could not conclude on its completeness.

Regarding written complaints, FHFA was unable to identify for FHFA-OIG all written
complaints received because the TRAKKER system did not segregate complaints, and FHFA
would have had to perform a lengthy manual inspection to isolate all complaints. Alternatively,
FHFA could not provide descriptive records sufficient to establish the number of complaints
received and logged into the TRAKKER system, their subject matter, the means employed by
FHFA to resolve them, or other relevant information. As a result, FHFA-OIG was unable to
analyze written complaints.

With respect to telephone complaints, FHFA-OIG was provided a phone log with 283 entries
that was created by an OCAC employee on her own initiative during the 5 month time period
beginning in June 2010. The information that was recorded, however, primarily consisted of
contact information and the nature of each call. This information was not sufficient to determine
if a complaint was, in fact, received, or how FHFA resolved it. As a result, FHFA-OIG was
unable to analyze the telephone complaints. These matters – concerning written and telephone
complaints – constituted a scope limitation for this audit.

FHFA-OIG assessed the internal controls related to its audit objective. Internal controls are an
integral component of an organization’s management that provides reasonable assurance that the
following objectives are achieved:

          Effectiveness and efficiency of operations;
22
     The audit was not intended or designed to assess how the Enterprises processed complaints.


       Federal Housing Finance Agency Office of Inspector General|AUD-2011-001|06/21/2011
                                                17
      Reliability of financial report; and
      Compliance with applicable laws and regulations.

Internal controls relate to management’s plans, methods, and procedures used to meet its
mission, goals, and objectives, and include the processes and procedures for planning,
organizing, directing, and controlling program operations as well as the systems for measuring,
reporting, and monitoring program performance. Based on the work completed on this
performance audit, FHFA-OIG considers its finding on FHFA’s oversight of the receipt,
processing, and disposition of consumer complaints to be a significant deficiency in internal
control within the context of the audit objective.

FHFA-OIG conducted this performance audit in accordance with generally accepted government
auditing standards. Those standards require that audits be planned and performed to obtain
sufficient, appropriate evidence to provide a reasonable basis for FHFA-OIG’s findings and
conclusions based on the audit objective. FHFA-OIG believes that the evidence obtained
provides a reasonable basis for the finding and conclusions included herein, based on the audit
objective.




   Federal Housing Finance Agency Office of Inspector General|AUD-2011-001|06/21/2011
                                            18
APPE
   ENDIX
       X A:
FHFA’S COMM
          MENTS TO
                 O FHFA-O
                        OIG’S DR
                               RAFT REP
                                      PORT




  Federral Housing Finance Agency Office of Inspectorr General|AU
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Federral Housing Finance Agency Office of Inspectorr General|AU
                                                              UD-2011-0001|06/21/20111
                                          20
Federral Housing Finance Agency Office of Inspectorr General|AU
                                                              UD-2011-0001|06/21/20111
                                          21
APPENDIX B:
FHFA-OIG’S RESPONSE TO FHFA’S COMMENTS

On June 6, 2011, FHFA provided comments to a draft of this report agreeing with all the
recommendations and identifying FHFA actions to address each recommendation. FHFA-OIG
considers the actions sufficient to resolve the recommendations, which will remain open until
FHFA-OIG determines that agreed upon corrective actions are completed and responsive to the
recommendations. See Appendix C of this report for a summary of management’s comments on
the recommendations.

FHFA commented that the established, informal complaints process was expected to be
temporary in nature and was not integral to the core regulatory responsibilities of the Agency.
FHFA-OIG considers the handling of consumer complaints to serve an important role in
fulfilling the regulatory responsibilities of the Agency that should be integrated with its safety
and soundness oversight of the Enterprises. Additionally, FHFA-OIG reemphasizes the
importance of a consolidated management reporting system for all consumer complaints received
by the Agency and the Enterprises as discussed in this audit report.

As the Agency requested, FHFA-OIG included the receipt date of May 5, 2011, for FHFA’s
contractor’s final report on page 8 of this report.

FHFA noted that it has a limited mandate regarding consumer complaints. However, pursuant to
12 U.S.C.§ 4513(a)(1)(B), FHFA has the authority to ensure that the Enterprises comply with
FHFA’s rules, regulations, guidelines, and orders, and that they operate in a fashion consistent
with the public interest. FHFA – in its discretion – decided to implement this authority to handle
consumer complaints. This audit assessed the quality of FHFA’s implementation.

FHFA requested that FHFA-OIG remove from this report the discussion of TBW’s fraud on
Freddie Mac, claiming that it was outside the scope of this audit. FHFA-OIG disagrees.
Although the initial complaint was submitted to FHFA’s predecessor organization, OFHEO, one
month before the audit period (and one month before OFHEO was consolidated into FHFA),
FHFA was in possession of the complaint and aware of it during the audit period. Further, the
fraud continued well into the audit period. FHFA’s failure to act on the complaint serves as a
stark example of the consequences of failing to appropriately address complaints of fraud, waste,
or abuse.

Subsequent to receiving FHFA’s comments to the draft report, the Agency provided FHFA-OIG
with an expected completion date of December 31, 2011, for Recommendation 1C. Thus, this
date was included in the summary of management’s comments on the recommendations (see
Appendix C).




   Federal Housing Finance Agency Office of Inspector General|AUD-2011-001|06/21/2011
                                            22
APPENDIX C:
SUMMARY OF MANAGEMENT’S COMMENTS ON THE
RECOMMENDATIONS

This table presents the management response to the recommendations in FHFA-OIG’s report and
the status of the recommendations as of the date of report issuance.

                                                                Expected
                     Corrective Action: Taken                  Completion            Monetary          Resolved:a          Open or
    Rec. No.                or Planned                            Date               Benefits          Yes or No           Closedb
      1A           FHFA will develop and                        12/31/2011                $0                Yes              Open
                   implement written policies,
                   procedures, and controls to
                   address the receipt,
                   processing, and disposition
                   of consumer inquiries.
      1B           FHFA will assess both the                    12/31/2011                $0                Yes              Open
                   adequacy and
                   organizational placement
                   of staff resources designed
                   to implement the policies
                   and procedures cited in
                   Recommendation 1A.
                   After the assessment is
                   completed, FHFA will
                   move forward to locate and
                   appropriately staff the
                   consumer complaint
                   function.
      1C           FHFA’s Office of General                     12/31/2011                $0                Yes              Open
                   Counsel will review
                   identified consumer
                   complaints alleging fraud
                   to determine if appropriate
                   action was taken or needs
                   to be taken regarding the
                   complaint received.
a
 Resolved means – (1) Management concurs with the recommendation, and the planned, ongoing, and completed corrective action is consistent
with the recommendation; (2) Management does not concur with the recommendation, but alternative action meets the intent of the
recommendation; or (3) Management agrees to the OIG monetary benefits, a different amount, or no ($0) amount. Monetary benefits are
considered resolved as long as management provides an amount.
b
  Once the OIG determines that the agreed-upon corrective actions have been completed and are responsive to the recommendations, the
recommendations can be closed.


      Federal Housing Finance Agency Office of Inspector General|AUD-2011-001|06/21/2011
                                               23
OBTAIN COPIES OF FHFA-OIG REPORTS
Call the Office of Inspector General at: (202) 408-2544
Fax your request to: (202) 445-2075
Visit the OIG web site at: www.fhfaoig.gov



OIG HOTLINE
To report alleged fraud, waste, abuse, or mismanagement or any other kind of criminal or
noncriminal misconduct relative to FHFA’s programs or operations:

       Call our Hotline at: 1-800-793-7724
       Fax the complaint directly to us at: (202) 445-2075
       Email us at: oighotline@fhfa.gov or
       Write to us at:

           FHFA Office of Inspector General
           Attention: Office of Investigations – Hotline
           1625 Eye Street, NW
           Washington, D.C. 20006-4001




   Federal Housing Finance Agency Office of Inspector General|AUD-2011-001|06/21/2011
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