oversight

Compliance Review of FHFA's Implementation of Its Procedures for Overseeing the Enterprises' Single-Family Mortgage Underwriting Standards and Variances

Published by the Federal Housing Finance Agency, Office of Inspector General on 2015-12-17.

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

             Federal Housing Finance Agency
                 Office of Inspector General




    Compliance Review of FHFA’s
   Implementation of Its Procedures
    for Overseeing the Enterprises’
        Single-Family Mortgage
     Underwriting Standards and
               Variances




Compliance Review  COM-2016-001  December 17, 2015
               Executive Summary
               In an audit report issued on March 22, 2012, by the Federal Housing Finance
               Agency (FHFA/Agency) Office of Inspector General (OIG), FHFA’s
               Oversight of Fannie Mae’s Single-Family Underwriting Standards (AUD-
               2012-003) (2012 Audit Report), OIG found that the Agency lacked a formal
               process to review Fannie Mae’s and Freddie Mac’s (the Enterprises) single-
COM-2016-001   family mortgage purchase underwriting standards and variances to them. OIG
               concluded that the lack of a formal process limited the effectiveness of the
December 17,   Agency’s oversight of the Enterprises’ application of their underwriting
    2015       standards and award of variances, and recommended that FHFA “…establish a
               policy for its review process of underwriting standards and variances including
               escalation of unresolved issues reflecting potential lack of agreement.”

               FHFA agreed with the recommendation and adopted an internal process called
               the Single-Family Policy Review and Escalation Process (Process) in early
               January 2013. The Process establishes three key requirements for oversight
               of the Enterprises’ single-family mortgage purchase underwriting standards,
               variances to them, and other aspects of their single-family mortgage lines of
               business by FHFA’s Office of Housing and Regulatory Policy (OHRP).

               According to OHRP, the oversight demanded by the Process would enable
               FHFA to develop an understanding of the Enterprises’ single-family credit
               risks and provide it an opportunity to identify, and help ensure the remediation
               of, any unsafe and unsound practices. After FHFA adopted the Process in
               January 2013, it asked OIG to close its outstanding recommendation. OIG
               reviewed the Process, as drafted, and representations by Agency officials
               that FHFA employees were in place to implement it, and closed the
               recommendation on March 12, 2013.

               In this compliance review, OIG reports on the results of its verification testing
               of OHRP’s implementation of the Process’ three key requirements during the
               period January 2014 through March 2015 (our review period). Based on that
               verification testing, OIG determined that OHRP did not implement two
               variance-related requirements, which OHRP acknowledged. OHRP reported
               to OIG that in light of these deficiencies, in late 2014, it began to “reevaluate
               and reengineer” these two Process requirements but, as of this writing, no
               timeline has been established for completing this review.

               Regarding the third requirement, we found that OHRP reviewed a total of 57
               new and proposed revisions to the Enterprises’ single-family credit policies
               during our review period, of which 52 were submitted by one Enterprise and 5
               were submitted by the other Enterprise. The head of OHRP advised OIG that
               the few submissions from one Enterprise limited OHRP’s “visibility” into that
               Enterprise’s single-family credit policies and underwriting standards. The
               official said she had spoken with, and planned to speak further with, officials
               from that Enterprise to increase its submissions, but OHRP had not provided
               OIG with a timeline pursuant to which it intended to accomplish this objective
               at the completion of our review.

               The Process was adopted in January 2013 and FHFA committed to OIG
COM-2016-001   shortly thereafter that implementation of the Process was underway. More
               than two years later, two of the three requirements in the Process have not
December 17,   been implemented and implementation of the third requirement has not been
    2015       sufficient to provide OHRP with full visibility in the single-family risks of one
               Enterprise. In light of these significant shortcomings, OIG is reopening the
               recommendation from its 2012 Audit Report. The recommendation will
               remain open until FHFA fulfills its commitment to establish and fully
               implement a formal process for reviewing the Enterprises’ underwriting
               standards and variances to them. FHFA agreed with the recommendation, and
               reported it plans to complete its review of the Process by June 2016 and
               implement it by year-end 2016.

               This report was led by Karen E. Berry, Senior Investigative Counsel, and
               Wesley M. Phillips, Senior Policy Advisor, with assistance from Patrice
               Wilson, Audit Manager, and Andrew Gegor, Jr., Senior Auditor. It has been
               distributed to Congress, the Office of Management and Budget, and others,
               and will be published on our website, www.fhfaoig.gov. We appreciate the
               assistance we received from FHFA in completing this compliance review.




               Richard Parker
               Deputy Inspector General, Compliance & Special Projects
TABLE OF CONTENTS ................................................................
EXECUTIVE SUMMARY .............................................................................................................2

ABBREVIATIONS .........................................................................................................................5

BACKGROUND .............................................................................................................................6
      OIG’s 2012 Audit Found that FHFA Lacked a Formal Process for Reviewing
      Enterprise Single-Family Mortgage Underwriting Standards and Variances ..........................6
      FHFA’s Establishment of the Process ......................................................................................7
             Review of the Enterprises’ Variances by OHRP ..............................................................7
             Review of the Enterprises’ Bulk and Negotiated Transactions by OHRP .......................8
             Review of the Enterprises’ Mortgage Selling Policies by OHRP ....................................8

COMPLIANCE REVIEW RESULTS.............................................................................................9
      OHRP Did Not Implement the Process’ Variance Review Requirements .............................10
      OHRP Did Not Implement the Process’ Bulk and Negotiated Transactions Review
      Requirements ..........................................................................................................................11
      OHRP Reports that Its Oversight of Single-Family Risks of One Enterprise Is
      Limited by the Relatively Small Number of Mortgage Selling Policies Submitted to
      FHFA by that Enterprise .........................................................................................................11

CONCLUSION ..............................................................................................................................13

OBJECTIVE, SCOPE, AND METHODOLOGY .........................................................................14

APPENDIX A ................................................................................................................................15
      FHFA’s Comments on OIG’s Findings and Recommendation ..............................................15

APPENDIX B ................................................................................................................................16
      Selling Variance, Waivers and Exceptions Checklist.............................................................16

ADDITIONAL INFORMATION AND COPIES .........................................................................17




                                       OIG  COM-2016-001  December 17, 2015                                                               4
ABBREVIATIONS .......................................................................

2012 Audit Report   FHFA’s Oversight of Fannie Mae’s Single-Family Underwriting
                    Standards (AUD-2012-003)

Enterprises         Fannie Mae and Freddie Mac

FHFA/Agency         Federal Housing Finance Agency

HERA                Housing and Economic Recovery Act of 2008

LOIs                Letters of Instruction

OHRP                Office of Housing and Regulatory Policy

OIG                 Federal Housing Finance Agency Office of Inspector General

Process             Single-Family Policy Review and Escalation Process




                         OIG  COM-2016-001  December 17, 2015                     5
BACKGROUND ..........................................................................

OIG’s 2012 Audit Found that FHFA Lacked a Formal Process for Reviewing Enterprise
Single-Family Mortgage Underwriting Standards and Variances

In our 2012 Audit Report, we explained that single-
family underwriting standards were critical in                  Underwriting standards, known
managing the credit risks associated with Enterprise            as eligibility criteria, establish the
                                                                characteristics that a loan must
mortgage purchases. The report stated that
                                                                possess to be eligible for
underwriting standards included both charter-based and
                                                                purchase.
traditional risk-based criteria. Traditional risk-based
underwriting criteria consisted of minimum borrower             A credit score is a statistically
credit score requirements and maximum debt-to-                  derived expression of a person’s
                                                                creditworthiness used to assess
income ratios.
                                                                the likelihood that a person will
                                                                repay his or her debts.
We reported that more than 11,000 variances from risk-
based criteria were granted by Fannie Mae during the          A debt-to-income ratio is a
housing boom. We showed that some variances granted           financial measure that compares
by Fannie Mae contained features far riskier than its         an individual’s indebtedness to
traditional risk-based criteria, such as loans made           his or her overall income.
with unverified income or assets, or little or no down        A variance is an Enterprise-
payments. The report further stated that the variances        approved exception to its
and purchases of riskier mortgages were major factors         eligibility criteria (underwriting
in Fannie Mae’s credit losses and credit-related              standards) granted to an
                                                              individual lender or group of
expenses. Subsequently, Fannie Mae dramatically
                                                              lenders.
decreased its inventory of underwriting variances: as of
September 2011, Fannie Mae had reduced outstanding
variances from 11,718 for 857 lenders in January 2005, to 638 variances for 188 lenders, and
many of the canceled variances related to higher-risk loans. Freddie Mac also substantially
enhanced its underwriting standards in the wake of the financial crisis.

In our 2012 Audit Report, we credited FHFA for conducting informal reviews of Fannie
Mae’s credit policies during 2010 and 2011. Because credit policy changes are high-level
issues and may not involve underwriting standards and variances, we recognized the
significant risk that FHFA’s informal review of credit policies might not reach review of the
Enterprises’ underwriting standards and variances. For that reason, we looked to see whether
FHFA conducted regular, formalized reviews of the Enterprises’ underwriting standards and
found it did not.




                            OIG  COM-2016-001  December 17, 2015                                       6
As a consequence, we concluded FHFA could take steps to increase its assurance that the
Enterprises were operating in a safe and sound manner and we recommended that FHFA
“…formally establish a policy for its review process of underwriting standards and variances
including escalation of unresolved issues reflecting potential lack of agreement.”1 FHFA
agreed with our recommendation and committed to adopt formalized procedures by
September 30, 2012, and to provide OIG with a status report on their implementation by
March 1, 2013.2

FHFA’s Establishment of the Process

In response to the 2012 Audit Report recommendation, FHFA developed the Process in late
2012 and adopted it in early January 2013. The current head of OHRP, who has served in
OHRP leadership capacities since OIG issued its 2012 Audit Report, reported to OIG that she
was responsible for drafting the Process. She advised us that the Process was designed to
provide FHFA, acting in its conservatorship capacity, with an understanding of the
Enterprises’ single-family credit risks, through its oversight and monitoring of: variances
granted by each Enterprise; their bulk and negotiated transactions with mortgage sellers; and
proposed changes to their mortgage selling policies.3 The specific elements of each of the
three categories of oversight and monitoring required by the Process follow.

      Review of the Enterprises’ Variances by OHRP4

          Monthly:5

           o An OHRP employee shall: review key Enterprise management reports related to
             variance activities and meet with the responsible Enterprise officials.

           o This OHRP employee shall document each monthly meeting using an established
             checklist and prepare a monthly variance analysis memorandum.

1
 The 2012 Audit Report contained a second recommendation regarding FHFA’s procedures for conducting
examinations of the Enterprises’ mortgage underwriting standards and variances. That recommendation was
not within the scope of this compliance review.
2
    The 2012 Audit Report’s conclusions and recommendation applied to FHFA’s oversight of both Enterprises.
3
  The OHRP official was an Associate Director and solely focused on managing OHRP’s mortgage servicing
team from the third quarter of 2013 until September 2014. Starting on October 1, 2014, the official served as
the acting Senior Associate Director for OHRP and was named Senior Associate Director for OHRP in March
2015.
4
  The OHRP review requirements discussed in this section apply to what the Process refers to as “variances,
waivers and exceptions.” For purposes of this compliance review, the term “variances” refers to departures
from the Enterprises’ single-family underwriting standards.
5
    This description of Process requirements has been summarized for presentational purposes in this section.



                                   OIG  COM-2016-001  December 17, 2015                                       7
         o Senior OHRP personnel shall: review the monthly variance analysis memorandum;
           and provide guidance to the responsible OHRP employee on revisions to the monthly
           analysis memo, if needed.

         o The responsible OHRP employee shall: revise the monthly memorandum as required
           and notify the Enterprise of the results of OHRP’s monthly variance analyses,
           including any related concerns.

         o The OHRP employee shall refer any OHRP concerns about the Enterprises’ variances
           to the Division of Enterprise Regulation for potential follow-up, as needed.

        Annually:

         o An OHRP employee shall: meet with each Enterprise’s Single-Family Risk Officer
           to understand business unit risk limits that exceed established standards; and prepare
           a memorandum on this subject for consideration by senior OHRP personnel.

    Review of the Enterprises’ Bulk and Negotiated Transactions by OHRP

The Process defines a bulk or negotiated transaction as a sale of a set of loans to an Enterprise
in which guarantee fees and other contract terms are negotiated individually for each
transaction.6 OHRP reported to OIG that bulk and negotiated transactions, which relaxed
prevailing underwriting standards, had exposed the Enterprises to credit risks in the past. The
Process’ requirements for monitoring bulk and negotiated transactions mirror the monitoring
requirements for the Enterprises’ variances set forth above.

    Review of the Enterprises’ Mortgage Selling Policies by OHRP

FHFA, acting as conservator, has delegated to the Enterprises responsibility for establishing
their single-family credit and underwriting standards. Among its responsibilities, OHRP is
tasked with monitoring the Enterprises’ exercise of this delegated responsibility. The Process
requires OHRP to review and comment upon new and proposed revisions to the Enterprises’
mortgage selling policies, which it defines as “…selling and servicing policies that are
presented at the Enterprise business and risks committees…[because] they generally represent
higher credit, operational, and/or headline risk….”

The Process requires OHRP’s review of mortgage selling policies and includes the following
elements:



6
 The Enterprises charge a fee (guarantee fee) to guarantee the timely payment of principal and interest on their
mortgage-backed securities.



                                 OIG  COM-2016-001  December 17, 2015                                            8
      OHRP must assign one OHRP employee to review each mortgage policy submitted by
       the Enterprises.

      According to OHRP officials, the assigned OHRP employee is tasked with reviewing
       Enterprise documentation that identifies the reasons for the changes to the existing
       mortgage selling policy or new policy, details the actual changes to the underwriting
       standards wrought by the revised or new policy, and identifies the level of risk
       associated with such changes as well as the Enterprise’s plans to manage the risk. As
       appropriate, the assigned OHRP employee confers with other OHRP and Agency staff,
       and prepares a recommendation memorandum.

      The senior OHRP staff review the recommendation memorandum, and the assigned
       OHRP employee revises the memorandum to include the views of senior OHRP staff.

      Where OHRP has no objections to or questions about the revised or new mortgage
       selling policy, OHRP so advises the Enterprise within a target of 15 days.

      Where OHRP has comments, questions, or concerns about the revised or new
       mortgage selling policy, it must seek to resolve those issues with the affected
       Enterprise.

      In the event that OHRP cannot resolve those issues with the affected Enterprise,
       OHRP escalates those issues to FHFA’s Division of Conservatorship, which is
       authorized to approve or disapprove any mortgage selling policy.

During our review period, one Enterprise submitted to OHRP 52 mortgage selling policies
and the other submitted 5.




COMPLIANCE REVIEW RESULTS ................................................

FHFA informed OIG that it had adopted the Process as of early January 2013, communicated
its requirements to the Enterprises, and begun implementing it. FHFA further advised OIG
that FHFA employees were in place to implement key provisions of the Process. OIG closed
the audit recommendation on March 12, 2013, based on our determination that the Process
was consistent with the recommendation in the 2012 Audit Report and our review of other
information provided by the Agency. During this compliance review, OIG conducted
verification testing to assess OHRP’s implementation of the Process’ three key oversight and




                           OIG  COM-2016-001  December 17, 2015                              9
monitoring requirements during the period January 2014 through March 2015.7 As set forth
below, OHRP did not implement two of the three key requirements relating to variances and
bulk and negotiated transactions requirements. OHRP’s less than forceful implementation of
the third requirement, relating to review of new and proposed revisions to the Enterprises’
mortgage selling policies, has limited its oversight of one Enterprise’s single-family business
risks.

OHRP Did Not Implement the Process’ Variance Review Requirements

To assess OHRP’s implementation of the variance monitoring requirements of the Process,
we requested that OHRP provide the completed OHRP checklist 8 for each monthly meeting
with Enterprise officials and memoranda of each required annual meeting with Enterprise
officials. OHRP did not provide us with any such documentation, and OHRP reported to OIG
that OHRP staff could not locate any variance checklists for the period of our review. OHRP
produced cursory notes of two meetings between OHRP employees and Fannie Mae held
during the 15 months of our review period in which variances were discussed. Even if it were
possible to assess whether the participants in these two meetings covered the matters specified
in the OHRP checklist, there is no evidence that the required meetings were held during each
of the remaining 13 months. OHRP did not produce notes of any meetings between OHRP
and Freddie Mac during the 15-month review period in which variance activity was discussed.

We also requested that OHRP provide documentation of the monthly and annual variance
analysis memoranda required by the Process. OHRP provided no such documentation and
reported to OIG that it could not locate any written memoranda required by the Process.

The head of OHRP reported to OIG that she became aware of OHRP’s failure to implement
the Process’ variance review requirements shortly after her appointment on October 1, 2014.
At that time, OHRP began to “reevaluate and reengineer” the Process focusing on the
Enterprises’ variances, given the potential risks they pose to the Enterprises’ financial
soundness. As of October 1, 2015, nearly a year into the project, OHRP had not established a
timeline for its completion.




7
 OIG limited the testing to this period in light of the document production demands that a longer period would
have imposed on the Agency.
8
 The form, titled “Selling Variance, Waivers and Exceptions Checklist,” is reproduced in its entirety in
Appendix B to this compliance review.



                                 OIG  COM-2016-001  December 17, 2015                                          10
OHRP Did Not Implement the Process’ Bulk and Negotiated Transactions Review
Requirements

To assess OHRP’s implementation of the Process’ annual and monthly bulk and negotiated
transaction review requirements, we requested that OHRP provide documentation of its
reviews during the period January 2014 to March 2015. OHRP did not provide us with any of
these documents. OHRP reported to OIG that OHRP staff never met with Enterprise officials
to discuss bulk and negotiated transactions during the review period, nor did they prepare any
of the required annual or monthly memoranda analyzing these transactions.

As was the case with the Process’ variance review requirements, the head of OHRP advised
us that she learned of OHRP’s failure to implement the bulk and negotiated transactions
review requirements shortly after her appointment in October 2014, and included these
requirements in the ongoing review and reengineering of the Process.

OHRP Reports that Its Oversight of Single-Family Risks of One Enterprise Is Limited by
the Relatively Small Number of Mortgage Selling Policies Submitted to FHFA by that
Enterprise

To assess OHRP’s implementation of the requirement that it review changes to, as well as
new, mortgage selling policies, we obtained from OHRP the policies submitted by the
Enterprises during our review period and records of OHRP’s review of them. Our testing of
the 57 policies received by OHRP revealed that OHRP followed the Process’ review
requirements: recommendation memoranda were drafted and reviewed by senior OHRP
personnel and OHRP notified the Enterprises of the outcomes of OHRP’s reviews in a timely
manner. 9

We also found a wide disparity in the number of mortgage selling policies submitted by the
Enterprises, which OHRP acknowledged. Specifically, one Enterprise submitted 52 mortgage
selling policies during our 15-month review period while the other submitted only 5.
According to OHRP’s records, a wide disparity in submissions was evident by August 2014:
at that time, one Enterprise had submitted 33 policies to OHRP while the other had submitted
only 4.

Based on information learned during our compliance review, we determined the cause of the
disparity, which we now explain. On November 15, 2012, FHFA issued revised Letters of
Instruction (LOIs) to the Enterprises. Among other provisions, the revised LOIs require the
Enterprises to provide to FHFA “any planned changes in business processes or operations,
including changes to Enterprise single- and multi-family credit policies and loss mitigation

9
    An evaluation of the content of these memoranda was beyond the scope of this compliance review.



                                  OIG  COM-2016-001  December 17, 2015                              11
strategies that management has determined in its reasonable business judgment to be
significant....” On November 16 and 19, 2012, OHRP officials met with employees of the
Enterprises to brief them on the Agency’s efforts to enhance its oversight of mortgage selling
policies in the wake of OIG’s 2012 audit. OHRP advised the Enterprises that they were
required to submit for review as mortgage selling policies those items that were escalated to
the Enterprises’ business and risk committees. OHRP reinforced that requirement in a
February 5, 2013, memorandum to the Enterprises’ single-family risk officials.

Despite these instructions from OHRP to the Enterprises that they submit for review those
items that were escalated to the Enterprises’ business and risk committees, both Enterprises
did not follow that instruction. Rather, each Enterprise advised us that it submitted to OHRP
those materials that the revised LOIs require for consideration by the conservator. However,
each Enterprise interpreted this LOI requirement differently: one Enterprise decided to
submit all mortgage selling policies to OHRP rather than make individual determinations as to
which policies were significant, and the other Enterprise provided only those policies it
deemed “significant.”

OHRP officials said they were aware that the Enterprises were using the LOIs rather than the
Process definition to determine what to submit for review. OHRP reported to us that it was
aware that one Enterprise only submitted those selling policies that it deemed “significant”
under its interpretation of the LOIs, causing it to submit few mortgage selling policies for
OHRP’s review.

The head of OHRP advised us that, as a result of the relatively few submissions from one
Enterprise, OHRP’s “visibility” into its single-family credit policy, selling, and underwriting
standards is limited. OHRP’s records reflected a wide disparity in the Enterprises’
submission of mortgage selling policies as of August 2014.10 Although the new head of
OHRP was promoted into that position in October 2014, she reported to us that she first began
a series of monthly discussions with the Enterprise that submitted fewer mortgage selling
policies in June or July 2015 in an effort to get more visibility and ultimately persuade that
Enterprise to increase the number of mortgage selling policies it submits to OHRP.

In September 2008, FHFA placed Fannie Mae and Freddie Mac into conservatorships
pursuant to its authority under the Housing and Economic Recovery Act of 2008 (HERA).11
HERA vested FHFA, as the Enterprises’ conservator, with sweeping powers; the Agency is
empowered to operate the Enterprises “with all the powers of the shareholders, the directors,
and the officers” and possesses broad authority to take any action appropriate to preserve and

10
     From January through August 2014, one Enterprise submitted 33 policies while the other submitted only 4.
11
  Pub. L. No. 110-289, 122 Stat. 2654 (2008). HERA extensively amended the Federal Housing Enterprises
Financial Safety and Soundness Act of 1992, 12 U.S.C. §§ 4501-4642.



                                  OIG  COM-2016-001  December 17, 2015                                        12
conserve Enterprise assets. As long as the Enterprises remain in conservatorships, FHFA is
authorized by statute to operate them.

While FHFA has delegated to the Enterprises the responsibility to create and revise mortgage
selling policies, it recognized in its establishment of the Process, which was in response to our
2012 Audit Report recommendation, that its oversight of the Enterprises’ mortgage selling
policies was critical to fulfilling its responsibilities as conservator. We were not able to
determine the reason(s) why OHRP waited almost a year, that is, until June or July 2015,
before it raised its concerns with the affected Enterprise about the lack of visibility caused by
its submission of relatively few mortgage selling policies. At that time, OHRP could have
improved its visibility into the Enterprise’s single-family credit policy, selling, and
underwriting standards by directing it to immediately increase its submissions or setting a
time frame within which the Enterprise must do so, but OHRP did neither. Instead, it began a
dialogue with the affected Enterprise in an effort to increase its submissions over time.




CONCLUSION ............................................................................

In March 2013, OIG reviewed the written Process and relied on FHFA’s representations that
implementation of the Process was underway when it determined to close an outstanding
recommendation in its 2012 Audit Report. More than two years later, two of the three
requirements in the Process have not been implemented and implementation of the third
requirement has not been sufficient to provide OHRP with full visibility into the single-family
credit policy, selling, and underwriting standards of one Enterprise. In light of these
significant shortcomings, we are reopening the recommendation in our 2012 Audit Report.
We will hold open our recommendation until FHFA demonstrates that it has fully
implemented a formal process to review the Enterprises’ underwriting standards and variances
from them.




                            OIG  COM-2016-001  December 17, 2015                                  13
OBJECTIVE, SCOPE, AND METHODOLOGY .................................

Our objective for this compliance review was to determine whether OHRP implemented the
three key requirements of the Process over the period January 1, 2014, through March 31,
2015.

To address our objective, we asked OHRP to provide documentation of meetings held with
the Enterprises as well as annual and monthly memoranda prepared as required by the
variances and bulk and negotiated transactions requirements of the Process.

We also asked OHRP to provide documentation of its reviews of the mortgage selling policies
that the Enterprises submitted during the period covered by our review. We tested OHRP’s
compliance with the Process’ requirements for reviewing mortgage selling policies by
comparing the analysis memoranda and approvals thereof against the requirements of the
Process. We also checked OHRP’s records and other documents to determine whether policy
determinations were sent to the Enterprises within the Process’ 15-day target date.

During the course of our analysis, we also identified the disparity in the number of mortgage
selling policies submitted by the Enterprises that is discussed in this compliance review. Our
analysis of this topic included reviews of publicly available information on the Enterprises’
periodic revisions to their seller/servicer guides.

We also interviewed the head of OHRP and OHRP’s Supervisory Policy Analyst, as well as
staff members responsible for implementing the Process’ requirements. Additionally, we
interviewed Fannie Mae’s Senior Vice President & Chief Credit Officer for Single-Family –
Single-Family Mortgage Business and Freddie Mac’s Vice President & Division Chief Credit
Risk Officer, Single Family.

We conducted our compliance review during the period June to October 2015 under the
authority of The Inspector General Act of 1978, and in accordance with the Quality Standards
for Inspection and Evaluation (January 2012), which were promulgated by the Council for the
Inspectors General on Integrity and Efficiency.

FHFA’s response to this report is reproduced in its entirety in Appendix A.




                           OIG  COM-2016-001  December 17, 2015                                14
APPENDIX A .............................................................................

FHFA’s Comments on OIG’s Findings and Recommendation




                         OIG  COM-2016-001  December 17, 2015                      15
APPENDIX B..............................................................................

Selling Variance, Waivers and Exceptions Checklist




                         OIG  COM-2016-001  December 17, 2015                      16
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 Investigations – Hotline
                400 Seventh Street SW
                Washington, DC 20219




                            OIG  COM-2016-001  December 17, 2015                         17