oversight

FHFA Oversight of Enterprise Controls Over Pre-Foreclosure Property Inspections

Published by the Federal Housing Finance Agency, Office of Inspector General on 2014-03-25.

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

         Federal Housing Finance Agency
             Office of Inspector General




FHFA Oversight of Enterprise
Controls Over Pre-Foreclosure
    Property Inspections




Audit Report  AUD-2014-012  March 25, 2014
                 FHFA Oversight of Enterprise Controls Over
                 Pre-Foreclosure Property Inspections
                 Why OIG Did This Report
                 The Federal Housing Finance Agency (FHFA or Agency) serves as the federal
                 regulator of Fannie Mae and Freddie Mac, collectively the Enterprises, with broad
                 responsibilities for the Enterprises’ safety and soundness. Additionally, since
Synopsis         September 2008, FHFA has acted as conservator for the Enterprises, with
                 management authority to preserve and conserve their assets. In both of these roles,
   ———           FHFA has taken action to mitigate losses associated with delinquent single-family
                 residential mortgages purchased by the Enterprises. As of December 31, 2012, the
March 25, 2014   Enterprises together 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
                 alternative actions to address delinquencies.
                 When borrowers become delinquent on their mortgage payments, the Enterprises and
                 their servicers use pre-foreclosure property inspections to help protect the Enterprises’
                 interest in the properties securing the mortgages from physical conditions that may
                 pose safety hazards or impair the value of the properties. The inspections’ objectives
                 are to help minimize credit losses and identify any apparent safety hazards. The
                 Enterprises reimbursed servicers approximately $91.2 million in 2011-2012 for
                 property inspections performed by contractors related to delinquent loans.
                 The severity of risk in the property inspection business was recently highlighted by
                 the conviction of a property preservation contractor whose company created and
                 submitted fraudulent property inspection reports to servicers for reimbursement. The
                 possibility of other property inspection vendors engaging in the same practice presents
                 a potential risk to the Enterprises. Therefore, we conducted this audit to determine
                 whether controls exist to prevent similar fraudulent activities from occuring and to
                 detect and minimize risk in the pre-foreclosure inspection process.
                 The overall objective of this performance audit was to assess FHFA’s oversight of the
                 Enterprises’ controls over pre-foreclosure property inspections that are performed on
                 delinquent loans.

                 What OIG Found
                 The pre-foreclosure property inspection process needs improvement to ensure that
                 pre-foreclosure inspection objectives are achieved in the most effective manner. 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. 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.
                 Specifically, OIG identified inspection reports with inconsistent and inaccurate
                 information; missing or blurry photographs; manipulated date and time stamps on the
                 photographs; and unneccessary inspections that did not provide useful information
                 about the properties. Also, the servicers reviewed by OIG inconsistently adopted
                 requirements for inspectors to complete and pass criminal background checks.
                 These deficiencies in the pre-foreclosure property inspection process occurred, in
                 part, because of: (1) minimal attention and oversight provided by both FHFA and
                 the Enterprises; (2) limited Enterprise quality standards for inspections conducted by
                 inspectors under contract with servicers; and (3) the Enterprises’ reliance on servicers
                 to monitor the quality of property inspections. Further, neither FHFA nor the

Synopsis         Enterprises have assessed the overall effectiveness of their respective pre-foreclosure
                 property inspection processes in achieving their safety and loss mitigation objectives.
   ———           The lack of effective controls related to quality diminishes an inspection report’s
                 integrity and casts doubt on whether performing pre-foreclosure property inspections
March 25, 2014   adds value. Further, the minimal attention and oversight to the pre-foreclosure
                 property inspection process presents a control weakness that inspectors may be able
                 to exploit with manipulated inspection reports.
                 Pre-foreclosure property inspections can assist both servicers and the Enterprises
                 when correctly performed. These inspections can reduce the risk of safety-related
                 incidents and mitigate losses by triggering needed repairs. Further, if a property is
                 determined to be vacant during an inspection, some states allow for an alternative
                 foreclosure process that can accelerate foreclosure proceedings and minimize losses to
                 the Enterprises.

                 What OIG Recommends
                 OIG recommends that FHFA direct the Enterprises to jointly assess the effectiveness
                 of their pre-foreclosure property inspection processes. Based on this assessment,
                 FHFA should direct the Enterprises to establish uniform pre-foreclosure inspection
                 quality standards and quality control processes for inspectors. OIG identified several
                 specific areas to review as part of the assessment, including: (a) identifying pre-
                 foreclosure property inspection risks and objectives; (b) identifying cost effective
                 control alternatives for achieving the objective(s); and (c) recommending inspection
                 standards and quality controls with regard to the content and frequency of inspections.
                 FHFA identified corrective actions that address OIG’s recommendations.
TABLE OF CONTENTS ................................................................

ABBREVIATIONS .........................................................................................................................6

PREFACE ........................................................................................................................................7

BACKGROUND .............................................................................................................................9
      Introduction to Property Inspections ........................................................................................9
              Ordering Property Inspections ........................................................................................10
              The Property Preservation Industry ................................................................................11
              Property Preservation Complaints ..................................................................................12
      FHFA’s Actions Related to Property Inspections ..................................................................12
      The Enterprises’ Oversight and Quality Control ....................................................................12
      Principles of Internal Control .................................................................................................13
              Repurchase is an Incentive for Seller/Servicers to Conduct Quality Property
                  Inspections ...............................................................................................................14

FINDING .......................................................................................................................................15
      Pre-Foreclosure Property Inspections Can Be Enhanced by Strengthening Quality
      Assurance and Controls ..........................................................................................................15
              Inappropriate Property Inspection Reports and Photographs .........................................16
              Servicers Neither Consistently Conduct Oversight Procedures to Evaluate
                  Vendors’ Property Inspection Performance Nor Validate Inspection
                  Reports to Ensure the Information is Accurate, Complete, and Consistent ............19
              Pre-Foreclosure Property Inspections Receive Minimal Attention and Oversight.........20
              The Lack of Quality Controls Reduces Pre-Foreclosure Property Inspection
                  Effectiveness ...........................................................................................................23
              Pre-Foreclosure Property Inspections Are Beneficial When Done Correctly ................24

CONCLUSION ..............................................................................................................................26

RECOMMENDATIONS ...............................................................................................................26

OBJECTIVE, SCOPE, AND METHODOLOGY .........................................................................27
      Objective .................................................................................................................................27


                                            OIG  AUD-2014-012  March 25, 2014                                                                  4
      Scope.......................................................................................................................................27
      Methodology ...........................................................................................................................27

APPENDIX A ................................................................................................................................29
      FHFA’s Comments on FHFA-OIG’s Findings and Recommendation ..................................29

APPENDIX B ................................................................................................................................31
      FHFA-OIG’s Response to FHFA’s Comments ......................................................................31

APPENDIX C ................................................................................................................................33
      Summary of Management’s Comments on the Recommendations ........................................33

ADDITIONAL INFORMATION AND COPIES .........................................................................34




                                            OIG  AUD-2014-012  March 25, 2014                                                                   5
ABBREVIATIONS .......................................................................

AMFS                  American Mortgage Field Services

CORE                  Counterparty Operational Risk Evaluation

COSO                  Committee of Sponsoring Organizations

Fannie Mae            Federal National Mortgage Association

FHFA or Agency        Federal Housing Finance Agency

Freddie Mac           Federal Home Loan Mortgage Corporation

OIG                   Federal Housing Finance Agency Office of Inspector General

REO                   Real Estate Owned

SAI                   Servicing Alignment Initiative




                          OIG  AUD-2014-012  March 25, 2014                       6
PREFACE ...................................................................................

OIG issued a report to FHFA in November 2012 related to a previous investigation of a
property preservation company that created fraudulent property inspection reports.1 The report
identified that the company submitted $12.7 million in fraudulent property inspection claims
to the Enterprises and the Federal Housing Administration. The fraudulent property inspection
reports related to these losses were for properties with delinquent loans, as opposed to
properties held by the Enterprises as real estate owned (REO).2 In accordance with Enterprise
requirements, servicers are responsible for ensuring that pre-foreclosure property inspections
are performed on properties with delinquent loans. OIG conducted this audit to determine
whether FHFA had adequate oversight of the Enterprises’ controls over the pre-foreclosure
property inspection process.

OIG issued an initial report resulting from this audit in January 2014 that addresses FHFA’s
oversight of Fannie Mae’s controls over the reimbursement process for property inspections.3
This report focuses on the overall quality assurance and controls over pre-foreclosure property
inspections.

OIG is authorized to conduct audits, evaluations, investigations, and other law enforcement
activities pertaining to FHFA’s programs and operations. As a result of our work, we may
recommend policies that promote economy and efficiency in administering FHFA’s programs
and operations, or that prevent and detect fraud and abuse in them. We believe this report’s
recommendations (along with those in prior reports) will increase FHFA’s assurance that the
Enterprises are operating safely and soundly, and that their assets are preserved and
conserved.

OIG appreciates the cooperation of all those who contributed to this audit, including officials
at FHFA, Fannie Mae, Freddie Mac, and selected servicers. This audit was led by Kevin
Carson, Audit Director, who was assisted by Rhoda Allen, Audit Manager, Cassandra Ingram,
Auditor-in-Charge, Jacob Trewe, Auditor, and Rachael Young, Auditor.


1
  OIG Systemic Implication Report, Enterprise Oversight of Property Preservation Inspections, SIR-2013-
0002 (November 26, 2012). Accessed December 23, 2013, at
http://fhfaoig.gov/Content/Files/SIR%20FINAL%20Enterprise%20Oversight%20of%20Property%20Preservat
ion_0.pdf.
2
 REO are residential properties that have been foreclosed upon and transferred into an REO inventory for
management and ultimately disposition by the Enterprises.
3
 OIG Audit Report, FHFA Oversight of Fannie Mae’s Reimbursement Process for Pre-Foreclosure Property
Inspections, AUD-2014-005 (January 15, 2014). Accessed January 31, 2014, at
http://www.fhfaoig.gov/Content/Files/AUD%202014-005.pdf.




                                  OIG  AUD-2014-012  March 25, 2014                                      7
This audit report has been distributed to Congress, the Office of Management and Budget, and
others, and will be posted on OIG’s website, www.fhfaoig.gov.




Russell A. Rau
Deputy Inspector General for Audits




                            OIG  AUD-2014-012  March 25, 2014                                8
BACKGROUND ..........................................................................

Introduction to Property Inspections

In performing duties related to servicing delinquent mortgage loans, servicers should take
action necessary to protect the Enterprises’ interest in the properties securing the loans as
authorized by servicing guidance and the loans’ terms.4 Among other duties, this includes
periodically inspecting the properties to ensure that: (1) physical conditions are satisfactory;
(2) no apparent hazardous conditions affect occupants or others; and (3) no apparent
violations of applicable law might result in the properties’ seizure or forfeiture.

On April 28, 2011, FHFA announced a Servicing Alignment Initiative (SAI) directed at the
Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage
Corporation (Freddie Mac) to align their respective guidelines for servicing delinquent
mortgages that the Enterprises either own or guarantee. The SAI required the Enterprises
to align servicing requirements in four key areas, including: (1) borrower contact,
(2) delinquency management practices, (3) loan modifications, and (4) foreclosure timelines.
Included in the delinquency management practices section, the directive required the
Enterprises to align standards for property inspections.5

In response, the Enterprises changed their existing standards for conducting pre-foreclosure
property inspections on delinquent loans to align the following:6

    1. Ordering Inspections. The servicer must generally order the first property inspection
       no later than the 45th day of delinquency and complete the property inspection no later
       than the 60th day of delinquency.

    2. Subsequent Inspections. The servicer must generally continue to obtain property
       inspections every 30 days as long as the mortgage loan remains 45 days or more
       delinquent.

    3. Bankruptcy. Inspections are not required for loans under a bankruptcy plan.7

4
  Mortgage servicers typically collect and deliver principal and interest payments, administer escrow accounts,
monitor and report delinquencies, perform default prevention activities, evaluate transfers of ownership
interests, respond to requests for partial releases of security, and handle proceeds from casualty and
condemnation losses.
5
 FHFA, “Frequently Asked Questions – Servicing Alignment Initiative.” Accessed December 23, 2013, at
http://www.fhfa.gov/webfiles/21191/faqs42811final.pdf.
6
  We refer to property inspections on delinquent loans (as opposed to property inspections on REO) as “pre-
foreclosure property inspections” throughout this report.




                                   OIG  AUD-2014-012  March 25, 2014                                            9
       4. Interior Inspections. An interior property inspection must be performed after
          confirmation that a property has been abandoned and within 30 days of a foreclosure
          sale.8

The Fannie Mae Single Family 2012 Servicing Guide and the Freddie Mac Single-Family
Seller/Servicer Guide are consistent with these standards and require servicers to perform
monthly property inspections on all properties when borrowers have become delinquent on
their mortgage loans. The servicing guides require that once a loan becomes 30 days
delinquent, the servicer must order a property inspection by the 45th day of delinquency. The
initial inspection must be performed by the 60th day. After the initial inspection, the guides
require that a subsequent inspection of the property be performed every 30 days.

When the decision is made to start foreclosure, the Enterprises require the servicer to schedule
its property inspections in a way that will ensure that the final, comprehensive property
inspection is completed within 30 days of the foreclosure sale.

       Ordering Property Inspections

During the financial crisis, which started in 2007, there was a surge in the number of
borrowers who became delinquent on mortgages owned or guaranteed by the Enterprises.
Serious delinquency rates remain very high for mortgage loans originated between 2005 and
2008, which now account for approximately 20 percent of the Enterprises’ single-family
portfolios.9

A consequence of the high volume of delinquent mortgage loans is the increased demand for
property preservation services, including property inspections. Most servicers reviewed
during this audit contract with property preservation companies to conduct these
inspections.10 In turn, these companies often hire subcontractors to do the inspections.11
Figure 1 provides a chronology of the typical property inspection ordering process.

7
 A property inspection is not required for mortgage loans in which the borrower has filed bankruptcy,
provided that the borrower is performing under the applicable bankruptcy plan.
8
 As of November 1, 2013, Freddie Mac no longer limits the timeframe for interior inspections to the period
after abandonment and the 30 days preceding the foreclosure sale. Rather, servicers are required to order the
monthly property inspection as an interior inspection.
9
 FHFA, Conservator’s Report on the Enterprises’ Financial Performance (First Quarter 2013). The serious
delinquency rate measures the percentage of mortgages in the Enterprises’ portfolios that are three or more
payments delinquent, including those mortgages that are in foreclosure and subject to disposition pursuant to
bankruptcy proceedings.
10
     Servicers generally hire between one and four property preservation companies to conduct inspections.
11
  Vendors contracted by all servicers included in this audit hired subcontractors to perform the property
inspections.




                                     OIG  AUD-2014-012  March 25, 2014                                        10
              FIGURE 1. CHRONOLOGY OF THE PROCESS TO ORDER A PROPERTY INSPECTION


 Enterprises                    Servicers                      Vendors                        Subcontractors

     •Administer                    •Order property                •Conduct                       •Conduct
      guidance on                    inspections                    property                       property
      property                      •Monitor                        inspections                    inspections
      inspections                    preservation                  •Manage                        •Draft property
     •Ensure                         vendor(s)                      property                       inspection
      compliance                                                    inspection                     reports
      with servicing                                                subcontractors
      guides




Source: OIG Analysis

     The Property Preservation Industry

Property preservation companies perform a variety of services including property inspections
(e.g., exterior and interior inspections). The companies also provide property preservation
(e.g., securing, winterization, and lawn maintenance), REO, and utility management services.
During 2011 and 2012, the 12 servicers reviewed as part of this audit ordered over 15 million
pre-foreclosure property inspections.12 On average, inspectors receive less than $20 to
conduct pre-foreclosure property inspections. Of the 12 servicers OIG reviewed, six
contracted with Safeguard Properties LLC (Safeguard) to perform pre-foreclosure property
inspections between 2011 and 2012. Safeguard is the country’s largest privately held
mortgage field services property preservation company.

The pre-foreclosure property inspection industry is largely unregulated. Currently, there are
no specific federal or state laws that govern property inspections of homes securing mortgage
loans in default.13 Specifically, universal standards do not exist for servicers to require their
inspectors to maintain minimum education requirements, experience level, or qualifications.
As a result, it is the responsibility of each individual servicer to provide the primary oversight
of the property preservation vendors and inspectors that the servicer contracts with to conduct
these inspections.



12
  Property inspections conducted by these 12 servicers made up over 80% of the Enterprises’ expenditures for
pre-foreclosure property inspections in 2012.
13
  In accordance with Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989,
the Enterprises should require lenders to use appraisers who are state-licensed or certified. Pre-foreclosure
property inspections are not the same as conducting a home appraisal. As such, the property inspection
industry is not required to adhere to this provision.




                                   OIG  AUD-2014-012  March 25, 2014                                              11
     Property Preservation Complaints

The Illinois Attorney General recently filed a lawsuit against Safeguard Properties, claiming
that the company has unlawfully removed legal occupants from their homes by breaking into
occupied houses, locking the occupants out of their homes, removing their personal property,
and shutting off utilities in the home—often in spite of evidence that the properties remain
legally occupied.14 The lawsuit further asserts that Safeguard does not adequately train or
supervise its subcontractors who determine the occupancy status of properties during
inspections. Safeguard has denied the claims. Nonetheless, the lawsuit points to the type of
problems that could occur absent oversight of inspector performance.

FHFA’s Actions Related to Property Inspections

Prior to 2013, FHFA conducted examinations focusing on the Enterprises’ REO inventory and
property preservation as opposed to pre-foreclosure property inspections performed by
servicers. Since that time, the scope of FHFA’s ongoing monitoring at the Enterprises has
been expanded to include a limited focus on pre-foreclosure property inspections.15 While
FHFA continues to monitor Fannie Mae’s REO inventory and property preservation, the
Agency has also reviewed Freddie Mac’s Seller/Servicer Guide’s section on pre-foreclosure
property inspections and interviewed Freddie Mac officials about REO property preservation.
Regardless of these activities, FHFA’s ongoing monitoring has not resulted in a
recommendation for a targeted examination at either Enterprise.16

The Enterprises’ Oversight and Quality Control

The scope of Fannie Mae’s oversight of its servicers’ controls over pre-foreclosure property
inspections is limited to determining whether the required inspections were appropriately
ordered. Fannie Mae conducts Servicer Quality Reviews to ensure servicers comply with the
ordering requirements outlined in its servicing guide. These requirements include ensuring
that servicers order property inspections when mortgage loans become delinquent. After

14
  Attorney General of the State of Illinois, The People of the State of Illinois vs. Safeguard Properties, LLC,
2013CH20715 (September 9, 2013). Accessed January 31, 2014, at
http://www.illinoisattorneygeneral.gov/pressroom/2013_09/SAFEGUARD_PROPERTIES_COMPLAINT_09-
09-2013_15-51-37.pdf.
15
  Ongoing monitoring generally involves broad assessments of Enterprise business practices and risks
including activities such as meetings with Enterprise officials, reviews of reports, and in-depth analyses of
specific risk management practices.
16
  Targeted examinations typically involve in-depth transactional testing of a specific risk area or program.
Transaction testing associated with targeted examinations can provide FHFA with an independent basis for
assessing government sponsored enterprises’ financial operations, performance, and risk management. (These
enterprises include Fannie Mae, Freddie Mac, and 12 Federal Home Loan Banks.)




                                    OIG  AUD-2014-012  March 25, 2014                                           12
ordering the inspections, Fannie Mae relies on its servicers to ensure that controls are in place
to minimize the risk of inconsistent, inaccurate, and incomplete property inspections and
reports, and to ensure that inspections are useable for their intended purposes.

At Freddie Mac, the Counterparty Operational Risk Evaluation (CORE) team reviews
servicers’ overall performance. However, before September 2013, with respect to pre-
foreclosure property inspections, these reviews only determined if the inspections were
ordered appropriately. In September 2013, Freddie Mac’s CORE team revised its servicer
review program to include a new procedure to validate the effectiveness of controls over
conducting property inspections. However, according to Freddie Mac officials, the new
procedure does not include ensuring that servicers conduct procedures to determine whether
property inspection reports are accurate and complete.

Principles of Internal Control

Internal control is an “integral component of an organization’s management that provides
reasonable assurance that the following objectives are being achieved: effectiveness and
efficiency of operations, reliability of financial reporting, and compliance with applicable
laws and regulations.” An organization’s internal control includes the plans, methods, and
procedures used to meet missions, goals, and objectives. Internal control is not a single event,
but a series of activities that occurs throughout the entity’s operations and on an ongoing
basis.17

Control activities can work either to prevent or detect, with the main difference being when
the control activity occurs. A control activity can prevent an entity from failing to achieve an
objective or addressing a risk, or a control activity can detect when an entity is not achieving
an objective or addressing a risk before the entity’s operation has concluded and corrects the
actions so that the entity achieves the objective or addresses the risk.

In a recent white paper by the American Institute of Certified Public Accountants on updates
to the Committee of Sponsoring Organizations (COSO),18 the authors explain that while both
preventive and detective controls have their place in an internal control structure, the
importance and value of preventive controls has grown significantly.19 Regarding inspections,
17
  The Government Accountability Office, “Definition and Objectives,” Standards for Internal Control in the
Federal Government (November 1999). Accessed January 31, 2014, at
http://www.gao.gov/assets/80/76455.pdf.
18
     COSO provides a framework for internal control that is followed by professionals worldwide.
19
  “Changes to COSO in 2012,” White Paper: COSO 2012—Updated, Principles-Based, and More Guidance
(March 2012). Accessed January 31, 2014, at
http://www.aicpa.org/InterestAreas/FRC/AuditAttest/DownloadableDocuments/COSO/COSO-
2012_Whitepaper.pdf.




                                     OIG  AUD-2014-012  March 25, 2014                                     13
preventive controls can include clear inspection objectives and standards, properly structured
contractual terms and conditions, and sound quality controls.

Repurchase is an Incentive for Seller/Servicers to Conduct Quality Property Inspections

The Enterprises’ right to request that a seller/servicer repurchase a loan due to inadequate
property inspections serves as an incentive for servicers to conduct quality property
inspections. A typical repurchase means that a seller violated representations and warranties
provided to the Enterprise at the time of the loan sale. In this case, the Enterprise would
identify the defective mortgage and issue a
repurchase letter to the seller explaining the errors or       Seller/Servicer: An institution
failures that would have resulted in the Enterprise’s          approved to sell mortgages to,
refusal to purchase the loan.                                  and to service mortgages
                                                                          purchased by the Enterprises. A
Similarly, the Enterprises can require a servicer to                      seller is an institution approved to
repurchase a mortgage loan or can impose alternative                      sell mortgages to the Enterprises.
remedies due to improper servicing.20 Servicing                           A servicer collects and delivers
                                                                          principal and interest payments,
violations include inadequately maintaining a
                                                                          administers escrow accounts,
property during the pre-foreclosure period that may
                                                                          and monitors and reports
result in a material adverse effect on the value of the                   delinquencies, among other
mortgage loan. Repurchase of a loan by a servicer                         activities. An institution could be
can be an effective tool to incentivize servicers to                      a seller, servicer, or both (i.e., a
conduct quality inspections. However, as of February                      seller/servicer).
2014, inadequate pre-foreclosure property
inspections have not resulted in the Enterprises exercising their right to require seller/servicers
to repurchase the mortgage loan. According to Enterprise officials, inadequate inspections
exclusively have not warranted such actions.

The Enterprises have procedures in place to follow up with a servicer if property damages are
severe enough to question the adequacy of that servicer’s inspections of the properties during
the loan’s delinquency. However, the repurchase option is not effective if potential violations
are not appropriately detected. Therefore, the repurchase option or alternative remedies due to
improper servicing are merely incentives for seller/servicers to conduct quality inspections
rather than a preventive control for the property inspection process.

20
   Alternative remedies include, but are not limited to, the responsible party paying the Enterprises the funds to
make whole or indemnify the Enterprises for the servicing violations. A make whole payment is the amount a
party responsible for a breach in a selling representation or warranty or a servicing breach must pay so that the
Enterprises do not incur a loss on the mortgage or the property. Indemnification requires a responsible party
that sells mortgages to the Enterprises and/or services a mortgage loan to hold the Enterprises harmless against
all losses, damages, judgments, claims, costs, expenses, legal actions, and legal fees that are based on, or result
from, a breach in its origination, selling, or servicing activities.




                                    OIG  AUD-2014-012  March 25, 2014                                               14
FINDING ...................................................................................

Pre-Foreclosure Property Inspections Can Be Enhanced by Strengthening Quality
Assurance and Controls

The Enterprises’ pre-foreclosure property inspection processes need improvement to ensure
that their programs’ objectives are achieved in the most effective manner. While the
Enterprises paid in excess of $91.2 million for pre-foreclosure property inspections during
2011 and 2012, there is limited assurance that either Enterprise had effective controls in place
to ensure the quality of inspections conducted or that inspectors submitted reports consistent
with the existing requirements. Specifically, OIG found that:

      Property inspection reports contain inaccurate information which conflicts with
       corresponding photographs;
      Property inspection reports include missing, manipulated, and blurry photographs;
      Property inspectors conduct inspections outside of gated communities instead of
       waiting to obtain access to restricted properties;
      Servicers neither consistently conduct oversight procedures to evaluate vendors’
       property inspection performance, nor validate inspection reports to ensure the
       information is accurate, complete, and consistent;
      Property inspection reports do not include the names or signatures of those who
       conducted the inspections; and
      Servicers inconsistently adopted requirements for inspectors to complete and pass
       criminal background checks.

Figure 2 illustrates the number of property inspection reports OIG reviewed that contained
these inconsistencies. As the figure illustrates, the majority of these files contains an
inspection report with one or more area of concern.




                              OIG  AUD-2014-012  March 25, 2014                                  15
                     FIGURE 2. INCONSISTENCIES IN PROPERTY INSPECTION REPORTS21


              Disclosures Conflict with Photos

                       No Inspector Signature

                               Missing Photos

         Manipulated or Inappropriate Photos

                     Blurry or Unclear Photos

                                                 0        10        20        30       40        50        60
                                                               Number of Inspection Reports
Source: Servicer Property Inspection Reports

Both Enterprises have servicing guides governing their property inspection process for
delinquent loans. The guides require servicers to maintain copies of all property inspection
reports with the mortgage loan files. Fannie Mae’s Single Family Servicing Guide requires
that inspection reports include information from its Property Inspection Reports, such as:
         Occupancy status;
         Property condition;
         General property description;
         Required repairs and estimated cost;
         Security status; and
         Vandalism assessment.

Similarly, Freddie Mac’s Seller/Servicer Guide prescribes guidance requiring servicers to
disclose similar information.

     Inappropriate Property Inspection Reports and Photographs

OIG identified property inspection reports with inconsistent and inaccurate information. For
example, in one inspection report, an inspector was able to establish the property’s occupancy

21
  OIG evaluated servicers’ quality control files from the servicers’ oversight of property inspection vendors.
Along with other internal records and supporting documents, OIG reviewed 84 property inspection reports.




                                    OIG  AUD-2014-012  March 25, 2014                                          16
status based on observing the homeowner’s personal property, decorations, and cars.
However, neither cars nor decorations are visible in the pictures accompanying the report.
Further, the pictures showed that the shades on the house were drawn, which obstructs the
view inside of the home. Another inspection report asserted that the homeowner’s yard was in
good condition, but the property was a condominium unit in a medium-rise, multi-unit
structure that lacked a separate yard.

OIG also identified a series of inspection reports for a single property that claimed the
property’s grass height was exactly eight inches for seven months. In this example, further
illustrated in Figure 3, it appears the inspector copied old inspection report information onto
each subsequent month’s inspection form. From April through November, each inspection
report contained the identical comment the inspector originally made in January, including the
same original date. These reports did not include photographs to validate the inspector’s
claim.

      FIGURE 3. IDENTICAL INSPECTOR COMMENTS IN SEVEN CONSECUTIVE INSPECTION REPORTS




Source: Servicer Property Inspection Reports

The audit also identified that property inspectors either manipulated or inserted the dates and
times on photographs. For example, OIG observed inspection reports where the inspectors
took pictures to capture various angles of the house, including the front, back, side, and
inside, but the date and time remained the same so that it appears as if the pictures were taken



                                  OIG  AUD-2014-012  March 25, 2014                              17
simultaneously. As shown in Figure 4, the date and time for each photograph is “12/8/2012
9:21:00 AM.”

       FIGURE 4. MANIPULATED INSPECTION PHOTOGRAPHS—THE SAME DATE AND TIME STAMP



              Driveway                     Backyard Entry      Basement




                            Bathroom                Kitchen




Source: Servicer Property Inspection Reports

OIG found that inspectors conducted unnecessary inspections that did not report useful
information to the servicer. In one case, the inspector conducted inspections of a property in a
gated community—closed to the public. For 12 consecutive months, the inspector did not
obtain access to the restricted property and billed the servicer for 12 property inspections
conducted from outside the gated community. None of these inspection reports contained
useful information—e.g., occupancy and security status, condition, and description—which
prevented the servicer from properly monitoring the status of the delinquent property for an
entire year.

In another example, an inspector submitted photographs that were dated April 2007 for an
inspection report submitted in December 2012. We also observed inspection reports with two
separate dates on each photograph. Figure 5 provides additional examples of inspection
reports with blurry or manipulated pictures.




                                  OIG  AUD-2014-012  March 25, 2014                              18
                    FIGURE 5. BLURRY AND MANIPULATED INSPECTION PHOTOGRAPHS




Source: Servicer Property Inspection Reports

     Servicers Neither Consistently Conduct Oversight Procedures to Evaluate Vendors’
     Property Inspection Performance Nor Validate Inspection Reports to Ensure the
     Information is Accurate, Complete, and Consistent

Several of the 12 servicers reviewed during the audit did not have controls in place to ensure
vendors provided accurate, complete, and consistent information related to pre-foreclosure
property inspections. Specifically, several servicers stated that they have either not finished
implementing or simply did not have quality control procedures in place to evaluate vendors’
performance on property inspections. Other servicers asserted that they used their existing
vendor scorecard system22 to evaluate the quality and completeness of property inspections.
Despite this claim, the audit identified that the criteria included in the vendor scorecard
systems did not address property inspection quality but instead primarily focused on whether



22
  Many servicers use a scorecard approach to evaluate a vendor’s performance. The comprehensiveness of
these scorecards varies with each servicer.




                                  OIG  AUD-2014-012  March 25, 2014                                    19
the inspections were ordered timely. Servicer officials also stated that they relied on the
vendors to ensure the inspection reports were accurate, complete, and consistent.

The audit also showed that servicers do not require inspection reports to include the name of
the individual who conducted the inspection. As a result, servicers were unable to trace and
identify inspectors who appeared to submit consistently inaccurate or incomplete information.
In other cases, inspectors signed the report with either untraceable initials or their last names.

Servicers were also unable to confirm whether inspectors passed criminal background checks.
Servicers asserted that some property preservation vendors might have their own policies
addressing this area. However, these servicers also acknowledged that they do not require
vendors to ensure inspectors go through criminal background checks before inspecting homes.
In addition, servicers were unable to confirm whether subcontractors hired by vendors to
conduct inspections undergo such checks. OIG found that property preservation vendors
typically hire subcontractors to conduct most property inspections.

OIG did identify one servicer with strong quality controls over its vendors’ property
inspection performance and reporting. Unlike the other servicers observed during the audit,
we identified fewer inconsistencies on its vendors’ property inspection reports. We attributed
these results to the servicer’s quality control activities for monitoring property inspections.
For example, this servicer conducts ghost inspections whereby an independent vendor
inspects a property a few days after the primary vendor inspects the same property. Once
these inspections are complete, the servicer compares both inspections to identify anomalies.
The purpose of the ghost inspection is to evaluate a vendor’s performance and identify
potential areas that require improvement.

As part of its quality process, this same servicer also conducts several weekly and monthly
reviews to validate the information inspectors disclose on inspection reports. In most cases,
analysts performing these reviews compared the inspectors’ disclosures to independent
sources (e.g., borrowers’ appraisal records) to validate the data’s integrity. In addition, the
servicer is in the process of implementing an inspector-tracking program whereby each report
will include the inspector’s identification code. This code will also confirm whether the
inspector has passed a criminal background check. Although criminal background checks are
not required criteria to conduct inspections on delinquent mortgage loans, OIG believes this
best practice enhances transparency and quality control over the inspector’s performance.

   Pre-Foreclosure Property Inspections Receive Minimal Attention and Oversight

There has been little attention provided to pre-foreclosure property inspections by both FHFA
and the Enterprises. FHFA has not issued guidance to the Enterprises related to the quality of
pre-foreclosure property inspections and the Agency has not conducted any targeted
examinations of the Enterprises’ pre-foreclosure property inspection processes. FHFA’s

                              OIG  AUD-2014-012  March 25, 2014                                    20
examination coverage has been limited to property inspections for REO single-family homes,
and its ongoing reviews have been limited to evaluating Freddie Mac’s Single-Family
Seller/Servicer Guide.

In addition to limited FHFA oversight, the Enterprises have limited quality standards for
inspections conducted by servicers. For example, Enterprise standards do not consistently
require that all inspection reports include information such as the inspector’s full name,
signature, and digital photographs.23 The Enterprises rely on servicers to draft quality
standards for pre-foreclosure property inspections. Accordingly, these standards varied among
servicers, as illustrated in Figure 6. For example, while some servicers have contractual
agreements with their vendors to provide a specific number of photographs with each
inspection, other servicers have no such requirements.




23
  The Enterprises provide servicers with suggestive property inspection reports they can use during
inspections. While Freddie Mac’s sample report includes a section for inspectors to sign their name but has no
section for uploading pictures, Fannie Mae’s sample report has an area where inspectors can upload pictures
but excludes a section for the inspector’s signature. In addition, both Enterprises allow servicers to use their
own report or an alternative report with equivalent information.




                                    OIG  AUD-2014-012  March 25, 2014                                            21
                FIGURE 6. DIFFERENCES IN SERVICERS’ PROPERTY INSPECTION STANDARDS




     Standard 1 - Background              Standard 1 - Background        Standard 1 - Background
     Does not require inspectors          Does not require inspectors    Background checks are
     to undergo background                to undergo background          required for inspectors.
     checks.                              checks.                        Further, an inspector-
                                                                         tracking program with an
     Standard 2 - Photos                  Standard 2 - Photos            identifying inspector code
     No requirement to include            Requires photos in every       included on each report is
     photos in inspection reports.        inspection report:             being implemented.
                                          (Bankruptcy: 2, Occupied: 2,
     Standard 3 - Re-Inspect                                             Standard 2 - Photos
                                          No Access: 4, External
     Does not reinspect property          Vacant: 12, Internal Vacant:   No requirement to include
     for quality assurance over           25)                            photos in inspection reports.
     inspector's report results.
                                          Standard 3 - Re-Inspect        Standard 3 - Re-Inspect
                                          Does not reinspect property    Performs monthly ghost
                                          for quality assurance over     inspections to confirm initial
                                          inspector's report results.    inspector's report.

Source: Servicer Property Inspection Reports

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.
Servicers also have varying levels of controls in place related to property inspection oversight,
quality control, record retention, and inspector qualifications. Enterprise officials explained to
OIG that they rely on servicers to monitor inspection quality and assurance. However, the
Enterprises do not first ascertain whether adequate controls even exist among these servicers.
Several servicers acknowledged to OIG that they then rely on hired vendors to conduct
inspections and to validate inspection quality and performance.

Thus, OIG concludes that standards for performing inspections and the responsibility for
inspection quality are highly decentralized and widely inconsistent across servicers and
inspectors. In turn, this diminishes the inspections’ value in achieving Enterprise objectives
regarding safety and loss mitigation.

Additionally, neither FHFA nor the Enterprises have assessed the overall effectiveness of pre-
foreclosure property inspection processes in achieving their respective safety and loss
mitigation objectives. Such assessments of the design and implementation of inspection
controls can include comparing inspection report results to objectives, identifying costs and


                                     OIG  AUD-2014-012  March 25, 2014                                  22
benefits, and finding alternative ways to achieve inspection goals. Specifically, this analysis
could include the following:

    1. Determining whether pre-foreclosure property inspections operate effectively at the
       current level of minimum quality assurances and controls;

    2. Identifying the objective(s), purpose, and intended use of pre-foreclosure property
       inspection information;

    3. Recognizing cost effective alternatives for achieving the objective(s);

    4. Ensuring that the program is necessary at the current frequency level;

    5. Identifying pre-foreclosure property inspection risk;

    6. Developing control measures to mitigate potential risk; and

    7. Factoring control measures against potential program costs and benefits.

Under the Servicing Alignment Initiative (SAI), FHFA instructed the Enterprises to work
together to develop consistent, standardized policies for servicing nonperforming loans and
joint standards for evaluating servicer performance. In accordance with this directive, FHFA
specifically required the Enterprises to align their property inspection standards with a focus
on ordering inspections within certain timeframes. Similarly, a joint assessment of the
property inspection process could allow Fannie Mae and Freddie Mac to build on the best
practices developed by each Enterprise as they determine the best course of action for the
program. Developing uniform standards to evaluate servicer performance (and thereby,
vendor performance) could also result in a more effective Enterprise loss mitigation program.

   The Lack of Quality Controls Reduces Pre-Foreclosure Property Inspection
   Effectiveness

The lack of effective quality controls in place over the pre-foreclosure property inspection
process reduces the effectiveness of the inspections. Effective controls to ensure that
inspection reports are accurate, complete, and consistent could include selecting a sample of
inspection reports for audit/review, sampling other reports to re-inspect properties to verify
the initial inspector’s results (i.e., ghost inspections), ensuring that all inspection reports
include unaltered digital photographs, and requiring inspectors to undergo criminal
background checks.

Among other information, the Enterprises require servicers to report a home’s occupancy
status, security status, and damage in their pre-foreclosure property inspection reports. In the
absence of controls to confirm the inspection report’s integrity, it is difficult to conclude


                              OIG  AUD-2014-012  March 25, 2014                                  23
whether these disclosures are either accurate or achieving the inspections’ intended objective,
which is to act upon conditions that present safety hazards or increase losses.

This overall lack of controls has already resulted in one breakdown of significant consequence
when a property inspection company, American Mortgage Field Services (AMFS),
fraudulently submitted over $12.7 million in claims for reimbursement of property
inspections. Over a five-year period between 2007 and 2012, AMFS24 created fraudulent and
false property inspection reports that they electronically submitted to various servicers,
including primarily Bank of America.

In this instance, the various servicers hired AMFS to conduct inspections on properties with
delinquent mortgage loans. Along with preserving the property, these inspections were to
prevent potential safety hazards, such as uncovered swimming pools and exposed electrical
wires. AMFS agreed to accept payment to inspect as many as 100,000 properties a month in
Florida and other states. AMFS subsequently submitted inspection reports for numerous
properties that AMFS employees never inspected. In addition, AMFS employees were
directed to create false inspection reports by inserting photographs from previous reports and
changing the dates to create the perception that new inspections had been conducted when no
such inspections had been performed. OIG’s investigation disclosed that between 2007 and
2012, AMFS falsified up to 70% of its property inspections and fraudulently received
approximately $12.7 million for property inspections never actually performed.

     Pre-Foreclosure Property Inspections Are Beneficial When Done Correctly

Performing pre-foreclosure property inspections in an effective manner and in accordance
with uniform quality control standards would ensure that these inspections are used for their
intended purpose and can preclude a fraudulent situation like that which happened with
AMFS.

When performed effectively, inspections, in some cases, can accelerate the foreclosure
process by identifying the borrower’s occupancy status. Further, depending on the state where
the property is located, property designated as unoccupied or abandoned could support the
respective state’s case to allow the servicer to shorten the redemption period. Shortening the
redemption period may accelerate foreclosure proceedings, in instances where the property is
abandoned, and clears the path for sale of the property sooner—thus minimizing losses to the
Enterprises.


24
  From 2007 to 2009, AMFS was called Mid-Florida Home Securing, LLC. While the company name changed
to AMFS in 2009, the principals, employees, and mission of the company remained the same. For purposes of
this report, AMFS refers to Mid-Florida Home Securing, LLC and American Mortgage Field Services.




                                 OIG  AUD-2014-012  March 25, 2014                                        24
Effective inspections may also prevent instances in which property preservation vendors
secure the wrong property or inappropriately remove homeowners’ personal property.
Although claims detailing these alleged incidents have been minimal, the hardship and
inconvenience they have caused homeowners may be prevented with the use of strong quality
controls over reportable inspection information.

In addition, effective inspections would also ensure that annual reimbursements paid by the
Enterprises for pre-foreclosure property inspection claims are used in the most cost efficient
and effective manner. We anticipate that the Enterprises will incur additional expenses to pay
for property inspections, thus warranting oversight. Specifically, Fannie Mae issued Servicing
Guide Announcement SVC-2013-22 (October 30, 2013) that updated property inspection
reimbursements and requirements. Effective January 1, 2014, SVC-2013-22 eliminates the
$60 and $200 tolerance limits placed on the life of a loan in Fannie Mae’s 571 Servicer
Processing Guide and reimburses servicers for all required inspections.

On August 15, 2013, Freddie Mac also issued Single-Family Seller/Servicer Guide Bulletin
2013-15 revising its property inspection requirements. Effective November 1, 2013, Bulletin
2013-15 removes the limit on reimbursement of property inspections to those conducted
within the applicable State foreclosure timelines. Specifically, the bulletin provides that any
Guide-required monthly inspection completed outside of the State foreclosure timelines will
be reimbursable.




                              OIG  AUD-2014-012  March 25, 2014                                 25
CONCLUSION ............................................................................

The Enterprises do not have quality controls in place to obtain reasonable assurance that pre-
foreclosure property inspection information is accurate, consistent, and complete. OIG
identified several examples demonstrating that servicers do not maintain consistent oversight
over their vendors. The lack of quality controls diminishes the inspection report’s integrity
and casts doubt on whether these inspections are working and necessary. Further, the
minimum attention to and oversight of pre-foreclosure property inspections poses a control
weakness that vendors may be able to exploit with manipulated or fraudulent inspection
reports.

Recently, both Enterprises revised their servicing policies and removed previous limits placed
on claims reimbursed to servicers for property inspections. By removing these limits, the
Enterprises may experience a significant increase in their property inspection expense. As a
result, they may also face greater risk from reimbursing servicers for inadequate inspection
reports.




RECOMMENDATIONS ...............................................................

OIG recommends that FHFA direct the Enterprises to:

   (1) Jointly assess the effectiveness of their pre-foreclosure property inspection
       processes. OIG identified several specific areas to review as part of the
       assessment, including: (a) identifying pre-foreclosure property inspection risk
       and objectives; (b) identifying cost effective control alternatives for achieving
       the objective(s); and (c) recommending inspection standards and quality controls
       with regard to the content and frequency of inspections.

Based on this assessment, FHFA should direct the Enterprises to:

   (2) Establish uniform pre-foreclosure inspection quality standards and quality
       control processes for inspectors.




                             OIG  AUD-2014-012  March 25, 2014                                 26
OBJECTIVE, SCOPE, AND METHODOLOGY .................................

Objective

The objective of this performance audit was to assess FHFA’s oversight of the Enterprises’
controls over pre-foreclosure property inspections that are performed on delinquent loans.
OIG assessed: (1) the extent to which the Enterprises have adequate controls over ordering,
conducting, documenting, and reimbursing pre-foreclosure property inspections; and, (2) the
extent to which servicers have policies and programs necessary to ensure property inspectors
perform complete and accurate pre-foreclosure property inspections.

Scope

OIG conducted its fieldwork for this audit from May 2013 through February 2014 at FHFA’s
and Fannie Mae’s offices in Washington, DC, and at Freddie Mac’s offices in McLean, VA.
OIG also conducted fieldwork at the offices of several servicers. The scope of the audit
included a review of Enterprise monitoring activities and gaining an understanding of controls
at 12 of the Enterprises’ top servicers that received over 80% of property inspection payments
reimbursed during 2012.

Methodology

In order to achieve its audit objective, OIG:

       Surveyed servicers to obtain information pertaining to property inspections conducted
        on delinquent Enterprise mortgage loans;
       Interviewed FHFA officials and reviewed guidance related to findings resulting from
        examinations and ongoing reviews;
       Interviewed Enterprise officials and reviewed property inspection reimbursement and
        monitoring processes, procedures, servicing guidance, and internal reports;
       Obtained live demonstrations of Enterprise systems used to process property
        inspection reimbursement to the servicers;
       Interviewed servicer personnel and reviewed property inspection reports, vendor
        contracts, procedures, and other documents pertinent to their property inspection
        oversight and controls; and
       Analyzed servicers’ quality control procedures and supporting files associated with
        property inspections.




                              OIG  AUD-2014-012  March 25, 2014                                27
OIG assessed the internal controls related to the audit objective. Specifically, OIG evaluated
the following control standards that were significant to the audit objective: control activities,
information and communication, and monitoring. Based on the work completed on this
performance audit, OIG considers its finding regarding the Enterprises and servicers’ quality
control processes over pre-foreclosure property inspections to be significant in the context of
the audit objective. Interviews were conducted in the course of this audit to consider the risk
of fraud as it relates to the audit objective.

OIG performed fieldwork for this audit from May 2013 through February 2014 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 the findings and conclusions based on the audit objective. OIG believes that the evidence
obtained provides a reasonable basis for the findings and conclusions included herein, based
on the audit objective.




                              OIG  AUD-2014-012  March 25, 2014                                   28
APPENDIX A .............................................................................

FHFA’s Comments on FHFA-OIG’s Findings and Recommendation




                          OIG  AUD-2014-012  March 25, 2014                          29
OIG  AUD-2014-012  March 25, 2014   30
APPENDIX B..............................................................................

FHFA-OIG’s Response to FHFA’s Comments

On March 14, 2014, FHFA provided comments to a draft of this report. FHFA partially
agreed with recommendation 1 and identified responsive corrective actions. FHFA disagreed
with recommendation 2. OIG has attached FHFA’s full response as Appendix A and
considered it where appropriate in finalizing this report. Appendix C provides a summary
of the agency’s response to OIG’s recommendations and the status of any agreed-upon
corrective actions remaining open. In summary, although disagreeing with recommendation 2,
FHFA’s actions are potentially sufficient to resolve the issue – pending the results of the
Enterprises’ assessment agreed to in recommendation 1 to determine the effectiveness of their
pre-foreclosure property inspection processes.

With respect to recommendation 1, FHFA agreed to issue supervisory direction to each
Enterprise to perform and document by January 31, 2015, their assessment of risks relating
to pre-foreclosure property inspections as well as a determination on whether standards for
pre-foreclosure property inspections should be incorporated into the Enterprise’s program
for management of third-party relationships. OIG considers FHFA’s response to
recommendation 1 to be sufficient to resolve the recommendation, which will remain open
until OIG receives and reviews the results from the Enterprises’ assessments.

OIG’s recommendation 2 requested FHFA use the results from the Enterprise assessments to
establish quality standards and control processes for inspectors. Given that FHFA has agreed
to direct the Enterprises to make a determination on whether standards for pre-foreclosure
property inspections should be incorporated into the Enterprise’s program for management of
third-party relationships, OIG considers FHFA’s response to recommendation 2 to be
potentially responsive to resolve the recommendation. The recommendation will remain open
until the Enterprises have completed their assessments.

In a footnote to FHFA’s response, FHFA asserts that the OIG report findings are based on a
review of property inspection reports. In fact, the OIG conducted a comprehensive audit on
quality controls for the pre-foreclosure property inspection process, including gaining an
understanding of controls at 12 of the Enterprises’ top servicers that received over 80% of
property inspection payments. FHFA’s assertion diminishes these efforts by referring only
to OIG’s review of the inspection reports. Further, the assertion is inconsistent with FHFA’s
interest in managing risk in third-party relationships, including ensuring the Enterprises have
effective controls in place to receive maximum value for the inspections performed and
helping to prevent their exposure to fraudulent activities.



                              OIG  AUD-2014-012  March 25, 2014                                 31
Finally, FHFA stated that the report findings do not provide support for the imposition of
uniform standards and processes for all pre-foreclosure inspections of properties. At the same
time, FHFA cautioned against presupposing the results of the Enterprises’ assessments. OIG
believes all options, including uniform standards and processes, should remain on the table
until the Enterprises have completed the assessments FHFA agreed to in response to
recommendation 1.




                             OIG  AUD-2014-012  March 25, 2014                                 32
APPENDIX C ..............................................................................

Summary of Management’s Comments on the Recommendations

This table presents management’s response to the recommendations in OIG’s report and the
status of the recommendations as of when the report was issued.


                                                   Expected         Monetary
              Corrective Action: Taken or         Completion         Benefits        Resolved:        Open or
Rec. No.                Planned                      Date          ($ Millions)      Yes or No a      Closed b
            FHFA will issue supervisory
            direction to each Enterprise
            to perform and document
1.          an assessment of risks and           01/31/2015             $0               Yes           Open
            standards related to pre-
            foreclosure property
            inspections.
            FHFA provided a management
            decision disagreeing with
            the Enterprises establishing
            uniform pre-foreclosure
            inspection quality standards
2.          and quality control processes                               $0               Yes           Open
            for inspectors. However,
            action in response to
            recommendation 1 can result
            in responsive action to this
            recommendation.
Total                                                                   $0

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 amount ($0). Monetary benefits are considered resolved
as long as management provides an amount.
b
  Once OIG determines that the agreed-upon corrective actions have been completed and are responsive, the
recommendations can be closed.




                                  OIG  AUD-2014-012  March 25, 2014                                            33
ADDITIONAL INFORMATION AND COPIES .................................


For additional copies of this report:

      Call: 202–730–0880
      Fax: 202–318–0239
      Visit: www.fhfaoig.gov



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

      Call: 1–800–793–7724
      Fax: 202–318–0358
      Visit: www.fhfaoig.gov/ReportFraud
      Write:
                FHFA Office of Inspector General
                Attn: Office of Investigation – Hotline
                400 Seventh Street, S.W.
                Washington, DC 20024




                               OIG  AUD-2014-012  March 25, 2014                         34