oversight

Eleventh Semiannual Report to the Congress

Published by the Federal Housing Finance Agency, Office of Inspector General on 2016-03-31.

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

Federal Housing Finance Agency
  Office of Inspector General

  Se m iann ual R ep ort to t he Cong r e ss
           October 1, 2015, through March 31, 2016
Federal Housing Finance Agency
 Office of Inspector General




 Semiannual Report           to the       Congress
       October 1, 2015, through March 31, 2016
Table of Contents	

Our Vision	                                                    1
Our Mission	                                                   1
Core Values	                                                   2
Snapshot of OIG Accomplishments October 1, 2015–March 31, 2016	4
Monetary Results October 1, 2015–March 31, 2016	               5
A Message from the Inspector General	                          6
Executive Summary	                                             8
	Overview	                                                              8
	 This Report	                                                          9
OIG’s Oversight Strategy	                                              10
	 Risk-Focused Strategy	                                               10
OIG’s Organizational Structure	                                        13
	Leadership	                                                           13
OIG’s Accomplishments from 2010 to Present	                            17
OIG’s Audit, Evaluation, and Compliance Activities	                    18
	 Conservatorship Operations	                                          18
	 Supervision of the Regulated Entities	                               24
	 Information Technology Security	                                     29
	Recommendations	                                                      31
OIG’s Investigations	                                                  32
	 Investigations: Civil Cases	                                         33
	 Investigations: Criminal Cases	                                      34
	Outreach	                                                             43
	 Investigations: Administrative Actions	                              44
	 Suspended Counterparty Referrals	                                    44
OIG’s Regulatory Activities and Outreach	                              45
	 Regulatory Activities	                                               45
	 Public and Private Partnerships, Outreach, and Communications	       46
Appendix A: Glossary and Acronyms	                                     50
Appendix B: OIG Recommendations	                                       58
Appendix C: Information Required by the Inspector General Act and 	
            Subpoenas Issued	                                          82
Appendix D: OIG Reports	                                               87
Appendix E: OI Publicly Reportable Investigative Outcomes Involving	
            Condo Conversion and Builder Bailout Schemes	              88




      Federal Housing Finance Agency Office of Inspector General
Appendix F: OI Publicly Reportable Investigative Outcomes Involving Fraud
             Committed Against the Enterprises, the FHLBanks, or FHLBank
             Member Institutions	                                          92
Appendix G: OI Publicly Reportable Investigative Outcomes Involving
             Loan Origination Schemes	                                     95
Appendix H: OI Publicly Reportable Investigative Outcomes Involving
             Short Sale Schemes	                                          102
Appendix I: OI Publicly Reportable Investigative Outcomes Involving
             Loan Modification and Property Disposition Schemes	          105
Appendix J: OI Publicly Reportable Investigative Outcomes Involving
             Property Management and REO Schemes	                         110
Appendix K: OI Publicly Reportable Investigative Outcomes Involving
             Adverse Possession Schemes	                                  112
Appendix L: OI Publicly Reportable Investigative Outcomes Involving
             RMBS Schemes	                                                115
Appendix M: Figure Sources	                                               116
Appendix N: Endnotes	                                                     117




                      Semiannual Report to the Congress • October 1, 2015–March 31, 2016
Federal Housing Finance Agency Office of Inspector General
Our Vision
Our vision is to be an organization that promotes excellence and trust through exceptional service to the
Federal Housing Finance Agency (FHFA or Agency), Congress, stakeholders, and the American people.
The FHFA Office of Inspector General (OIG) achieves this vision by being a first-rate independent oversight
organization in the federal government that acts as a catalyst for effective management, accountability, and
positive change in FHFA and brings enforcement actions against those, whether inside or outside of the federal
government, who waste, steal, or abuse government funds in connection with the Agency, Fannie Mae and
Freddie Mac (the Enterprises), or any of the Federal Home Loan Banks (FHLBanks).


Our Mission
OIG promotes economy, efficiency, and effectiveness and protects FHFA and the entities it regulates against
fraud, waste, and abuse, contributing to the liquidity and stability of the nation’s housing finance system.
We accomplish this mission by providing independent, relevant, timely, and transparent oversight of the
Agency in order to promote accountability, integrity, economy, and efficiency; advising the Director of the
Agency and Congress; informing the public; and engaging in robust enforcement efforts to protect the
interests of the American taxpayers.




                                 Semiannual Report to the Congress • October 1, 2015–March 31, 2016            1
Core Values
OIG’s core values are integrity, respect, professionalism, and results. Accordingly, we strive to maintain the
highest level of integrity, professionalism, accountability, and transparency in our work. We follow the facts—
wherever they go, without fear or favor; report findings that are supported by sufficient evidence in accordance
with professional standards; and recommend actions tied to our findings. Our work is risk-based, credible, and
timely. We play a vital role in promoting the economy and efficiency in the management of the Agency and
view our oversight role both prospectively (advising the Agency on internal controls and oversight, for example)
and retrospectively (by assessing the Agency’s oversight of Fannie Mae, Freddie Mac, and the Federal Home
Loan Banks in its role as regulator, and its operation of Fannie Mae and Freddie Mac in its role as conservator).

Because FHFA has been placed in the extraordinary role of regulator and conservator of two Enterprises, which
support over $5 trillion in mortgage loans and guarantees, our oversight role reaches matters delegated by
FHFA to the Enterprises to ensure that the Enterprises are satisfying their delegated responsibilities and that
taxpayer monies are not wasted or misused.

We emphasize transparency in our oversight work to the fullest reasonable extent to foster accountability in
the use of taxpayer monies and program results. We seek to keep the Agency’s Director, members of Congress,
and the American taxpayers fully and currently informed of our oversight activities, including problems and
deficiencies in the Agency’s activities as regulator and conservator and the need for corrective action.

Report fraud, waste, or abuse by visiting www.fhfaoig.gov/ReportFraud or calling (800) 793-7724.




2       Federal Housing Finance Agency Office of Inspector General
Semiannual Report to the Congress • October 1, 2015–March 31, 2016   3
              Snapshot of OIG Accomplishments
                         October 1, 2015–March 31, 2016



     OIG Investigations Monetary Results

          Restitution	$174,169,402

          Fines/Special Assessments/Seizures	                      $306,267,255

          Recoveries	$549,400

          Settlements	$3,150,266,000

          TOTAL	$3,631,252,057

     Judicial Actions

          Indictments/Charges	53

          Arrests	47

          Convictions/Pleas	73

          Sentencings	75

          Suspensions/Debarment Referrals 	                                 63

     Hotline Contacts	                                                    1,125


     Audit and Evaluation Reports Issued	                                    8

     White Papers Issued	                                                    2

     Office of Compliance and Special Projects Reports Issued	               2

     Nonmonetary Recommendations Made	                                      27


     Regulations Reviewed	                                                   6


     Responses to Requests Under the Freedom of Information Act	            43




4   Federal Housing Finance Agency Office of Inspector General
                                     Monetary Results
                             October 1, 2015–March 31, 2016


OIG’s fiscal year 2016 (FY16) budget is $49.9 million. During this reporting period the monetary results
as an outcome of OIG criminal and civil investigations are 72 times greater than the fiscal year budget, as
demonstrated in Figure 1 (see below).


Figure 1. OIG Monetary Results October 1, 2015, to March 31, 2016, vs. FY16 OIG Budget




                                 Semiannual Report to the Congress • October 1, 2015–March 31, 2016           5
A Message from the Inspector General
I am pleased to present OIG’s eleventh Semiannual Report to the Congress,
which covers the period from October 1, 2015, to March 31, 2016.

Our mission is to promote economy, efficiency, and effectiveness of FHFA
and protect FHFA, the Enterprises in its conservatorship, and the entities
it regulates against fraud, waste, and abuse, through independent, relevant,
timely, and transparent oversight and robust law enforcement efforts. OIG
seeks to be a voice for, and protect the interests of, those who have funded
Treasury’s investment in the Enterprises—the American taxpayers.

Created by statute in July 2008, FHFA is charged with serving as regulator
of the Enterprises and the FHLBanks. Once the Enterprises were placed in
conservatorship in September 2008 and FHFA was appointed conservator
of them, it was placed in the extraordinary dual role of supervisor and
conservator. Now in their eighth year, FHFA’s conservatorships of the
                                                                                        Laura S. Wertheimer
Enterprises are of unprecedented scope, scale, and complexity. FHFA currently Inspector General of the
serves in a unique role: it is both conservator and regulator of the Enterprises        Federal Housing Finance Agency

and regulator of the FHLBanks. The scope, complexity, and duration of the
Agency’s dual roles necessarily mean that OIG must structure its oversight program to examine FHFA’s exercise
of its dual responsibilities, which differ significantly from the typical federal financial regulator.

To best leverage our resources to strengthen OIG’s oversight, we focus our audit and evaluation efforts on
assessing existing controls on those programs and operations that we have determined to pose the greatest
financial, governance, and/or reputational risk to FHFA, the Enterprises in its conservatorship, and the entities
it regulates, and we conduct verification testing of closed recommendations to independently verify whether
the Agency has implemented in full the corrective actions it represented to OIG that it intended to take. In this
Semiannual Report, we provide a snapshot of the 12 reports we published during this period, categorized by
the risk to FHFA, the Enterprises in its conservatorship, and the entities it regulates.

During this reporting period, OIG’s investigations resulted in significant criminal prosecutions and civil fraud
enforcement, including:

•	 53 indictments;

•	 5 trials;

•	 73 convictions;

•	 75 sentencings;

•	 More than $480 million in criminal fines, restitutions, forfeitures, and settlements; and

•	 Over $3 billion in civil settlements.


6        Federal Housing Finance Agency Office of Inspector General
Where our investigations develop sufficient evidence to prove the elements of a crime, we will refer it for
criminal prosecution every time. We work closely with prosecutors to look for the evidence that they believe is
sufficient to bring criminal charges. Where we do not find evidence sufficient to refer the matter for criminal
charges, we seek to bring civil claims.

In our written reports and our law enforcement efforts, both civilly and criminally, we hold institutions and
their officials accountable for their actions or inactions. We continue to work diligently to act as a catalyst
for effective management, accountability, and positive change within FHFA and the Enterprises in its
conservatorship.

Our achievements would not be possible without the dedication and hard work of the professionals at OIG,
and I thank them for their service.



Laura S. Wertheimer
Inspector General
April 29, 2016




                                  Semiannual Report to the Congress • October 1, 2015–March 31, 2016              7
Executive Summary

Overview                                                   Initially, conservatorship was intended to be a “time
                                                           out” during a period of extreme stress to stabilize the
The Federal Housing Finance Agency (FHFA                   mortgage markets and promote financial stability.
or Agency) was created on July 30, 2008, when              Now in their eighth year, FHFA’s conservatorships
the President signed into law the Housing and              of the Enterprises are of unprecedented scope, scale,
Economic Recovery Act of 2008 (HERA).*                     and complexity. Since September 2008, FHFA
HERA charged the newly created FHFA to serve               has served in the unique role of conservator and
as regulator of Fannie Mae and Freddie Mac (the            regulator of the Enterprises and regulator of the
Enterprises) and of the Federal Home Loan Bank             FHLBank System.
(FHLBank) System (collectively, the government-            HERA also amended the Inspector General Act
sponsored enterprises, or the GSEs) and enhanced           of 1978 to establish an Office of Inspector General
its resolution authority.                                  (OIG) for FHFA. OIG began operations on
In September 2008, FHFA exercised its authority            October 12, 2010, when its first Inspector General
under HERA to place Fannie Mae and Freddie Mac             (IG) was sworn in. Because FHFA has acted as
into conservatorship in an effort to stabilize the         both regulator and conservator of the Enterprises
residential mortgage finance market. Concurrently,         since September 2008, OIG’s responsibilities are
the Department of the Treasury (Treasury)                  correspondingly broader than those of an IG for
entered into Senior Preferred Stock Purchase               any other prudential federal financial regulator
Agreements (PSPAs) with each Enterprise                    because they include oversight of FHFA’s actions as
to ensure that each maintained a positive net              conservator in order to protect the U.S. taxpayers’
worth going forward. Under these PSPAs, U.S.               investment of $187.5 billion in the Enterprises. We
taxpayers, through Treasury, have invested a total of      accomplish this mission by providing independent,
$187.5 billion into the Enterprises since 2008. As         relevant, timely, and transparent oversight in order
conservator of the Enterprises, FHFA is authorized         to promote accountability, integrity, economy, and
under HERA to:                                             efficiency; advising the Director of the Agency and
                                                           Congress; informing the public; and engaging in
•	 Succeed to all rights and powers of any                 robust enforcement efforts to protect the interests of
   stockholder, officer, or director of the Enterprises;   the American taxpayers.
•	 Operate the Enterprises; and

•	 Take such action as may be:
                                                             *Terms and phrases in bold are defined in
    űű Necessary to put the Enterprises in a sound
                                                             Appendix A, Glossary and Acronyms. If you
       and solvent condition; and
                                                             are reading an electronic version of this
    űű Appropriate to carry on the Enterprises’              Semiannual Report, then simply move your
       business and preserve and conserve the                cursor to the term or phrase and click for
       Enterprises’ assets and property.1                    the definition.



8       Federal Housing Finance Agency Office of Inspector General
This Report

This Semiannual Report discusses OIG operations
from October 1, 2015, to March 31, 2016. Among
other things, it:

•	 Explains our risk-based oversight strategy;

•	 Describes our organizational structure;

•	 Discusses the audits, evaluations, compliance
   tests, and white papers published during the
   period;

•	 Summarizes the numerous OIG investigations
   that resulted in 53 indictments, 73 convictions,
   and 75 sentencings against individuals responsible
   for fraud, waste, or abuse in connection with
   programs and operations of FHFA and the
   Enterprises; more than $480 million in criminal
   fines, restitutions, forfeitures, and settlements;
   and over $3 billion in civil settlements;

•	 Highlights our outreach during the period;

•	 Provides comments to the Agency’s proposed
   “duty to serve” regulations; and

•	 Reviews the status of OIG’s audit, evaluation,
   and compliance recommendations.




                                 Semiannual Report to the Congress • October 1, 2015–March 31, 2016   9
OIG’s Oversight Strategy
OIG began operations on October 12, 2010. It             FHFA’s operations and the external environment;
was established by HERA, which amended the               discussions with FHFA and officials of the
Inspector General Act. The primary mission of OIG        regulated entities, the public, Congress, and other
is to conduct independent audits, evaluations, and       government officials; reviews of relevant reports and
investigations to promote economy and efficiency         documents prepared by FHFA and external parties;
and to prevent and detect fraud, waste, abuse, and       risk assessments performed in key areas related
mismanagement in the programs and operations             to FHFA’s mission; and matters referred to OIG
of FHFA, including its conservatorships of the           through its hotline. The four areas of significant risk
Enterprises.                                             are:

                                                         •	 Conservatorship Operations. Since
OIG’s operations are funded by annual assessments
                                                            September 2008, FHFA has administered
that FHFA levies on the Enterprises and the
                                                            two conservatorships of unprecedented scope
FHLBanks pursuant to 12 U.S.C. § 4516. For
                                                            and undeterminable duration. Under HERA,
FY16, OIG’s operating budget is $49.9 million.
                                                            the Agency’s actions as conservator are not
                                                            subject to judicial review or intervention,
Risk-Focused Strategy                                       nor are they subject to procedural safeguards
                                                            that are ordinarily applicable to regulatory
OIG’s broad oversight mission encompasses the               activities such as rulemaking. As conservator
full scope of the Agency’s programs and operations,         of the Enterprises, FHFA exercises control
including its conservatorship of the Enterprises.           over trillions of dollars in assets and billions
In February 2014, OIG issued a Strategic Plan               of dollars in revenue, and makes business and
for fiscal years 2015–2017 with four high-level             policy decisions that influence and impact the
goals that serve as a blueprint for OIG’s risk-based        entire mortgage finance industry. For reasons of
oversight of FHFA and independent reporting.                efficiency, concordant goals with the Enterprises,
To best leverage our resources to strengthen OIG’s          and operational savings, FHFA has determined
oversight, we determined to focus our resources             to delegate revocable authority for general
on programs and operations that pose the greatest           corporate governance and day-to-day matters to
financial, governance, and/or reputational risk to          the Enterprises’ boards of directors and executive
the Agency, the Enterprises, and the FHLBanks.              management.
Because our work plan is dynamic, it adjusts to a
                                                         •	 Supervision of the Regulated Entities. As
changing risk profile.
                                                            discussed earlier, FHFA plays a unique role as
Our current work plan, adopted in February 2016,            both conservator and regulator for the Enterprises
continues our focus on four areas of significant            and as regulator for the FHLBank System.
risk facing FHFA. This plan is based on: ongoing            Effective supervision by FHFA is fundamental to
OIG work; OIG published reports; other publicly             ensuring the safety and soundness of its regulated
available information; OIG’s general knowledge of           entities. Within FHFA, the Division of Federal
                                                            Home Loan Bank Regulation is responsible

10     Federal Housing Finance Agency Office of Inspector General
  for supervision of the FHLBank System,                   in fiscal year 2014, systems security continues
  and the Division of Enterprise Regulation is             to be a preeminent issue for businesses and
  responsible for supervision of the Enterprises.          individuals alike. The regulated entities, like most
  FHFA’s supervisory activities include designing          modern institutions, rely on numerous, complex
  a comprehensive, risk-based supervisory strategy         information technology (IT) systems to conduct
  (examination planning), conducting on-site               almost every aspect of their work. These systems
  examinations (examination execution), and                manage processes to guarantee and purchase
  monitoring remediation of deficiencies identified        loans, supporting more than $5 trillion in Fannie
  during examinations (oversight).                         Mae and Freddie Mac mortgage assets. Both
                                                           Enterprises and the FHLBanks have been the
•	 Counterparties and Third Parties. The
                                                           subject of cyber attacks, although none caused
   Enterprises rely heavily on counterparties and
                                                           significant harm. All of the entities regulated
   third parties for a wide array of professional
                                                           by FHFA acknowledge that the substantial
   services, including mortgage origination and
                                                           precautions put into place to protect their
   servicing. That reliance exposes the Enterprises
                                                           information systems may be vulnerable and
   to counterparty risk—that the counterparty will
                                                           penetration of their systems poses a material
   not meet its contractual obligations. FHFA has
                                                           risk to their business operations. Further, the
   delegated to the Enterprises the management
                                                           Enterprises are increasingly relying on third-
   of their relationships with counterparties and
                                                           party service providers, requiring the sharing
   reviews that management largely through its
                                                           of sensitive information between Enterprise
   regulatory responsibilities. One of the most
                                                           and third-party systems. Consequently, the
   significant counterparty risks is the risk posed
                                                           Enterprises face an increased risk in that an
   by loan originators and servicers that are not
                                                           operational failure by a third party will adversely
   depository institutions (also called nonbanks).
                                                           affect them.
   As participants in the mortgage market change,
   counterparties can affect the risks to be managed     Our revised Audit and Evaluation Plan is available at
   by the Enterprises. Nonbanks are lightly              www.fhfaoig.gov/Reports/AuditAndEvaluationPlan.
   regulated by federal financial regulatory agencies    The work plan for each identified risk has been
   and may not have the same financial strength,         designed to produce reports that can be generated
   liquidity, or operational capacity needed to meet     promptly both to increase transparency and to
   their obligations to the Enterprises as depository    improve the programs and operations of the Agency
   institutions. As a result, there is a risk that a     without compromising the rigor of the methodology.
   nonbank seller that failed to honor its contractual
   obligations, such as by selling to an Enterprise
   loans that did not comply with the Enterprise’s
   lending requirements, would not have sufficient
   capital or liquidity to honor repurchase demands
   by the Enterprises for noncompliant loans.

•	 Information Technology Security. With over
   67,000 cyber incidents reported to the United
   States Computer Emergency Readiness Team


                                 Semiannual Report to the Congress • October 1, 2015–March 31, 2016        11
12   Federal Housing Finance Agency Office of Inspector General
OIG’s Organizational Structure
OIG consists of the Inspector General, senior            Inspector General and provides independent legal
staff, and OIG offices, which principally are its        advice, counseling, and opinions to OIG about its
operational offices: the Office of Audits, Office of     programs and operations. OC also reviews audit
Evaluations, Office of Investigations, and the Office    and evaluation reports for legal sufficiency and
of Compliance and Special Projects. Additionally,        compliance with OIG’s policies and priorities.
OIG’s Executive Office includes the Office of            Additionally, it reviews drafts of FHFA regulations
Chief Counsel, the Office of External Affairs, the       and policies and prepares comments as appropriate.
Office of Communications, and OIG’s Equal                OC also coordinates with FHFA’s Office of
Employment Opportunity Program Office and                General Counsel and manages OIG’s responses to
provides organization-wide supervision; the Office       requests and appeals made under the Freedom of
of Risk Analysis, the Office of Administration, and      Information Act and the Privacy Act.
the Office of Internal Controls and Facilities provide
                                                         The Office of External Affairs is also within EO, and
organization-wide support.
                                                         it responds to inquiries from members of Congress.

Leadership                                               The Office of Communications is also within EO,
                                                         and it responds to inquiries from the press and
On May 22, 2014, President Barack Obama                  public.
nominated Laura S. Wertheimer to the position of         Additionally, OIG’s Equal Employment Opportunity
FHFA Inspector General; she was confirmed by the         Program Office is within EO, and it oversees
Senate on September 18, 2014, and sworn in shortly       compliance with federal requirements for equal
thereafter. Prior to becoming Inspector General, Ms.     opportunities in the workplace.
Wertheimer was a partner at a law firm where she
led numerous independent internal investigations         Office of Risk Analysis
on behalf of audit, governance, and special board
                                                         To exercise rigorous oversight, we must identify
committees of publicly traded companies. She also
                                                         emerging risks and revise our work plan as new
represented public companies, professional service
                                                         risks emerge and existing risks are well-controlled.
partnerships, and corporate directors and officers
                                                         Our Office of Risk Analysis uses data mining,
in regulatory investigations and enforcement
                                                         quantitative data, and analysis of data and relevant
proceedings under the federal securities laws.
                                                         information to identify and monitor emerging and
                                                         ongoing areas of risk. The identification, analysis,
Executive Office
                                                         and prioritization of risk areas allow us to utilize
The Executive Office (EO) provides leadership            resources strategically and realign our Audit and
and programmatic direction for OIG’s offices and         Evaluation Plan, in real time, to address those risks.
activities.

EO includes the Office of Chief Counsel (OC),
which serves as the chief legal advisor to the


                                  Semiannual Report to the Congress • October 1, 2015–March 31, 2016        13
Office of Audits                                          outside of government, who waste, steal, or abuse
                                                          government monies in connection with programs
The Office of Audits (OA) is tasked with designing
                                                          and operations of the Agency and the GSEs. OI
and conducting independent performance
                                                          pursues wrongdoers within the Agency and the
audits with respect to the Agency’s programs and
                                                          GSEs as well as individuals and entities that make
operations. OA also undertakes projects to address
                                                          misrepresentations to the Enterprises in connection
statutory requirements and stakeholder requests.
                                                          with loans that the Enterprises buy or guarantee.
For example, the Improper Payments Information
Act of 2002 (IPIA), as amended, requires OIG              OI also takes the lead in responding to referrals
annually to audit FHFA’s compliance with IPIA             made to OIG’s hotline through telephone, email,
during the prior fiscal year. Additionally, the Federal   website, and in-person complaints, abiding by all
Information Security Management Act of 2002               applicable whistleblower protections set forth in
(FISMA) directs OIG annually to audit whether             the Inspector General Act. Our hotline is staffed by
FHFA’s and OIG’s information security programs            a third-party vendor to protect the anonymity of
and practices meet FISMA’s security requirements.         the callers and provides easy access for individuals
                                                          to report concerns, allegations, information, and
Under the Inspector General Act, inspectors general
                                                          evidence of violations of criminal and civil laws in
are required to comply with the Government
                                                          connection with programs and operations of the
Accountability Office’s (GAO) Government Auditing
                                                          Agency. During this reporting period, our hotline
Standards (Yellow Book). OA performs its audits
                                                          has received and analyzed 1,125 contacts. When OI
and attestation engagements in accordance with the
                                                          determines that a full investigation is not warranted,
Yellow Book.
                                                          it works closely with OA and OE to determine
Office of Evaluations                                     whether an audit or evaluation project is advisable.

The Office of Evaluations (OE) conducts                   To maximize criminal and civil law enforcement, OI
program and management reviews and makes                  works closely with other law enforcement agencies,
recommendations for improvement where                     including the Department of Justice (DOJ), the
applicable. OE provides independent and objective         Office of the Special Inspector General for the
reviews, studies, survey reports, and analyses of         Troubled Asset Relief Program (SIGTARP), the
FHFA’s programs and operations. The Inspector             Postal Inspection Service, the Federal Bureau of
General Reform Act of 2008 requires that                  Investigation (FBI), the Department of Housing
inspectors general adhere to the Quality Standards        and Urban Development Office of Inspector
for Inspection and Evaluation (Blue Book), issued         General (HUD-OIG), the Secret Service, IRS-
by the Council of the Inspectors General on               Criminal Investigation (IRS-CI), and state and local
Integrity and Efficiency (CIGIE). OE performs its         law enforcement entities nationwide.
evaluations in accordance with the Blue Book.
                                                          Office of Compliance and Special Projects
Office of Investigations                                  The Office of Compliance and Special Projects
Staffed with special agents (SAs), investigators,         (OCo), created in December 2014, addresses the
analysts, prosecutors, and attorney advisors, the         reputational risk arising from the practical necessity
Office of Investigations (OI) conducts criminal and       of closing OIG recommendations based largely
civil investigations into those, whether inside or        upon representations from the Agency. Pursuant


14      Federal Housing Finance Agency Office of Inspector General
to the Inspector General Act, inspectors general         testing. Third, it consults with each division,
(IGs) recommend remedial actions to correct              prior to closure of a recommendation, to facilitate
shortcomings identified through reviews of agency        application of a single standard across the office
programs and operations. When an agency accepts          for closing recommendations. Last, it conducts
an IG recommendation and takes steps to begin            verification testing on closed recommendations
implementation of the corrective action, the agency      to verify independently whether FHFA has
reports on its efforts to the IG and the IG typically    implemented in full the corrective actions it
relies on materials and representations from the         represented to OIG that it intended to take.
agency to close the recommendation. Practices vary       The results of OCo’s testing are published in
across IG offices respecting responsibility to track     “compliance reviews.” These compliance reviews
outstanding recommendations, standards used to           (three of which have been issued) permit FHFA,
close open recommendations, and efforts to validate      Congress, and the public to assess the impact of
the efficacy of remedial agency actions in response      OIG’s recommendations, as well as the efficacy of
to IG recommendations.                                   the Agency’s implementation of them.

Historically, OIG reports were prepared by three         To address OIG’s lack of a tool with which to track
operating divisions within OIG—OA, OE, and               all open recommendations across the office, OCo
OI—and each division issued recommendations to           designed and implemented a Recommendation
the Agency. The status of open recommendations           Tracking System (RTS), which is now accessible
was tracked separately by each division in its own       to every OIG employee. Each division issuing
tracking system, and each division independently         a report with trackable recommendations is
determined whether the Agency’s representations          responsible for entering them into RTS upon
and corrective actions, if any, were sufficient          issuance using established data fields and updating
to close open recommendations. The lack of a             each such entry with information from the Agency,
comprehensive and standardized tracking system           including timetables for remediation and relevant
prevented OIG from efficiently determining               implementation documents. RTS automatically
the status of all recommendations across the             notifies designated users when an Agency corrective
office. Moreover, it led to different standards and      action is due, thereby facilitating effective and
practices within OIG for closing recommendations         timely follow-up and review prior to closure.
and for follow-up after closure to assess and
                                                         By eliminating the legacy tracking systems used
ensure the effectiveness and impact of both the
                                                         by different OIG divisions and replacing them
recommendations and the Agency’s corrective
                                                         with a single, office-wide, comprehensive, and
actions.
                                                         current source of data on all recommendations
OCo is charged with several critical responsibilities.   to which an Agency response is required, RTS
First, it consults with each division in the             ensures consistency in the collection and storage
development of recommendations to ensure                 of, and access to, information relating to tracked
that such recommendations, if accepted and               recommendations. It provides OIG and its
implemented, will be susceptible to follow-up            employees with accurate information as to the
verification testing. Second, it tracks, in real time,   real-time status of every recommendation, as well
the status of all OIG recommendations, from              as automatic notification on the date the Agency
issuance to closure to subsequent follow-up and          is expected to complete its implementation of a


                                  Semiannual Report to the Congress • October 1, 2015–March 31, 2016       15
corrective action. Because RTS data can be filtered              Office of Administration
or aggregated, RTS facilitates better reporting.
                                                                 The Office of Administration (OAd) manages and
Consistent with the primary mission of OCo,                      oversees OIG administration, including budget,
RTS assists in the planning and development of                   human resources, financial management, and IT.
compliance reviews designed to test the Agency’s                 For human resources, OAd develops policies to
diligence in following through on its corrective                 attract, develop, and retain exceptional people,
actions and the longer-term impact of those actions.             with an emphasis on linking performance planning
Compliance reviews are important because the                     and evaluation to organizational and individual
Inspector General Act does not provide an IG with                accomplishment of goals and objectives. OAd
authority to ensure that its recommendations are                 also coordinates budget planning and execution
adopted, or that, once adopted, actions taken by                 and oversees all of OIG’s procedural guidance for
an agency to correct shortcomings identified by an               financial management and procurement integrity.
IG are fully implemented and maintained. Once
an IG closes a recommendation, the success or                    Office of Internal Controls and Facilities
failure of an agency’s corrective action, or decision            The Office of Internal Controls and Facilities
to discontinue the corrective action, may not be                 manages and oversees OIG’s workplace safety,
discovered by an IG without follow-up on closed                  facilities, and internal controls.
recommendations. As OCo’s first three compliance
reviews reflect,a OIG has found instances in which
polices or programs offered as corrective actions
by the Agency, and relied upon by OIG to close
recommendations, were, in the wake of OIG’s
closure, abandoned or not implemented in full by
the Agency, nullifying the intended benefits of the
recommendations.

At the request of the IG, OCo also performs high-
value, short-turnaround special projects.




a
 Each of these reviews is accessible on our website: OIG’s Compliance Review of FHFA’s Implementation of Its Housing Finance
Examiner Commission Program (COM-2015-001); Compliance Review of FHFA’s Implementation of Its Procedures for Overseeing
the Enterprises’ Single-Family Mortgage Underwriting Standards and Variances (COM-2016-001); Compliance Review of FHFA’s
Oversight of Enterprise Executive Compensation Based on Corporate Scorecard Performance (COM-2016-002).


16       Federal Housing Finance Agency Office of Inspector General
OIG’s
 OIG’sAccomplishments
       Accomplishments from
                       from 2010 to Present
                                    Present

        141           Reports
                                                                    54
                                                                    43
                                                                               Audits
                                                                               Evaluations
                                                                    10
        262
                                                                               White Papers
                      Recommendationsa
                                                                     8         Evaluation Surveys
                                                                     4         Compliance Reports
                                                                    11         Semiannual Report to Congress
                                                                    12         Systemic Implication Reports (SIRs)b




        537           Investigations
                                                                     $4.712 billion
                                                                    $37.379 billion
                                                                                                        Criminal Monetary Resultsc
                                                                                                        Civil Monetary Resultsd


        715           Indictments/
                      Chargese


        458           Convictions/Pleas




            56        Regulatory
                      Activities




      a Public recommendations only
      b 12 SIRs have been produced, of which 5 have been published publicly and 7 remain privileged due to their investigative content
      c Includes Criminal Restitution and Forfeitures/Fines/Special Assessments and Seizures
a     d Includes
    Public recommendations    only.
                 Settlements/Recoveries/Fines
b
 12e SIRs have been
      Superseding     produced,
                  indictments areof which in
                                 included 5 have    been published publicly and 7 remain privileged due to their investigative content.
                                             this total
c
 Includes criminal restitution and forfeitures/fines/special assessments and seizures.
d
 Includes settlements/recoveries/fines.
e
 Superseding indictments are included in this total.


                                            Semiannual Report to the Congress • October 1, 2015–March 31, 2016                           17
OIG’s Audit, Evaluation, and Compliance Activities

OIG actively strives to fulfill its mission through       dividends on its investment. Despite their high
audit, evaluation, and compliance projects and            leverage, lack of capital, conservatorship status,
reports and through investigations. Our Audit and         and uncertain future, the Enterprises have grown
Evaluation Plan identifies the four risk areas on which   in size during conservatorship and, according to
our audit and evaluation projects have been focused.      FHFA, their combined market share of newly issued
                                                          mortgage-backed securities is approximately
We now discuss our oversight activities during the
                                                          70%.3 The Enterprises’ combined total assets are
reporting period by risk area.
                                                          approximately $5.2 trillion and their combined debt
                                                          exceeds $5 trillion.4 Although market conditions
Conservatorship Operations                                have improved and the Enterprises have returned
                                                          to profitability, their ability to sustain profitability
When then-Secretary of the Treasury Henry Paulson         in the future cannot be assured for a number of
announced the conservatorships in September               reasons: the winding down of their investment
2008, he explained that they were meant to be a           portfolios and reduction in net interest income;
“time out” during which the Enterprises would be          the level of guarantee fees they will be able to
stabilized, enabling the “new Congress and the next       charge; the future performance of their business
Administration [to] decide what role government           segments; the elimination by 2018 of a capital
in general, and these entities in particular, should      cushion to buffer against losses; and the significant
play in the housing market.”2 The current FHFA            uncertainties involving key market drivers such as
Director has echoed that view, recognizing that           mortgage rates, homes prices, and credit standards.5
conservatorship “cannot and should not be a
                                                          Given the taxpayers’ enormous investment in
permanent state” for the Enterprises. However,
                                                          the Enterprises, the unknown duration of the
putting the Enterprises into conservatorships has
                                                          conservatorships, the Enterprises’ critical role in the
proven to be far easier than taking them out, and
                                                          secondary mortgage market, and their unknown
the “time out” period for the conservatorships has
                                                          ability to sustain future profitability, OIG determined
now entered its eighth year. The lack of consensus in
                                                          that FHFA’s administration of the conservatorships
Congress about the nation’s future mortgage finance
                                                          has been, and continues to be, a critical risk.
system and the role, if any, for the Enterprises may
mean that the Enterprises will continue to operate
                                                          Oversight of Delegated Matters
under FHFA’s conservatorship for a considerably
longer period.                                            As conservator of the Enterprises, FHFA owes duties
                                                          to the U.S. taxpayers, the largest shareholders in
While in conservatorship, the Enterprises have            the Enterprises, and has statutory responsibilities to
required $187.5 billion in financial investment           ensure that the Enterprises achieve their statutory
from Treasury to avert their insolvency, and,             purpose. Pursuant to its powers under HERA to
through December 2015, the Enterprises have               take actions “necessary to put [Fannie Mae and
paid to Treasury approximately $241 billion in            Freddie Mac] in a sound and solvent condition”



18      Federal Housing Finance Agency Office of Inspector General
and “appropriate to carry on the business of [Fannie      OIG’s compliance review tested the Agency’s
Mae and Freddie Mac]” and “preserve and conserve”         implementation of this Process. (See OIG,
their assets, 12 U.S.C. § 4617(b)(2)(D), FHFA has         Compliance Review of FHFA’s Implementation of Its
delegated authority for many matters, both large and      Procedures for Overseeing the Enterprises’ Single-Family
small, to the Enterprises and, since 2008, has issued     Mortgage Underwriting Standards and Variances
more than 230 conservatorship directives in which         (COM-2016-001, December 17, 2015), online at
it instructs the Enterprises to take certain actions,     www.fhfaoig.gov/Reports/AuditsAndEvaluations.)
most of which relate to delegated responsibilities. The   Our verification testing found that the Agency had
Enterprises acknowledge in their public securities        never fully implemented this Process. Specifically, we
filings that their directors serve on behalf of the       found that the Agency did not implement two of the
conservator and exercise their authority as directed      Process’ three key requirements; the Agency advised
by and with the approval, when required, of the           us that, in late 2014, it had begun to “reevaluate and
conservator. As conservator, FHFA is ultimately           reengineer” those two requirements but, as of the
responsible for all decisions made and actions taken      date of our compliance review, the Agency had not
by the Enterprises, pursuant to FHFA’s revocable          established any timeline for completing its work on
grant of delegated authority.                             the Process. Regarding the third requirement, we
                                                          found that, while one Enterprise routinely submitted
A key focus of OIG’s oversight of FHFA’s role as
                                                          all proposed revisions to its single-family credit
conservator is on its oversight of delegated matters
                                                          policies for the Agency’s review, the other Enterprise
to the Enterprises to protect the U.S. taxpayers’
                                                          submitted far fewer proposed revisions to its policies.
substantial investment in the Enterprises. Four of
                                                          As a result, the Agency had reduced “visibility” into
our reports published during this semiannual period
                                                          the latter Enterprise’s single-family credit policies and
involved delegated matters.
                                                          underwriting standards.
One of these reports was a compliance review,
                                                          As a result of our compliance review, OIG reopened
following up on an audit recommendation issued
                                                          the recommendation from AUD-2012-003, and
by OIG in 2012 and closed by OIG in March
                                                          will hold it open until FHFA fulfills its commitment
2013 on the basis of the Agency’s representations
                                                          to establish and fully implement a formal process for
and written policy document. In a 2012 audit
                                                          reviewing the Enterprises’ underwriting standards
report, FHFA’s Oversight of Fannie Mae’s Single-
                                                          and variances to those standards. FHFA agreed with
Family Underwriting Standards (AUD-2012-003),
                                                          the recommendation.
OIG found that the Agency lacked a formal
process to review Fannie Mae’s and Freddie Mac’s          In a report issued by OE, we looked at FHFA’s
single-family mortgage purchase underwriting              oversight of Enterprise implementation of
standards and variances to those standards. We            two conservatorship directives. FHFA issues
recommended that FHFA establish a policy for              conservatorship directives to set forth significant
reviewing Enterprise underwriting standards and           policy determinations and initiatives and provide
variances, including escalation of unresolved issues      specific directions to the Enterprises for which
reflecting potential lack of agreement. The Agency        compliance is required. As of October 2015,
accepted the recommendation, and, in January 2013,        FHFA had issued 231 conservatorship directives of
implemented a process called the “Single-Family           differing scope and purpose.
Policy Review and Escalation Process” (the Process).


                                  Semiannual Report to the Congress • October 1, 2015–March 31, 2016           19
In December 2011 and in April 2013, then-FHFA            of and compliance with conservatorship directives
Inspector General testified before Congress that         changed in 2014. We intend to monitor FHFA’s
FHFA had not proactively overseen Enterprise             oversight of Enterprise implementation of and
compliance with its conservatorship directives           compliance with conservatorship directives, and will
to ensure that their purposes were achieved.6 We         subsequently test whether additional reporting from
conducted an evaluation survey to assess whether         the Enterprises has enhanced FHFA’s oversight of
FHFA had significantly enhanced its oversight            conservatorship directives.
of the Enterprises’ implementation of and
                                                         In 2012, FHFA announced significant changes
compliance with two conservatorship directives for
                                                         to the Enterprises’ representation and warranty
an 18-month period, from January 2013 through
                                                         framework in a conservatorship directive. During
June 2014 (the review period), and learned that
                                                         this reporting period, we published an audit
little had changed. (See OIG, FHFA’s Oversight of
                                                         reporting on our efforts to examine FHFA’s
the Enterprises’ Implementation of and Compliance
                                                         process to assess Enterprise implementation of the
with Conservatorship Directives during an 18-Month
                                                         representation and warranty framework.
Period (ESR-2016-002, March 28, 2016), online at
www.fhfaoig.gov/Reports/AuditsAndEvaluations.)           Historically, the Enterprises relied on the sellers’
                                                         representations and warranties when purchasing
We found that, in large measure, FHFA exercised
                                                         loans from sellers. In the event of default of a
little oversight of the Enterprises’ compliance with
                                                         purchased loan, the affected Enterprise reviewed
these two conservatorship directives and relied on
                                                         the loan file for possible breach by the seller of its
the Enterprises to self-report concerns, questions,
                                                         contractual representations and warranties. When
and operational issues with implementation and
                                                         a breach was identified, the affected Enterprise
compliance. We found that one Enterprise provided
                                                         could exercise its contractual rights to require the
FHFA with compliance reports every quarter on
                                                         seller to repurchase the loan, mitigating losses
the implementation status of directives, but its
                                                         caused by underwriting defects. After the housing
reports were of very limited value because of their
                                                         market collapsed and loan defaults skyrocketed,
inaccuracies and incomplete information. The other
                                                         the Enterprises were placed into conservatorship.
Enterprise provided no written directive compliance
                                                         At the direction of FHFA, the Enterprises reviewed
reports to FHFA and, at the end of the review period,
                                                         defaulted loans for evidence of breach of sellers’
had not completed its formal compliance program
                                                         representations and warranties and the Enterprises
and had not tested compliance with conservatorship
                                                         demanded repurchase of many such loans from the
directives. We found that FHFA’s heavy reliance on
                                                         lenders. Sellers complained that the Enterprises’
the Enterprises to self-report compliance issues with
                                                         open-ended ability to demand loan repurchases
conservatorship directives during the review period
                                                         was unfair and unpredictable, and caused them
significantly limited FHFA’s ability, as conservator,
                                                         to tighten lending standards beyond what the
to determine whether the policies and initiatives
                                                         Enterprises required to protect themselves from
announced in its conservatorship directives had been
                                                         future exposure from loan repurchases. Concerned
fully implemented.
                                                         by the limitations on the availability of mortgage
During this evaluation survey, we were advised           credit, FHFA directed the Enterprises in 2012 to
that Enterprise reporting on the implementation          develop and implement a new representations and




20     Federal Housing Finance Agency Office of Inspector General
warranties framework (new Framework) to provide            Reports/AuditsAndEvaluations.) With respect to
sellers with greater certainty about their potential       this one objective, OIG found that the rating for the
future repurchase exposure.                                first target for an Enterprise was inconsistent with
                                                           the underlying written assessment. We also found
In February 2012, FHFA identified its strategic goals
                                                           that the rating for the second target of this objective
for the Enterprises in a strategic plan; in 2013 and in
                                                           for both Enterprises, where each Enterprise was
each subsequent year, FHFA has issued a Scorecard in
                                                           found to have met the target, was inconsistent
which it sets objectives for each of its three strategic
                                                           with documentation created after the quarter
goals and sets specific targets for each objective.
                                                           reporting that the target had been suspended due
FHFA tracks and rates Enterprise performance
                                                           to insufficient data. While FHFA advised us that
against the Scorecard on a quarterly basis and
                                                           this second target was suspended near the end of
awards an overall annual Scorecard performance for
                                                           the fourth quarter in 2013, it did not revise its
each Enterprise, which is factored into Enterprise
                                                           2013 Scorecard target. FHFA reported to us that
executive compensation for the following year.
                                                           it advised each Enterprise orally that the target had
Tracking Enterprise performance against the annual
                                                           been suspended during that quarter, but we were
Scorecard is a valuable internal control to keep
                                                           not able to confirm whether FHFA provided the
Enterprise activities aligned with conservatorship
                                                           same advice to both Enterprises.
strategic goals and to keep Enterprise executives
accountable for the Enterprises’ performance.              We found that these inconsistencies and gaps, if not
                                                           confined to this one instance, have the potential to
FHFA’s 2013 Scorecard, issued on April 1, 2013, and
                                                           create the misimpression that Scorecard objectives
revised on May 1, 2013 (2013 Scorecard), identified
                                                           have been met when, in fact, they were suspended
11 measurable objectives with specific targets for the
                                                           or modified by FHFA employees. Because of the
Enterprises to work toward meeting FHFA’s strategic
                                                           importance of FHFA’s Scorecard tracking and
goals. One of those 11 objectives was implementation
                                                           rating process, we recommended that FHFA:
of the new Framework. That objective contained two
                                                           (1) establish standards requiring that modifications
quarterly targets for both Enterprises. The first target
                                                           or suspensions of Scorecard targets must be
required development of a plan to conduct upfront
                                                           documented in writing; (2) require that FHFA
quality control reviews. The second target required an
                                                           comments and ratings on quarterly rating sheets be
assessment of the Enterprises’ execution of the new
                                                           dated; and (3) establish standards to address missed
model and use of tools to identify defective loans,
                                                           or partially missed quarterly targets, including
and an assessment of the effectiveness of the upfront
                                                           requiring that every quarterly rating sheet record
quality control reviews.
                                                           when any target was missed and the reset target
OIG audited the effectiveness of FHFA’s efforts            date. FHFA agreed with all OIG recommendations
to track and rate Enterprise performance on this           and identified actions that it believed addressed
objective regarding implementation of the new              each recommendation. OIG has not yet assessed
Framework. (See OIG, Review of FHFA’s Tracking             the Agency’s actions and will hold open its
and Rating of the 2013 Scorecard Objective for the         recommendations until it determines that the
New Representation and Warranty Framework Reveals          corrective actions reported by FHFA are completed
Opportunities to Strengthen the Process (AUD-2016-         and responsive to the recommendations.
002, March 28, 2016), online at www.fhfaoig.gov/



                                  Semiannual Report to the Congress • October 1, 2015–March 31, 2016          21
We also assessed FHFA’s oversight of the Fannie           by, among other things, testing and verifying the
Mae board of directors in connection with Fannie          Enterprises’ proposals. FHFA agreed with this
Mae’s cyber risk management program. A discussion         recommendation. At year-end 2011, the Agency
of that evaluation report appears below, under the        provided us with its newly adopted testing and
risk “Information Technology Security.”                   verification procedures. After review, OIG closed
                                                          the recommendation on February 27, 2012.
Non-delegated Matters
                                                          OIG initiated a compliance review to test FHFA’s
As conservator, FHFA can retain authority to              implementation of these testing and verification
decide specific issues and can, at any time, revoke       procedures. (See OIG, Compliance Review of FHFA’s
previously delegated authority. Because FHFA              Oversight of Enterprise Executive Compensation Based
typically asserts its authority to decide those issues    on Corporate Scorecard Performance (COM-2016-
of significant monetary or reputational value, it is      002, March 17, 2016), online at www.fhfaoig.gov/
critical for FHFA to develop and put into place           Reports/AuditsAndEvaluations.) During the course
strong internal processes for information sharing         of our review, we learned that on March 9, 2012,
and analysis to strengthen its decision-making            FHFA discontinued the implementation of its testing
processes. During this reporting period, we issued        and verification procedures upon adoption of a new
two reports relating to FHFA’s review and approval        structure for Enterprise executive compensation that
process as conservator of the Enterprises.                reduced the percentage of at-risk compensation from
A compliance review followed up on a 2011                 roughly 70% to 30%. According to FHFA, its March
recommendation addressing FHFA approval of                2012 compensation structure rendered its testing and
at-risk executive compensation at the Enterprises.        verification procedures obsolete. While FHFA acted
In our 2011 evaluation report, Evaluation of Federal      within its discretion in establishing the new executive
Housing Finance Agency’s Oversight of Fannie Mae’s        compensation structure, its decision to abandon any
and Freddie Mac’s Executive Compensation Programs         effort to test or verify the Enterprise proposals for
(EVL-2011-002, March 31, 2011), online at www.            at-risk executive compensation payments limited
fhfaoig.gov/Reports/AuditsAndEvaluations, we              its ability to review the Enterprises’ proposals
found that the Enterprises had paid their top six         before approving them. The total individual at-risk
executives more than $35 million in compensation          compensation payments amounted to $11.7 million
in 2009 and 2010, of which a substantial portion          for 85 executives in 2014. Our compliance review
was “at risk” because it was tied to individual           found several instances where the Enterprises
performance and could be reduced if the                   proposed, and the Agency approved, payment of
performance was inadequate. OIG found that the            all at-risk compensation for executives even though
Agency’s oversight of the Enterprises’ compensation       the Enterprises were not on track to meet some of
process was insufficiently robust: FHFA largely           the performance goals for which the executives were
accepted and approved the Enterprises’ annual             responsible. In these cases, the Agency did not follow
at-risk compensation proposals rather than verifying      up with the Enterprises to gather basic information
and testing the accuracy of the reported information      about their compensation proposals, much less
and conclusions. OIG recommended that the                 challenge any of them.
Agency strengthen its process to review the at-risk       In light of our findings, OIG recommended that:
compensation proposals for Enterprise executives          (1) the Agency develop controls to test and verify


22      Federal Housing Finance Agency Office of Inspector General
Enterprise proposals for at-risk compensation based     Figure 2. Enterprise Expenses 2012-2015,
on executive performance prior to its approval of       Actual and Projected ($ millions)
them; and (2) FHFA notify OIG when it does not
fully implement, substantially alters, or abandons
controls or corrective actions implemented in
response to OIG recommendations. The Agency
rejected both recommendations.

During the last semiannual reporting period, we
assessed the effectiveness of FHFA’s existing budget
review and approval process for the Enterprises’
annual operating budgets, which had increased
roughly $1.2 billion, or 31%, between 2012
and 2015. We found budget submissions by the
Enterprises after the fiscal year had begun, combined
with cursory level analysis by FHFA’s Division of
Conservatorship and inadequate resources within
that Division to assess the reasonableness of the
proposed budgets, prevented FHFA from exercising        $2.366 billion in 2012 to a projected $3.092 billion
effective control over Enterprise spending, both        in 2015, a net increase of $726 million, or 30.68%,
in amount and direction, and FHFA’s approval            and Freddie Mac’s spending increases, from
of the budgets created the risk that it endorsed        $1.561 billion in 2012 to a projected $1.937 billion
Enterprise spending that was not well understood        in 2015, a net increase of $376 million, or 24.08%,
by FHFA. (See OIG, FHFA’s Exercise of Its               as shown in Figure 2 (see above).
Conservatorship Powers to Review and Approve the
                                                        Drivers for the net increases in Fannie Mae’s spending
Enterprises’ Annual Operating Budgets Has Not
                                                        during this period included implementation
Achieved FHFA’s Stated Purpose (EVL-2015-006,
                                                        of FHFA strategic goals and initiatives, such as
September 30, 2015), online at www.fhfaoig.gov/
                                                        integration of the Common Securitization Platform
Reports/AuditsAndEvaluations.) Given the size of
                                                        (CSP; $145 million), reduction of its retained
these spending increases, OIG committed in that
                                                        portfolio ($16 million), and a one-time pension plan
evaluation to trace the net spending increases.
                                                        termination expense ($315 million). Fannie Mae also
In a white paper published on March 9, 2016,            reported increased spending for Enterprise-specific
OIG reported the results of our efforts to trace        strategic goals and initiatives, including critical safety
the FHFA-approved net spending increases of             and soundness projects ($267 million) and other
more than $1 billion from 2012 through 2015 by          modernization efforts ($102 million). Additional
the Enterprises. (See OIG, $1.1 Billion Increase        Fannie Mae net increases in spending resulted
in Expenses for Fannie Mae and Freddie Mac from         from consulting services ($25 million) and other
2012 through 2015: Where the Money Went (WPR-           miscellaneous expenses ($35 million).
2016-001, March 9, 2016), online at www.fhfaoig.
                                                        Fannie Mae reported net decreases in spending
gov/Reports/AuditsAndEvaluations.) Specifically,
                                                        in the following areas: credit and making home
OIG traced Fannie Mae’s spending increases, from
                                                        affordable ($41 million); underwriting, pricing, and

                                 Semiannual Report to the Congress • October 1, 2015–March 31, 2016           23
Figure 3. Fannie Mae Summary of Drivers in Net Increases of Expenses During Review Period
($ millions)




capital markets ($62 million); and miscellaneous          ($54 million), support staffing ($41 million), and
categories ($76 million). This activity is summarized     other miscellaneous expenses ($3 million). This
in Figure 3 (see above).                                  activity is summarized in Figure 4 (see page 25).

Drivers for the net increases in Freddie Mac’s
spending during the relevant period included              Supervision of the Regulated
implementation of FHFA strategic goals and                Entities
initiatives, such as integration of the CSP
($61 million) and a one-time pension plan                 As FHFA recognizes, effective supervision of the
termination expense ($67 million). Freddie Mac            entities it regulates is fundamental to ensuring their
also reported increased spending for Enterprise-          safety and soundness. Within FHFA, the Division
specific strategic goals and initiatives, including       of Federal Home Loan Bank Regulation (DBR)
loan advisor suite ($58 million), enhanced and            is responsible for supervision of the FHLBanks.
new operations and technology capabilities                Section 20 of the Federal Home Loan Bank Act
($35 million), and pricing execution ($12 million).       (12 U.S.C. § 1440) requires each FHLBank to be
Additional Freddie Mac net increases in spending          examined at least annually. The exam function for
resulted from its core business operations, such as       the FHLBanks descends from the old Federal Home
salaries and benefits, professional services, computer    Loan Bank Board, through the Federal Housing
data services, loan prospector, software lease and        Finance Board, to FHFA. As a result, there is a long
maintenance, travel, and other business expenses          history of examination practice and examination
($233 million). Freddie Mac also reported increased       standards for DBR to draw upon.
expenses for private-label securities and other
litigation ($8 million). Freddie Mac experienced net      FHFA’s Division of Enterprise Regulation (DER)
decreases in spending during the relevant period in       is responsible for supervision of the Enterprises.
single-family extraordinary credit and operations         FHFA’s annual examination program assesses


24      Federal Housing Finance Agency Office of Inspector General
Figure 4. Freddie Mac Summary of Drivers in Net Increases of Expenses During Review Period
($ millions)




Fannie Mae’s and Freddie Mac’s financial safety          risk assessments of each regulated entity. A risk
and soundness and overall risk management                assessment presents a comprehensive, risk-focused
practices through ongoing monitoring, targeted           view of the regulated entity so that examiners can
examinations, and risk assessments. Prior to the         focus their supervisory activities upon the risks that
creation of FHFA, the Enterprises were regulated by      present the highest supervisory concerns.
the Office of Federal Housing Enterprise Oversight
                                                         On January 4, 2016, OIG published a report in
(OFHEO), and OFHEO’s first examination took
                                                         which we assessed whether FHFA’s requirements for
place in 1994. In its Fiscal Year 2014 Performance
                                                         its risk assessments of the Enterprises are sufficiently
and Accountability Report to Congress, FHFA stated,
                                                         robust to produce risk assessments that achieve the
“To ensure that the regulated entities are operating
                                                         purpose for which they are intended. (See OIG,
safely and soundly, FHFA identifies risks to the
                                                         Utility of FHFA’s Semi-Annual Risk Assessments
regulated entities and takes timely supervisory
                                                         Would Be Enhanced Through Adoption of Clear
actions to address risks and improve their condition.”
                                                         Standards and Defined Measures of Risk Levels (EVL-
During the reporting period, OIG focused                 2016-001, January 4, 2016), online at www.fhfaoig.
considerable attention on the robustness of FHFA’s       gov/Reports/AuditsAndEvaluations.) OIG found
supervision over the entities it regulates and           that FHFA’s requirements for its risk assessments
published five reports.                                  of the Enterprises fall short of the requirements
                                                         and guidance provided by other prudential federal
Risk Assessments                                         financial regulators that we reviewed. FHFA’s loosely
FHFA and other federal financial regulators for          defined parameters lack standardized measures of
sophisticated financial institutions use a risk-based    risks (such as credit risk, sensitivity to market risk,
approach for their examination activities. Critical      liquidity risk, and operational risk), do not define
to the success of a risk-based approach are detailed     the risk measures that examiners must use, or do


                                  Semiannual Report to the Congress • October 1, 2015–March 31, 2016         25
not require examiners to use a common format and           remediate an MRA. According to FHFA, a key
common, defined measures of risk. Additionally,            component of effective supervision is close oversight
over the past four years, DER has experienced high         of an Enterprise’s efforts to timely and effectively
turnover in examination staff, limiting common,            remediate MRAs.
stable practices over successive examination cycles to
                                                           Because MRAs are only issued by DER for the most
promote continuity in institutional knowledge.
                                                           serious supervisory deficiency, OIG assessed whether
FHFA’s flexible guidance on preparation of risk            DER examiners followed FHFA’s requirements
assessments, combined with significant changes in          and supplemental guidance for supervision of an
examiner staffing, has produced risk assessments that      Enterprise’s efforts to remediate MRAs. (See OIG,
are not readily susceptible to comparison year over        FHFA’s Examiners Did Not Meet Requirements and
year for one Enterprise. The lack of comparability         Guidance for Oversight of an Enterprise’s Remediation
limits the utility of risk assessments in planning risk-   of Serious Deficiencies (EVL-2016-004, March
based supervision activity for that Enterprise.            29, 2016), online at www.fhfaoig.gov/Reports/
                                                           AuditsAndEvaluations.) We first compared FHFA’s
OIG recommended that FHFA implement
                                                           requirements against the requirements imposed by
detailed risk assessment guidance that provides:
                                                           other prudential federal financial regulators and
(1) minimum requirements for risk assessments
                                                           found that, in certain instances, FHFA’s standards
that facilitate comparable analyses for each
                                                           fell short. We then reviewed whether DER examiners
Enterprise’s risk positions, including common
                                                           followed existing FHFA requirements and guidance
criteria for determining whether risk levels are high,
                                                           in their oversight of a previously issued MRA and
medium, or low, year over year; and (2) standard
                                                           found that they did not.
requirements for format and the documentation
necessary to support conclusions in order to facilitate    Specifically, the evidence showed: DER accepted the
comparisons between Enterprises and reduce                 Enterprise’s proposed remediation plan, even though
variability among DER’s risk assessments for each          the plan failed to address all of the deficiencies
Enterprise and between the Enterprises. OIG also           identified in the MRA, and DER examiners did not
recommended that FHFA direct DER to train its              assess the adequacy and timeliness of the Enterprise’s
examiners-in-charge and exam managers in the               efforts to remediate the MRA beyond attending
preparation of semiannual risk assessments, using          meetings with Enterprise personnel and receiving
enhanced risk assessment guidance consistent with          written presentations.
the first two recommendations. FHFA agreed with
                                                           OIG recommended that FHFA: (1) review its
our recommendations.
                                                           existing requirements, guidance, and processes
                                                           regarding MRAs against those adopted by other
Supervisory Standards and Practices for
                                                           federal financial regulators; (2) assess whether
MRA Issuance and Remediation
                                                           any should be enhanced, and to make such
On-site examinations of the Enterprises by DER             enhancements; (3) compare the processes followed by
are fundamental to FHFA’s supervisory mission.             DER and DBR for the form, content, and issuance
Through its supervisory activities, DER may identify       of an MRA, approval authority for a proposed
a concern or deficiency, the most significant of which     remediation plan, and real-time assessments at regular
is labeled by FHFA as a Matter Requiring Attention         intervals of MRA remediation efforts; (4) assess
(MRA). FHFA requires an Enterprise to promptly             whether the guidance issued and processes followed


26      Federal Housing Finance Agency Office of Inspector General
should be enhanced, and make such enhancements;          •	 The OCC and Federal Reserve require a board of
(5) provide mandatory training for all FHFA                 directors to be notified, in writing, by the exam
examiners on MRA-related guidance; and (6) utilize          team when an MRA issues and the reasons for
the results of its quality control reviews to identify      its issuance; FHFA examiners notify Enterprise
MRA-related gaps and weaknesses. FHFA disagreed             management, not Enterprise directors, that an
with recommendations 1 and 2 and agreed with the            MRA has issued. An Enterprise board receives
remaining four recommendations.                             information that an MRA has issued and the
                                                            basis for its issuance from management, even
Supervisory Standards for                                   though actions or inactions by management
Communication of Serious Deficiencies                       typically give rise to the MRA.
and Board Oversight of Management’s
                                                         •	 The OCC and Federal Reserve require a board of
Remediation Efforts
                                                            directors to engage early in the MRA remediation
Under FHFA’s supervisory guidance, an Enterprise            process by reviewing or approving a written
board is responsible for ensuring timely and effective      remedial plan to correct the MRA deficiencies;
correction of significant supervisory deficiencies. In      FHFA places sole responsibility on Enterprise
order to perform such oversight, an Enterprise board        management to develop and submit a remedial
must know that an MRA has issued, the practices             plan to FHFA, without review by Enterprise
giving rise to the MRA, and the remedial plan and           directors, and there is no supervisory expectation
timetables proposed by Enterprise management. The           that an Enterprise board receive a copy of the
board would also benefit from specific supervisory          remediation plan, either before it is submitted for
expectations on its oversight responsibilities for          FHFA approval or after FHFA has approved it.
MRA remediation. Because FHFA consistently
maintains, based on the language of its authorizing      •	 The OCC and Federal Reserve require a board
statute, that its supervisory authority over the            of directors to oversee management’s efforts to
entities it regulates “is virtually identical to—and        implement the proposed remedial measures on
clearly modeled on—Federal bank regulators’                 an ongoing basis and ensure that management’s
supervision of banks,”7 we compared the stringent           remediation is adequate and timely; FHFA
requirements imposed on directors for oversight of          does not.
MRA remediation by the Office of the Comptroller
                                                         •	 The OCC and Federal Reserve expect a board of
of the Currency (OCC) and the Federal Reserve to            directors to keep the regulator informed of the
those imposed by FHFA on Enterprise directors.              progress of the remediation; FHFA does not.
(See OIG, FHFA’s Supervisory Standards for
Communication of Serious Deficiencies to Enterprise      We found that, under FHFA’s current supervisory
Boards and for Board Oversight of Management’s           practices, there is a risk that an Enterprise board could
Remediation Efforts are Inadequate (EVL-2016-            become no more than a bystander to management’s
005, March 31, 2016), online at www.fhfaoig.gov/         efforts to remediate MRAs, and FHFA risks prolonged
Reports/AuditsAndEvaluations.)                           or inadequate resolution of the most serious threats to
                                                         the Enterprises’ safety and soundness.
OIG found that FHFA’s requirements, guidance,
and practices fell far short of peer federal financial   OIG recommended that FHFA: (1) revise its
regulators. Specifically, we found that:                 supervision guidance to require DER to provide
                                                         the Chair of the Audit Committee of an Enterprise

                                   Semiannual Report to the Congress • October 1, 2015–March 31, 2016         27
Board with each conclusion letter setting forth an       FHLBanks
MRA; (2) revise its supervision guidance to require
                                                         The Agency’s responsibilities as regulator—and,
DER to provide the Chair of the Audit Committee
                                                         by extension, OIG’s oversight responsibilities—are
of an Enterprise Board with each plan submitted
                                                         broad in nature. Two of our reports issued during
by Enterprise management to remediate an MRA
                                                         this semiannual period involve FHFA’s supervision
with associated timetables and the response by DER;
                                                         of the FHLBanks.
(3) revise its supervision guidance to require DER
to identify all open MRAs in the annual, written         The merger of the FHLBanks of Des Moines
Report of Examination (ROE) and the expected             and Seattle, effective May 31, 2015, was the first
timetable to complete outstanding remediation            voluntary merger of two FHLBanks. The merger
activities; and (4) include in this year’s ROE, to       was completed on schedule, with no interruption
be issued to each Enterprise for 2015 supervisory        in service to members. The continuing FHLBank,
activities, all open MRAs and the expected timetable     headquartered in Des Moines, is now the largest of
to complete outstanding remediation activities for       the 11 FHLBank regions in both geography and
each open MRA.                                           number of members. This merger was the subject
                                                         of our recent white paper. (See OIG, Merger of
FHFA agreed with recommendations (1), (3), and
                                                         the Federal Home Loan Banks of Des Moines and
(4). As demonstrated in our report, FHFA governance
                                                         Seattle: FHFA’s Role and Approach for Overseeing
principles require an Enterprise board to oversee
                                                         the Continuing FHLBank (WPR-2016-002,
management’s efforts to correct all supervisory
                                                         March 16, 2016), online at www.fhfaoig.gov/
deficiencies identified by FHFA in a timely and
                                                         Reports/AuditsAndEvaluations.)
appropriate manner and to hold management
accountable. No board can exercise its oversight         Although the FHLBanks chose to merge with each
responsibilities if it lacks the approved remediation    other and negotiated the merger agreement, FHFA
plans, which include the agreed upon deliverables        played a decisive role in encouraging the FHLBank
and timetables for completion of remediation, and,       of Seattle to find a merger partner to address some of
for that reason, we proffered recommendation (2).        the Agency’s longstanding supervisory concerns with
FHFA “partially agree[d]” with recommendation            that FHLBank. In contrast, FHFA found the overall
(2): it agreed to “send the chair of the board audit     condition of the FHLBank of Des Moines to be
committee a copy of DER’s written response to            satisfactory, but raised questions about operational
each MRA remediation plan” but refused to agree to       risk, particularly with respect to the FHLBank of
provide the MRA remediation plan, which provides         Des Moines’ multiyear plan to upgrade its core
the basis for DER’s written response, directly to        banking system. Because the merger compounded
the chair of the board audit committee. Instead,         these operational risks and created new challenges,
FHFA committed to communicate “to Enterprise             our white paper identified this possible emerging risk
management the supervisory expectation for clear,        and signaled our intent to monitor the risk.
timely, detailed reporting to the boards of directors
                                                         During this semiannual reporting period, we
on open remediation plans and associated timetables”
                                                         published an audit to assess whether DBR’s
and its “expectations about circumstances in which
                                                         examination of the effectiveness of the FHLBanks’
remediation plans should be provided by management
                                                         cyber risk management programs included review
to the chair of the board audit committee.”
                                                         of the design of their vulnerability scanning and
                                                         penetration testing efforts. (See OIG, FHFA Should

28     Federal Housing Finance Agency Office of Inspector General
Improve its Examinations of the Effectiveness of the    management responsibilities delegated to it by
Federal Home Loan Banks’ Cyber Risk Management          FHFA. Oversight by a board of directors of a cyber
Programs by Including an Assessment of the Design       risk management program for a complex financial
of Critical Internal Controls (AUD-2016-001,            institution is difficult, and this task is made more
February 29, 2016), online at www.fhfaoig.gov/          challenging by the numerous legacy IT systems used
Reports/AuditsAndEvaluations.) This audit is            by Fannie Mae. OIG found that the Board’s three
discussed in “Information Technology Security,”         foundational cyber risk management policies did not
below.                                                  meet FHFA’s supervisory expectations announced
                                                        in the Agency’s advisory bulletin. OIG also found
Information Technology Security                         that Fannie Mae management presented to the
                                                        Board plan after plan to enhance Fannie Mae’s cyber
                                                        risk management program without explaining the
Corporate Governance                                    reasons for the numerous plans or the integration of
FHFA has recognized that cyber risk is an increasing    one plan with another, and offered timeline upon
concern to the entities it supervises and regulates     timeline, but provided little evidence of concrete
and that disruptions to their businesses from cyber     progress in remediating conditions that gave rise
attacks could have widespread and harmful effects       to FHFA’s supervisory concerns. The Board largely
on the housing finance system, result in theft—         received these presentations without challenging
including confidential consumer data, and expose        management’s changing timelines or multiple
the regulated entities to reputational and legal        plans, questioning the integration of one plan with
risk. FHFA, as conservator, has delegated to the        prior plans still in effect, or pressing management
boards of directors of the Enterprises responsibility   to provide a comprehensive master plan with
for adopting cyber risk management policies that        clear timelines and milestones to remediate legacy
meet FHFA’s supervisory expectations, overseeing        technology issues and implement current cyber
the entity’s cyber risk management program to           security initiatives.
ensure that the program meets FHFA’s supervisory        OIG recommended that FHFA direct the Fannie
expectations, holding management accountable in         Mae Board to enhance its cyber risk management
its efforts to develop such a cyber risk management     policies, establish and communicate a desired target
program, and addressing FHFA’s supervisory              state of cyber risk management for Fannie Mae that
concerns in a timely and appropriate manner.            identifies and prioritizes which risks to avoid, accept,
In an evaluation, OIG assessed the execution of         mitigate, or transfer through insurance, and oversee
cyber risk management responsibilities by Fannie        management’s efforts to leverage industry standards.
Mae’s Board of Directors (Board). (See OIG,             FHFA agreed with OIG’s recommendations,
Corporate Governance: Cyber Risk Oversight by the       but asserted that the report does not sufficiently
Fannie Mae Board of Directors Highlights the Need for   recognize the Board’s recent activities and offered
FHFA’s Closer Attention to Governance Issues (EVL-      work performed by three third-party experts who
2016-006, March 31, 2016), online at www.fhfaoig.       evaluated Fannie Mae’s cyber risk management
gov/Reports/AuditsAndEvaluations.) Although             efforts. Two of the third-party reports were not
we found that the Board has made progress, we           completed until January and March 2016, after
determined that much more remains to be done            OIG’s field work concluded, and the findings of
by the Board in order to satisfy the cyber risk         those reports will not be shared with the Board until


                                  Semiannual Report to the Congress • October 1, 2015–March 31, 2016        29
its May 2016 meeting. The third report, issued in the     conducted an evaluation to assess whether FHFA
second half of 2015, recommended that the Board           had mapped its regulatory guidance to the NIST
place extremely high priority on implementation of        Framework and whether its supervisory guidance
the National Institute of Standards and Technology        on the development of a cyber security framework
Framework for Improving Critical Infrastructure           is substantially similar to the guidance adopted by
Cybersecurity (NIST Framework), a task that               FFIEC (and its federal regulatory members). (See
management reported to the Board had been                 OIG, FHFA Should Map Its Supervisory Standards
completed in March 2015.                                  for Cyber Risk Management to Appropriate Elements
                                                          of the NIST Framework (EVL-2016-003, March
NIST Framework                                            28, 2016), online at www.fhfaoig.gov/Reports/
FHFA is one of a number of federal agencies               AuditsAndEvaluations.)
involved in a national effort to protect the critical     At the conclusion of OIG’s evaluation, OIG
infrastructure of the U.S. financial services sector.     found that FHFA had not mapped its supervisory
In May 2014, FHFA issued an advisory bulletin             guidance to appropriate elements of the NIST
recognizing that cyber threats facing its regulated       Framework. We also found that FHFA’s guidance
entities are constantly evolving and growing more         is far less prescriptive and far more flexible than
sophisticated. The advisory bulletin described a          the guidance adopted by FFIEC and its federal
“cyber risk management program that the FHFA              regulatory members.
believes will enable the Regulated Entities and the
Office of Finance to successfully perform their           OIG recommended that FHFA implement
responsibilities and protect their [information           FSOC’s 2015 recommendations to map its existing
security] environments.”                                  regulatory guidance to appropriate elements
                                                          of the NIST Framework, identify gaps, and
The FHFA Director, along with the heads of other          determine whether to revise its existing guidance
federal financial regulators, is a voting member of       to address those gaps. FHFA accepted OIG’s
the Financial Stability Oversight Council (FSOC).         recommendations.
In 2015, FSOC recommended that federal
financial institutions use the NIST Framework             FHLBanks
and that financial regulators map their existing
                                                          Since 2008, FHFA has been the regulator for the
regulatory guidance to appropriate elements of the
                                                          FHLBanks and their Office of Finance. Each Bank,
NIST Framework and encourage consistent cyber
                                                          like other federally supervised financial institutions,
security standards. Five of these federal financial
                                                          relies heavily on its information systems and other
regulators, exclusive of FHFA, are members of the
                                                          technology to conduct and manage its business. The
Federal Financial Institutions Examination Council
                                                          Banks recognize that “a failure or breach, including
(FFIEC), an organization that promotes uniformity
                                                          as a result of cyber attacks, of the information
in the supervision of financial institutions. FFIEC
                                                          systems of the FHLBanks and the Office of Finance,
has developed supervisory guidance on cyber
                                                          and those of critical vendors and third parties,
security risk management, which its five federal
                                                          could disrupt the FHLBanks’ businesses or result
regulators follow. Although FHFA is not a member
                                                          in significant losses or reputational damage.”8 Each
of FFIEC, FHFA has maintained that its respective
                                                          FHLBank has a cyber risk management program
regulatory responsibilities are similar. OIG



30      Federal Housing Finance Agency Office of Inspector General
that includes vulnerability management. The             testing can accomplish its intended purpose. OIG
FHLBanks conduct, through contractors they retain,      determined that failure to assess the design of key
vulnerability scanning and/or penetration testing as    IT internal controls, such as vulnerability scanning
part of their vulnerability management efforts.         and penetration tests, as part of FHFA’s examination
                                                        of operational effectiveness of those controls, creates
DBR is responsible for supervision of the
                                                        significant risks to FHFA’s DBR examination
FHLBanks, which include on-site annual
                                                        program because vulnerabilities may not be detected
examinations and off-site monitoring. Because
                                                        and the findings may not be reliable or accurate.
effective management of cyber risk is vital to the
performance and success of the Banks’ operations,       OIG recommended that FHFA: (1) update its
DBR examinations include reviews of the                 Information Technology Risk Management Program
FHLBanks’ IT risk management programs.                  Module to direct examiners to assess the design of
                                                        the Banks’ vulnerability scans and penetration tests
OIG conducted an audit to assess whether DBR’s
                                                        when assessing the operational effectiveness of such
examination of the effectiveness of the Banks’
                                                        controls; and (2) require examiners to document
cyber risk management programs included review
                                                        their assessment of the design of the Banks’
of the design of their vulnerability scanning and
                                                        vulnerability scans and penetration tests as part of
penetration testing efforts. (See OIG, FHFA Should
                                                        their assessment of the operational effectiveness
Improve its Examinations of the Effectiveness of the
                                                        of such controls. The Agency agreed with OIG’s
Federal Home Loan Banks’ Cyber Risk Management
                                                        recommendations.
Programs by Including an Assessment of the Design
of Critical Internal Controls (AUD-2016-001,
February 29, 2016), online at www.fhfaoig.gov/          Recommendations
Reports/AuditsAndEvaluations.)
                                                        A complete list of OIG’s audit and evaluation
Applicable criteria recognize that review of the        recommendations is provided in Appendix B.
design of internal controls is an important element
of an examination to assess the operational
effectiveness of those controls and determine
whether the controls will adequately mitigate
the risks. OIG found that in 14 of 15 of DBR’s
IT examinations performed between 2013 and
2014 that included vulnerability scanning and/
or penetration testing, DBR did not assess the
design of those tests performed by contractors
at the Banks’ direction. Some DBR examiners
determined that such an assessment was outside
of the scope of the examination plan, and all 14
of the work programs lacked steps to perform the
assessment. Absent any examination of the design
of vulnerability scans or penetration tests, we found
that FHFA lacks reasonable assurance that such



                                 Semiannual Report to the Congress • October 1, 2015–March 31, 2016        31
OIG’s Investigations

This OIG is vested with statutory law enforcement          During the semiannual reporting period,
authority, which is exercised by the Office of             OI conducted numerous criminal, civil, and
Investigations (OI). OI is staffed by highly trained       administrative investigations, which resulted in the
law enforcement officers, investigative counsels (ICs),    filing of criminal charges against 53 individuals, the
forensic auditors, and support staff who conduct           conviction of 73 individuals, and 75 sentencings, as
investigations related to programs overseen by FHFA.       well as court-ordered fines and restitution awards.
Depending on the type of misconduct uncovered
                                                           Figure 5 (see below) summarizes the results obtained
during OIG investigations, the investigations may
                                                           during this reporting period from our investigative
result in criminal charges, civil complaints, and/
                                                           efforts.
or administrative sanctions and decisions. Criminal
charges filed against individuals or entities may          Figure 5. Prosecutions and Recoveries from
result in plea agreements or trials, incarceration,        October 1, 2015, Through March 31, 2016
restitution, fines, and penalties. Civil claims can
                                                                                   Criminal                 Civil
lead to settlements or verdicts with restitution, fines,                        Investigations         Investigations
penalties, forfeitures, assessments, and exclusion of          Finesa             $306,267,255                          $-
individuals or entities from participation in federal          Settlements                       $-     $3,150,266,000
programs. ICs in OI have been appointed as Special             Restitutions       $174,169,402                          $-
Assistant U.S. Attorneys (SAUSAs) in several                   Recoveries                                      $549,400
judicial districts throughout the country. They have           Total              $480,436,657          $3,150,815,400

been assigned criminal matters arising from OI’s               Charges                         53

investigations in the districts where they have been           Convictions                     73

appointed and have pursued these investigations                Sentencings                     75
                                                               Trials                            5
through to conviction and sentencing. (See discussion
below on OIG ICs.)                                         a
                                                            Fines include criminal fines, seizures, forfeiture and special
                                                           assessments, and civil fines imposed by federal court.
The type of misconduct OI special agents (SAs)
investigate varies, as does the complexity of the
                                                           Figure 6 (see page 33) shows a comparison of the
schemes involved. Various elements contribute
                                                           criminal results achieved during this reporting period
to determining the resources necessary for each
                                                           against OIG’s FY16 budget. OIG’s FY16 budget
investigation and the length of time necessary to see
                                                           covers October 1, 2015, through September 30,
each investigation through to the end. For example,
                                                           2016.
loan or mortgage origination schemes, a common
type of mortgage fraud, can be very labor intensive.       Figure 7 (see page 33) shows a comparison of the
Experienced SAs review and analyze mortgage                civil settlements results achieved during this reporting
loan files in order to detect red flags. Special agents    period against OIG’s FY16 budget.
understand how to identify the indicators of fraud,
and just as importantly, how to gather necessary           For ease of review of our OI activities, we group
evidence and put together a case.                          our criminal investigations during this period into
                                                           the categories described below. In each category,

32      Federal Housing Finance Agency Office of Inspector General
    Figure 6. OIG Criminal Monetary Results October 1, 2015, Through March 31, 2016, vs. FY16
    OIG Budget




                                        Includes criminal fines, restitution, and forfeiture.
                                        a




    we describe the nature of the crime and include                attorneys general to investigate allegations of fraud
    a few highlights of matters investigated by OIG.               committed by financial institutions and individuals
    For a summary of publicly reportable investigative             in connection with RMBS. OI has reviewed evidence
    outcomes for each category during this reporting               produced by various parties for members of the
    period, see Appendices E-L.                                    Working Group, assisted with witness interviews,
                                                                   provided strategic litigation advice, and briefed
    Investigations: Civil Cases                                    other law enforcement agencies on the operations
                                                                   of the RMBS market. Since the inception of the
                                                                   RMBS Working Group, DOJ has negotiated civil
    During the semiannual reporting period, OI
                                                                   settlements worth over $34 billion. During this
    continued to actively participate in the Residential
                                                                   semiannual reporting period, a civil settlement was
    Mortgage-Backed Securities (RMBS) Working
                                                                   reached with Morgan Stanley.
    Group. Established by the President in 2012 to
    investigate individuals and entities responsible for
                                                                   Morgan Stanley Settles RMBS Claims by Agreeing
    misconduct involving the pooling of mortgage
                                                                   to Pay $2.6 Billion Penalty
    loans and sale of RMBS, the Working Group is a
    collaborative effort of dozens of federal and state law        Morgan Stanley agreed to pay a $2.6 billion penalty
    enforcement agencies. OI SAs work closely with U.S.            to resolve claims related to its marketing, sale,
    Attorneys’ offices around the country and with state           and issuance of RMBS. In a detailed statement of

    Figure 7. OIG Civil Settlements Results October 1, 2015, Through March 31, 2016, vs. FY16 OIG
    Budget ($ millions)



FY16 OIG Criminal Monetary Results Oct 1, 2015 to Mar 31, 2016 vs FY16 OIG Budget




                                      Semiannual Report to the Congress • October 1, 2015–March 31, 2016            33
facts that is part of the agreement, Morgan Stanley        time-consuming investigations by OIG ICs and
acknowledged that it failed to disclose critical           SAs. Mortgage loan files containing many hundreds
information to prospective investors about the             of pages must be obtained via request or subpoena
quality of the mortgage loans underlying its RMBS          and analyzed for fraud indicators, including those
and about its due diligence practices. Investors,          that violate applicable underwriting guidelines. The
including federally insured financial institutions,        analysis requires collecting and reviewing, among
suffered billions of dollars in losses from investing in   other things, financial records, property history
RMBS issued by the bank in 2006 and 2007.                  records, and working with others to identify and
                                                           calculate loan losses. As a result of the analysis,
Morgan Stanley made representations to investors
                                                           further investigative leads may develop, resulting in
that it did not securitize underwater loans (loans
                                                           the decision to track down and interview borrowers,
that exceeded the value of the property). The bank
                                                           realtors, loan officers, title agents, and others. Once
did not, however, disclose that in April 2006 it had
                                                           a criminal case is brought, OIG ICs designated as
expanded its “risk tolerance” in evaluating loans
                                                           SAUSAs may try the case through verdict or may
in order to purchase and securitize “everything
                                                           obtain a guilty plea by the defendant.
possible.” The expansion resulted in Morgan Stanley
ignoring information indicating that thousands of          OIG ICs provide additional valuable prosecutorial
securitized loans were, in fact, underwater. As part       resources to U.S. Attorneys’ offices in need
of the agreement, the bank acknowledged that it            of dedicated and experienced mortgage fraud
did securitize nearly 9,000 underwater loans from          prosecutors. Because OIG ICs investigate and
January 2006 through mid-2007. Morgan Stanley              prosecute criminal violations of law against those,
also made representations to investors that it did not     whether inside or outside of the federal government,
securitize loans that failed to meet the originators’      who waste, steal, or abuse government funds in
guidelines unless those loans had compensating             connection with the Agency and the entities it
factors. However, the bank acknowledged that it            regulates, their activities significantly further our
“did not disclose to securitization investors that         mission. During this semiannual period, three OIG
employees of Morgan Stanley received information           ICs designated as SAUSAs successfully tried to
that, in certain instances, loans that did not comply      verdict cases in three different judicial districts.
with underwriting guidelines and lacked adequate           The following case is one of those matters.
compensating factors . . . were included in the
RMBS sold and marketed to investors.”                      Four Convicted at Trial for Mortgage Fraud,
                                                           Virginia

Investigations: Criminal Cases                             On February 3, 2016, a federal jury convicted
                                                           Mohsin Raza, Humaira Iqbal, Farukh Iqbal, and
                                                           Mohammad Haider on charges of conspiracy to
OIG Investigative Counsels
                                                           commit wire fraud affecting a financial institution
ICs are appointed as SAUSAs in districts throughout        and wire fraud affecting a financial institution.
the country to help investigate and prosecute
criminal cases involving fraud that adversely affects      According to evidence presented in court, from May
the Enterprises, the FHLBanks, and its members.            2006 through January 2007, the defendants, all
These cases tend to be labor and document intensive        former employees of SunTrust Mortgage, conspired
and factually complex, typically requiring lengthy,        to defraud SunTrust by preparing false mortgage


34      Federal Housing Finance Agency Office of Inspector General
loan applications for prospective borrowers for             property values from the lenders, defrauding them
13 properties. These fictitious loan applications           into making loans that are much riskier than they
contained false material information such as inflated       appear. When the properties go into foreclosure,
incomes, inflated assets, reduced liabilities, and          lenders suffer large losses.
statements that the borrowers intended to use the
                                                            Below we summarize two OI investigations in this
houses as their primary residences. To support
                                                            category that resulted in criminal convictions during
these false loan applications, defendants prepared
                                                            this semiannual reporting period. (See Appendix E
false documents, created fraudulent wage-and-
                                                            for a summary of publicly reportable investigative
earning statements for the prospective borrowers,
                                                            outcomes in this category.)
and generated false letters from certified public
accountants. They submitted the fraudulent loan
                                                            Conviction of Former CEO of Cay Clubs Resorts,
applications and supporting documents to SunTrust
                                                            Florida
Mortgage offices to obtain approvals for the loans
sought by the prospective borrowers and some of the         On December 11, 2015, Fred Davis “Dave” Clark
loans, in turn, were sold to Fannie Mae.                    Jr., former CEO of Cay Clubs Resorts and Marinas,
                                                            was convicted after a five-week jury trial on charges
In addition to criminal cases developed by OIG ICs          of bank fraud, making false statements to a financial
and SAs, OIG special agents review Treasury reports         institution, and obstruction of the Securities and
and other filings to proactively identify potential         Exchange Commission (SEC). Approximately 1,400
matters for investigation, investigate complaints and       investors, Federal Deposit Insurance Corporation
tips of possible misconduct to develop sufficient           (FDIC) -insured banks, and the Enterprises were
evidence to prove the elements of a crime, and work         defrauded in this $300 million Ponzi scheme
closely with ICs and other federal prosecutors to           involving the sale of Cay Clubs vacation rental units.
look for the evidence that they believe is sufficient
to bring criminal charges. Below, we set forth              On February 22, 2016, Clark was sentenced to
highlights of OIG criminal investigations during this       480 months (40 years) in federal prison, followed
semiannual reporting period in a number of different        by 5 years of supervised release, ordered forfeiture
categories that resulted in criminal indictments,           of $303.8 million, and ordered to pay $3.3 million
convictions, plea agreements, sentencings, and court-
ordered fines and restitution awards.

Condo Conversion and Builder Bailout
Schemes
In these types of schemes, sellers or developers
typically solicit investors with good credit who
want low-risk investment opportunities by offering
deals on properties with no money down and
other lucrative incentives, such as cash back and
guaranteed and immediate rent collection. The
sellers fund these incentives with inflated sales prices.
The fraudsters conceal the incentives and the true
                                                            Exhibit for trial showing marketing materials used by Fred
                                                            Davis Clark Jr.


                                   Semiannual Report to the Congress • October 1, 2015–March 31, 2016                    35
for obstructing an SEC investigation. Additionally,      In related cases, on October 27, 2015, former
Clark was ordered to forfeit $2.6 million in             Cay Clubs executives Barry J. Graham and Ricky
overseas assets.                                         Lynn Stokes were ordered to pay restitution of
                                                         $163,530,377. In a previous reporting period,
Clark was the CEO of Cay Clubs, which operated
                                                         Graham and Stokes, Director of Sales and Director of
from 2004 through 2008 from offices in Florida.
                                                         Investor Relations respectively, were each sentenced
Cay Clubs marketed vacation rental units for 17
                                                         to 60 months of imprisonment.
locations in Florida, Las Vegas, and the Caribbean
and raised more than $300 million from investors         Conviction in Builder Bailout Scheme, California
by promising to develop dilapidated properties into
luxury resorts. Evidence at trial showed that these      On February 5, 2016, a federal jury found Momoud
properties were never developed. Clark further           Aref Abaji guilty of wire fraud, conspiracy to commit
incentivized investors by promising an upfront           bank and wire fraud, and tax evasion in connection
“leaseback” payment of 15-20% of the unit sales          with a builder bailout scheme involving more than
price at the time of closing. Clark concealed these      100 condominium units across the country.
incentives from lenders and the Enterprises.             According to evidence presented in court, Abaji and
Clark deceived lenders and the Enterprises by            his co-conspirators targeted struggling condominium
conducting insider sales transactions of the units,      developments, negotiating with developers to buy
artificially inflating values. Clark directed his        units in return for hefty commissions that they often
administrative assistant and his bookkeeper to           misleadingly referred to as “marketing fees” and did
forge signatures on loan documents and falsely           not disclose to the lenders. The deals allowed the
notarize mortgage paperwork to make it appear            developers to show that the condominiums were
that straw buyers, including family members, were        selling and maintaining their market value. To pay
executing the documents when in reality Clark was        for the mortgages, Abaji and the other defendants
providing the deposits and down payments and             used straw buyers and false information—such
using the proceeds of the transactions to fund Cay       as fake employment and income—and fabricated
Club’s operations and for his own personal benefit.      documents, such as altered W-2 Wage and Tax
Clark engaged in a series of fraudulent mortgage         Statements, pay stubs, and bank statements. They
transactions, which resulted in a total of more than     ultimately received more than $21 million in loans,
$20 million in bank loans.                               many of which went into default and resulted in
                                                         foreclosure.
After the collapse of Cay Clubs, the SEC began an
investigation into alleged securities fraud at Cay       Dozens of the loans were purchased on the secondary
Clubs. In March 2013, after the SEC filed a civil        mortgage market by the Enterprises, which lost at
fraud action against him, Clark transferred more than    least $2.37 million to delinquencies, defaults, and
$2 million to a corporate account he controlled in       foreclosures.
Honduras. After this transfer, U.S. law enforcement
and authorities in Honduras were able to obtain a        Fraud Committed Against the Enterprises,
court order freezing these funds.                        the FHLBanks, or FHLBank Member
                                                         Institutions
The fraud scheme caused losses to Fannie Mae and
                                                         Investigations in this category involve a variety of
Freddie Mac in excess of $11 million.
                                                         schemes that target Fannie Mae, Freddie Mac, the

36     Federal Housing Finance Agency Office of Inspector General
FHLBanks, or members of FHLBanks directly.              by falsely representing that the sale was an arm’s
Below we provide highlights of OIG investigations       length transaction to someone with whom she had
of two matters in this category that resulted in five   no close personal relationship. Borzillo also falsely
indictments, one conviction, and one sentencing         certified that she was moving out of the property
during this semiannual reporting period. (See           and claimed she was suffering a financial hardship
Appendix F for a summary of publicly reportable         due to a federal pay freeze. In reality, despite her
investigative outcomes in this category.)               representation to her lender and her acceptance of
                                                        $3,000 in relocation assistance in connection with
Five Indicted on Money Laundering Charges at a          a federal program designed to assist financially
Member Bank of the FHLBank of Topeka                    distressed short sellers, Borzillo admitted that she
On October 6, 2015, three former employees              had no intention of moving out of the property.
of the Plains State Bank (PSB), President J. Kirk       As a senior FDIC employee, Borzillo had not been
Friend, Matthew Thomas, loan officer, and Kathy         subject to the federal pay freeze, and, at the time
Shelman, bank cashier, were charged by a superseding    of the short sale, her base annual salary steadily
indictment along with business owners and PSB           increased. As a result of her misrepresentations,
customers George and Agatha Enns for an alleged         the mortgage lender approved the short sale and
conspiracy to launder money through PSB, a member       Borzillo benefitted from a $290,000 reduction in
bank with more than $76 million in advances from        her mortgage while continuing to live in the home
the FHLBank in Topeka, Kansas. From 2011 to             after the sale. As a result of the fraudulent short sale
2014, deposits into a PSB bank account controlled       transaction, Wells Fargo Bank was required to write
by the two indicted business owners totaled more        off nearly $300,000 in losses.
than $6.8 million, which included more than             On February 19, 2016, Borzillo was sentenced
$1.6 million in cash. The PSB bank employees failed     to 12 months and one day in prison, followed by
to file Treasury reports, as required, based upon the   2 years of supervised release. She was also ordered
amount and type of cash and monetary instruments        to pay $288,497 in restitution and to forfeit the
deposited into the PSB account.                         proceeds of her offense.

Short Sale Fraud Conviction and Sentencing
Involving an FHLBank Member Bank, Virginia
On November 17, 2015, Michelle M. Borzillo,
former senior attorney at the FDIC, pled guilty to
bank fraud relating to a short sale of her home to
her live-in boyfriend.

According to court documents, Borzillo purchased
a home for $850,000 with mortgages totaling
$807,500 from Wells Fargo Bank, a member of an
FHLBank. In 2013, she engineered the short sale
of her home to her boyfriend, who had been living
with her at the property for several years. Borzillo
induced Wells Fargo Bank to approve the short sale      Home purchased by Borzillo and then sold in a short sale
                                                        transaction to her boyfriend.


                                  Semiannual Report to the Congress • October 1, 2015–March 31, 2016               37
Loan Origination Schemes                                  were sold, the mortgages went into default. The
Loan or mortgage origination schemes are the most         associated activities resulted in a combined Fannie
common type of mortgage fraud. These schemes              Mae and Freddie Mac loss of approximately
typically involve falsifying borrowers’ income, assets,   $800,000.
employment, and credit profiles to make them
                                                          Sentencing in Appraisal Fraud, Washington
more attractive to lenders. These schemes often use
bogus Social Security numbers and fake or altered         On December 3, 2015, Douglas White and Diana
documents, such as W-2 Wage and Tax Statements            Merritt were sentenced to 60 months in prison
and bank statements, to defraud lenders into making       and 3 months in county jail, respectively, for their
loans they would not otherwise make. Typically,           roles in an appraisal fraud scheme. White stole the
perpetrators pocket origination fees or inflate home      identity of Tom Reed, a licensed real estate appraiser,
prices and divert proceeds.                               and together with Merritt, White’s girlfriend and
                                                          a loan officer, ran an appraisal fraud scheme that
Below we provide highlights of OIG investigations
                                                          continued for more than seven years. Using Reed’s
resulting in convictions, sentencings, and court-
                                                          stolen identity, White, who was not a licensed
ordered restitution in this category during this
                                                          real estate appraiser, prepared and submitted over
semiannual reporting period. (See Appendix G
                                                          400 fake real estate appraisals that were used to
for a summary of publicly reportable investigative
                                                          obtain loans in real estate transactions. Lenders
outcomes in this category.)
                                                          approved mortgage applications that included these
                                                          appraisals. Merritt participated in the scheme by
Attorney and Loan Officer Convicted on Mail and
                                                          steering appraisal business to White; Merritt was
Wire Fraud Charges
                                                          subsequently found guilty of mortgage fraud charges
On October 8, 2015, a jury found Robert Lattas,           related to these false appraisals. The Enterprises
an attorney, and Nicholas Burge, a loan officer,          bought at least 375 loans that include appraisals
guilty on charges of mail and wire fraud. Lattas          associated with the defendants.
and Burge were alleged to have caused buyers to
fraudulently obtain five mortgage loans valued at         On February 11, 2016, White was ordered to pay
approximately $1.49 million. Working with others,         $20,250 in restitution. White and Merritt were
Lattas and Burge caused false representations in loan     referred for suspension by HUD.
applications, real estate contracts, HUD-1 settlement
                                                          Multiple Sentencings in Loan Origination Fraud
statements, bank statements, W-2 Wage and Tax
                                                          Scheme, California
Statements, and pay stubs submitted to lenders. The
documents included false statements on the source         On January 28, 2016, Jose “Joe” Garcia was
of the down payments. The lenders relied on the           sentenced to 42 months in prison, followed by
false documents in their underwriting decisions.          3 years of supervised release, and was ordered to pay
                                                          $1,610,000 in restitution, jointly and severally.
The properties involved in the scheme were
knowingly sold to straw buyers at inflated prices. The    From at least December 2004 to October 2008,
buyers were recruited from the community and were         Garcia, a co-owner of Jolu, Inc., a mortgage
aware of the scheme. Shortly after the properties         brokerage company, ran a loan origination fraud
                                                          scheme in which Garcia and other co-conspirators



38      Federal Housing Finance Agency Office of Inspector General
created fictitious self-employed borrowers, inflated    According to the information, Elias executed a
income and assets, and created fraudulent rental        buy-and-bail scheme through Elias Realty. Through
documentation. The conspirators purchased               extensive advertising, Elias reached out and promised
fraudulent tax letters that supported the fabricated    homeowners whose homes were underwater that he
self-employed borrowers and then submitted the          could help them sell their existing homes, eliminate
fraudulent documents to financial institutions          their debt, and buy new homes. To accomplish
to obtain mortgages. Many of these fraudulent           this, Elias instructed his clients to apply for a
mortgages were then sold to the Enterprises. The        mortgage and buy a second home. Allegedly, the
Enterprises suffered $1.5 million in losses due to      mortgage applications falsely inflated the values
subsequent defaults on those mortgages.                 of the first homes and misrepresented that the
                                                        borrowers intended to keep their existing homes as
On January 11, 2016, former Jolu Loan Officer
                                                        rental properties. In reality the homes were worth
Lidubina “Lido” Perez was sentenced for her role
                                                        significantly less than stated, and the homeowners
in the scheme to 7 months in prison, followed
                                                        had no intention of renting their homes; rather,
by 7 months of home detention and 3 years of
                                                        they intended to sell them by short sale. In order to
supervised release, and was ordered to pay $735,750
                                                        convince the second loan originator that the existing
in restitution, jointly and severally, with two other
                                                        home was being retained for a rental property, Elias
defendants.
                                                        Realty manipulated the Multiple Listing Service
                                                        (MLS) to make it appear as though the existing
Short Sale Schemes
                                                        property was not being short sold. The false MLS
Short sales occur when a lender allows a borrower       information corroborated the false and fraudulent
who is “underwater” on his/her loan—that is, the        information on the loan applications.
borrower owes more than the property securing the
loan is worth—to sell his/her property for less than    Once the second homes were purchased, Elias
the debt owed. Short sale fraud usually involves        purportedly instructed the homeowners to stop
a borrower intentionally misrepresenting or not         making mortgage payments on the first homes
disclosing material facts to induce a lender to agree   and to apply for approval with their lenders to
to a short sale to which it would not otherwise         conduct short sales on their original properties given
agree. Below are highlights of OIG investigations       the financial hardships due to having two active
that resulted in criminal charges and sentencings       mortgages. Many homeowners were permitted to
in this category during this semiannual reporting       conduct short sales and lenders forgave the difference
period. (See Appendix H for a summary of publicly       between the short sale prices and the outstanding
reportable investigative outcomes in this category.)    amount of the loans. In some instances, however, the
                                                        financial institutions did not agree to the short sales
Real Estate Broker and Investor Charged in a            and the mortgages were foreclosed.
Buy-and-Bail Scheme, Michigan                           In addition, according to the information, in
On December 9, 2015, William Elias, owner and           December 2013, Doren allegedly caused KLD
a licensed real estate broker for Elias Realty, and     Consulting to act as a straw buyer on behalf of
Kimberly Doren, an Elias Realty employee and owner      William Elias. Prior to the sale, Doren and the seller
of KLD Consulting, were charged by information for      allegedly signed an affidavit that falsely stated the
their roles in a short sale fraud scheme.               short sale was an arm’s length transaction between
                                                        the parties.

                                  Semiannual Report to the Congress • October 1, 2015–March 31, 2016       39
The Enterprises suffered losses in excess of              Sentencing in Loan Modification Scheme,
$5.1 million involving nearly 100 homes.                  California

                                                          Najia Jalan ran several loan modification businesses
Sentencings in Complex Short Sale Fraud
                                                          and a not-for-profit organization that preyed on
Scheme, California
                                                          financially distressed homeowners. Jalan and other
An OIG investigation found evidence of a wide-            conspirators used these entities to extract hundreds of
ranging conspiracy in which numerous conspirators         thousands of dollars from homeowners on the basis
engaged in several schemes to fraudulently obtain         of false promises and misrepresentations. Many of the
money, including: a “flopping” scheme where banks         underlying loans were owned by the Enterprises.
were convinced to accept short sale prices that were
                                                          Typically, Jalan contacted struggling borrowers and
lower than a legitimate buyer would be willing to
                                                          convinced them to pay upfront fees in exchange
pay, recording false second and third liens, tricking
                                                          for mortgage relief services which, ultimately, were
distressed homeowners into signing their properties
                                                          never provided. To gain her victims’ trust, Jalan used
over to the conspirators, and renting distressed
                                                          the stolen identities of several unsuspecting lawyers
properties while simultaneously stalling foreclosure
                                                          to trick the homeowners into thinking she was a
through the use of fraudulent documents. Mortgages
                                                          lawyer. In some instances, Jalan falsely represented
on at least eight of the properties were owned by the
                                                          that she was affiliated with a government agency. In a
Enterprises, causing losses to date of $300,000.
                                                          previous reporting cycle, Jalan pled guilty to charges
On December 3, 2015, the following individuals            of mail fraud and aggravated identity theft for her
received sentences ranging from 6 years in prison to      role in the scheme.
80 days in custody with 5 years of probation: James
                                                          On October 5, 2015, Jalan was sentenced to
Styring, Joseph Jaime, Deanna Bashara, and Delia
                                                          70 months in prison, 3 years of supervised release,
Wolfe. Varying amounts of restitution from $50,000
                                                          and ordered to pay restitution of $236,785.
to $596,232 were also ordered.

                                                          Sentencing in Loan Modification Scheme,
Loan Modification and Property
                                                          California
Disposition Schemes
                                                          Michael Nazarinia, in conjunction with the law
These schemes prey on homeowners who are
                                                          firm Haffar & Associates and other co-conspirators,
in default or are at risk of imminent default on
                                                          participated in a loan modification scheme that
their home loans. Businesses advertise that they
                                                          contacted distressed homeowners and promised to
can secure loan modifications, provided that the
                                                          facilitate loan modifications on the homeowners’
homeowners pay significant upfront fees. Typically,
                                                          behalf in exchange for upfront payments.
these businesses take little or no action, leaving
                                                          Conspirators at Haffar & Associates made false
homeowners in a worse position. Below are some
                                                          representations to prospective clients, including that
highlights of OIG investigations that resulted
                                                          the firm had a 98% success rate in obtaining loan
in criminal plea agreements and sentencings in
                                                          modifications and that each case would be handled
this category during this semiannual reporting
                                                          by an attorney. More than 1,000 homeowners were
period. (See Appendix I for a summary of publicly
                                                          convinced to sign up for the loan modification
reportable investigative outcomes in this category.)
                                                          services and paid the upfront fee. In reality, however,
                                                          the homeowners were provided with little to no

40      Federal Housing Finance Agency Office of Inspector General
services at all and their homes went into foreclosure,    $3.8 million, with approximately $1.1 million in
eight of which were owned by Fannie Mae. As               potential losses to the Enterprises. Seko did not
a result of the foreclosures, Fannie Mae suffered         plead guilty and is awaiting trial.
more than $1.1 million in losses. Nazarinia’s role in
                                                          Two other schemers, Joshua Sanchez and Kristen
the scheme included supervising and training case
                                                          Ayala, were sentenced on October 29, 2015, after
managers, developing underwriting guidelines for
                                                          pleading guilty to conspiracy to commit wire fraud.
new clients, and devising the borrower’s checklist.
                                                          Sanchez was sentenced to 151 months in prison and
On October 26, 2015, Nazarinia pled guilty to mail        3 years of supervised release. Ayala was sentenced
fraud and filing a false tax return, and on February 8,   to 135 months in prison and 3 years of supervised
2016, he was sentenced to 9 months in prison and          release.
3 years of supervised release. Stacy Tuers, another
co-conspirator, was sentenced on March 10, 2016,          Property Management and REO Schemes
for his role in this modification scheme.                 The wave of foreclosures following the housing crisis
                                                          left the Enterprises with an inventory of real estate
Five Pled and Two Sentenced in Loan
                                                          owned (REO) properties (i.e., properties that the
Modification Scheme, California
                                                          Enterprises took back in foreclosure, possess, and
In November 2015, Roscoe Umali, Joshua Johnson,           are responsible to maintain). This REO inventory
Isaac Perez, Raymund Dacanay, Jefferson Maniscan,         has sparked a number of different schemes to either
and Hanh (Jennifer) Seko were arrested for allegedly      defraud the Enterprises, which use contractors to
participating in a nationwide loan modification           secure, maintain and repair, price, and ultimately sell
scheme.                                                   their properties, or defraud individuals seeking to
                                                          purchase REO properties from the Enterprises.
During March 2016, five of the co-defendants
pled guilty to conspiracy to commit wire fraud.           Below is an example of an OIG investigation that
According to statements of facts filed with               resulted in a sentencing in this category during
their plea agreements, Umali, Johnson, Perez,             this semiannual reporting period. (See Appendix J
Dacanay, Mansican, and others made a series of            for a summary of publicly reportable investigative
misrepresentations to struggling homeowners in            outcomes in this category.)
order to induce the homeowners to make payments
of thousands of dollars in exchange for supposed          Real Estate Agent Sentenced to Prison, Illinois
home loan modification assistance. The defendants         On February 9, 2016, Harry Simons, owner of an
allegedly convinced struggling homeowners to              Illinois RE/MAX real estate office, was sentenced to
make several “trial mortgage payments” directly to        120 days of incarceration, with credit for 33 days
the conspirators rather than to the homeowners’           of time already served, 48 months of probation,
mortgage lenders. The defendants then did nothing         and ordered to pay restitution in the amount of
to help modify any mortgages, no services were            $140,300. Simons was convicted on November 23,
provided, and the defendants allegedly used the           2015, for multiple counts of theft.
money they received for their own benefit. The
scheme victimized over 400 individuals and                According to evidence presented in court, from late
families and resulted in overall losses estimated at      2013 to early 2014, Simons stole escrow money
                                                          provided by potential real estate buyers to use


                                  Semiannual Report to the Congress • October 1, 2015–March 31, 2016          41
for his business operating expenses and personal          scheme involving hundreds of fraudulent
transactions. The earnest money of at least 12 clients,   bankruptcies and deeds of trust.
valued at over $100,000, was stolen by Simons. RE/
                                                          The schemers worked for and operated Trustee Sale
MAX County Line was an approved Fannie Mae
                                                          Stoppers, Property Assistance, Asset Help, as well
REO broker. At least five of the properties involved
                                                          as other businesses out of Los Angeles, California.
in the scheme were Fannie Mae REO properties.
                                                          Surabi and Karikorian contacted homeowners who
Simons’ broker license was revoked by the state of
                                                          were in foreclosure and facing a trustee’s sale and
Illinois in early 2014. Fannie Mae lost approximately
                                                          promised that they would delay the trustee’s sale for
$17,000 on the deals that were completed.
                                                          up to 36 months for an initial payment of $750 to
                                                          over $1,000, and a $750 per month fee thereafter.
Adverse Possession Schemes
                                                          To accomplish the delays, Karikorian and Surabi
Adverse possession schemes use illegal adverse            caused a series of fraudulent bankruptcies to be filed,
possession (also known as “home squatting”) or            mostly in the Northern and Central Judicial Districts
fraudulent documentation to control distressed            of California. They would also file backdated “short
homes, foreclosed homes, and REO properties.              form Deed of Trust and assignment of rent” forms
Below are some highlights of OIG investigations that      against the clients’ homes, which included several
resulted in criminal charges, a plea agreement, and       d/b/a companies as well as Velasquez and others
sentencings in this category during this semiannual       as beneficiaries. At least 60 fraudulent deeds of
reporting period. (See Appendix K for a summary           trust were recorded at the direction of Surabi and
of publicly reportable investigative outcomes in this     Karikorian.
category.)
                                                          At least 11 of the properties involved were
Sentencings in Fraudulent Deed Scheme,                    Freddie Mac-owned, resulting in a credit loss of
California                                                approximately $817,955; the overall exposure on
                                                          these properties is approximately $4.4 million.
On February 11, 2016, Shara Surabi, Panik
Karikorian, and Juan Velasquez were sentenced for
                                                          Guilty Plea in REO/Deed Theft Scheme, California
their roles in a foreclosure rescue scheme. All three
defendants were sentenced to 4 months in prison,          On January 5, 2016, former real estate agent Mazen
followed by 5 years of probation. The sentencings         Alzoubi pled guilty to conspiracy to commit mail
occurred shortly after no contest pleas to conspiracy     and wire fraud, mail fraud, aggravated identity theft,
were entered by defendants Surabi and Velasquez in        money laundering conspiracy, and criminal forfeiture
late December 2015, along with Karikorian’s plea          associated with his role in a REO/deed theft scheme.
of no contest to being an accessory after the fact        Alzoubi and his co-defendants, Daniel Deaibes
during the same time period. On February 24, 2016,        and Mohamad Daoud, operated a scheme to steal
Eugene Fulmer, a fourth co-conspirator, pled guilty       properties from the Enterprises and others by forging
to his role in this foreclosure rescue scheme.            grant deeds granting the underlying properties to shell
According to court documents, from early 2011             companies they created and filing the deeds in the
to early 2014, Surabi, Karikorian, Velasquez, and         county recorder’s office. By recording these fraudulent
co-conspirators collected more than $2 million in         deeds, the defendants made the transfers appear
proceeds from their foreclosure-delay/eviction-delay      legitimate. The stolen properties were then marketed


42      Federal Housing Finance Agency Office of Inspector General
and sold, using a legitimate title and escrow company,   into an escrow account and that he would use the
to unwitting investors. Once the sale proceeds were      payments to negotiate their debt with credit card
wired to the defendants’ bank accounts, the money        companies. In reality, Longordo put the victims’
was either wired overseas or transferred numerous        funds into a regular bank account and allegedly made
times in an attempt to launder the money.                withdrawals for personal use. Losses to the GSEs have
                                                         not yet been determined in this case.
As investigators closed in on the defendants and
successfully stopped the sale of stolen properties,
the defendants changed tactics and fraudulently          Outreach
assumed control over an LLC that owned many
investment properties. The defendants, while acting      OIG develops public-private partnerships where
as owners of the stolen LLC, attempted to obtain         appropriate. We delivered 22 fraud awareness
hard money loans using the properties owned by the       briefings to different audiences to raise awareness of
LLC as collateral.                                       OIG’s law enforcement mission and of fraud schemes
                                                         targeting FHFA programs.
By the time the defendants were indicted and
arrested, they had either sold or attempted to sell 15   OIG has developed and intends to further strengthen
properties worth more than $3.6 million. On at least     ongoing close working relationships with other law
10 occasions, the defendants were successful and         enforcement agencies, including DOJ and U.S.
earned nearly $2.2 million in illicit proceeds.          Attorneys’ offices; the FBI; HUD-OIG; the FDIC-
                                                         OIG; IRS-CI; SIGTARP; the Financial Crimes
At least 10 of the properties stolen by the              Enforcement Network; state attorneys general;
defendants were owned by the Enterprises, valued at      mortgage fraud working groups; and other federal,
over $2.5 million.                                       state, and local law enforcement agencies nationwide.
                                                         OI also works closely with Fannie Mae’s Mortgage
Charges Filed in Foreclosure Rescue Scheme,
                                                         Fraud Program and with Freddie Mac’s Financial
Michigan
                                                         Fraud Investigation Unit.
On March 9, 2016, Pasquale Longordo and his
                                                         During this reporting period OIG worked with
company, Modify Loan Experts, LLC, were charged
                                                         additional local and state partners, including the
for allegedly stealing money from homeowners
                                                         Ventura County California District Attorney’s
facing mortgage foreclosures or who needed help
                                                         Office, King County Washington District Attorney’s
managing their credit card debt.
                                                         Office, Wayne County Prosecutor’s Office, DuPage
Longordo and Modify Loan Experts allegedly               County State Attorney’s Office, Burr Ridge
promised victims that an attorney would be assigned      Police Department, California Department of
to negotiate mortgage modifications with mortgage        Justice, California Franchise Tax Board, New York
companies on the homeowners’ behalf. However, this       Department of Financial Services, Prince George’s
did not happen and many victims lost their homes as      County Police Department, Montgomery County
a result.                                                Police Department, and the Loudon County
                                                         Sheriff’s Office.
Additionally, Longordo, who also operated a credit
card debt management service, allegedly told debt
management victims he was putting their funds


                                 Semiannual Report to the Congress • October 1, 2015–March 31, 2016        43
Investigations: Administrative                             “engaged in covered misconduct.” Suspension of such
Actions                                                    counterparties is warranted to protect the safety and
                                                           soundness of the regulated entities. For purposes of
                                                           the program, covered misconduct means “convictions
In addition to the criminal cases brought as a result of
                                                           or administrative sanctions within the past three years
OIG investigations, OI’s investigative work regularly
                                                           based on fraud or similar misconduct in connection
results in administrative referrals to other entities
                                                           with the mortgage business.”9
for action. For example, a criminal case of mortgage
fraud that results in a guilty plea by a licensed real     During this reporting period, OIG made 37 referrals
estate agent, attorney, or certified public accountant     of counterparties to FHFA for consideration
for participation in a bank fraud scheme may result        of potential suspension under its Suspended
in a referral by OIG to a state licensing body for         Counterparty Program.
disciplinary actions. Where a real estate professional
is prosecuted for mortgage fraud, that prosecution         A summary of OIG’s referrals during the reporting
may cause OIG to refer the matter to another federal       period is captured in Figure 8 (see below).
agency for possible suspension or debarment of that
individual from participation in federal programs.         Figure 8. Administrative Actions from October 1,
During this reporting period, OIG made 63 referrals        2015, Through March 31, 2016
for suspension and debarment.
                                                                          Administrative Actions
                                                           Suspension/Debarment Referrals                     63
Suspended Counterparty                                     Referral to FHFA Suspended Counterparty            37
                                                           Program
Referrals

FHFA has adopted a Suspended Counterparty
Program under which it issues “suspension orders
directing the regulated entities to cease or refrain”
from doing business with counterparties (and
their affiliates) who were previously found to have




44      Federal Housing Finance Agency Office of Inspector General
OIG’s Regulatory Activities and Outreach

Regulatory Activities                                     The Proposed Rule provides that the Agency will
                                                          use the Plans to create annual, Enterprise-specific
Pursuant to the Inspector General Act, OIG assesses       evaluation guides (Guides), which shall include
whether proposed legislation and regulations              the specific considerations that FHFA will use to
related to FHFA are efficient, economical, legal, or      evaluate whether, and the extent to which, the
susceptible to fraud and abuse. During this reporting     Enterprises have complied with their duty to serve
period, OIG reviewed two proposed and four final          the Underserved Markets.14
rules subsequently published by FHFA. One of              The Proposed Rule does not specify what evaluation
the Agency’s proposed rules is entitled “Enterprise       factors the Guides will contain, other than they
Duty to Serve Underserved Markets” (Duty to Serve         will be based in part on each Enterprise’s Plan.15
Rule or Proposed Rule), which FHFA published on           This approach could result in the Enterprises being
December 18, 2015.10                                      evaluated based on disparate criteria rather than a
The Proposed Rule relates to a requirement in The         common standard. By publishing the Guides after
Safety and Soundness Act (Act), which directs the         the Enterprises have issued their Plans, FHFA may
Enterprises to “provide leadership to the market in       hinder the Enterprises’ ability to formulate and
developing loan products and flexible underwriting        implement compliant Plans. As the Proposed Rule
guidelines to facilitate a secondary mortgage             specifies that FHFA intends to establish specific
market for mortgages for very low-, low-, and             evaluation criteria in Guides that are not subject to
moderate-income families” for three underserved           statutory notice and comment requirements, OIG
markets: manufactured housing, affordable housing         has concerns that this proposed course of action
preservation, and rural markets (Underserved              will not satisfy the Act’s mandate that the Agency
Markets).11 The Act also requires the Director,           establish by regulation its manner for evaluating the
effective in 2010, to promulgate a regulation that sets   Enterprises’ compliance with their duty to serve.
forth FHFA’s process to evaluate whether, and the         The Proposed Rule also provides that the Agency will
extent to which, the Enterprises have complied with       use its Guide to award up to 100 “scoring points”
their duty to serve the Underserved Markets and for       to each Enterprise for each of three underserved
rating the extent to which they did so. This is the       markets.16 The proposed regulation provides that the
Agency’s second attempt to implement this obligation      scoring points will be awarded “based on FHFA’s
under the Act. FHFA originally published a Notice of      assessment of how well the Enterprise performed [its
Proposed Rulemaking and Request for Comments on           Underserved Markets Plan’s] activity and associated
June 7, 2010, but never issued a final rule.12            objectives during the evaluation year[.]”17 However,
FHFA’s Proposed Rule requires that each Enterprise        the Proposed Rule does not explain the specific
submit to FHFA an “Underserved Markets Plan”              manner in which the Agency will assess performance
(Plan) describing how it will satisfy their duty to       or award points. For example, the Proposed Rule
serve Underserved Markets13 and enumerating               provides that FHFA intends to create four overall
several assessment factors that FHFA will use to          ratings by which it might label each Enterprise’s
evaluate the Enterprise’s compliance with its Plan.       compliance in a given year—“Exceeds,” “High

                                  Semiannual Report to the Congress • October 1, 2015–March 31, 2016            45
Satisfactory,” “Low Satisfactory,” and “Fails”—but        to prevent fraud, encourage transparency, and ensure
provides no guidance regarding the actual scores          accountability, responsibility, and ethical leadership.
that must be earned in order to receive a particular
                                                          Highlights of our efforts during this reporting period
rating.18 OIG has concerns that this lack of clarity
                                                          include the following.
regarding the manner in which FHFA will evaluate
the Enterprises’ compliance creates an ambiguity
                                                          Congress
that could lead to Administrative Procedures Act
challenges to any future compliance findings.19           To fulfill its mission, OIG works closely with
                                                          Congress and is committed to keeping it fully
In sum, the Proposed Rule reserves to FHFA the            apprised of our oversight of FHFA. During this
ability to rate the Enterprises based upon points for     semiannual reporting period, OIG provided
which no scoring rules are provided using a currently     information and briefings to congressional
nonexistent evaluation Guide, which FHFA will             committees and offices. We also endeavor to inform
create outside of the Proposed Rule based largely on      Congress through responses to numerous technical
each Enterprise’s Plan.                                   assistance and information requests, as well as
                                                          replies to formal written inquiries from members of
Public and Private Partnerships,                          Congress on various topics.
Outreach, and Communications
                                                          Hotline
The Enterprises and the FHLBanks play a critical role     During this reporting period, the OIG hotline
in the U.S. housing finance system, and the recent        continued to serve as a vehicle through which
financial crisis has shown that financial distress at     Agency, Enterprise, and FHLBank employees and
the Enterprises and deteriorating conditions in U.S.      members of the public can report suspected fraud,
housing and financial markets threaten the U.S.           waste, abuse, mismanagement, or misconduct in
economy. American taxpayers put their money and           Agency programs and operations. The individuals
confidence in the hands of regulators and lawmakers       reporting can choose to remain anonymous or
to restore stability to the economy and decisions were    disclose their identity. OIG actively promotes its
made to invest $187.5 billion in the Enterprises. The     hotline in multiple ways, including its website,
continuing significant role of the Enterprises and        posters, and public reports. During this reporting
FHLBanks in housing finance demands constant              period, the hotline received 1,125 contacts, which
supervision and monitoring. Fundamental to OIG’s          included: reports of alleged misconduct that were
mission is independent and transparent oversight          referred to OI for potential investigation, reports
of Agency programs and operations, and of the             of matters related to other agencies, requests for
Enterprises to the extent FHFA, as conservator, has       assistance on housing-related issues, and complaints
delegated responsibilities to them.                       related to the Enterprises, FHLBanks, member
                                                          banks, and related entities and individuals.
OIG prioritizes outreach and engagement to
communicate its mission and work to members of            Close Coordination with Other Oversight
Congress and to the public and to actively participate    Organizations
in government-wide oversight community activities.
We continue to forge public and private partnerships      OIG shares oversight of federal housing program
                                                          administration with other federal agencies,


46      Federal Housing Finance Agency Office of Inspector General
including HUD, the Department of Veterans                     professional standards, developing protocols,
Affairs, the Department of Agriculture, and                   promoting the use of advanced techniques,
Treasury’s Office of Financial Stability (which               and fostering awareness of best practices.
manages the Troubled Asset Relief Program); their             During this semiannual period, the committee
IGs; and other law enforcement organizations.                 continued its work on a peer review program
To further the oversight mission, we coordinate               for inspection and evaluation units in the
with these entities to exchange best practices, case          IG community. The peer review is designed
information, and professional expertise. During               to assess organizations’ work under CIGIE’s
the reporting period, OIG made numerous                       Blue Book (January 2012) and to promote
presentations to state and local law enforcement              credibility of such work by validating the
agencies, prosecutors, mortgage fraud working                 organizations’ work processes and evaluating
groups across the country, and individual federal             their objectivity, independence, and rigorous
agencies responsible for investigating mortgage               adherence to applicable standards. The
fraud, such as HUD-OIG, the FBI, U.S. Postal                  Committee’s training team, of which OIG is
Inspection Service, IRS-CI, and DOJ.                          an active member, also planned and sponsored
                                                              training and development sessions and
We maintained active participation in coordinated
                                                              learning forums for inspection and evaluation
oversight activities during this reporting period:
                                                              staff from across the IG community, including
•	 RMBS Working Group. OIG continued its                      a weeklong course teaching the fundamentals
   significant role in the RMBS Working Group.                of conducting and writing inspections and
   (See discussion at “Investigations: Civil Cases,”          evaluations.
   pages 33-34.)
                                                            ºº The Investigation Committee advises the
•	 FBI Cybercrimes Task Force. The FBI’s                       IG community on issues involving criminal
   Washington, DC, field office spearheads a                   investigations, criminal investigations
   cybercrimes task force, and OIG has assigned                personnel, and establishing criminal
   two special agents to it. This multi-agency task            investigative guidelines. During this
   force focuses on investigating cybercrimes. OIG             semiannual period, the Investigations
   made this assignment to help combat such                    Committee, in conjunction with the
   crimes and to work in partnership with multiple             Legislation Committee, drafted a report
   federal agencies. This concerted effort will help           on the history, requirements, and necessity
   prosecute cybercriminals and stop cyber attacks             of law enforcement authority in the IG
   made against institutions maintaining personally            community. Additionally, the committee
   identifiable information, trade secrets, and                hosted a meeting for all federal IGs at the
   financial data.                                             Federal Law Enforcement Training Center to
                                                               discuss the future agent and training agent
•	 CIGIE. OIG actively participates in several                 leaders. A committee working group, chaired
   CIGIE committees and working groups.                        by OIG, continued work on a project to
   ºº The Inspection and Evaluation Committee                  review and make recommendations regarding
      provides leadership for the CIGIE inspection             the quality standards for investigations and the
      and evaluation community’s effort to improve             investigations peer review process. Finally, OIG
      agency program effectiveness by maintaining              chairs the Investigations Subcommittee (hosted


                                  Semiannual Report to the Congress • October 1, 2015–March 31, 2016       47
     under CIGIE’s Information Technology                Private-Public Partnerships
     Committee) that focuses on digital forensics
                                                         Housing finance professionals are on the frontlines
     and computer crime investigations.
                                                         and often have a real-time understanding of emerging
•	 Council of Inspectors General on Financial            threats and misconduct. We speak regularly with
   Oversight (CIGFO). CIGFO was created by the           officials at the FHLBanks and the Enterprises to
  Dodd-Frank Wall Street Reform and Consumer             benefit from their insights and make presentations
  Protection Act of 2010 to oversee FSOC,                to industry groups. Recent presentations include
  which is charged with strengthening the nation’s       Appraisal Expo attendees, International Association
  financial system. OIG is a permanent member            of Financial Crimes Investigators, the Mortgage
  of CIGFO, along with the IGs of Treasury, the          Bankers Association, financial institution
  FDIC, the SEC, and others. By statute, CIGFO           investigators, and Fidelity National Title Group,
  audits FSOC each year. OIG participates in             focusing on fraud trends and emerging schemes in
  a CIGFO working group that conducts those              the mortgage industry.
  annual audits. This year CIGFO is coordinating
  a review of FSOC’s efforts to promote market
  discipline. Specifically, the working group will
  assess FSOC’s efforts to eliminate expectations
  by shareholders, creditors, and counterparties
  of large bank holding companies or nonbank
  financial companies that the government will
  shield them from losses in the event of failure.




48     Federal Housing Finance Agency Office of Inspector General
Semiannual Report to the Congress • October 1, 2015–March 31, 2016   49
Appendices

Appendix A:                                                by improving accountability and transparency in the
                                                           financial system, ending “too big to fail,” protecting
Glossary and Acronyms                                      the American taxpayer by ending bailouts, and
                                                           protecting consumers from abusive financial services
                                                           practices.
Glossary of Terms
                                                           Emergency Economic Stabilization Act of 2008:
Bankruptcy: A legal procedure for resolving debt
                                                           Legislation that authorizes Treasury to undertake
problems of individuals and businesses; specifically, a    specific measures to provide stability and prevent
case filed under one of the chapters of Title 11 of the    disruption in the financial system and the economy.
U.S. Code.                                                 It also provides funds to preserve homeownership.

                                                           Fannie Mae: A federally chartered corporation that
Bonds: Obligations by a borrower to eventually
repay money obtained from a lender. The buyer of           purchases residential mortgages and pools them into
the bond (or “bondholder”) is entitled to receive          securities that are sold to investors. By purchasing
payments from the borrower.                                mortgages, Fannie Mae supplies funds to lenders so
                                                           they may make loans to home buyers.
Conservatorship: Conservatorship is a legal
                                                           Federal Home Loan Bank System: The FHLBanks
procedure for the management of financial
institutions for an interim period during which the        are 11 regional cooperative banks that U.S. lending
institution’s conservator assumes responsibility for       institutions use to finance housing and economic
operating the institution and conserving its assets.       development in their communities. Created by
Under the Housing and Economic Recovery Act of             Congress, the FHLBanks have been the largest source
2008, the Enterprises entered into conservatorships        of funding for community lending for eight decades.
overseen by FHFA. As conservator, FHFA has                 The FHLBanks provide loans (or “advances”) to their
undertaken to preserve and conserve the assets of the      member banks but do not lend directly to individual
Enterprises and restore them to safety and soundness.      borrowers.
FHFA also has assumed the powers of the boards of          Foreclosure: A legal process used by a lender to
directors, officers, and shareholders; however, the day-   obtain possession of a mortgaged property in order to
to-day operational decision making of each company         repay part or all of the debt.
is delegated by FHFA to the Enterprises’ existing
management.                                                Freddie Mac: A federally chartered corporation that
                                                           purchases residential mortgages, pools them into
Default: Occurs when a mortgagor misses one or             securities, and sells them to investors. By purchasing
more payments.                                             mortgages, Freddie Mac supplies funds to lenders so
Dodd-Frank Wall Street Reform and Consumer                 they may make loans to home buyers.
Protection Act of 2010: Legislation that intends to        Ginnie Mae: A government-owned corporation
promote the financial stability of the United States       within HUD. Ginnie Mae guarantees investors the


50      Federal Housing Finance Agency Office of Inspector General
timely payment of principal and interest on privately    Internal Controls: Internal controls are an integral
issued mortgage-backed securities backed by pools of     component of an organization’s management that
government-insured and -guaranteed mortgages.            provide reasonable assurance that the following
                                                         objectives are achieved: (1) effectiveness and efficiency
Government-Sponsored Enterprises: Business
                                                         of operations, (2) reliability of financial reports, and
organizations chartered and sponsored by the federal
                                                         (3) compliance with applicable laws and regulations.
government.
                                                         Internal controls relate to management’s plans,
Guarantee: A pledge to investors that the guarantor      methods, and procedures used to meet its mission,
will bear the default risk on a pool of loans or other   goals, and objectives and include the processes and
collateral.                                              procedures for planning, organizing, directing, and
                                                         controlling program operations as well as the systems
Housing and Economic Recovery Act of 2008:               for measuring, reporting, and monitoring program
Legislation that establishes OIG and FHFA, which         performance.
oversee the GSEs’ operations. HERA also expanded
Treasury’s authority to provide financial support to     Mortgage-Backed Securities: Debt securities that
the GSEs.                                                represent interests in the cash flows—anticipated
                                                         principal and interest payments—from pools of
Inspector General Act of 1978: Legislation that          mortgage loans, most commonly on residential
authorizes establishment of offices of inspectors        property.
general, “independent and objective units” within
federal agencies, that: (1) conduct and supervise        OIG Fiscal Year 2016: OIG’s FY16 covers
audits and investigations relating to the programs and   October 1, 2015, through September 30, 2016.
operations of their agencies; (2) provide leadership
                                                         Real Estate Owned: Foreclosed homes owned by
and coordination and recommend policies for
                                                         government agencies or financial institutions, such as
activities designed to promote economy, efficiency,
                                                         the Enterprises or real estate investors. REO homes
and effectiveness in the administration of agency
                                                         represent collateral seized to satisfy unpaid mortgage
programs and to prevent and detect fraud, waste,
                                                         loans. The investor or its representative then must sell
or abuse in such programs and operations; and
                                                         the property on its own.
(3) provide a means for keeping the head of the
agency and Congress fully and currently informed         Securitization: A process whereby a financial
about problems and deficiencies relating to the          institution assembles pools of income-producing
administration of such programs and operations and       assets (such as loans) and then sells securities
the necessity for and progress of corrective action.     representing an interest in the assets’ cash flows to
                                                         investors.
Inspector General Reform Act of 2008:
Legislation that amends the Inspector General Act to     Senior Preferred Stock Purchase Agreements:
enhance the independence of inspectors general and       Entered into at the time the conservatorships were
to create the Council of the Inspectors General on       created, the PSPAs authorize the Enterprises to
Integrity and Efficiency.


                                   Semiannual Report to the Congress • October 1, 2015–March 31, 2016            51
request and obtain funds from Treasury, among other        Straw Buyer: A straw buyer is a person whose credit
matters. Under the PSPAs, the Enterprises agreed           profile is used to serve as a cover in a loan transaction.
to consult with Treasury concerning a variety of           Straw buyers are chosen for their ability to qualify for
significant business activities, capital stock issuance,   a mortgage loan, causing loans that would ordinarily
dividend payments, ending the conservatorships,            be declined to be approved. Straw buyers may be paid
transferring assets, and awarding executive                a fee for their involvement in purchasing a property
compensation.                                              and usually never intend to own or occupy the
                                                           property.
Servicers: Servicers act as intermediaries between
mortgage borrowers and owners of the loans, such           Underwater: Term used to describe situations in
as the Enterprises or mortgage-backed securities           which the homeowner’s equity is below zero (i.e., the
investors. They collect the homeowners’ mortgage           home is worth less than the balance of the loan(s) it
payments, remit them to the owners of the                  secures).
loans, maintain appropriate records, and address
                                                           Underwriting: The process of analyzing a loan
delinquencies or defaults on behalf of the owners
                                                           application to determine the amount of risk
of the loans. For their services, they typically
                                                           involved in making the loan; it includes a review of
receive a percentage of the unpaid principal balance
                                                           the potential borrower’s credit worthiness and an
of the mortgage loans they service. The recent
                                                           assessment of the property value.
financial crisis has put more emphasis on servicers’
handling of defaults, modifications, short sales, and      Upfront Fees: One-time payments made by lenders
foreclosures, in addition to their more traditional        when a loan is acquired by an Enterprise. Fannie
duty of collecting and distributing monthly mortgage       Mae refers to upfront fees as “loan level pricing
payments.                                                  adjustments” and Freddie Mac refers to them as
                                                           “delivery fees.”
Short Sale: The sale of a mortgaged property for less
than what is owed on the mortgage.




52      Federal Housing Finance Agency Office of Inspector General
References                                               Federal Housing Finance Agency, “Introduction,”
                                                         Federal Home Loan Bank Membership, at 1 (March
United States Courts, Bankruptcy Basics: Glossary.       2013). Accessed: April 21, 2016, at www.fhfa.
Accessed: April 21, 2016, at www.uscourts.gov/           gov/SupervisionRegulation/Documents/Federal_
FederalCourts/Bankruptcy/BankruptcyBasics/               Home_Loan_Bank_Membership_Module_Final_
Glossary.aspx.                                           Version_1.0_508.pdf.

Freddie Mac, Glossary of Finance and Economic Terms.     Freddie Mac, About Freddie Mac. Accessed: April 21,
Accessed: April 21, 2016, at www.freddiemac.com/         2016, at www.freddiemac.com/corporate/about_
smm/a_f.htm.                                             freddie.html.

Federal Housing Finance Agency, FHFA as                  Ginnie Mae, Ginnie Mae & the GSEs. Accessed:
Conservator of Fannie Mae and Freddie Mac. Accessed:     April 21, 2016, at www.ginniemae.gov/consumer_
April 21, 2016, at www.fhfa.gov/Conservatorship/         education/Pages/ginnie_mae_and_the_gses.aspx.
Pages/History-of-Fannie-Mae--Freddie-                    W. Scott Frame and Lawrence J. White, Regulating
Conservatorships.aspx.                                   Housing GSEs: Thoughts on Institutional Structure
Federal Housing Finance Agency, FHFA Announces           and Authorities, Federal Reserve Bank of Atlanta:
Suspension of Capital Classifications During             Economic Review, Vol. Q2 2004, at 87 (2004).
Conservatorship: Discloses Minimum and Risk-             Accessed: April 21, 2016, at www.frbatlanta.org/
Based Capital Classifications as Undercapitalized        research/publications/economic-review/2004/q2/
for the Second Quarter 2008 for Fannie Mae and           vol89no2_regulating-housing-gses.aspx (click on pdf
Freddie Mac (October 9, 2008). Accessed: April           “Download the full text of this article”).
21, 2016, at www.fhfa.gov/Media/PublicAffairs/           Freddie Mac, Glossary of Finance and Economic Terms.
Pages/FHFA-Announces-Suspension-of-Capital-              Accessed: April 21, 2016, at www.freddiemac.com/
Classifications-During-Conservatorship-and-              smm/g_m.htm.
Discloses-Minimum-and-RiskBased-Cap.aspx.
                                                         Government Accountability Office, Management
Office of the Special Inspector General for the          Report: Opportunities for Improvements in FHFA’s
Troubled Asset Relief Program, “Glossary of Terms,”      Internal Controls and Accounting Procedures, GAO-10-
“Genesis and Passage of EESA,” SIGTARP: Initial          587R, at 1 (June 3, 2010). Accessed: April 21, 2016,
Report to the Congress, at 29, 111 (February 6, 2009).   at www.gao.gov/assets/100/96782.pdf.
Accessed: April 21, 2016, at www.sigtarp.gov/
Quarterly%20Reports/SIGTARP_Initial_Report_to_           Inspector General Act of 1978, Pub. L. No. 95-452.
the_Congress.pdf.
                                                         Inspector General Reform Act of 2008, Pub. L. No.
Dodd-Frank Wall Street Reform and Consumer               110-409.
Protection Act of 2010, Pub. L. No. 111-203.
                                                         Government Accountability Office, “Introduction,”
Emergency Economic Stabilization Act of 2008, Pub.       “Internal Control Standards,” Internal Control:
L. No. 110-343.                                          Standards for Internal Control in the Federal
                                                         Government, GAO/AIMD-00-21.3.1, at 4, 6, 8
Department of Housing and Urban Development,             (November 1999). Accessed: April 21, 2016, at www.
Glossary. Accessed: April 21, 2016, at www.huduser.      gao.gov/special.pubs/ai00021p.pdf.
org/portal/glossary/glossary_g.html#gse.

                                 Semiannual Report to the Congress • October 1, 2015–March 31, 2016      53
Securities and Exchange Commission, Mortgage-             Freddie Mac, “Straw Buyers,” Shut the Door on
Backed Securities. Accessed: April 21, 2016, at www.      Mortgage Fraud: Information on How to Avoid
sec.gov/answers/mortgagesecurities.htm.                   Mortgage Fraud, at 13, 15. Accessed: April 21, 2016,
                                                          at www.freddiemac.com/singlefamily/preventfraud/
Office of the Special Inspector General for
                                                          toolkit.html (scroll to “Shut the Door on Mortgage
the Troubled Asset Relief Program, “Recent
                                                          Fraud,” then click “English [PPT]” under
Developments,” SIGTARP: Quarterly Report to
                                                          “Educational Presentation: Avoid Mortgage Fraud,”
Congress, at 150 (October 26, 2010). Accessed: April
                                                          then download the PowerPoint file).
21, 2016, at www.sigtarp.gov/Quarterly%20Reports/
October2010_Quarterly_Report_to_Congress.pdf.             Office of the Special Inspector General for the
                                                          Troubled Asset Relief Program, “Homeowner
Freddie Mac, Our Business: Single-Family Credit
                                                          Support Programs,” SIGTARP: Quarterly Report to
Guarantee Business. Accessed: April 21, 2016, at
                                                          Congress, at 65 (January 26, 2011). Accessed: April
www.freddiemac.com/corporate/company_profile/
                                                          21, 2016, at www.sigtarp.gov/Quarterly%20Reports/
our_business/index.html.
                                                          January2011_Quarterly_Report_to_Congress.pdf.
Federal Housing Finance Agency, Senior
                                                          Indiana Secretary of State Securities Division,
Preferred Stock Purchase Agreements.
                                                          Investment Terms. Accessed: April 21, 2016, at www.
Accessed: April 21, 2016, at www.fhfa.gov/
                                                          in.gov/sos/securities/2494.htm.
senior-preferred-stock-purchase-agreements.
                                                          Freddie Mac, “PCs,” Form 10-K for the Fiscal Year
Federal Housing Finance Agency Office of Inspector
                                                          Ended December 31, 2013, at 10. Accessed: April
General, “Treasury Agreements,” White Paper: FHFA-
                                                          21, 2016, at www.freddiemac.com/investors/er/
OIG’s Current Assessment of FHFA’s Conservatorships of
                                                          pdf/10k_022714.pdf.
Fannie Mae and Freddie Mac, WPR-2012-001, at 19
(March 28, 2012). Accessed: April 21, 2016, at www.
fhfaoig.gov/Content/Files/WPR-2012-001.pdf.

Letter from David H. Stevens, Assistant Secretary
for Housing, Department of Housing and Urban
Development, to All Approved Mortgagees, FHA
Refinance of Borrowers in Negative Equity Positions
(August 6, 2010). Accessed: April 21, 2016, at www.
hud.gov/offices/adm/hudclips/letters/mortgagee/
files/10-23ml.pdf.




54      Federal Housing Finance Agency Office of Inspector General
Acronyms and Abbreviations                             HERA	        Housing and Economic Recovery Act
                                                                    of 2008
Agency	      Federal Housing Finance Agency            HUD-OIG	     Department of Housing and Urban
Blue Book	 Quality Standards for Inspection and                     Development Office of Inspector
             Evaluation                                             General

CIGFO	       Council of Inspectors General on          IC	          Investigative Counsel
             Financial Oversight                       IG	          Inspector General
CIGIE	       Council of the Inspectors General on      IPIA	        Improper Payments Information Act of
             Integrity and Efficiency                               2002
CSP	         Common Securitization Platform            IRS-CI	      IRS-Criminal Investigation
DBR	         Division of Federal Home Loan Bank        IT	          Information Technology
             Regulation
                                                       MLS	         Multiple Listing Service
DER	         Division of Enterprise Regulation
                                                       MRA	         Matter Requiring Attention
DHMG	        Division of Housing Mission and Goals
                                                       NIST 	     National Institute of
DOJ	         Department of Justice                     Framework	 Standards and Technology Framework
ECB	         Executive Compensation Branch                          for Improving Critical Infrastructure
                                                                    Cybersecurity
Enterprises	 Fannie Mae and Freddie Mac
                                                       OA	          Office of Audits
EO	          Executive Office
                                                       OAd	         Office of Administration
FBI	         Federal Bureau of Investigation
                                                       OC	          Office of Chief Counsel
FDIC	        Federal Deposit Insurance Corporation
                                                       OCC	         Office of the Comptroller of the
FFIEC	       Federal Financial Institutions                         Currency
             Examination Council
                                                       OCo	         Office of Compliance and Special
FHFA	        Federal Housing Finance Agency                         Projects
FHLBanks	 Federal Home Loan Banks                      OE	          Office of Evaluations
FISMA	       Federal Information Security              OFHEO	       Office of Federal Housing Enterprise
             Management Act of 2002                                 Oversight
FSOC	        Financial Stability Oversight Council     OI	          Office of Investigations
FY16	        Fiscal Year 2016                          OIG	         Federal Housing Finance Agency Office
                                                                    of Inspector General
GAO	         Government Accountability Office
                                                       PSB	         Plains State Bank
GSEs	        Government-Sponsored Enterprises

                                 Semiannual Report to the Congress • October 1, 2015–March 31, 2016     55
PSPAs	        Senior Preferred Stock Purchase              SAUSA	      Special Assistant U.S. Attorney
              Agreements
                                                           SEC	        Securities and Exchange Commission
REO	          Real Estate Owned
                                                           SIGTARP	    Office of the Special Inspector General
RMBS	         Residential Mortgage-Backed Securities                   for the Troubled Asset Relief Program

ROE	          Report of Examination                        SIR	        Systemic Implication Report

RTS	          Recommendation Tracking System               Treasury	   Department of the Treasury

SA	           Special Agent                                Yellow 	    Government Auditing Standards
                                                           Book	
SAI	          Servicing Alignment Initiative




56       Federal Housing Finance Agency Office of Inspector General
Semiannual Report to the Congress • October 1, 2015–March 31, 2016   57
Appendix B:                                              and detection of fraud, waste, or abuse. Figure 9
                                                         (see page 59) summarizes OIG’s formal public
OIG Recommendations                                      recommendations that were made, pending, or closed
                                                         during the reporting period. A report with any public
In accordance with the provisions of the Inspector       recommendations still pending will remain in Figure
General Act, one of the key duties of OIG is to          9 until all recommendations have been closed. Figure
provide to FHFA recommendations that promote             10 (see page 77) lists OIG’s audit and evaluation
the transparency, efficiency, and effectiveness of       reports for which all of the public recommendations
the Agency’s operations and aid in the prevention        contained within have been closed.




58     Federal Housing Finance Agency Office of Inspector General
Figure 9. Summary of OIG Public Recommendations

        No.                    Recommendation                        Report                 Status

  AUD-2016-002-1    FHFA should establish standards            Review of FHFA’s       Recommendation
                    requiring that modifications or            Tracking and           agreed to by FHFA;
                    suspensions of Scorecard targets must      Rating of the          implementation of
                    be documented in writing.                  2013 Scorecard         recommendation
                                                               Objective for the      pending.
                                                               New Representation
                                                               and Warranty
                                                               Framework Reveals
                                                               Opportunities to
                                                               Strengthen the
                                                               Process

  AUD-2016-002-2    FHFA should require that FHFA              Review of FHFA’s       Recommendation
                    comments and ratings on quarterly          Tracking and           agreed to by FHFA;
                    rating sheets be dated.                    Rating of the          implementation of
                                                               2013 Scorecard         recommendation
                                                               Objective for the      pending.
                                                               New Representation
                                                               and Warranty
                                                               Framework Reveals
                                                               Opportunities to
                                                               Strengthen the
                                                               Process

  AUD-2016-002-3    FHFA should establish standards to         Review of FHFA’s       Recommendation
                    address missed or partially missed         Tracking and           agreed to by FHFA;
                    quarterly targets, including requiring     Rating of the          implementation of
                    that every quarterly rating sheet record   2013 Scorecard         recommendation
                    when any target was missed and the         Objective for the      pending.
                    reset target date.                         New Representation
                                                               and Warranty
                                                               Framework Reveals
                                                               Opportunities to
                                                               Strengthen the
                                                               Process

  AUD-2016-001-1    FHFA should update its Information         FHFA Should            Recommendation
                    Technology Risk Management Program         Improve its            agreed to by FHFA;
                    Module to direct examiners to assess       Examinations of        implementation of
                    the design of the Banks’ vulnerability     the Effectiveness of   recommendation
                    scans and penetration tests when           the Federal Home       pending.
                    assessing the operational effectiveness    Loan Banks’ Cyber
                    of such controls.                          Risk Management
                                                               Programs by
                                                               Including an
                                                               Assessment of the
                                                               Design of Critical
                                                               Internal Controls




                             Semiannual Report to the Congress • October 1, 2015–March 31, 2016        59
      No.                       Recommendation                          Report                 Status

 AUD-2016-001-2      FHFA should require examiners to             FHFA Should            Recommendation
                     document their assessment of the             Improve its            agreed to by FHFA;
                     design of the Banks’ vulnerability           Examinations of        implementation of
                     scans and penetration tests as part          the Effectiveness of   recommendation
                     of their assessment of the operational       the Federal Home       pending.
                     effectiveness of such controls.              Loan Banks’ Cyber
                                                                  Risk Management
                                                                  Programs by
                                                                  Including an
                                                                  Assessment of the
                                                                  Design of Critical
                                                                  Internal Controls

 AUD-2014-016-1      FHFA should assess the current               FHFA’s                 Recommendation
                     state of the Enterprises’ critical risk      Representation         partially agreed to
                     assessment tools, representations            and Warranty           by FHFA; however,
                     and warranties tracking systems, and         Framework              OIG found FHFA’s
                     any other systems, processes, or                                    planned actions
                     infrastructure to determine whether                                 “potentially
                     the Enterprises are in a position to                                responsive.”
                     minimize financial risk that may result                             Recommendation
                     from the new framework. The results                                 remains open and
                     of this assessment should document                                  will continue to be
                     any areas of identified risk, planned                               monitored.
                     actions, and corresponding timelines
                     to mitigate each area of identified
                     risk. Further, this assessment should
                     provide an estimate of when each
                     Enterprise will be reasonably equipped
                     to work safely and soundly within the
                     new framework.


 AUD-2014-016-2      FHFA should perform a comprehensive          FHFA’s                 Closed—
                     analysis to assess whether financial         Representation         Recommendation
                     risks associated with the new                and Warranty           rejected.
                     representation and warranty framework,       Framework
                     including with regard to sunset periods,
                     are appropriately balanced between
                     the Enterprises and sellers. This
                     analysis should be based on consistent
                     transactional data across both
                     Enterprises, identify potential costs
                     and benefits to the Enterprises, and
                     document consideration of the Agency’s
                     objectives.




60   Federal Housing Finance Agency Office of Inspector General
          No.                          Recommendation                             Report                    Status

    AUD-2014-015-1         FHFA should communicate a written               FHFA Oversight            Closed—Final
                           supervisory expectation to Fannie               of Fannie Mae’s           action taken by
                           Mae requiring that its business units           Collection of Funds       FHFA.
                           perform a review of non-delegated               from Servicers
                           short sale transactions to identify             that Closed Short
                           any transactions where the servicer             Sales Below the
                           submitted net proceeds that were less           Authorized Prices
                           than the sale amount approved by
                           Fannie Mae and draft a remediation
                           plan, as appropriate.


    AUD-2014-015-2         FHFA should communicate a written               FHFA Oversight            Closed—Final
                           supervisory expectation to Fannie               of Fannie Mae’s           action taken by
                           Mae requiring its internal audit group          Collection of Funds       FHFA.
                           to review Fannie Mae’s plan to collect          from Servicers
                           funds for delegated and non-delegated           that Closed Short
                           short sale transactions where the net           Sales Below the
                           proceeds received were less than the            Authorized Prices
                           amounts authorized by Fannie Mae.


    AUD-2014-015-3         FHFA should analyze Fannie Mae’s                FHFA Oversight            Recommendation
                           actions and remediation plans in                of Fannie Mae’s           agreed to by FHFA;
                           response to recommendations 1 and               Collection of Funds       implementation of
                           2 to determine whether Fannie Mae               from Servicers            recommendation
                           has taken necessary steps to ensure             that Closed Short         pending.
                           that servicers are held accountable for         Sales Below the
                           servicing violations and credit losses          Authorized Prices
                           are minimized. FHFA should also
                           require modification by Fannie Mae of
                           its remediation plans, as appropriate.

    AUD-2014-008-1         FHFA should perform supervisory                 FHFA’s Oversight          Closed—Final
                           review and follow-up to ensure that             of the Enterprises’       action taken by
                           Fannie Mae takes action to change the           Use of Appraisal          FHFA.b
                           portal message type from automatic              Data Before They
                           override to manual override or fatal            Buy Single-Family
                           for the 25 proprietary messages                 Mortgages
                           related to underwriting requirements,
                           which will require lenders to take
                           action to address the appraisal-
                           related messages warning of potential
                           underwriting violations prior to
                           delivering the loans.




b
 FHFA indicated that it had substantially complied with the recommendation by changing most of the portal messages, and
indicated reasons for not changing the remaining proprietary messages related to underwriting requirements. OIG considered
the actions taken and the Agency’s explanation, and determined to close the recommendation as final action taken.


                                     Semiannual Report to the Congress • October 1, 2015–March 31, 2016                 61
           No.                          Recommendation                             Report                    Status

    AUD-2014-008-2          FHFA should perform supervisory                 FHFA’s Oversight          Closed—Final
                            review and follow-up to ensure that             of the Enterprises’       action taken by
                            Freddie Mac takes action to develop             Use of Appraisal          FHFA.
                            and implement additional proprietary            Data Before They
                            messages related to its property                Buy Single-Family
                            underwriting requirements.                      Mortgages


    AUD-2014-008-3          FHFA should perform supervisory review          FHFA’s Oversight          Closed—Final
                            and follow-up to ensure that Freddie            of the Enterprises’       action taken by
                            Mac takes action to establish the               Use of Appraisal          FHFA.c
                            additional proprietary messages related         Data Before They
                            to property underwriting requirements           Buy Single-Family
                            as manual override or fatal, which              Mortgages
                            will require the lenders to take action
                            to address the messages prior to
                            delivering the loans.


    AUD-2014-008-4          FHFA should perform supervisory review          FHFA’s Oversight          Closed—Final
                            and follow-up to ensure that Freddie            of the Enterprises’       action taken by
                            Mac takes action to review the type of          Use of Appraisal          FHFA.
                            message related to the existing nine            Data Before They
                            proprietary messages for consideration          Buy Single-Family
                            of converting the type of message from          Mortgages
                            automatic override to manual override
                            or fatal, which will require the lenders
                            to take action to address the messages
                            prior to delivering the loans.


    AUD-2014-008-5          FHFA should perform supervisory review          FHFA’s Oversight          Recommendation
                            of both Enterprises to ensure the portal        of the Enterprises’       agreed to by FHFA;
                            warning messages distinguish between            Use of Appraisal          implementation of
                            inactive appraisers and unverified              Data Before They          recommendation
                            appraisers, as of the date the appraisal        Buy Single-Family         pending.
                            is performed.                                   Mortgages


    AUD-2014-008-6          FHFA should perform supervisory review          FHFA’s Oversight          Recommendation
                            of both Enterprises to ensure that the          of the Enterprises’       agreed to by FHFA;
                            portal tests whether appraisers are             Use of Appraisal          implementation of
                            licensed and active at the time the             Data Before They          recommendation
                            appraisal is performed.                         Buy Single-Family         pending.
                                                                            Mortgages




c
 FHFA indicated that it substantially implemented the recommendation and provided additional explanation for maintaining
specific messages as automatic override. OIG considered the actions taken and the updated information provided by the
Agency, and determined to close the recommendation as final action taken.


62       Federal Housing Finance Agency Office of Inspector General
      No.                    Recommendation                         Report                Status

AUD-2014-008-7    FHFA should perform supervisory review      FHFA’s Oversight      Recommendation
                  of both Enterprises to change the           of the Enterprises’   agreed to by FHFA;
                  message type, for messages relating         Use of Appraisal      implementation of
                  to appraiser license status, from           Data Before They      recommendation
                  automatic override to manual override       Buy Single-Family     pending.
                  or fatal, which will require lenders to     Mortgages
                  take action to address the message
                  prior to delivering the loan. This action
                  can be taken once the system logic
                  is fixed and the historical records are
                  available to determine the status of
                  an appraiser’s license at the time the
                  appraisal work is performed, and the
                  states are updating in real time.

AUD-2014-008-8    FHFA should perform supervisory review      FHFA’s Oversight      Closed—Final
                  of both Enterprises to seek remedy for      of the Enterprises’   action taken by
                  the 23 loans, valued at $3.4 million,       Use of Appraisal      FHFA.
                  delivered to the Enterprises by the two     Data Before They
                  suspended appraisers in violation of        Buy Single-Family
                  underwriting requirements.                  Mortgages


AUD-2014-008-9    FHFA should perform supervisory             FHFA’s Oversight      Closed—Final
                  review and follow-up to ensure that         of the Enterprises’   action taken by
                  Freddie Mac takes action to implement       Use of Appraisal      FHFA.
                  an internal control policy and related      Data Before They
                  procedures to follow up on appraisal        Buy Single-Family
                  license status messages generated by        Mortgages
                  the portal.


AUD-2014-008-10   FHFA should perform supervisory review      FHFA’s Oversight      Closed—Final
                  and follow-up to ensure that Freddie        of the Enterprises’   action taken by
                  Mac takes action to review loans            Use of Appraisal      FHFA.
                  purchased since the portal’s inception      Data Before They
                  that generated messages related to the      Buy Single-Family
                  appraiser’s license status.                 Mortgages


AUD-2014-008-11   FHFA should perform supervisory review      FHFA’s Oversight      Closed—Final
                  and follow-up to ensure that Freddie        of the Enterprises’   action taken by
                  Mac takes action to use the results         Use of Appraisal      FHFA.
                  of the review to repurchase the loans       Data Before They
                  that contained appraisals that were         Buy Single-Family
                  performed by unlicensed appraisers, as      Mortgages
                  appropriate.




                           Semiannual Report to the Congress • October 1, 2015–March 31, 2016         63
       No.                      Recommendation                          Report                Status

 AUD-2014-008-12     FHFA should pursue retention of              FHFA’s Oversight      Closed—Final
                     historical records of the status of          of the Enterprises’   action taken by
                     appraisers’ licenses in the National         Use of Appraisal      FHFA.
                     Registry of Appraisers sufficient to         Data Before They
                     determine the status of appraisers’          Buy Single-Family
                     licenses at the time the appraisal work      Mortgages
                     is performed.


 AUD-2014-008-13     FHFA should pursue having the National       FHFA’s Oversight      Closed—Final
                     Registry of Appraisers updated to            of the Enterprises’   action taken by
                     reflect the status of state-certified and    Use of Appraisal      FHFA.
                     -licensed appraisers on a real-time          Data Before They
                     basis.                                       Buy Single-Family
                                                                  Mortgages


 AUD-2014-008-14     FHFA should perform supervisory              FHFA’s Oversight      Closed—Final
                     review and follow-up to ensure that the      of the Enterprises’   action taken by
                     Enterprises develop and implement the        Use of Appraisal      FHFA.
                     portal as intended by FHFA’s uniform         Data Before They
                     mortgage data program directive.             Buy Single-Family
                                                                  Mortgages


 AUD-2012-003-1      FHFA’s Division of Housing Mission           FHFA’s Oversight      Based on COM-
                     and Goals (DHMG) should formally             of Fannie Mae’s       2016-001, this
                     establish a policy for its review process    Single-Family         recommendation
                     of underwriting standards and variance       Underwriting          was reopened.
                     including escalation of unresolved           Standards             Recommendation
                     issues reflecting potential lack of                                agreed to by FHFA;
                     agreement.                                                         implementation of
                                                                                        recommendation
                                                                                        pending.


 AUD-2012-003-2      FHFA’s Division of Examination Program       FHFA’s Oversight      Closed—Final
                     and Support should enhance existing          of Fannie Mae’s       action taken by
                     examination guidance for assessing           Single-Family         FHFA.
                     adherence to underwriting standards          Underwriting
                     and variances from them.                     Standards


 EVL-2016-006-1      FHFA should direct the Fannie Mae            Corporate             Recommendation
                     Board to enhance Fannie Mae’s existing       Governance: Cyber     agreed to by FHFA;
                     cyber risk management policies to:           Risk Oversight by     implementation of
                     a.	Require a baseline Enterprise-            the Fannie Mae        recommendation
                          wide cyber risk assessment with         Board of Directors    pending.
                          subsequent periodic updates;            Highlights the
                                                                  Need for FHFA’s
                     b.	Describe information to be reported
                                                                  Closer Attention to
                          to the Board and committees;
                                                                  Governance Issues
                     c.	 Include a cyber risk framework and
                          cyber risk appetite.




64   Federal Housing Finance Agency Office of Inspector General
     No.                    Recommendation                       Report                 Status

EVL-2016-006-2   FHFA should instruct the Fannie           Corporate              Recommendation
                 Board to establish and communicate        Governance: Cyber      agreed to by FHFA;
                 a desired target state of cyber risk      Risk Oversight by      implementation of
                 management for Fannie Mae that            the Fannie Mae         recommendation
                 identifies and prioritizes which risks    Board of Directors     pending.
                 to avoid, accept, mitigate, or transfer   Highlights the
                 through insurance.                        Need for FHFA’s
                                                           Closer Attention to
                                                           Governance Issues


EVL-2016-006-3   FHFA should direct the Fannie Mae         Corporate              Recommendation
                 Board to oversee the management’s         Governance: Cyber      agreed to by FHFA;
                 efforts to leverage industry standards    Risk Oversight by      implementation of
                 to:                                       the Fannie Mae         recommendation
                 a.	Protect against and detect existing    Board of Directors     pending.
                     threats;                              Highlights the
                                                           Need for FHFA’s
                 b.	Remain informed on emerging risks;
                                                           Closer Attention to
                 c.	 Enable timely response and recovery   Governance Issues
                     in the event of a breach; and
                 d.	Achieve the desired target state of
                     cyber risk management identified
                     in recommendation 2 above within
                     a time period agreed upon by the
                     Board.


EVL-2016-005-1   FHFA should revise its supervision        FHFA’s Supervisory     Recommendation
                 guidance to require DER to provide the    Standards for          agreed to by FHFA;
                 Chair of the Audit Committee of an        Communication of       implementation of
                 Enterprise Board with each conclusion     Serious Deficiencies   recommendation
                 letter setting forth an MRA.              to Enterprise          pending.
                                                           Boards and for
                                                           Board Oversight
                                                           of Management’s
                                                           Remediation Efforts
                                                           are Inadequate


EVL-2016-005-2   FHFA should revise its supervision        FHFA’s Supervisory     Recommendation
                 guidance to require DER to provide        Standards for          partially agreed
                 the Chair of the Audit Committee of       Communication of       to by FHFA;
                 an Enterprise Board with each plan        Serious Deficiencies   implementation of
                 submitted by Enterprise management        to Enterprise          recommendation
                 to remediate an MRA with associated       Boards and for         pending.
                 timetables and the response by DER.       Board Oversight
                                                           of Management’s
                                                           Remediation Efforts
                                                           are Inadequate




                          Semiannual Report to the Congress • October 1, 2015–March 31, 2016       65
      No.                       Recommendation                          Report                 Status

 EVL-2016-005-3      FHFA should revise its supervision           FHFA’s Supervisory     Recommendation
                     guidance to require DER to identify all      Standards for          agreed to by FHFA;
                     open MRAs in the annual, written ROE         Communication of       implementation of
                     and the expected timetable to complete       Serious Deficiencies   recommendation
                     outstanding remediation activities.          to Enterprise          pending.
                                                                  Boards and for
                                                                  Board Oversight
                                                                  of Management’s
                                                                  Remediation Efforts
                                                                  are Inadequate


 EVL-2016-005-4      FHFA should include in the year’s ROE,       FHFA’s Supervisory     Recommendation
                     to be issued to each Enterprise for          Standards for          agreed to by FHFA;
                     2015 supervisory activities, all open        Communication of       implementation of
                     MRAs and the expected timetable to           Serious Deficiencies   recommendation
                     complete outstanding remediation             to Enterprise          pending.
                     activities for each open MRA.                Boards and for
                                                                  Board Oversight
                                                                  of Management’s
                                                                  Remediation Efforts
                                                                  are Inadequate


 EVL-2016-004-1      FHFA should review FHFA’s existing           FHFA’s Examiners       Recommendation
                     requirements, guidance, and                  Did Not Meet           not accepted by
                     processes regarding MRAs against             Requirements           FHFA.
                     the requirements, guidance, and              and Guidance
                     processes adopted by the OCC, Federal        for Oversight of
                     Reserve, and other federal financial         an Enterprise’s
                     regulators including, but not limited        Remediation of
                     to, content of an MRA; standards for         Serious Deficiencies
                     proposed remediation plans; approval
                     authority for proposed remediation
                     plans; real-time assessments at
                     regular intervals of the effectiveness
                     and timeliness of an Enterprise’s MRA
                     remediation efforts; final assessment
                     of the effectiveness and timeliness
                     of an Enterprise’s MRA remediation
                     efforts; and required documentation for
                     examiner oversight of MRA remediation.


 EVL-2016-004-2      Based on the results of the review           FHFA’s Examiners       Recommendation
                     in recommendation 1, FHFA should             Did Not Meet           not accepted by
                     assess whether any of the existing           Requirements           FHFA.
                     requirements, guidance, and processes        and Guidance
                     adopted by FHFA should be enhanced,          for Oversight of
                     and make such enhancements.                  an Enterprise’s
                                                                  Remediation of
                                                                  Serious Deficiencies




66   Federal Housing Finance Agency Office of Inspector General
     No.                   Recommendation                        Report                 Status

EVL-2016-004-3   Because DER and DBR examiners are         FHFA’s Examiners       Recommendation
                 bound to follow FHFA’s requirements       Did Not Meet           agreed to by FHFA;
                 and guidance, FHFA should compare         Requirements           implementation of
                 the processes followed by DBR for the     and Guidance           recommendation
                 form, content, and issuance of an MRA,    for Oversight of       pending.
                 standards for a proposed remediation      an Enterprise’s
                 plan, approval authority for a proposed   Remediation of
                 remediation plan, and real-time           Serious Deficiencies
                 assessments at regular intervals of the
                 effectiveness and timeliness of MRA
                 remediation efforts to the processes
                 followed by DER.


EVL-2016-004-4   Based on the results of the review        FHFA’s Examiners       Recommendation
                 in recommendation 3, FHFA should          Did Not Meet           agreed to by FHFA;
                 assess whether guidance issued and        Requirements           implementation of
                 processes followed by either DER or       and Guidance           recommendation
                 DBR should be enhanced, and make          for Oversight of       pending.
                 such enhancements.                        an Enterprise’s
                                                           Remediation of
                                                           Serious Deficiencies

EVL-2016-004-5   FHFA should provide mandatory             FHFA’s Examiners       Recommendation
                 training for all FHFA examiners on        Did Not Meet           agreed to by FHFA;
                 FHFA requirements, guidance, and          Requirements           implementation of
                 processes and DER and DBR guidance        and Guidance           recommendation
                 for MRA issuance, review and approval     for Oversight of       pending.
                 of proposed remediation plans, and        an Enterprise’s
                 oversight of MRA remediation.             Remediation of
                                                           Serious Deficiencies


EVL-2016-004-6   FHFA should evaluate the results of       FHFA’s Examiners       Recommendation
                 quality control reviews conducted by      Did Not Meet           agreed to by FHFA;
                 DER and DBR to identify and address       Requirements           implementation of
                 gaps and weaknesses involving MRA         and Guidance           recommendation
                 issuance, review and approval of          for Oversight of       pending.
                 proposed remediation plans, and           an Enterprise’s
                 oversight of MRA remediation.             Remediation of
                                                           Serious Deficiencies


EVL-2016-003-1   FHFA should comply with FSOC              FHFA Should Map        Recommendation
                 recommendations to take formal and        Its Supervisory        agreed to by FHFA;
                 timely action to compare existing         Standards for Cyber    implementation of
                 regulatory guidance to appropriate        Risk Management        recommendation
                 elements of the NIST Framework and        to Appropriate         pending.
                 identify the gaps between existing        Elements of the
                 regulatory guidance and appropriate       NIST Framework
                 elements of the NIST Framework.




                         Semiannual Report to the Congress • October 1, 2015–March 31, 2016        67
      No.                       Recommendation                          Report                Status

 EVL-2016-003-2      FHFA should comply with FSOC                 FHFA Should Map       Recommendation
                     recommendations to determine the             Its Supervisory       agreed to by FHFA;
                     priority in which to address the gaps.       Standards for Cyber   implementation of
                                                                  Risk Management       recommendation
                                                                  to Appropriate        pending.
                                                                  Elements of the
                                                                  NIST Framework


 EVL-2016-003-3      FHFA should comply with FSOC                 FHFA Should Map       Recommendation
                     recommendations to address the gaps,         Its Supervisory       agreed to by FHFA;
                     as prioritized, to reflect and incorporate   Standards for Cyber   implementation of
                     appropriate elements of the NIST             Risk Management       recommendation
                     Framework.                                   to Appropriate        pending.
                                                                  Elements of the
                                                                  NIST Framework


 EVL-2016-003-4      FHFA should comply with FSOC                 FHFA Should Map       Recommendation
                     recommendations to revise existing           Its Supervisory       agreed to by FHFA;
                     regulatory guidance to reflect and           Standards for Cyber   implementation of
                     incorporate appropriate elements of          Risk Management       recommendation
                     the NIST Framework in a manner that          to Appropriate        pending.
                     achieves consistency with other federal      Elements of the
                     financial regulators.                        NIST Framework


 EVL-2016-001-1      FHFA should implement detailed risk          Utility of FHFA’s     Recommendation
                     assessment guidance that provides            Semi-Annual Risk      agreed to by FHFA;
                     minimum requirements for risk                Assessments Would     implementation of
                     assessments that facilitate comparable       Be Enhanced           recommendation
                     analyses for each Enterprise’s risk          Through Adoption      pending.
                     positions, including common criteria         of Clear Standards
                     for determining whether risk levels are      and Defined
                     high, medium, or low, year over year.        Measures of Risk
                                                                  Levels


 EVL-2016-001-2      FHFA should implement detailed risk          Utility of FHFA’s     Recommendation
                     assessment guidance that provides            Semi-Annual Risk      agreed to by FHFA;
                     standard requirements for format             Assessments Would     implementation of
                     and the documentation necessary              Be Enhanced           recommendation
                     to support conclusions in order              Through Adoption      pending.
                     to facilitate comparisons between            of Clear Standards
                     Enterprises and reduce variability           and Defined
                     among DER’s risk assessments for             Measures of Risk
                     each Enterprise and between the              Levels
                     Enterprises.




68   Federal Housing Finance Agency Office of Inspector General
     No.                    Recommendation                        Report                  Status

EVL-2016-001-3   FHFA should direct DER to train            Utility of FHFA’s       Recommendation
                 its examiners-in-charge and exam           Semi-Annual Risk        agreed to by FHFA;
                 managers in the preparation of semi-       Assessments Would       implementation of
                 annual risk assessments, using             Be Enhanced             recommendation
                 enhanced risk assessment guidance          Through Adoption        pending.
                 consistent with recommendations EVL-       of Clear Standards
                 2016-001-1 and EVL-2016-001-2.             and Defined
                                                            Measures of Risk
                                                            Levels


EVL-2015-007-1   FHFA should ensure that DER’s recently     Intermittent Efforts    Recommendation
                 adopted procedures for quality control     Over Almost Four        agreed to by FHFA;
                 reviews meet the requirements of           Years to Develop        implementation of
                 Supervision Directive 2013-01 and          a Quality Control       recommendation
                 require DER to document in detail          Review Process          pending.
                 the results and findings of each           Deprived FHFA of
                 quality control review in examination      Assurance of the
                 workpapers, including any shortcomings     Adequacy and
                 found during the quality control review.   Quality of Enterprise
                                                            Examinations


EVL-2015-007-2   FHFA should evaluate the effectiveness     Intermittent Efforts    Recommendation
                 of the new quality control procedures,     Over Almost Four        agreed to by FHFA;
                 as implemented, one year after             Years to Develop        implementation of
                 adoption.                                  a Quality Control       recommendation
                                                            Review Process          pending.
                                                            Deprived FHFA of
                                                            Assurance of the
                                                            Adequacy and
                                                            Quality of Enterprise
                                                            Examinations


EVL-2015-006-1   FHFA should direct each Enterprise to      FHFA’s Exercise of      Recommendation
                 submit its proposed operating budget       Its Conservatorship     agreed to by FHFA;
                 and supporting materials for the next      Powers to Review        implementation of
                 fiscal year so that FHFA has sufficient    and Approve the         recommendation
                 time before the fiscal year begins to      Enterprises’ Annual     pending.
                 adequately analyze the proposals.          Operating Budgets
                                                            Has Not Achieved
                                                            FHFA’s Stated
                                                            Purpose




                          Semiannual Report to the Congress • October 1, 2015–March 31, 2016         69
      No.                       Recommendation                          Report                Status

 EVL-2015-006-2      FHFA should revise the existing budget       FHFA’s Exercise of    Recommendation
                     review process and staff the review          Its Conservatorship   agreed to by FHFA;
                     process with employees who have the          Powers to Review      implementation of
                     qualifications and experience needed         and Approve the       recommendation
                     for critical financial assessments of        Enterprises’ Annual   pending.
                     the proposed Enterprise budgets to           Operating Budgets
                     permit FHFA to determine whether each        Has Not Achieved
                     Enterprise’s budget aligns with FHFA’s       FHFA’s Stated
                     strategic direction and its safety and       Purpose
                     soundness priorities.


 EVL-2015-006-3      FHFA should set a date certain during        FHFA’s Exercise of    Recommendation
                     the first quarter of 2016 by which FHFA      Its Conservatorship   agreed to by FHFA;
                     will take final action on each proposed      Powers to Review      implementation of
                     annual operating budget for 2016 and         and Approve the       recommendation
                     approve the budget by that date.             Enterprises’ Annual   pending.
                                                                  Operating Budgets
                                                                  Has Not Achieved
                                                                  FHFA’s Stated
                                                                  Purpose


 EVL-2015-006-4      FHFA should set a date certain, prior to     FHFA’s Exercise of    Recommendation
                     January 31 of each subsequent fiscal         Its Conservatorship   generally agreed
                     year, by which FHFA will take final action   Powers to Review      to by FHFA;
                     on each proposed annual operating            and Approve the       implementation of
                     budget and approve the budget by that        Enterprises’ Annual   recommendation
                     date.                                        Operating Budgets     pending.
                                                                  Has Not Achieved
                                                                  FHFA’s Stated
                                                                  Purpose


 EVL-2015-004-1      FHFA should implement a sufficiently         FHFA’s Oversight      Closed—Final
                     robust internal communications               of Governance         action taken by
                     process to ensure that the FHFA              Risks Associated      FHFA.
                     Director is informed of significant          with Fannie Mae’s
                     issues and concerns by FHFA staff on         Selection and
                     all conservatorship and supervisory          Appointment of a
                     matters that require the Director’s          New Chief Audit
                     decision.                                    Executive




70   Federal Housing Finance Agency Office of Inspector General
     No.                    Recommendation                         Report              Status

EVL-2015-004-2   Given the importance of the Audit           FHFA’s Oversight    Closed—Final
                 Committee’s oversight over Fannie           of Governance       action taken by
                 Mae’s financial reporting and risk          Risks Associated    FHFA.
                 management and the breadth of its           with Fannie Mae’s
                 responsibilities, FHFA should require       Selection and
                 the Fannie Mae Audit Committee to           Appointment of a
                 hold meetings relating to its oversight     New Chief Audit
                 responsibilities and to fully document,     Executive
                 in meeting minutes, its discussions,
                 deliberations, and actions at each
                 meeting to ensure an effective flow of
                 information among directors, senior
                 management, and risk managers and
                 to satisfy FHFA of the adequacy of the
                 Committee’s risk oversight function.


EVL-2015-004-3   FHFA should conduct a comprehensive         FHFA’s Oversight    Recommendation
                 evaluation of the Audit Committee’s         of Governance       agreed to by FHFA;
                 effectiveness, which should                 Risks Associated    implementation of
                 include: whether all members of the         with Fannie Mae’s   recommendation
                 Committee are independent from              Selection and       pending.
                 management; whether the Committee’s         Appointment of a
                 responsibilities are clearly articulated;   New Chief Audit
                 whether each Committee member               Executive
                 understands what is expected of him/
                 her under the Committee’s Charter and
                 regulatory requirements; whether the
                 Committee’s interactions with Fannie
                 Mae’s financial executives, Internal
                 Audit, and the external audit firm are
                 robust and occur regularly; whether the
                 Committee raises critical questions
                 with management and the Chief Audit
                 Executive, including questions that
                 indicate the Committee’s understanding
                 of key accounting policies and
                 judgments and that challenge
                 management’s judgments and
                 conclusions; whether the Committee
                 has been responsive to issues raised
                 by the external auditor; and whether
                 the Committee periodically assesses
                 the list of top risks and determines
                 responsibility for management of each
                 risk.




                          Semiannual Report to the Congress • October 1, 2015–March 31, 2016       71
      No.                       Recommendation                          Report                 Status

 EVL-2015-004-4      FHFA should direct the Audit Committee       FHFA’s Oversight       Closed—Final
                     to align its meetings to address priority    of Governance          action taken by
                     issues and risks so that standard            Risks Associated       FHFA.
                     reports and informational materials are      with Fannie Mae’s
                     provided to the Committee in advance         Selection and
                     of the meetings and may not need to          Appointment of a
                     be included on the meeting agenda for        New Chief Audit
                     discussion and so that the Committee         Executive
                     has sufficient time at each meeting to
                     enable it to focus on the most critical
                     issues and risks.


 EVL-2015-004-5      FHFA should assess the adequacy of           FHFA’s Oversight       Closed—Final
                     the criteria and processes used by           of Governance          action taken by
                     the Enterprise’s Board of Directors to       Risks Associated       FHFA.
                     populate each committee of the Board         with Fannie Mae’s
                     and to rotate committee membership           Selection and
                     to ensure that the members of each           Appointment of a
                     committee have the commitment to be          New Chief Audit
                     effective.                                   Executive

 EVL-2015-003-1      FHFA should test the new human               Women and              Recommendation
                     resource system to ensure that it will       Minorities in FHFA’s   agreed to by FHFA;
                     provide data sufficient to enable the        Workforce              implementation of
                     Agency to perform comprehensive                                     recommendation
                     analyses of workforce issues.                                       pending.


 EVL-2015-003-2      FHFA should regularly analyze Agency         Women and              Recommendation
                     workforce data and assess trends in          Minorities in FHFA’s   agreed to by FHFA;
                     hiring, awards, and promotions.              Workforce              implementation of
                                                                                         recommendation
                                                                                         pending.


 EVL-2015-003-3      FHFA should adopt a diversity and            Women and              Closed—Final
                     inclusion strategic plan.                    Minorities in FHFA’s   action taken by
                                                                  Workforce              FHFA.


 EVL-2015-003-4      FHFA should research opportunities to        Women and              Recommendation
                     partner with inner-city and other high       Minorities in FHFA’s   agreed to by FHFA;
                     schools, where feasible, to ensure           Workforce              implementation of
                     compliance with HERA.                                               recommendation
                                                                                         pending.




72   Federal Housing Finance Agency Office of Inspector General
     No.                    Recommendation                        Report                 Status

EVL-2014-008-1   To strengthen its management of the        Status of the          Recommendation
                 CSP, FHFA should establish schedules       Development            agreed to by FHFA;
                 and time frames for completing key         of the Common          implementation of
                 components of the project, as well         Securitization         recommendation
                 as an overall completion date as           Platform               pending.
                 appropriate.


EVL-2014-008-2   To strengthen its management of            Status of the          Recommendation
                 the CSP, FHFA should establish cost        Development            agreed to by FHFA;
                 estimates for varying stages of the        of the Common          implementation of
                 initiative, as well as an overall cost     Securitization         recommendation
                 estimate.                                  Platform               pending.


EVL-2014-003-1   FHFA’s Deputy Director of DHMG             FHFA’s Oversight       Recommendation
                 should establish an ongoing process to     of the Servicing       partially agreed
                 evaluate servicers’ Servicing Alignment    Alignment Initiative   to by FHFA;
                 Initiative (SAI) compliance and the                               recommendation
                 effectiveness of the Enterprises’                                 remains open and
                 remediation efforts.                                              will continue to be
                                                                                   monitored.


EVL-2014-003-2   FHFA’s Deputy Director of DHMG             FHFA’s Oversight       Recommendation
                 should direct the Enterprises to provide   of the Servicing       partially agreed
                 routinely their internal reports and       Alignment Initiative   to by FHFA;
                 reviews for DHMG’s assessment.                                    recommendation
                                                                                   remains open and
                                                                                   will continue to be
                                                                                   monitored.


EVL-2014-003-3   FHFA’s Deputy Director of DHMG should      FHFA’s Oversight       Recommendation
                 regularly review SAI-related guidelines    of the Servicing       partially agreed
                 for enhancements or revisions, as          Alignment Initiative   to by FHFA;
                 necessary, based on servicers’ actual                             recommendation
                 versus expected performance.                                      remains open and
                                                                                   will continue to be
                                                                                   monitored.


EVL-2014-002-1   FHFA should review its implementation      Update on              Recommendation
                 of the 2013 Enterprise examination         FHFA’s Efforts to      agreed to by FHFA;
                 plans and document the extent to           Strengthen its         implementation of
                 which resource limitations, among other    Capacity to Examine    recommendation
                 things, may have impeded their timely      the Enterprises        pending.
                 and thorough execution.




                          Semiannual Report to the Congress • October 1, 2015–March 31, 2016         73
      No.                       Recommendation                          Report                Status

 EVL-2014-002-2      FHFA should develop a process that           Update on             Recommendation
                     links annual Enterprise examination          FHFA’s Efforts to     agreed to by FHFA;
                     plans with core team resource                Strengthen its        implementation of
                     requirements.                                Capacity to Examine   recommendation
                                                                  the Enterprises       pending.


 EVL-2014-002-3      FHFA should establish a strategy to          Update on             Recommendation
                     ensure that the necessary resources          FHFA’s Efforts to     agreed to by FHFA;
                     are in place to ensure timely and            Strengthen its        implementation of
                     effective Enterprise examination             Capacity to Examine   recommendation
                     oversight.                                   the Enterprises       pending.


 EVL-2013-012-1      FHFA should ensure Fannie Mae takes          Evaluation of         Closed—Final
                     the actions necessary to reduce              Fannie Mae’s          action taken by
                     servicer reimbursement processing            Servicer              FHFA.
                     errors. These actions should include         Reimbursement
                     utilizing its process accuracy data          Operations for
                     in a more effective manner and               Delinquency
                     implementing a red flag system.              Expenses


 EVL-2013-012-2      FHFA should require Fannie Mae to:           Evaluation of         Recommendation
                     •	quantify and aggregate its                 Fannie Mae’s          agreed to by FHFA;
                       overpayments to servicers regularly;       Servicer              implementation of
                                                                  Reimbursement         recommendation
                     •	implement a plan to reduce these
                                                                  Operations for        pending.
                       overpayments by (1) identifying their
                                                                  Delinquency
                       root causes, (2) creating reduction
                                                                  Expenses
                       targets, and (3) holding managers
                       accountable; and
                     •	report its findings and progress to
                       FHFA periodically.


 EVL-2013-012-3      FHFA should publish Fannie Mae’s             Evaluation of         Closed—
                     reduction targets and overpayment            Fannie Mae’s          Recommendation
                     findings.                                    Servicer              rejected.
                                                                  Reimbursement
                                                                  Operations for
                                                                  Delinquency
                                                                  Expenses




74   Federal Housing Finance Agency Office of Inspector General
     No.                    Recommendation                          Report                Status

EVL-2012-005-1   FHFA should continue its ongoing             FHFA’s Oversight      Closed—Final
                 horizontal review of unsecured credit        of the Federal        action taken by
                 practices at the FHLBanks by:                Home Loan Banks’      FHFA.
                 •	following up on any potential evidence     Unsecured Credit
                   of violations of the existing regulatory   Risk Management
                   limits and taking supervisory and          Practices
                   enforcement actions as warranted;
                   and
                 •	determining the extent to which
                   inadequate systems and controls
                   may compromise the FHLBanks’
                   capacity to comply with regulatory
                   limits and taking any supervisory
                   actions necessary to correct such
                   deficiencies as warranted.


EVL-2012-005-2   To strengthen the regulatory framework       FHFA’s Oversight      Recommendation
                 around the extension of unsecured            of the Federal        agreed to by FHFA;
                 credit by the FHLBanks, as a                 Home Loan Banks’      implementation of
                 component of future rulemakings, FHFA        Unsecured Credit      recommendation
                 should consider the utility of:              Risk Management       pending.
                 •	establishing maximum overall               Practices
                   exposure limits;
                 •	lowering the existing individual
                   counterparty limits; and
                 •	ensuring that the unsecured
                   exposure limits are consistent with
                   the FHLBank System’s housing
                   mission.


COM-2016-002-1   FHFA should develop a strategy to            Compliance Review     Recommendation
                 enhance the Executive Compensation           of FHFA’s Oversight   not accepted by
                 Branch’s (ECB) capacity to review the        of Enterprise         FHFA.
                 reasonableness and justification of          Executive
                 the Enterprises’ annual proposals to         Compensation
                 compensate their executives based on         Based on Corporate
                 Corporate Scorecard performance. To          Scorecard
                 this end, FHFA should ensure that:           Performance
                 •	the Enterprises submit proposals
                   containing information sufficient to
                   facilitate a comprehensive review by
                   ECB;
                 •	ECB tests and verifies the information
                   in the Enterprises’ proposals,
                   perhaps on a randomized basis; and
                 •	ECB follows up with the Enterprises
                   to resolve any proposals that do
                   not appear to be reasonable and
                   justified.




                          Semiannual Report to the Congress • October 1, 2015–March 31, 2016          75
      No.                       Recommendation                          Report                Status

 COM-2016-002-2      FHFA should develop a policy under           Compliance Review     Recommendation
                     which it is required to notify OIG           of FHFA’s Oversight   not accepted by
                     within 10 days of its decision not to        of Enterprise         FHFA.
                     fully implement, substantially alter, or     Executive
                     abandon a corrective action that served      Compensation
                     as the basis for OIG’s decision to close     Based on Corporate
                     a recommendation.                            Scorecard
                                                                  Performance


 COM-2015-001-1      FHFA should determine the causes of          OIG’s Compliance      Recommendation
                     the shortfalls in the Housing Finance        Review of FHFA’s      agreed to by FHFA;
                     Examiner Commission Program that             Implementation        implementation of
                     we have identified, and implement a          of Its Housing        recommendation
                     strategy to ensure the program fulfills      Finance Examiner      pending.
                     its central objective of producing           Commission
                     commissioned examiners who are               Program
                     qualified to lead major risk sections of
                     GSE examinations.




76   Federal Housing Finance Agency Office of Inspector General
Figure 10. Summary of OIG Reports Where All Public Recommendations Are Closed

                                     Report                                      No. of Recommendations
 FHFA’s Oversight of Risks Associated with the Enterprises Relying on                      1
 Counterparties to Comply with Selling and Servicing Guidelines
 (AUD-2014-018)

 FHFA Oversight of Freddie Mac’s Information Technology Investments                        3
 (AUD-2014-017)

 FHFA Actions to Manage Enterprise Risks from Nonbank Servicers Specializing               2
 in Troubled Mortgages (AUD-2014-014)

 CohnReznick LLP’s Independent Audit of FHFA’s Oversight of Enterprise                     3
 Monitoring of the Financial Condition of Mortgage Insurers (AUD-2014-013)

 FHFA Oversight of Enterprise Controls Over Pre-Foreclosure Property                       2
 Inspections (AUD-2014-012)

 FHFA’s Use of Government Travel Cards                                                     4
 (AUD-2014-010)

 FHFA Oversight of Enterprise Handling of Aged Repurchase Demands                          3
 (AUD-2014-009)

 FHFA’s Use of Government Purchase Cards                                                   4
 (AUD-2014-006)

 FHFA Oversight of Fannie Mae’s Reimbursement Process for Pre-Foreclosure                  4
 Property Inspections (AUD-2014-005)

 FHFA Oversight of Fannie Mae’s Remediation Plan to Refund Contributions to                3
 Borrowers for the Short Sale of Properties (AUD-2014-004)

 Fannie Mae’s Controls Over Short Sale Eligibility Determinations Should be                6
 Strengthened (AUD-2014-003)

 FHFA Can Strengthen Controls over Its Office of Quality Assurance                         7
 (AUD-2013-013)

 Additional FHFA Oversight Can Improve the Real Estate Owned Pilot Program                 3
 (AUD-2013-012)

 FHFA Can Improve Its Oversight of Fannie Mae’s Recoveries from Borrowers                  1
 Who Possess the Ability to Repay Deficiencies (AUD-2013-011)

 FHFA Can Improve Its Oversight of Freddie Mac’s Recoveries from Borrowers                 4
 Who Possess the Ability to Repay Deficiencies (AUD-2013-010)

 Action Needed to Strengthen FHFA Oversight of Enterprise Information Security             5
 and Privacy Programs (AUD-2013-009)




                                  Semiannual Report to the Congress • October 1, 2015–March 31, 2016      77
                                     Report                                        No. of Recommendations
 FHFA Should Develop and Implement a Risk-Based Plan to Monitor the                          1
 Enterprises’ Oversight of Their Counterparties’ Compliance with Contractual
 Requirements Including Consumer Protection Laws (AUD-2013-008)

 Enhanced FHFA Oversight Is Needed to Improve Mortgage Servicer Compliance                   9
 with Consumer Complaint Requirements (AUD-2013-007)

 FHFA Can Enhance Its Oversight of FHLBank Advances to Insurance Companies                   2
 by Improving Communication with State Insurance Regulators and Standard-
 Setting Groups (AUD-2013-006)

 FHFA’s Oversight of the Asset Quality of Multi-family Housing Loans Financed by             2
 Fannie Mae and Freddie Mac (AUD-2013-004)

 FHFA’s Oversight of Contract No. FHF-10-F-0007 with Advanced Technology                     5
 Systems, Inc. (AUD-2013-002)

 FHFA’s Oversight of the Enterprises’ Efforts to Recover Losses from Foreclosure             3
 Sales (AUD-2013-001)

 FHFA’s Conservator Approval Process for Fannie Mae and Freddie Mac                          9
 Business Decisions (AUD-2012-008)

 FHFA’s Oversight of the Enterprises’ Management of High-Risk Seller/Servicers               2
 (AUD-2012-007)

 FHFA’s Call Report System                                                                   3
 (AUD-2012-006)

 FHFA’s Supervisory Risk Assessment for Single-Family Real Estate Owned                      1
 (AUD-2012-005)

 FHFA’s Supervisory Framework for Federal Home Loan Banks’ Advances and                      7
 Collateral Risk Management (AUD-2012-004)

 FHFA’s Supervision of Freddie Mac’s Controls over Mortgage Servicing                        5
 Contractors (AUD-2012-001)

 FHFA’s Oversight of Fannie Mae’s Default-Related Legal Services                             3
 (AUD-2011-004)

 Clifton Gunderson LLP’s Independent Audit of the Federal Housing Finance                    9
 Agency’s Privacy Program and Implementation - 2011 (AUD-2011-003)

 Clifton Gunderson LLP’s Independent Audit of the Federal Housing Finance                    5
 Agency’s Information Security Program - 2011 (AUD-2011-002)

 Audit of the Federal Housing Finance Agency’s Consumer Complaints Process                   3
 (AUD-2011-001)

 Evaluation of the Division of Enterprise Regulation’s 2013 Examination                      1
 Records: Successes and Opportunities (EVL-2015-001)



78     Federal Housing Finance Agency Office of Inspector General
                                     Report                                     No. of Recommendations
Freddie Mac Could Further Reduce Reimbursement Errors by Reviewing More                    2
Servicer Claims (EVL-2014-011)

FHFA’s Oversight of the Enterprises’ Lender-Placed Insurance Costs                         1
(EVL-2014-009)

Recent Trends in Federal Home Loan Bank Advances to JPMorgan Chase and                     1
Other Large Banks (EVL-2014-006)

FHFA’s Reporting of Federal Home Loan Bank Director Expenses                               2
(EVL-2014-005)

FHFA’s Oversight of Derivative Counterparty Risk                                           1
(ESR-2014-001)

FHFA’s Oversight of Fannie Mae’s 2013 Settlement with Bank of America                      1
(EVL-2013-009)

FHFA’s Oversight of the Federal Home Loan Banks’ Compliance with Regulatory                2
Limits on Extensions of Unsecured Credit (EVL-2013-008)

FHFA’s Initiative to Reduce the Enterprises’ Dominant Position in the Housing              2
Finance System by Raising Gradually Their Guarantee Fees (EVL-2013-005)

FHFA’s Oversight of the Federal Home Loan Banks’ Affordable Housing                        3
Programs (EVL-2013-04)

Case Study: Freddie Mac’s Unsecured Lending to Lehman Brothers Prior to                    3
Lehman Brothers’ Bankruptcy (EVL-2013-03)

FHFA’s Oversight of the Enterprises’ Compensation of Their Executives and                  1
Senior Professionals (EVL-2013-001)

FHFA’s Oversight of Freddie Mac’s Investment in Inverse Floaters                           4
(EVL-2012-009)

Evaluation of FHFA’s Oversight of Fannie Mae’s Transfer of Mortgage Servicing              4
Rights from Bank of America to High Touch Servicers (EVL-2012-008)

Follow-up on Freddie Mac’s Loan Repurchase Process                                         1
(EVL-2012-007)

FHFA’s Certifications for the Preferred Stock Purchase Agreements                          2
(EVL-2012-006)

Fannie Mae’s and Freddie Mac’s Participation in the 2011 Mortgage Bankers                  2
Association Convention and Exposition (ESR-2012-004)

FHFA’s Oversight of the Enterprises’ Charitable Activities                                 2
(ESR-2012-003)




                                  Semiannual Report to the Congress • October 1, 2015–March 31, 2016     79
                                    Report                                       No. of Recommendations
 Evaluation of FHFA’s Management of Legal Fees for Indemnified Executives                  2
 (EVL-2012-002)

 FHFA’s Oversight of Troubled Federal Home Loan Banks                                      3
 (EVL-2012-001)

 Evaluation of the Federal Housing Finance Agency’s Oversight of Freddie Mac’s             2
 Repurchase Settlement with Bank of America (EVL-2011-006)

 Evaluation of Whether FHFA Has Sufficient Capacity to Examine the GSEs                    4
 (EVL-2011-005)

 Evaluation of FHFA’s Oversight of Fannie Mae’s Management of Operational                  3
 Risk (EVL-2011-004)

 Evaluation of FHFA’s Role in Negotiating Fannie Mae’s and Freddie Mac’s                   1
 Responsibilities in Treasury’s Making Home Affordable Program (EVL-2011-
 003)

 Evaluation of Federal Housing Finance Agency’s Oversight of Fannie Mae’s and              8
 Freddie Mac’s Executive Compensation Programs (EVL-2011-002)

 Federal Housing Finance Agency’s Exit Strategy and Planning Process for the               2
 Enterprises’ Structural Reform (EVL-2011-001)




80     Federal Housing Finance Agency Office of Inspector General
Semiannual Report to the Congress • October 1, 2015–March 31, 2016   81
Appendix C:                                                     dozen categories of information that we must include
                                                                in our semiannual reports.
Information Required                                            Below, OIG presents a table that directs the reader
by the Inspector General                                        to the pages of this report where the information
Act and Subpoenas Issued                                        required by the Inspector General Act may be found.

                                                                The text that follows further addresses the status
Section 5(a) of the Inspector General Act provides              of OIG’s compliance with sections 5(a)(6), (8),
that OIG shall, not later than April 30 and                     (9), (10), (11), (12), (13), (14), (15), and (16) of
October 31 of each year, prepare semiannual reports             the Inspector General Act. Finally, OIG provides
summarizing our activities during the immediately               information concerning administrative subpoenas
preceding six-month periods ending March 31 and                 that it issued during the semiannual period.
September 30. Further, section 5(a) lists more than a


                                              Source/Requirement                                                  Pages
Section 5(a)(1)- A description of significant problems, abuses, and deficiencies relating to the administration   19-31
of programs and operations of FHFA.
Section 5(a)(2)- A description of the recommendations for corrective action made by OIG with respect to           19-31
significant problems, abuses, or deficiencies.                                                                    59-76
Section 5(a)(3)- An identification of each significant recommendation described in previous semiannual            59-76
reports on which corrective action has not been completed.
Section 5(a)(4)- A summary of matters referred to prosecutive authorities and the prosecutions and                32-44
convictions that have resulted.                                                                                   88-115
Section 5(a)(5)- A summary of each report made to the Director of FHFA.                                           19-31
Section 5(a)(6)- A listing, subdivided according to subject matter, of each audit and evaluation report issued    19-31
by OIG during the reporting period and for each report, where applicable, the total dollar value of questioned     83
costs (including a separate category for the dollar value of unsupported costs) and the dollar value of
recommendations that funds be put to better use.
Section 5(a)(7)- A summary of each particularly significant report.                                               19-31
Section 5(a)(8)- Statistical tables showing the total number of audit and evaluation reports and the total        19-31
dollar value of questioned and unsupported costs.                                                                  83
Section 5(a)(9)- Statistical tables showing the total number of audit and evaluation reports and the dollar       19-31
value of recommendations that funds be put to better use by management.                                            83
Section 5(a)(10)- A summary of each audit and evaluation report issued before the commencement of the              83
reporting period for which no management decision has been made by the end of the reporting period.
Section 5(a)(11)- A description and explanation of the reasons for any significant revised management              83
decision made during the reporting period.
Section 5(a)(12)- Information concerning any significant management decision with which the Inspector             83-84
General is in disagreement.
Section 5(a)(13)- The information described under section [804](b) of the Federal Financial Management             84
Improvement Act of 1996.
Section 5(a)(14)- An appendix containing the results of any peer review conducted by another IG; or the date      84-85
of the last peer review, if no peer review was conducted during the reporting period.
Section 5(a)(15)- A list of any outstanding recommendations from any peer review conducted by another IG          84-85
that have not been fully implemented.
Section 5(a)(16)- A list of any peer reviews of another IG during the reporting period.                           84-85


82      Federal Housing Finance Agency Office of Inspector General
Audit and Evaluation Reports                                decision has been made by the end of the reporting
with Recommendations of                                     period. There were no audit or evaluation reports
                                                            issued before October 1, 2015, that await a
Questioned Costs, Unsupported                               management decision.
Costs, and Funds to Be Put to
Better Use by Management                                    Significantly Revised
                                                            Management Decisions
Section 5(a)(6) of the Inspector General Act, as
amended, requires that OIG list its reports during
                                                            Section 5(a)(11) of the Inspector General Act, as
the semiannual period that include questioned costs,
                                                            amended, requires that OIG report information
unsupported costs, and funds to be put to better
                                                            concerning the reasons for any significant revised
use. Section 5(a)(8) and section 5(a)(9), respectively,
                                                            management decision made during the reporting
require OIG to publish statistical tables showing
                                                            period. During the six-month reporting period ended
the dollar value of questioned and unsupported
                                                            March 31, 2016, there were no significantly revised
costs, and of recommendations that funds be put to
                                                            management decisions.
better use by management. The reports that OIG
issued during the reporting period did not include
recommendations with dollar values of questioned            Significant Management Decision
costs, unsupported costs, or funds to be put to better      with Which the Inspector General
use by management.                                          Disagrees
Figure 11 (see below) discloses OIG’s questioned and
unsupported cost findings, and recommendations              Section 5(a)(12) of the Inspector General Act, as
that funds be put to better use.                            amended, requires that OIG report information
                                                            concerning any significant management decision
                                                            with which the Inspector General is in disagreement.
Audit and Evaluation Reports
                                                            During the six-month reporting period ended
with No Management Decision                                 March 31, 2016, there are two management decisions
                                                            with which the Inspector General disagreed.
Section 5(a)(10) of the Inspector General Act, as
amended, requires that OIG report on each audit and         OIG disagrees with FHFA’s decision in response
evaluation report issued before the commencement            to the evaluation titled FHFA’s Examiners Did Not
of the reporting period for which no management


Figure 11. Funds to Be Put to Better Use by Management, Questioned Costs, and Unsupported Costs
for the Period October 1, 2015, Through March 31, 2016

                                                                          Potential Monetary Benefits
   Report Issued       Recommendation No.            Date         Questioned      Unsupported    Funds Put to
                                                                    Costs            Costs        Better Use
                                                                             $-              $-              $-
Total                                                                        $-              $-              $-



                                  Semiannual Report to the Congress • October 1, 2015–March 31, 2016            83
Meet Requirements and Guidance for Oversight of           the Agency did not fail to meet any intermediate
an Enterprise’s Remediation of Serious Deficiencies       target dates in any remediation plans relating to the
(EVL-2016-004). FHFA did not agree with                   condition of its financial management system.
OIG’s recommendations to: (1) review existing
                                                          In its Financial Audit: Federal Housing Finance
requirements, guidance, and processes regarding
                                                          Agency’s Fiscal Years 2015 and 2014 Financial
MRAs against requirements, guidance, and processes
                                                          Statements report, GAO did not identify any
adopted by the OCC, Federal Reserve, and other
                                                          deficiencies in FHFA’s internal controls over financial
financial regulators; and (2) based on the results of
                                                          reporting that it considered to be a material weakness
the review in recommendation 1, assess whether any
                                                          or significant deficiency. Further, GAO issued FHFA’s
of the existing requirements, guidance, and processes
                                                          prior and current financial statements audit reports
adopted by FHFA should be enhanced, and make
                                                          as follows: fiscal year 2015 on November 16, 2015;
such enhancements.
                                                          fiscal year 2014 on November 17, 2014; fiscal year
OIG also disagrees with FHFA’s decision in response       2013 on December 16, 2013; and fiscal year 2012 on
to the compliance review titled Compliance Review of      November 15, 2012. For all four audits, GAO found:
FHFA’s Oversight of Enterprise Executive Compensation     (1) FHFA’s financial statements were presented
Based on Corporate Scorecard Performance (COM-            fairly, in all material respects, in accordance with
2016-002). FHFA did not agree with OIG’s                  generally accepted accounting principles; (2) FHFA
recommendations to: (1) develop a strategy to             maintained, in all material respects, effective
enhance ECB’s capacity to review the reasonableness       internal controls over financial reporting as of the
and justification of the Enterprises’ annual proposals    last day of the audit period; and (3) no reportable
to compensate their executives based on Corporate         noncompliance for the fiscal year tested with
Scorecard performance; and (2) develop a policy           provisions of applicable laws, regulations, contracts,
under which it is required to notify OIG within           and grant agreements it tested. HERA requires GAO
10 days of its decision to not fully implement,           to conduct this audit
substantially alter, or abandon a corrective action
that served as the basis for OIG’s decision to close a    Peer Reviews
recommendation.
                                                          Sections 5(a)(14), (15), and (16) of the Inspector
Federal Financial Management                              General Act, as amended, require that OIG provide
Improvement Act of 1996                                   information—relevant to the semiannual period—
                                                          on any peer reviews of OIG, unimplemented
Section 5(a)(13) of the Inspector General Act, as         recommendations from any peer reviews of OIG,
amended, requires that OIG report information             and any peer reviews conducted by OIG. During
concerning instances of and reasons for failures to       the reporting period, there were no peer reviews
meet any intermediate target dates from remediation       of OIG’s audit or investigative activities. The most
plans designed to remedy findings that the Agency’s       recent—and only—peer reviews of OIG’s audit and
financial management systems do not comply with           investigative activities were reported on March 20,
federal financial management system requirements,         2014, and August 25, 2014, respectively. (For full
applicable federal accounting standards, and the          copies of these reports, see www.fhfaoig.gov/About/
United States Government Standard General Ledger          PlanningAndPerformance.) Neither of these peer
at the transaction level. During the reporting period,

84      Federal Housing Finance Agency Office of Inspector General
review reports includes recommendations. However,
in connection with the peer review of OIG’s audit
activities, the reviewer issued a separate finding
and recommendation “that was not considered to
be of sufficient significance to affect” the reviewer’s
opinion that OIG’s “system of quality control
for the audit organization . . . has been suitably
designed and complied with to provide FHFA
OIG with reasonable assurance of performing
and reporting in conformity with applicable
professional standards in all material respects.” OIG
has implemented the recommendation. OIG did
not conduct any peer reviews during the six-month
reporting period ended March 31, 2016.




                                  Semiannual Report to the Congress • October 1, 2015–March 31, 2016   85
86   Federal Housing Finance Agency Office of Inspector General
Appendix D:                                               Audit Reports
OIG Reports                                               Review of FHFA’s Tracking and Rating of the 2013
                                                          Scorecard Objective for the New Representation
See www.fhfaoig.gov for OIG’s reports.                    and Warranty Framework Reveals Opportunities to
                                                          Strengthen the Process (AUD-2016-002, March 28,
Evaluation Reports                                        2016).

                                                          FHFA Should Improve its Examinations of the
Corporate Governance: Cyber Risk Oversight by the         Effectiveness of the Federal Home Loan Banks’ Cyber
Fannie Mae Board of Directors Highlights the Need for     Risk Management Programs by Including an Assessment
FHFA’s Closer Attention to Governance Issues (EVL-        of the Design of Critical Internal Controls (AUD-2016-
2016-006, March 31, 2016).                                001, February 29, 2016).
FHFA’s Supervisory Standards for Communication of
Serious Deficiencies to Enterprise Boards and for Board   Other Reports
Oversight of Management’s Remediation Efforts are
Inadequate (EVL-2016-005, March 31, 2016).                Compliance Review of FHFA’s Oversight of Enterprise
FHFA’s Examiners Did Not Meet Requirements and            Executive Compensation Based on Corporate Scorecard
Guidance for Oversight of an Enterprise’s Remediation     Performance (COM-2016-002, March 17, 2016).
of Serious Deficiencies (EVL-2016-004, March 29,          Merger of the Federal Home Loan Banks of Des Moines
2016).                                                    and Seattle: FHFA’s Role and Approach for Overseeing
FHFA Should Map Its Supervisory Standards for Cyber       the Continuing FHLBank (WPR-2016-002, March
Risk Management to Appropriate Elements of the NIST       16, 2016).
Framework (EVL-2016-003, March 28, 2016).                 $1.1 Billion Increase in Expenses for Fannie Mae and
FHFA’s Oversight of the Enterprises’ Implementation of    Freddie Mac from 2012 through 2015: Where the
and Compliance with Conservatorship Directives during     Money Went (WPR-2016-001, March 9, 2016).
an 18-Month Period (ESR-2016-002, March 28,               Compliance Review of FHFA’s Implementation of Its
2016).                                                    Procedures for Overseeing the Enterprises’ Single-Family
Utility of FHFA’s Semi-Annual Risk Assessments Would      Mortgage Underwriting Standards and Variances
Be Enhanced Through Adoption of Clear Standards           (COM-2016-001, December 17, 2015).
and Defined Measures of Risk Levels (EVL-2016-001,
January 4, 2016).




                                   Semiannual Report to the Congress • October 1, 2015–March 31, 2016          87
Appendix E:                                               In these types of schemes, sellers or developers
                                                          typically solicit investors with good credit who want
OI Publicly Reportable                                    low-risk investment opportunities by offering deals on
Investigative Outcomes                                    properties with no money down and other lucrative
                                                          incentives, such as cash back and guaranteed and
Involving Condo                                           immediate rent collection. The sellers fund these
Conversion and Builder                                    incentives with inflated sales prices. The fraudsters
                                                          conceal the incentives and the true property values
Bailout Schemes                                           from the lenders, defrauding them into making loans
                                                          that are much riskier than they appear. When the
                                                          properties go into foreclosure, lenders suffer large
                                                          losses.




     DEFENDANT                  ROLE                 MOST RECENT ACTION                          DATE

Bank Fraud Schemes in West Palm Beach and Tampa
Individuals were allegedly involved in marketing and selling condominiums at developments in both Palm Beach
County and in the Tampa area. The schemes were similar and involved seller-provided incentive packages that
included cash to close, cash rebates, and guaranteed rent, which were not disclosed to the lenders that funded
the mortgages.
                                                  Sentenced to 6 months in prison,
Anabel Reiners (also                              36 months of supervised release, and
known as Anabel          Straw Buyer              ordered to pay $17,350 in restitution,       March 9, 2016
Reiners Bonzon)                                   joint and several, and a $100 special
                                                  assessment.
                         Contract Coordinator
                                                  Sentenced to 5 years of probation and
Mike Zaric               Manager for Broadmor                                               February 26, 2016
                                                  ordered to pay a $6,000 fine.
                         Development, LLC
                                                  Pled guilty to conspiracy to commit
                         Real Estate Agent/
Gary Blankenship                                  bank and wire fraud affecting a            February 4, 2016
                         Co-Conspirator
                                                  financial institution.
                                                  Sentenced to 12 months in prison,
                                                  36 months of supervised release, and
                                                  ordered to pay $17,350 in restitution,
Eduardo Ortega           Straw Buyer              joint and several. As part of the          January 29, 2016
                                                  sentencing a forfeiture judgment was
                                                  entered against Ortega in the amount
                                                  of $211,919.38.
                                                  Convicted by a federal jury on five
                                                  counts of a superseding indictment,
                         Real Estate Broker/
Joseph L. Pasquale                                one count of conspiracy to commit           January 8, 2016
                         Straw Buyer Recruiter
                                                  bank fraud, and four counts of bank
                                                  fraud and aiding and abetting.



88     Federal Housing Finance Agency Office of Inspector General
   DEFENDANT                 ROLE                 MOST RECENT ACTION                           DATE
                                              Pled guilty to making false statements
Peter Mead           Marketer                 to federal agents about his knowledge      December 11, 2015
                                              and role in the scheme.
                                              Charged with one count of conspiracy
Jayson Martin        Loan Officer             to commit bank fraud and four counts       September 23, 2015
                                              of bank fraud.
                                              Charged with one count of conspiracy
Gary Hughes          Loan Officer             to commit bank fraud and four counts       September 23, 2015
                                              of bank fraud.
                                              Sentenced to 24 months in prison,
                                              60 months of supervised release,
Brendan Bolger       Marketer                 forfeiture of $4,322,264, and ordered      September 18, 2015
                                              to pay $13,641,197 in restitution, joint
                                              and several.
                                              Was involved in two cases, one in
                                              the U.S. District Court for the Middle
                                              District of Florida, Tampa, which was
                                              transferred to and combined with
                                              the case in the U.S. District Court
                                              for the Southern District of Florida.
                                              Concurrently sentenced to 6 months
Jordana Ende-Tobel   Real Estate Broker       of home confinement, 36 months             September 4, 2015
                                              of supervised release, forfeiture of
                                              $106,217 in the Southern District
                                              case and $56,883 in the Tampa case,
                                              and ordered to pay $1,878,211 in
                                              restitution, joint and several, in the
                                              Southern District case and $499,500,
                                              joint and several, in the Tampa case.
                                              Sentenced to 36 months in prison,
                                              36 months of supervised release,
Eli Riesel           Developer                forfeiture of $506,651, and ordered to        July 16, 2015
                                              pay $12.5 million in restitution, joint
                                              and several.
                                              Was involved in two cases, one in
                                              the U.S. District Court for the Middle
                                              District of Florida, Tampa, which was
                                              transferred to and combined with the
                                              case in the U.S. District Court for the
                                              Southern District of Florida. She was
                     Attorney and Escrow/     concurrently sentenced to 1 year, 1 day
Rashmi Airan-Pace                                                                          June 16, 2015
                     Title Agent              in prison, 36 months of supervised
                                              release, forfeiture of $26,973 in
                                              the Tampa case, and ordered to pay
                                              $16,496,242 in restitution, joint and
                                              several, in the Southern District Case
                                              and $2,652,974 in restitution, joint
                                              and several, in the Tampa case.
                                              Sentenced to 6 months in prison,
                                              24 months of supervised release,
Joaquin Cossio       Real Estate Broker                                                    April 24, 2015
                                              and ordered to pay $1,215,729 in
                                              restitution, joint and several.


                                Semiannual Report to the Congress • October 1, 2015–March 31, 2016          89
     DEFENDANT                   ROLE                  MOST RECENT ACTION                           DATE
                       Former Home
                                                  Sentenced to 18 months in prison and
Florencio Luis Tezanos Mortgage Consultant                                                    February 18, 2015
                                                  36 months of supervised release.
                       at Wells Fargo Bank
                                                  Sentenced to 12 months, 1 day in
                                                  prison, 24 months of supervised
Jose Aller               Marketer                 release, and ordered to pay                  August 29, 2014
                                                  $2,951,263 in restitution, joint and
                                                  several.
                                                  Sentenced to 12 months, 1 day in
                                                  prison, later reduced to 6 months,
Ernesto Rodriguez        Recruiter                24 months of supervised release,             August 29, 2014
                                                  and ordered to pay $2,951,263 in
                                                  restitution, joint and several.

Additional Indictment in Elaborate Condo Scheme
The indictment alleged that Sanchez and Cevallos, acting in concert with others, bought or facilitated the sale of
condominiums to straw buyers at inflated prices. The inflated prices allowed the sellers in the transactions, also
co-conspirators, to sell the condominiums for more than their market value.
                          Former Attorney and     Charged with conspiracy to commit
Angel Garcia              Principal of Garcia-    bank fraud and wire fraud affecting a         March 8, 2016
                          Oliver & Mainieri, P.A. financial institution.
                                                  Charged with conspiracy to commit
David Cevallos            Mortgage Broker         bank fraud and wire fraud affecting a          April 29, 2015
                                                  financial institution.
                                                  Charged with conspiracy to commit
Osbel Sanchez             Sales Associate         bank fraud and wire fraud affecting a          April 29, 2015
                                                  financial institution.

Condo Developer Ponzi Scheme Involving Enterprise Properties
Cay Clubs Resorts, which operated resort-style hotels/condominiums throughout the U.S., operated as a
massive Ponzi and securities fraud scheme. It defrauded 1,400 investors, FDIC-insured banks, and the
Enterprises out of over $300 million. The scheme caused a loss to Freddie Mac of $8,390,663 and to Fannie
Mae of $2,850,086.
                                                 Sentenced to 480 months in prison,
                                                 5 years of supervised release,
Fred Davis Clark Jr.                             forfeiture of $303,800,000 for the
                         Cay Clubs Owner/
(also known as Dave                              bank fraud and $3,300,000 for the        February 22, 2016
                         Scheme Leader
Clark)                                           SEC obstruction, and forfeiture of
                                                 specific assets located overseas
                                                 totaling approximately $2.6 million.
                                                 Restitution ordered in the amount
                                                 of $163,530,377, joint and several.
                         Director of Sales for
Barry J. Graham                                  Previously sentenced to 60 months in     October 27, 2015
                         Cay Clubs
                                                 prison and 36 months of supervised
                                                 release.




90     Federal Housing Finance Agency Office of Inspector General
   DEFENDANT                     ROLE                 MOST RECENT ACTION                           DATE
                                              Restitution ordered in the amount
                                              of $163,530,377, joint and several.
                        Director of Investor
Ricky L. Stokes                               Previously sentenced to 60 months in            October 27, 2015
                        Relations/Sales Agent
                                              prison and 36 months of supervised
                                              release.
Cristal Clark (also
                        Cay Clubs Owner/
known as Cristal                                 Acquitted.                                   August 14, 2015
                        Executive
Coleman)

Multi-state Condo Conversion Scheme
Burchell and others allegedly negotiated with the builders of new housing developments in California, Florida,
and Arizona to sell the units in exchange for large commissions not disclosed to the lenders. The defendants
recruited straw buyers and submitted false loan applications to sell more than 100 units, resulting in a loss to
the Enterprises of at least $2.37 million.
                         Obtained Straw Buyers
                                                   Convicted by jury trial of wire fraud,
                         and Negotiated
Momoud Aref Abaji                                  conspiracy to commit bank and wire         February 5, 2016
                         Kickbacks with
                                                   fraud, and tax evasion.
                         Builders
                         Prepared False            Convicted by jury trial of a conspiracy
Mohamed Salah                                                                                 March 27, 2015
                         Documents                 charge.
                                                   Convicted by jury trial of conspiracy
Maher Obagi              Office Manager                                                       March 27, 2015
                                                   and three wire fraud charges.
                                                   Pled guilty to conspiracy to commit
Jacqueline Burchell      Escrow Officer                                                        June 13, 2013
                                                   bank and wire fraud.
                         Obtained Straw Buyers
                                                   Charged with wire fraud, conspiracy
                         and Taught Others
Wajieh Tbakhi                                      to commit bank and wire fraud, and         January 4, 2013
                         How to Fabricate False
                                                   aiding and abetting.
                         Documents

Ali Khatib              Owner of Company         Pled guilty to bank fraud.                    August 2, 2012




                                 Semiannual Report to the Congress • October 1, 2015–March 31, 2016             91
Appendix F:                                                  Investigations in this category involve a variety of
                                                             schemes that target Fannie Mae, Freddie Mac, the
OI Publicly Reportable                                       FHLBanks, or members of FHLBanks.
Investigative Outcomes
Involving Fraud
Committed Against
the Enterprises, the
FHLBanks, or FHLBank
Member Institutions


     DEFENDANT                    ROLE                   MOST RECENT ACTION                            DATE

Attorney Involved in Short Sale Fraud
A former senior attorney with the FDIC sold her home to her live-in boyfriend in a fraudulent short sale. Borzillo
submitted hardship material to the lender stating she had suffered a loss of income associated with a federal
pay freeze and that the short sale transaction would be at arm’s length. In fact, the individual was not subject to
the pay freeze and the transaction was not at arm’s length.
                                                  Sentenced to 12 months and 1 day
                                                  in prison, 2 years of supervised
                                                  release, and ordered to pay $288,497
                         Scheme Organizer/
Michelle Borzillo                                 in restitution. In addition, $3,000          February 19, 2016
                         Attorney
                                                  forfeited representing illegal proceeds
                                                  from bank fraud affecting a financial
                                                  institution.

Missouri Loan Officer Charged with Theft and Embezzlement
Cox, a loan officer at Focus Bank, an FHLBank member, allegedly embezzled approximately $170,000 in loan
proceeds from Focus Bank. Cox had been entrusted with funds from multiple borrowers but converted the funds
to his personal use and concealed his acts from his employer.
                                                Charged with theft, embezzlement,
Brian Cox                 Loan Officer          and misapplication by bank officer or     January 21, 2016
                                                employee.

Executive at Now-Defunct Mirae Bank Indicted in Loan Fraud Case
Aminpour worked at Mirae Bank as the Chief Marketing Officer. According to the indictment, Aminpour was
allegedly responsible for the bank issuing tens of millions of dollars in fraudulent loans—loans that were a
significant factor in Mirae Bank’s failure as a financial institution in 2009. At the time of Mirae’s failure, there
were outstanding advances from the FHLBank of San Francisco in the amount of $51 million.
                                                    Indicted on charges of bank fraud,
                           Former Chief             false statement to a financial
Ataollah Aminpour                                                                                  January 7, 2016
                           Marketing Officer        institution, and causing an act to be
                                                    done.


92     Federal Housing Finance Agency Office of Inspector General
   DEFENDANT                    ROLE                 MOST RECENT ACTION                          DATE
Civil Settlement in Michigan Reverse Mortgage Fraud
Abbruzzese failed to properly originate a reverse mortgage loan that was sold to Fannie Mae. The loan went into
foreclosure.
                         Owner of Abbruzzese
Mark Abbruzzese                                   Settlement agreement for $266,000.       December 22, 2015
                         Consulting

Identity Theft Involving Fannie Mae Insider
Thomas and others conspired to steal the PII of over 1,000 Fannie Mae customers, which also caused monetary
damages to involved financial institutions, including JPMorgan Chase and Bank of America.
                                                   Pled guilty to conspiracy to commit
Karen Mendoza           Runner                                                            November 17, 2015
                                                   bank fraud.
                                                   Sentenced to 16 years in prison,
                                                   3 years of supervised release, and
Anthony Minor           Recruiter                                                           March 18, 2015
                                                   ordered to pay $88,131 in restitution,
                                                   joint and several.
                                                   Sentenced to 48 months in prison,
                        Underwriting Support       24 months of supervised release, and
Katrina Thomas                                                                            November 13, 2014
                        Specialist                 ordered to pay $76,831 in restitution,
                                                   joint and several.
                                                   Sentenced to 48 months in prison,
                                                   24 months of supervised release, and
Tilisha Morrison        Recruiter                                                         November 12, 2014
                                                   ordered to pay $88,131 in restitution,
                                                   joint and several.
                                                   Sentenced to 1 day (time served),
                                                   2 years of supervised release, and
Kario Butler            Runner                                                            November 4, 2014
                                                   ordered to pay $8,970 in restitution,
                                                   joint and several.
                                                   Sentenced to 1 day (time served),
                                                   2 years of supervised release,
Jamilah Karriem         Runner                                                            November 2, 2014
                                                   80 hours of community service, and
                                                   ordered to pay $1,000 in restitution.
                                                   Sentenced to 4 months (time served),
Cyrus Pritchett         Runner                     2 years of supervised release, and      October 23, 2014
                                                   ordered to pay $9,800 in restitution.

Former Title Company President Charged with Bank Fraud
An indictment alleges that between 2010 and 2011 the defendant engaged in a scheme that caused
approximately $1.3 million in losses to two financial institutions.
                         Former Title Company
Mark Andreotti                                    Indicted for bank fraud.            November 2, 2015
                         President




                                 Semiannual Report to the Congress • October 1, 2015–March 31, 2016          93
     DEFENDANT                 ROLE                 MOST RECENT ACTION                        DATE
Five Indicted on Money Laundering Charges at a Member Bank, FHLBank of Topeka
Three former bank employees and two business owners allegedly conspired to launder money through Plains
State Bank (PSB)—an FHLBank member bank that had more than $76 million in advances from the FHLBank in
Topeka, Kansas. The PSB bank employees failed to file Treasury reports as required, based upon the amount and
type of cash and monetary instruments deposited into the PSB account.
                                               Charged with money laundering and
J. Kirk Friend         Bank President          failing to file Treasury reports as         October 6, 2015
                                               required.
                                               Charged with money laundering and
Matthew Thomas         Bank Loan Officer       failing to file Treasury reports as         October 6, 2015
                                               required.
                                               Charged with money laundering and
                       Business Owner/Bank
George Enns                                    failing to file Treasury reports as         October 6, 2015
                       Customer
                                               required.
                                               Charged with money laundering and
                       Business Owner/Bank
Agatha Enns                                    failing to file Treasury reports as         October 6, 2015
                       Customer
                                               required.
                                               Charged with failing to file Treasury
Kathy Shelman          Bank Cashier                                                        October 6, 2015
                                               reports as required.




94     Federal Housing Finance Agency Office of Inspector General
Appendix G:                                              Loan or mortgage origination schemes are the most
                                                         common type of mortgage fraud. These schemes
OI Publicly Reportable                                   typically involve falsifying borrowers’ income, assets,
Investigative Outcomes                                   employment, and credit profiles to make them
                                                         more attractive to lenders. These schemes often use
Involving Loan                                           bogus Social Security numbers and fake or altered
Origination Schemes                                      documents such as W-2 forms and bank statements
                                                         to defraud lenders into making loans they would
                                                         not otherwise make. Typically, perpetrators pocket
                                                         origination fees or inflate home prices and divert
                                                         proceeds.




   DEFENDANT                    ROLE                 MOST RECENT ACTION                          DATE

Multi-defendant Origination Scheme Sentencings
Subjects conspired to commit various types of financial fraud including mortgage fraud, federal student loan
fraud, and small business loan fraud. The scheme involved submitting false documents and straw buyers. The
loss exposure to the Enterprises is approximately $800,000.
                                                 Sentenced to time served (1 day),
                                                 24 months of supervised release, and
Noreen Mian             Loan Officer                                                           March 4, 2016
                                                 ordered to pay $588,940 in restitution,
                                                 joint and several.
                                                 Sentenced to 36 months of probation
Sirarthur McClelland    Organizer                and ordered to pay $49,267 in               February 10, 2016
                                                 restitution, joint and several.
                                                 Pled guilty to mail fraud and identity
Warren Taylor           Organizer                                                             February 3, 2016
                                                 theft.
                                                 Sentenced to 36 months of probation
David Edwards           Organizer                and ordered to pay $24,490 in              November 24, 2015
                                                 restitution, joint and several.
                                                 Sentenced to 6 months in prison,
                                                 24 months of supervised release with
Derrek L. Campbell II   Straw Buyer              first 6 months under home detention,         August 21, 2015
                                                 and ordered to pay $133,715 in
                                                 restitution, joint and several.
                        Owner Credit Repair      Pled guilty to mail fraud and
Anthony Trice                                                                                   July 14, 2015
                        Business                 aggravated identity theft.
                        Owner Credit Repair      Pled guilty to mail fraud and
Jerrod Weathersby                                                                              May 26, 2015
                        Business                 aggravated identity theft.




                                Semiannual Report to the Congress • October 1, 2015–March 31, 2016           95
     DEFENDANT                  ROLE                 MOST RECENT ACTION                         DATE
$3.8 Million Origination Scheme
Campbell and Miles participated in a mortgage fraud scheme wherein false financial information was provided
to secure home mortgage loans. Agodio subsequently participated in a variation of the scheme targeting
unsuspecting immigrants, wherein he used false financial information to secure $3.8 million in loans through
Miles to purchase approximately three dozen row houses. All of these properties are now in default or
foreclosure.
                                                Sentenced to 61 months in prison,
                                                5 years of supervised release,
Alberic Okou Agodio    Real Estate Broker                                                   February 26, 2016
                                                and ordered to pay $3,356,581 in
                                                restitution.
                                                Sentenced to 19 months in prison,
                       Property Investor/       60 months of probation, and ordered
Kevin Campbell                                                                            September 11, 2015
                       Seller                   to pay $1,182,822 in restitution, joint
                                                and several.
                                                Sentenced to 18 months in prison,
                                                60 months of probation, and ordered
Jonathan Lee Miles     Loan Officer                                                       September 10, 2015
                                                to pay $1,182,822 in restitution, joint
                                                and several.
Loan Origination Fraud Involving Kickbacks to Straw Buyers, Buyers, and Other
Participants
Conspirators participated in a mortgage fraud scheme in which they entered into agreements to purchase
properties for amounts in excess of the original asking price. The loss exposure to the Enterprises is
$1,192,125.
                                                  Sentenced to 10 months in prison,
                                                  36 months of supervised release, and
                        Loan Officer/Straw        ordered to pay $549,100 in restitution,
Enrique Hernandez                                                                            February 18, 2016
                        Buyer Recruiter           joint and several. Hernandez was
                                                  previously ordered to pay forfeiture of
                                                  $108,724.
                                                  Sentenced to time served, 36 months
                                                  of supervised release, and ordered
                                                  to pay a $200 assessment and
Carlos Morales          Developer/Seller          $230,121 in restitution, joint and        December 18, 2015
                                                  several. An order of forfeiture in the
                                                  amount of $40,000 was incorporated
                                                  into the judgment.
                                                  Sentenced to 18 months in prison,
                                                  36 months of supervised release, and
Guillermo Rincon        Straw Buyer                                                              May 5, 2015
                                                  ordered to pay $549,100 in restitution,
                                                  joint and several.




96     Federal Housing Finance Agency Office of Inspector General
   DEFENDANT                     ROLE                   MOST RECENT ACTION                          DATE
Unlicensed Appraiser/Identity Theft Scheme
Subjects fraudulently obtained and used the identity of a licensed appraiser to prepare real estate appraisals,
which were subsequently used to support mortgage loans sold to the Enterprises. White submitted over 400
appraisals for use in mortgage loans using the stolen identity.
                                                 Ordered to pay restitution in the
                                                 amount of $20,250. Previously
                                                 sentenced to 60 months in prison
Douglas White            Unlicensed Appraiser                                                 February 11, 2016
                                                 followed by 12 months of supervised
                                                 release, and ordered to pay a special
                                                 assessment of $600.
                         President/Loan Officer Sentenced to 90 days in jail, 6 months
Diana Merritt            at Merit Home Finance of supervised release, and ordered to          December 3, 2015
                         Inc.                    pay a special assessment of $600.

Sentencings in Builder Loan Origination Fraud Scheme
According to an information, the builder, along with co-conspirators, participated in preparing a false HUD-1 form
that falsely represented that the borrower provided over $1 million on the date of closing as “cash to close”
when in fact he brought no monies to the closing.
                                                   Sentenced to 5 months in prison,
                                                   6 months of home confinement,
David B. Pick            Mortgage Loan Officer                                                  February 10, 2016
                                                   3 years of supervised release, and
                                                   ordered to pay $383,178 in restitution.
                                                   Sentenced to 12 months, 1 day in
                                                   prison, 12 months of home detention
                                                   with an electronic monitoring system,
Timothy Ritchie          Builder/Investor                                                       January 14, 2016
                                                   3 years of supervised release,
                                                   and ordered to pay $1,385,445 in
                                                   restitution.

Chicago Attorney and Chief Financial Officer Pled Guilty
Carroll, the CFO of 13th & State, an LLC created to facilitate the development and sale of units at a high-rise
condo building known as Vision on State, and Lattas, an attorney, worked with others to allegedly create a builder
bailout scheme that used inflated sales prices to pay undisclosed incentives to recruiters and straw buyers. The
scheme resulted in approximately $22.8 million in fraudulent mortgages and $13 million in losses to financial
institutions.

Robert Lattas            Attorney                  Pled guilty to bank fraud.                  February 5, 2016

James Carroll            Chief Financial Officer   Pled guilty to bank fraud.                  February 3, 2016




                                    Semiannual Report to the Congress • October 1, 2015–March 31, 2016          97
     DEFENDANT                  ROLE                 MOST RECENT ACTION                          DATE
Four Former Employees of SunTrust Mortgage Convicted at Trial
SunTrust Mortgage employees conspired to commit wire fraud affecting a financial institution involving 13
properties. The employees prepared false mortgage loan applications for prospective borrowers knowing that the
loan applications contained false material information, including statements that the borrowers intended to use
the houses as their primary residences. As a result of their actions, there were total losses of $2,093,270 to
SunTrust Mortgage, including a loss of $139,726 to Fannie Mae.
                                                 Convicted by jury trial on charges of
                         Loan Officer/Branch
Mohsin Raza                                      conspiracy to commit wire fraud and           February 3, 2016
                         Manager
                                                 wire fraud.
                                                 Convicted by jury trial on charges of
Farukh Iqbal             Loan Officer            conspiracy to commit wire fraud and           February 3, 2016
                                                 wire fraud.
                                                 Convicted by jury trial on charges of
Humaira Iqbal            Loan Officer Assistant conspiracy to commit wire fraud and            February 3, 2016
                                                 wire fraud.
                                                 Convicted by jury trial on charges of
Mohammad Haider          Loan Officer            conspiracy to commit wire fraud and           February 3, 2016
                                                 wire fraud.

Loan Origination with Undisclosed Incentives and Misrepresentations
King, Hearns, and others conspired to launder proceeds by means of committing wire fraud. King and Hearns
had formed an agreement with others to assist in providing buyers of homes with the funds to close on real
estate transactions, which they would falsely represent to lenders were provided by the buyers. The scheme
caused a loss exposure of approximately $866,000 to the Enterprises, which bought or secured mortgages on
10 properties.
                                                  Sentenced to 46 months in prison,
                                                  5 years of supervised release, and
Euneisha Hearns          Loan Officer                                                        February 2, 2016
                                                  ordered to pay $180,235 in restitution,
                                                  joint and several.
                                                  Sentenced to 33 months in prison,
                                                  36 months of supervised release, and
Stephen King             Real Estate Agent                                                    March 18, 2015
                                                  ordered to pay $685,704 in restitution,
                                                  joint and several.

$11 Million Fraudulent Loan Scheme
Co-conspirators of the scheme prepared mortgage applications that contained false information about borrowers’
income, employment, and assets and generated dozens of mortgage loans for unqualified borrowers. The co-
conspirators then allegedly took a commission or fee. The fraudulent loans were worth more than $11 million.
                                                Sentenced to 42 months in prison,
                         Real Estate Broker/    36 months of supervised release,
Jose “Joe” Garcia        Co-Owner of Mortgage and ordered to pay $1,610,000 in             January 28, 2016
                         Brokerage              restitution, joint and several, and a
                                                $100 special assessment.




98     Federal Housing Finance Agency Office of Inspector General
   DEFENDANT                    ROLE                  MOST RECENT ACTION                          DATE
                                                 Sentenced to 7 months in prison,
                                                 7 months of home confinement,
                                                 36 months of supervised release, and
Lidubina “Lido” Perez   Loan Officer                                                        January 11, 2016
                                                 ordered to pay $735,750 in restitution,
                                                 joint and several, and a $100 special
                                                 assessment.
                        Real Estate Broker/
                                                 Pled guilty to conspiracy to commit
Lucy Garcia             Co-Owner of Mortgage                                                   April 9, 2015
                                                 bank fraud.
                        Brokerage

Three Charged in Loan Origination Scheme, New York
Co-conspirators allegedly recruited straw buyers to purchase properties using fraudulent mortgage loan
applications in exchange for a fee. The loan applications misstated the borrowers’ incomes, employment
histories, and amounts of money in their bank accounts. In addition, the co-conspirators allegedly provided
fictitious documents and falsified bank statements to support the misrepresentations made on the loan
applications. The loans on the properties defaulted, resulting in at least $240,000 in losses to Freddie Mac and
another financial institution.
                                                  Indicted for bank fraud, conspiracy
                           Co-Conspirator,
                                                  to commit bank fraud, and false
Nimboko Miller             Recruiter of Straw                                                 January 22, 2016
                                                  statements in connection with loan
                           Buyers
                                                  applications.
                                                  Indicted for bank fraud, conspiracy
                           Co-Conspirator,
                                                  to commit bank fraud, and false
Christopher Scott Sr.      Recruiter of Straw                                                 January 22, 2016
                                                  statements in connection with loan
                           Buyers
                                                  applications.
                                                  Indicted for bank fraud, conspiracy
                           Co-Conspirator,
                                                  to commit bank fraud, and false
Christopher Scott Jr.      Recruiter of Straw                                                 January 22, 2016
                                                  statements in connection with loan
                           Buyers
                                                  applications.

Bank Examiner Pled Guilty
In December 2014, an individual submitted a loan application with a false letter of employment. At the time, the
individual was employed as a bank examiner for the OCC.
                                                Pled guilty to making false statements
                        Borrower/Treasury       of financial condition. Sentenced to
Sophelia Alexander                                                                          January 15, 2016
                        Employee                1 year of probation and assessed a
                                                fine of $2,728.

Sentencing in Origination Scheme
Several individuals conspired to defraud lending institutions by inducing them to fund mortgage loans by using
material misrepresentations and omissions of material fact in HUD-1 forms, Settlement Statements, loan
applications, and other loan documents. The scheme caused estimated losses of $967,989 to Fannie Mae and
$130,265 to Freddie Mac.
                                                  Sentenced to time served (7 months),
                                                  1 year of supervised release, ordered
                         Home Builder/Straw
Donald Mattox                                     to pay $964,244 in restitution,             January 5, 2016
                         Buyer
                                                  joint and several, and forfeiture of
                                                  $165,197.




                                 Semiannual Report to the Congress • October 1, 2015–March 31, 2016            99
   DEFENDANT                      ROLE               MOST RECENT ACTION                          DATE
                                                A previous sentence was vacated
                                                and Edwards was resentenced to
                                                46 months in prison, 12 months of
Michael Edwards         Loan Officer                                                      September 11, 2015
                                                supervised release, and ordered to pay
                                                $1,300,402 in restitution, joint and
                                                several.
                                                Sentenced to 90 months in prison,
                                                36 months of supervised release,
Lawrence Day            Recruiter               forfeiture of $1,877,032, and ordered        July 28, 2015
                                                to pay $3,108,998 in restitution, joint
                                                and several.
                                                Sentenced to 20 months in prison,
                                                12 months of supervised release, and
Scott Sherman           Builder                                                           November 13, 2014
                                                ordered to pay $493,500 in restitution,
                                                joint and several, and a $7,500 fine.
                                                Sentenced to 21 months of
                                                incarceration, 36 months of
Donna Cobb              Escrow Officer          supervised release, and ordered to pay       May 28, 2014
                                                $2,151,376 in restitution, joint and
                                                several.

Sentencing in Property Flipping Scheme
Co-conspirators engaged in a property flipping scheme wherein straw buyers were paid undisclosed incentives to
purchase houses sold by Payne.
                                                  Sentenced to 70 months of
                                                  incarceration, 60 months of supervised
                       Mortgage Broker/
Marcus Payne                                      release, and ordered to pay a          December 15, 2015
                       Company President
                                                  $200 assessment fee and $753 in
                                                  restitution.

Straw Buyer Scheme Falls Flat
Senior managers of Flatiron Development profited by selling homes to straw buyers at inflated prices. The homes
fell into foreclosure, causing losses to the lending institutions, including Freddie Mac.
                                                    Sentenced to 60 months in prison,
                                                    36 months of supervised release, and
Theodoros Ezanidis        Owner                     ordered to pay restitution, joint and    October 20, 2015
                                                    several. The amount ordered to pay will
                                                    be determined later.
                                                    Sentenced to 12 months and 1 day
                                                    in prison, 24 months of supervised
Christopher Hopper        Employee                  release, and ordered to pay restitution, October 20, 2015
                                                    joint and several. The amount ordered
                                                    to pay will be determined later.
                                                    Sentenced to 30 months in prison,
                                                    24 months of supervised release, and
Robert Rendino            Employee                  ordered to pay restitution, joint and    October 20, 2015
                                                    several. The amount ordered to pay will
                                                    be determined later.




100    Federal Housing Finance Agency Office of Inspector General
   DEFENDANT                    ROLE                  MOST RECENT ACTION                          DATE
                                                 Sentenced to 36 months of probation
Susan Rendino           Co-Conspirator           and ordered to pay $2,504 in                 May 19, 2015
                                                 restitution and a $2,000 fine.

Attorney and Loan Officer Convicted at Trial in Chicago
Lattas and Burge aided straw buyers to fraudulently obtain at least five mortgage loans valued at approximately
$1.49 million by making materially false representations in documents submitted to lenders. Soon after the
properties were sold to the straw buyers, the mortgages went into default. The fraud resulted in a combined
Fannie Mae and Freddie Mac loss of approximately $800,000.

Robert Lattas           Attorney                 Convicted by a jury at trial.               October 8, 2015

Nicholas Burge          Loan Officer             Convicted by a jury at trial.               October 8, 2015




                                   Semiannual Report to the Congress • October 1, 2015–March 31, 2016       101
Appendix H:                                               Short sales occur when a lender allows a borrower
                                                          who is “underwater” on his/her loan—that is, the
OI Publicly Reportable                                    borrower owes more than the property is worth—to
Investigative Outcomes                                    sell his/her property for less than the debt owed. Short
                                                          sale fraud usually involves a borrower intentionally
Involving Short Sale                                      misrepresenting or not disclosing material facts to
Schemes                                                   induce a lender to agree to a short sale to which it
                                                          would not otherwise agree.




   DEFENDANT                    ROLE                 MOST RECENT ACTION                           DATE

Short Sale Schemes in Michigan
An indictment alleges that multiple individuals were involved in short sale schemes that involved finding a
straw buyer for the purchase of homes that were not listed for sale at the time of purchase. According to the
indictment, cash buyers allegedly conveyed the properties to relatives of the original homeowner, who then
allegedly originated a loan for less than the original loan amount.
                                                    Charged with false pretenses and
Lina Nassif               Short Seller                                                        January 11, 2016
                                                    conspiracy.
                                                    Charged with false pretenses and
Majid Krikor              Straw Buyer                                                         January 11, 2016
                                                    conspiracy.
                                                    Sentenced to 24 months of probation
                          Short Seller/Straw
Bassam Hamood                                       and ordered to pay $10,000 in              January 8, 2016
                          Buyer
                                                    restitution and a fine of $1,558.
                          Short Seller/Straw
Mohamad Eddin                                       Charged with false pretenses.              October 1, 2015
                          Buyer
                          Short Seller/Straw        Charged with false pretenses and
Mariam Dakroub                                                                                 August 13, 2015
                          Buyer                     conspiracy.
                          Short Seller/Straw        Charged with false pretenses and
Chadi Rustom                                                                                   August 13, 2015
                          Buyer                     conspiracy.
                          Short Seller/Straw        Charged with false pretenses and
Walid Fawaz Sr.                                                                                August 13, 2015
                          Buyer                     conspiracy.
                          Short Seller/Straw        Charged with false pretenses and
Zinab Allie                                                                                    August 13, 2015
                          Buyer                     conspiracy.
                          Short Seller/Straw        Charged with false pretenses and
Bahij El-Fadl                                                                                  August 13, 2015
                          Buyer                     conspiracy.
                          Short Seller/Straw        Charged with false pretenses and
Abbas Hamid                                                                                    August 13, 2015
                          Buyer                     conspiracy.




102    Federal Housing Finance Agency Office of Inspector General
   DEFENDANT                     ROLE                  MOST RECENT ACTION                           DATE
Two Charged in Michigan Short Sale Fraud
The owner of a real estate brokerage allegedly executed a short sale buy and bail scheme. He allegedly used
extensive advertising to convince homeowners they could purchase new homes while he also assisted them with
short selling their existing homes. His accomplice allegedly purchased one of the short sale homes through her
company.
                                                  Information filed charging bank fraud
William Elias              Real Estate Broker                                                December 9, 2015
                                                  and money laundering.
                           Realty Employee/KLD
Kimberly Doren                                    Information filed charging wire fraud.     December 9, 2015
                           Owner

Sentencings in Short Sale Scheme
Conspirators allegedly engaged in several schemes to fraudulently obtain money, including: a “flopping” scheme
where banks were convinced to accept short sale prices that were lower than a legitimate buyer would be willing
to pay; recording false second and third liens; tricking distressed homeowners into signing their properties over
to criminal actors; and renting distressed properties while simultaneously stalling foreclosure through the use of
fraudulent documents.
                                                    Sentenced to 3 years in prison
                                                    (18 months suspended, 15 months
                                                    electronic monitoring, and 3 months in
                          Property Manager for
Deanna Bashara                                      a residential drug treatment program)     December 3, 2015
                          Rent Scheme
                                                    and ordered to pay $132,000 in
                                                    restitution, fines of $300, and a
                                                    special assessment of $350.
                                                    Sentenced to 80 days in custody,
                          Assisted with
                                                    200 hours of community service,
                          Shell Companies
                                                    5 years of probation, and ordered to
Delia Wolfe               and Opened Bank                                                     December 3, 2015
                                                    pay $176,349 in restitution, fines of
                          Accounts Used in the
                                                    $600, and a special assessment
                          Scheme
                                                    of $350.
                                                    Sentenced to 98 days in custody,
                          Generated and             5 years of probation, and ordered to
James Styring             Filed False/Forged        pay $50,000 in restitution, fines of      December 3, 2015
                          Documents                 $600, and a special assessment
                                                    of $110.
                                                    Sentenced to 6 years in prison and
                          Licensed Real
                                                    ordered to pay $596,232 in restitution,
Joseph Jaime              Estate Salesperson/                                                 December 3, 2015
                                                    fines of $600, and a special
                          Facilitated Short Sales
                                                    assessment of $1,110.
                                                    Sentenced to 48 months in prison
                                                    (20 months suspended) and ordered
                          Generated False/
Lindsay Petty                                       to pay $129,883 in restitution, $400        October 1, 2015
                          Forged Documents
                                                    in fines, and a special assessment
                                                    of $430.
                          Scheme Leader and         Sentenced to 128 months in prison
Jackalyn Bashara          Licensed Real Estate      and ordered to pay $836,165 in               June 29, 2015
                          Salesperson               restitution and $600 in fines.
                          Scheme Leader/            Pled guilty to conspiracy, grand theft,
Eric Wolfe                Licensed Real Estate      preparing false documents, and               June 25, 2015
                          Broker                    mortgage fraud.



                                 Semiannual Report to the Congress • October 1, 2015–March 31, 2016           103
   DEFENDANT                   ROLE                 MOST RECENT ACTION                      DATE
                       Straw Buyer and
                                                Sentenced to 36 months of probation
                       Opened Bank
Billie Bryant                                   and ordered to pay $300,000 in           May 13, 2015
                       Accounts Used in the
                                                restitution and $300 in fines.
                       Scheme
                       Straw Buyer and
                       Opened Bank
Gerald Bryant                                   Charges dropped.
                       Accounts Used in the
                       Scheme
                       Intimidated Victims      Sentenced to 36 months in prison
                       and Collected Rent       (18 months suspended), 18 months of
Jered Bryant                                                                             May 13, 2015
                       Generated by the         supervised release, and ordered to pay
                       Scheme                   $124,467 in restitution.
                                                Charged with conspiracy, grand theft,
                       Notary/Licensed Real
Brian Deden                                     mortgage fraud, and procuring/offering   June 25, 2014
                       Estate Broker
                                                false/forged instruments.




104    Federal Housing Finance Agency Office of Inspector General
Appendix I:                                                These schemes prey on homeowners. Businesses
                                                           advertise that they can secure loan modifications,
OI Publicly Reportable                                     provided that the homeowners pay significant upfront
Investigative                                              fees. Typically, these businesses take little or no action,
                                                           leaving homeowners in a worse position.
Outcomes Involving
Loan Modification and
Property Disposition
Schemes




   DEFENDANT                    ROLE                  MOST RECENT ACTION                             DATE

Multiple Subject Indictment in California Loan Modification Scheme
Defendants, along with others, allegedly devised a scheme to obtain upfront payments from victims who were
trying to obtain a loan modification by leading them to believe they were receiving federally funded home loan
modifications under the government’s Home Affordable Modification Program.
                         Bookkeeper,
                                                   Pled guilty to conspiracy to commit
Isaac Perez              Customer Service                                                        March 30, 2016
                                                   wire fraud.
                         Representative
                                                   Pled guilty to conspiracy to commit
Joshua Johnson           Sub-Leader, Closer                                                      March 29, 2016
                                                   wire fraud.
                         Customer Service          Pled guilty to conspiracy to commit
Jefferson Maniscan                                                                               March 29, 2016
                         Representative            wire fraud.
                         Facilitator, Opened       Pled guilty to conspiracy to commit
Raymund Dacanay                                                                                  March 29, 2016
                         Bank Accounts             wire fraud.
                                                   Pled guilty to conspiracy to commit
Roscoe Umali             Scheme Leader                                                           March 22, 2016
                                                   wire fraud.
                                                   Sentenced to 151 months in prison
Joshua Sanchez           Scheme Leader                                                          October 29, 2015
                                                   and 3 years of supervised release.
                                                   Sentenced to 135 months in prison
Kristen Ayala            Co-Conspirator                                                         October 29, 2015
                                                   and 3 years of supervised release.
                         Facilitator, Direct       Indicted on wire fraud and conspiracy
Hanh “Jennifer” Seko                                                                            October 22, 2015
                         Marketer/Mailer           to commit wire fraud charges.




                                 Semiannual Report to the Congress • October 1, 2015–March 31, 2016            105
   DEFENDANT                    ROLE                 MOST RECENT ACTION                          DATE
Loan Modification Scheme
The co-conspirators allegedly engaged in a mortgage loan modification fraud; using various company names, they
claimed to negotiate with lenders to lower mortgage payments on behalf of victims. Co-conspirators allegedly
made numerous false statements to induce payment of advance fees. Once the fees were paid, however, victims
have stated they were unable to contact anyone within the various business entities.
                                                 Pled guilty to conspiracy to commit
Aria Maleki              Scheme Leader                                                       March 22, 2016
                                                 mail and wire fraud.
                                                 Pled guilty to conspiracy to commit
Serj Geutssoyan          Closer                                                             February 25, 2016
                                                 mail and wire fraud.
                                                 Pled guilty to conspiracy to commit
Mehdi Moarefian          Closer                                                             February 17, 2016
                                                 mail and wire fraud.
                         Closer, Set Up Website Pled guilty to conspiracy to commit
Daniel Shiau                                                                                February 17, 2016
                         and Email Accounts      mail and wire fraud.
                                                 Indicted on wire fraud, mail fraud,
                                                 conspiracy to commit wire and
Cuong King               Closer                                                             January 21, 2016
                                                 mail fraud, and telemarketing fraud
                                                 charges.
                                                 Indicted on wire fraud, mail fraud,
                         Processing Team         conspiracy to commit wire and
Michelle Lefaoseu                                                                           January 21, 2016
                         Leader                  mail fraud, and telemarketing fraud
                                                 charges.
                                                 Indicted on wire fraud, mail fraud,
                                                 conspiracy to commit wire and
Kowit Yuktanon           Closer                                                             January 21, 2016
                                                 mail fraud, and telemarketing fraud
                                                 charges.

Loan Modification Scheme
Defendants allegedly operated a loan modification scheme and allegedly made a number of false statements to
clients in an effort to induce them to pay upfront fees, with little or no services rendered.
                                                   Sentenced to 24 months of probation,
                           Office Manager
                                                   100 hours of community service, and
Stacy Tuers                of Telemarketing                                                   March 10, 2016
                                                   ordered to pay a special assessment
                           Company
                                                   of $25.
                                                   Sentenced to 9 months in prison,
                                                   3 years of supervised release, and
Michael Nazarinia          Supervisor and Trainer                                             February 8, 2016
                                                   ordered to pay a special assessment
                                                   of $100.
                                                   Charged with mail fraud and
Charlie Rose               Trained Telemarketers                                                July 8, 2015
                                                   subscribing to a false tax return.
Residential Home Loan Modification Scam Targets Hispanic Homeowners in
Hyattsville, Maryland
Co-conspirators allegedly promoted a fraudulent loan modification scheme targeting Hispanic homeowners with
limited English language who were unfamiliar with mortgage lending practices.
Pedrina Rodriguez        Co-Conspirator/         Charged with conspiracy to commit
                                                                                           February 17, 2016
Bonilla                  Recruiter               mail and wire fraud.
                         Co-Conspirator/         Charged with conspiracy to commit
Ana Gomez                                                                                  February 17, 2016
                         Scheme Organizer        mail and wire fraud.



106    Federal Housing Finance Agency Office of Inspector General
   DEFENDANT                    ROLE                 MOST RECENT ACTION                          DATE
                        Co-conspirator/         Charged with conspiracy to commit
Rene de Leon                                                                               February 17, 2016
                        Scheme Organizer        mail and wire fraud.

Sentencings in Loan Modification Scheme
Defendants allegedly conspired to operate a loan modification scheme. Co-conspirators allegedly made false
promises and guarantees to financially distressed homeowners regarding their company’s ability to negotiate
loan modifications from the homeowners’ mortgage lenders, as well as false guarantees of specific interest rates
and mortgage payments.
                                                  Ordered to pay $6,420,052 in
Crystal Buck             Sales Employee           restitution, joint and several. Previously  February 3, 2016
                                                  sentenced to 60 months in prison.
                                                  Ordered to pay $3,501,381 in
Albert DiRoberto         Sales Employee           restitution, joint and several. Previously  February 3, 2016
                                                  sentenced to 60 months in prison.
                                                  Sentenced to 20 years in prison,
                                                  5 years of supervised release,             February 3, 2016—
Christopher George       Co-Owner of Company
                                                  and ordered to pay $6,656,099 in           amended restitution
                                                  restitution, joint and several.
                         Handled Customer
                                                  Ordered to pay $6,764,743 in
Yadira Padilla           Complaints and                                                       February 3, 2016
                                                  restitution, joint and several.
                         Refund Requests
                                                  Ordered to pay $1,142,603 in
Iris Pelayo              Appointment Setter                                                   February 3, 2016
                                                  restitution, joint and several.
                                                  Ordered to pay $64,869 in restitution,
                         Directed Distressed
                                                  joint and several. Previously sentenced
                         Homeowners to Sign
                                                  to 3 months in prison, 12 months
Hamid Shalviri           a Fractional Interest in                                             February 3, 2016
                                                  of home confinement, 36 months of
                         Their Properties Over
                                                  supervised release, and 200 hours of
                         to Him
                                                  community service.
                         Received Customer        Ordered to pay $6,420,052 in
                         Complaints and           restitution, joint and several. Previously
Catalina Deleon                                                                               February 3, 2016
                         Managed Processing       sentenced to 30 months in prison, and
                         Department               36 months of supervised released.
                                                  Ordered to pay $6,764,743 in
                                                  restitution, joint and several. Previously
Andrea Ramirez           Scheme Leader                                                        February 3, 2016
                                                  sentenced to 18 years in prison, and
                                                  36 months of supervised release,
                                                  Ordered to pay $6,420,052 in
                                                  restitution, joint and several. Previously
Michael Parker           Sales Employee                                                       February 3, 2016
                                                  sentenced to 72 months in prison, and
                                                  3 years of supervised release.
                                                  Ordered to pay $6,223,723 in
                                                  restitution, joint and several. Previously
Michael Bates            Sales Employee                                                       February 3, 2016
                                                  sentenced to 366 days in prison, and
                                                  3 years of supervised release.
                                                  Ordered to pay $2,094,330 in
                         Supervised Processing restitution, joint and several. Previously
Mindy Holt                                                                                    February 3, 2016
                         Department               sentenced to 18 months in prison, and
                                                  24 months of supervised release.



                                 Semiannual Report to the Congress • October 1, 2015–March 31, 2016        107
   DEFENDANT                    ROLE                 MOST RECENT ACTION                          DATE
Ruby Encina                                     Indicted for filing a false tax return.   September 9, 2015

Quit Claim Bankruptcy Scheme
A complaint alleges a company was quit claiming properties belonging to several individuals who were undergoing
potential foreclosure, and that they filed bogus bankruptcy petitions in the names of the property owners to tie
up the properties while they rented them out. The original owners never gave permission to the company to file
bankruptcies on their behalf.
                                                   Sentenced to 36 months of
                                                   incarceration, 3 years of supervised
                         Recruiter—Owner of        release, 300 hours of community
David Griffin                                                                                December 14, 2015
                         Bay 2 Bay                 service, and ordered to pay a $200
                                                   assessment fee, $5,000 fine, and
                                                   $25,125 in restitution.

Sentencing and Plea in Short Sale Scheme
Defendants conspired to cause lenders to release liens on encumbered properties via fraudulently arranged
short sale transactions. To complete the transactions, they submitted false loan applications and documents and
recruited straw buyers. The losses to financial institutions/lenders total approximately $2 million. Fannie Mae
purchased or secured over 100 loans from the mortgage lenders.
                                                   Sentenced to time served (1 day),
                                                   36 months of supervised release,
                         Co-Owner of NJ            8 months of location monitoring,
Yazmin Soto-Cruz                                                                              December 8, 2015
                         Property Management 200 hours of community service,
                                                   and ordered to pay a $100 special
                                                   assessment.
                         Recruiter of Straw        Pled guilty to conspiracy to commit
Miguel LaRosa                                                                                 December 2, 2015
                         Buyers                    wire fraud.
                                                   Sentenced to 36 months in prison,
                                                   36 months of supervised release,
Delio Coutinho           Loan Officer                                                          August 11, 2015
                                                   and ordered to pay $1,312,334 in
                                                   restitution, joint and several.
                                                   Sentenced to 24 months in prison,
                                                   36 months of supervised release,
Kenneth Sweetman         Unlicensed Title Agent                                                   July 27, 2015
                                                   and ordered to pay $2,223,131 in
                                                   restitution, joint and several.
                                                   Sentenced to 27 months in prison,
                                                   36 months of supervised release,
Carmine Fusco            Unlicensed Title Agent forfeiture of $370,334, and ordered               July 14, 2015
                                                   to pay $2,233,131 in restitution, joint
                                                   and several.
                                                   Sentenced to 24 months of
                                                   supervised release, 4 months of
                         Former Real Estate
Christopher Ju                                     home confinement, and ordered to               June 8, 2015
                         Agent
                                                   pay $256,511 in restitution, joint and
                                                   several.
                                                   Sentenced to 12 months in prison,
                                                   36 months of supervised release,
Amedeo Gaglioti          Closing Attorney          forfeiture of $1 million, and ordered          June 4, 2015
                                                   to pay $2,001,245 in restitution, joint
                                                   and several.

108    Federal Housing Finance Agency Office of Inspector General
   DEFENDANT                    ROLE                  MOST RECENT ACTION                          DATE
                                                 Pled guilty to conspiracy to commit
Joseph DiValli          Loan Officer                                                          May 28, 2015
                                                 wire fraud, wire fraud, and tax evasion.
                                                 Pled guilty to a one-count information
                                                 with conspiracy to commit wire fraud
Paul Chemidlin          Unlicensed Appraiser     and one count of distribution and            July 22, 2014
                                                 possession with intent to distribute
                                                 Methylone.

Loan Modification Scheme
Jalan operated a scheme to defraud distressed homeowners by representing that she was an attorney offering
loan modification services. Jalan failed to disclose that the Consumer Financial Protection Bureau had obtained
a preliminary injunction that prohibited her from offering loan modification services.
                                                   Sentenced to 70 months in prison,
                                                   3 years of supervised release, and
Najia Jalan               Scheme Leader                                                       October 5, 2015
                                                   ordered to pay $236,785 in restitution
                                                   and a special assessment of $300.




                                 Semiannual Report to the Congress • October 1, 2015–March 31, 2016         109
Appendix J:                                                 The wave of foreclosures following the housing crisis
                                                            left the Enterprises with a large inventory of REO
OI Publicly Reportable                                      properties. This large REO inventory has sparked a
Investigative Outcomes                                      number of different schemes to either defraud the
                                                            Enterprises, who use contractors to secure, maintain
Involving Property                                          and repair, price, and ultimately sell their properties,
Management and                                              or defraud individuals seeking to purchase REO
                                                            properties from the Enterprises.
REO Schemes




   DEFENDANT                     ROLE                   MOST RECENT ACTION                           DATE

Flipping REO Scheme in Memphis, Tennessee
This scheme involved investor flipping of foreclosure properties by offering financial incentives to the borrowers
that were not disclosed to the lenders. Allegations also involve loan officers facilitating the sales by falsifying
loan applications.
                                                  Pled guilty to conspiracy to commit
Nicholas Maxwell         Recruiter                                                               February 24, 2016
                                                  mail, wire, and bank fraud.
                                                  Sentenced to time served, 12 months
                                                  in a halfway house, 36 months of
                         Mortgage Company
Charlie Paul                                      supervised release, and ordered to pay          January 7, 2016
                         President
                                                  $463,372 in restitution and forfeiture
                                                  of $455,252.
                                                  Sentenced to 15 months in prison,
                         Mortgage Broker/Loan 24 months of supervised release, and
Cedric Scott                                                                                     October 16, 2015
                         Officer                  ordered to pay $104,237 in restitution
                                                  and forfeiture of $301,794.

Owner of RE/MAX Office in Illinois Found Guilty
Simons stole escrow money provided by potential real estate buyers. The earnest money of at least 12 clients,
valued at over $100,000, was identified as having been stolen by Simons. RE/MAX County Line was an approved
Fannie Mae REO broker.
                                                Sentenced to 120 days in jail,
                       Owner of RE/MAX
Harry Simons                                    48 months of probation, and ordered       February 9, 2016
                       County Line
                                                to pay $140,300 in restitution.




110    Federal Housing Finance Agency Office of Inspector General
   DEFENDANT                    ROLE                 MOST RECENT ACTION                         DATE
False REO Scheme
In 2013, Moore filed documents with the Cook County Recorder’s Office obscuring title ownership of a property,
which gave the appearance he had claim to ownership or possession of the property when in fact he did not.
Moore also proceeded to collect rent from tenants. The scheme obstructed sale of the property by Fannie Mae,
the true owner of the property.
                                                Sentenced to 66 months in prison,
Anatoly Moore            Owner/Landlord         24 months of supervised release, and      November 19, 2015
                                                ordered to pay a fine of $689.




                                Semiannual Report to the Congress • October 1, 2015–March 31, 2016        111
Appendix K:                                                 Adverse possession schemes use illegal adverse
                                                            possession (also known as “home squatting”) or
OI Publicly Reportable                                      fraudulent documentation to control distressed
Investigative Outcomes                                      homes, foreclosed homes, and REO properties.

Involving Adverse
Possession Schemes




   DEFENDANT                     ROLE                  MOST RECENT ACTION                            DATE

Sovereign Citizen Group Charged in REO Scheme
Four individuals were allegedly commandeering vacant or recently foreclosed homes owned by Fannie Mae or
other lenders. Those charged were part of a sovereign citizens group known as “Moors”; the group does not
believe that they must comply with state or federal law. The individuals allegedly moved into the properties or
rented them to family members. In some cases, the renters were unaware of the scheme.
                                                  Pled guilty to three counts of
                                                  burglary. Was sentenced to prison for
Arshad Thomas             Sovereign Citizen       45 months, 24 months of supervised            March 15, 2016
                                                  release, and ordered to pay $469 in
                                                  fees.
                                                  Charged with theft, burglary, and
David Farr                Sovereign Citizen                                                     June 30, 2015
                                                  financial institution fraud.
                                                  Charged with theft, burglary, and
Torrez Moore              Sovereign Citizen                                                     June 30, 2015
                                                  financial institution fraud.
                                                  Charged with theft, burglary, and
Raymond Trimble           Sovereign Citizen                                                     June 30, 2015
                                                  financial institution fraud.

Subject and Entity Charged in Debt Management and Loan Modification Scam
Longordo and his company, Modify Loan Experts, LLC, allegedly engaged in fraud by collecting upfront payments
for loan modifications never received by homeowners. Modify Loan Experts, LLC allegedly promised homeowners
an attorney would work directly with their financial institutions to negotiate on their behalf when in fact no such
negotiations occurred.
                                                    Charged with false pretenses, larceny
Pasquale Longordo        Business Owner             by conversion, and violating the Debt         March 9, 2016
                                                    Management Act.
                                                    Charged with false pretenses, larceny
Modify Loan Experts,
                         Business Entity            by conversion, and violating the Debt         March 9, 2016
LLC
                                                    Management Act.



112    Federal Housing Finance Agency Office of Inspector General
   DEFENDANT                     ROLE                  MOST RECENT ACTION                           DATE
Foreclosure Rescue and Bankruptcy Fraud Scheme
From early 2011 to early 2014, defendants collected more than $2 million in proceeds from their foreclosure
delay/eviction delay scheme involving hundreds of fraudulent bankruptcies and deeds of trust. At least 11 of the
properties were owned by Freddie Mac, resulting in a loss of at least $800,000.
                                                 Pled guilty to an advance fee felony
Eugene Fulmer            Salesman                                                          February 24, 2016
                                                 charge.
                                                 Sentenced to 120 days in prison and
Shara Surabi             Salesman                                                          February 11, 2016
                                                 5 years of probation.
                                                 Sentenced to 120 days in prison and
Panik Karikorian         Salesman                                                          February 11, 2016
                                                 5 years of probation.
                         Beneficiary of False    Sentenced to 120 days in prison and
Juan Velasquez                                                                             February 11, 2016
                         Deeds of Trust          5 years of probation.

Deed Theft Scheme
Subjects operated a scheme to steal Fannie Mae and Freddie Mac properties by filing forged grant deeds and
then selling the stolen properties to unwitting investors. At least 10 of the properties stolen were owned by the
Enterprises, valued at over $2.5 million.
                                                   Pled guilty to conspiracy to commit
                                                   mail and wire fraud, mail fraud,
Mazen Alzoubi             Scheme Leader            aggravated identity theft, money              January 5, 2016
                                                   laundering conspiracy, and criminal
                                                   forfeiture.
                          Allowed His Company
Mohamad Daoud             to be Used to Obscure Pled guilty to money laundering.                   July 6, 2015
                          Chain of Title
                          Interacted with Escrow
                          Companies During
Daniel Deaibes                                     Pled guilty to mail fraud.                    March 18, 2015
                          Sales of Stolen
                          Properties
Adverse Possession Involving Fraudulent Ownership of Enterprise Properties,
Pennsylvania
Subjects allegedly operated a scheme where properties were stolen, including properties owned by the
Enterprises, by creating fraudulent deeds purporting to convey ownership of the properties. The subjects then
allegedly occupied several of the properties or attempted to rent or sell the properties. Reported losses by the
Enterprises totaled approximately $240,000.
                                                   Charged with conspiracy to commit
                                                   bank fraud, illegal conversion of
                                                   government property, aiding and
Steven Hameed             Scheme Leader                                                       December 1, 2015
                                                   abetting, corrupt interference with
                                                   Internal Revenue laws, and fictitious
                                                   obligations violations.
                                                   Charged with conspiracy to commit
                                                   bank fraud, illegal conversion of
                                                   government property, aiding and
Darnel Young              Scheme Leader                                                       December 1, 2015
                                                   abetting, corrupt interference with
                                                   Internal Revenue laws, and fictitious
                                                   obligations violations.




                                  Semiannual Report to the Congress • October 1, 2015–March 31, 2016          113
   DEFENDANT                    ROLE                  MOST RECENT ACTION                          DATE
                                                 Charged with conspiracy to commit
                                                 bank fraud, illegal conversion of
                                                 government property, aiding and
Damond Palmer           Scheme Participant                                                  December 1, 2015
                                                 abetting, corrupt interference with
                                                 Internal Revenue laws, and fictitious
                                                 obligations violations.

Florida Sovereign Citizens Involved in Illegal Occupancy of Fannie Mae REO
Paul and Baptiste (a married couple/sovereign citizens) were illegally occupying a Fannie Mae-owned single-family
residence. Paul and Baptiste conspired to file a false deed on the property with the Broward County Recorder’s
Office reflecting their ownership. Fannie Mae was notified and verified that the aforementioned single-family
property was under Fannie Mae ownership as a REO property.
                           Sovereign Citizen/      Sentenced to 2 years of house arrest
Wonsik Paul                                                                                  November 24, 2015
                           Illegal Occupant        and 8 years of probation.
                           Sovereign Citizen/
Marlene Jean Baptiste                              Sentenced to 5 years in prison.           November 24, 2015
                           Illegal Occupant




114    Federal Housing Finance Agency Office of Inspector General
Appendix L:                                              In this type of fraudulent conspiracy, traders
                                                         fraudulently manipulate the buying and selling prices
OI Publicly Reportable                                   of RMBS bonds, causing customers to pay more
Investigative Outcomes                                   to purchase the RMBS securities and to receive less
                                                         when they sell RMBS securities.
Involving RMBS
Schemes




   DEFENDANT                   ROLE                 MOST RECENT ACTION                          DATE

Three Former Bond Traders Charged
Three former bond traders were indicted in a 10-count indictment alleging they committed fraud in connection
with sales of RMBS bonds. The indictment alleges that the three former supervisory traders, who sat on the
RMBS desk at Nomura in New York, engaged in a conspiracy to defraud customers of Nomura.
                        Managing Director of
Ross Shapiro                                     Indicted via superseding indictment.       February 4, 2016
                        Nomura
                        Executive Director of
Michael Gramins         the RMBS Desk at         Indicted via superseding indictment.       February 4, 2016
                        Nomura
                        Senior Vice President
Tyler Peter             of the RMBS Desk at      Indicted via superseding indictment.       February 4, 2016
                        Nomura




                                Semiannual Report to the Congress • October 1, 2015–March 31, 2016        115
Appendix M: Figure Sources
Figure 2.   Federal Housing Finance Agency Office of Inspector General, “Executive Summary,” $1.1 Billion Increase in Expenses
            for Fannie Mae and Freddie Mac from 2012 through 2015: Where the Money Went, WPR-2016-001, at 3 (March 9,
            2016). Accessed: April 26, 2016, at www.fhfaoig.gov/Content/Files/v2%20WPR-2016-001.pdf.
Figure 3.   Federal Housing Finance Agency Office of Inspector General, “Fannie Mae,” $1.1 Billion Increase in Expenses for
            Fannie Mae and Freddie Mac from 2012 through 2015: Where the Money Went, WPR-2016-001, at 13 (March 9,
            2016). Accessed: April 26, 2016, at www.fhfaoig.gov/Content/Files/v2%20WPR-2016-001.pdf.
Figure 4.   Federal Housing Finance Agency Office of Inspector General, “Freddie Mac,” $1.1 Billion Increase in Expenses for
            Fannie Mae and Freddie Mac from 2012 through 2015: Where the Money Went, WPR-2016-001, at 17 (March 9,
            2016). Accessed: April 26, 2016, at www.fhfaoig.gov/Content/Files/v2%20WPR-2016-001.pdf.




116     Federal Housing Finance Agency Office of Inspector General
Appendix N: Endnotes                                              FHFA-Announces-Suspension-of-Capital-
                                                                  Classifications-During-Conservatorship-and-
                                                                  Discloses-Minimum-and-RiskBased-Cap.aspx.
1	   1 2 U.S.C. § 4617(b)(2)(A), (B), (D) (2011).
                                                                  The Safety and Soundness Act does not expressly
      Accessed: April 25, 2016, at www.gpo.gov/fdsys/
                                                                  permit the FHFA Director to suspend this
      pkg/USCODE-2011-title12/pdf/USCODE-
                                                                  requirement, but FHFA asserts that it suspended
      2011-title12-chap46-subchapII-sec4617.pdf.
                                                                  the requirement using its incidental powers as
                                                                  conservator or receiver. See 12 C.F.R. § 1237.3(c)
2	   Department of the Treasury, Statement by Secretary          (2013). Accessed: April 25, 2016, at www.gpo.
      Henry M. Paulson, Jr. on Treasury and Federal               gov/fdsys/pkg/CFR-2013-title12-vol9/pdf/CFR-
      Housing Finance Agency Action to Protect Financial          2013-title12-vol9-sec1237-3.pdf. FHFA currently
      Markets and Taxpayers (September 7, 2008).                  does not publish the data necessary for third
      Accessed: April 26, 2016, at www.treasury.gov/              parties to determine whether the Enterprises meet
      press-center/press-releases/Pages/hp1129.aspx.              the definition of “critically undercapitalized.”

3	   See Freddie Mac Update July 2015 and Fannie            4	    ederal Housing Finance Agency, Division
                                                                  F
      Mae and Freddie Mac monthly volume                          of Housing Mission and Goals, Quarterly
      summaries for market share information. For                 Performance Report of the Housing GSEs: First
      a discussion of the Enterprises’ capital reserves           Quarter 2015, at 14-17 (June 29, 2015).
      and under the PSPAs, see OIG white paper                    Accessed: April 25, 2016, at www.fhfa.
      FHFA’s Conservatorships of Fannie Mae and                   gov/AboutUs/Reports/ReportDocuments/
      Freddie Mac: A Long and Complicated Journey,                PerformanceReportofHousingGSEs-1Q2015.pdf.
      WPR-2015-002 (March 25, 2015). Accessed:
      April 25, 2016, at www.fhfaoig.gov/Content/
                                                             5	    or a detailed discussion of the uncertainty of
                                                                  F
      Files/WPR-2015-002_0.pdf. By operation of
                                                                  the Enterprises’ future profitability, see Federal
      the PSPAs, the Enterprises’ capital cushion will
                                                                  Housing Finance Agency Office of Inspector
      be eliminated over time. Given their paucity of
                                                                  General, The Continued Profitability of Fannie Mae
      capital, it is believed that the Enterprises may
                                                                  and Freddie Mac Is Not Assured, WPR-2015-001
      meet the definition of “critically undercapitalized”
                                                                  (March 18, 2015). Accessed: April 25, 2016, at
      as set forth in the Federal Housing Enterprises
                                                                  www.fhfaoig.gov/Reports/AuditsAndEvaluations.
      Financial Safety and Soundness Act of 1992,
      as amended (the Safety and Soundness Act).
                                                             6	   S ee Senate Committee on Banking, Housing,
      However, shortly after FHFA placed the
                                                                   and Urban Affairs, Testimony of Federal Housing
      Enterprises in conservatorship, it suspended
                                                                   Finance Agency Inspector General Steve A.
      the statutory requirement that the Agency
                                                                   Linick (December 13, 2011). Accessed: April
      issue quarterly capital classifications for the
                                                                   25, 2016, at www.fhfaoig.gov/Content/Files/
      duration of the conservatorships. See FHFA
                                                                   Senate-12-13-2011.pdf. (“FHFA was not
      press release FHFA Announces Suspension of
                                                                   proactive in oversight and enforcement, and
      Capital Classifications During Conservatorship
                                                                   accordingly, resource allocations may have
      (October 9, 2008). Accessed: April 25, 2016,
                                                                   affected its ability to oversee the GSEs and
      at www.fhfa.gov/Media/PublicAffairs/Pages/
                                                                   enforce its directives. Both trends have emerged


                                    Semiannual Report to the Congress • October 1, 2015–March 31, 2016          117
      in a number of our reports.”); see also Senate        11	   1 2 U.S.C. § 4565(a)(1) (2014). Accessed: April
      Committee on Banking, Housing, and Urban                     25, 2016, at www.gpo.gov/fdsys/pkg/USCODE-
      Affairs, Testimony of Steve A. Linick, Inspector             2014-title12/pdf/USCODE-2014-title12-
      General, Federal Housing Finance Agency (April 18,           chap46-subchapI-partB-subpart2-sec4565.pdf.
      2013). Accessed: April 25, 2016, at www.fhfaoig.
      gov/Content/Files/Linick testimony Senate             12	    nterprise Duty To Serve Underserved Markets,
                                                                  E
      Banking.pdf. (“Even when FHFA has identified                75 Fed. Reg. 32,099 (proposed June 7, 2010) (to
      risks and taken steps to manage those risks, the            be codified at 12 C.F.R. pt. 1282). Accessed: April
      Agency has not consistently enforced its directives         25, 2016, at www.gpo.gov/fdsys/pkg/FR-2010-
      to ensure that identified risks are adequately              06-07/pdf/2010-13411.pdf.
      addressed.”)
                                                            13	    nterprise Duty To Serve Underserved Markets,
                                                                  E
7	    Defendant’s Response in Opposition to                      80 Fed. Reg. 79,181, at § 1282.32(a) (proposed
       Plaintiffs’ Motion to Compel Production of                 December 18, 2015) (to be codified at 12 C.F.R.
       Certain Documents Withheld for Privilege, at               pt. 1282). Accessed: April 25, 2016, at www.gpo.
       17, Fairholme Funds, Inc. v. United States, No.            gov/fdsys/pkg/FR-2015-12-18/pdf/2015-31811.
       13-465C (Fed. Cl. 2016).                                   pdf.

8	    Federal Home Loan Banks Office of Finance,           14	   Id., at § 1282.36(a).
       Combined Financial Report for the Year Ended
       December 31, 2014 (March 27, 2015). Accessed:        15	   Id., at § 1282.36(c)(1).
       April 25, 2016, at www.fhlb-of.com/ofweb_
       userWeb/resources/2014Q4Document-web.pdf.            16	    e three underserved markets are manufactured
                                                                  Th
                                                                  housing, affordable housing preservation, and
9	    Suspended Counterparty Program, 80 Fed. Reg.               rural housing. Id., at §§ 1282.33-35, per 12
       79,675 (final rule December 23, 2015) (to be               U.S.C. § 4565(a)(1).
       codified at 12 C.F.R. pt. 1227). Accessed: April
       26, 2016, at www.gpo.gov/fdsys/pkg/FR-2015-          17	   Id., at § 1282.36(c)(2).
       12-23/pdf/2015-32183.pdf.
                                                            18	   Id., at § 1282.36(c)(3).
10	   Enterprise Duty To Serve Underserved Markets,
       80 Fed. Reg. 79,181 (proposed December 18,
       2015) (to be codified at 12 C.F.R. pt. 1282).
       Accessed: April 25, 2016, at www.gpo.gov/fdsys/
       pkg/FR-2015-12-18/pdf/2015-31811.pdf.




118       Federal Housing Finance Agency Office of Inspector General
19	   In its ruling on a challenge to an agency decision
       brought pursuant to the Administrative Procedure
       Act, 5 U.S.C. § 706, the U.S. District Court for
       the District of Columbia stated:

      In reviewing an administrative action, a district
      court must determine whether the administrative
      action was arbitrary and capricious, contrary to
      law, or unsupported by substantial evidence. §
      706. To pass arbitrary and capricious review, the
      administrative body “must examine the relevant
      data and articulate a satisfactory explanation
      for its action including a ‘rational connection
      between the facts found and the choice made.’”
      Motor Vehicle Mfrs. Ass’n of United States, Inc.
      v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29,
      43 (1983) (quoting Burlington Truck Lines v.
      United States, 371 U.S. 156, 168 (1962)). If
      the administrative action is reasonable, the court
      must accept it. Roberts v. Harvey, 441 F. Supp.
      2d 111, 118 (D.D.C. 2006).

      Jackson v. Mabus, 56 F. Supp. 3d 1, 12 (D.D.C.
      2014).




                                    Semiannual Report to the Congress • October 1, 2015–March 31, 2016   119
Federal Housing Finance Agency
Office of Inspector General

Se m iann ual R e p ort
to t h e Cong r e ss
October 1, 2015, through March 31, 2016




Federal Housing Finance Agency
Office of Inspector General
400 Seventh Street, SW
Washington, DC 20024
Main (202) 730-0880
Hotline (800) 793-7724
www.fhfaoig.gov