oversight

Fifteenth Semiannual Report to the Congress

Published by the Federal Housing Finance Agency, Office of Inspector General on 2018-03-31.

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

F EDERAL H OUSING F INANCE A GENCY
   O FFICE OF I NSPECTOR G ENERAL
    S EMIANNUAL R EPORT        TO THE    C ONGRESS
         October 1, 2017, through March 31, 2018
F ederal H ousing F inance A gency 
   O ffice of I nspector G eneral




  S emiannual R eport        to the     C ongress
       October 1, 2017, through March 31, 2018
    Table of Contents
    Our Vision .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 1
    Our Mission  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 1
    Core Values .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  2
    Snapshot of OIG Accomplishments .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  3
    A Message from the Inspector General .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  4
    Executive Summary  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  6
    	Overview .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 6
    	   This Report .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 7
    OIG’s Oversight  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  8
    	     OIG’s Risk-Based Oversight Strategy .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 8
    	     OIG Impact Through Risk Analyses, Compliance Reviews, and Special Projects  .  .  .  .  . 10
              Office of Risk Analysis  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 10
              Office of Compliance and Special Projects .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 12
    OIG’s Oversight of FHFA’s Programs and Operations Through Audit, Evaluation, and
    Compliance Activities During This Reporting Period .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 14
    	     Office of Audits  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 14
    	     Office of Evaluations .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 14
    	     Office of Compliance and Special Projects  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 14
    	     Oversight Activities This Period by Risk Area .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 14
    	     Conservatorship Operations  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 15
              Delegated Matter: Review and Resolution of Conflicts of Interest Involving Fannie
              Mae’s Senior Executive Officers Highlight the Need for Closer Attention to Corporate
              Governance Issues by FHFA .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 15
                 Delegated Matter: FHFA’s Oversight of the Enterprises’ Compliance with the Required
                 Risk Mitigants of Automated Underwriting, Mortgage Insurance, and Homeownership
                 Education for its Purchases of Mortgages with a 97% LTV  .  .  .  .  .  .  .  .  .  .  .  .  .  . 16
                  Delegated Matter: FHFA’s Review Process for Transfer of Enterprise Mortgage
                  Servicing Rights .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 18
                  Delegated Matter: Update on FHFA’s Oversight of the Enterprises’ Single-Family
                  Mortgage Underwriting Standards and Variances  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 19
          Supervision of the Regulated Entities  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 20
    	        Supervision of the Enterprises: FHFA Examiners’ Use of the Enterprises’ Internal Audit
    	        Work When Assessing Remediation of Matters Requiring Attention . .  .  .  .  .  .  .  .  .  . 20
    	     Information Technology Security  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 22



Federal Housing Finance Agency Office of Inspector General
            FHFA’s Oversight of the Enterprises’ Closure of Cybersecurity-Related Matters
            Requiring Attention .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 22
            Statutory Audits: FHFA’s and OIG’s Information Security Programs .  .  .  .  .  .  .  .  . 23
      Counterparties and Third Parties .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 23
            FHFA Completed Planned Procedures for Representation and Warranty Framework
            Targeted Examinations at the Enterprises, but Did Not Sufficiently Document Changes
            to Planned Testing and Examination Work  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 23
            FHFA Should Address the Potential Disparity Between the Statutory Requirement for
            Fraud Reporting and its Implementing Regulation and Advisory Bulletin .  .  .  .  .  .  . 25
      Reports and Recommendations .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 26
Oversight Through OIG’s Investigations  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 28
      Investigations: Civil Cases .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 30
      Investigations: Criminal Cases .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 32
            Condo Conversion and Builder Bailout Schemes .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 32
            Loan Origination Schemes .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 34
            Loan Modification and Property Disposition Schemes .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 36
            Short Sale Schemes .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 37
            Adverse Possession and Distressed Property Schemes .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 38
            Fraud Affecting the Enterprises, the FHLBanks, or FHLBank Member Institutions .  . 39
      Outreach .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 44
      Investigations: Administrative Actions  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 44
      Suspended Counterparty Referrals  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 44
OIG’s Regulatory Activities and Outreach .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 46
      Regulatory Activities  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 46
      Public and Private Partnerships, Outreach, and Communications .  .  .  .  .  .  .  .  .  .  .  .  .  . 46
            Congress . .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 46
            Hotline . .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 46
            Close Coordination with Other Oversight Organizations .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 46
            Private-Public Partnerships .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 47
Appendix A: Information Required by the Inspector General Act .  .  .  .  .  .  .  .  .  .  .  .  .  . 48
      Reports Identifying Questioned Costs, Unsupported Costs, and Funds to Be Put to Better
      Use by Management Issued During the Semiannual Period .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 51
      Audit and Evaluation Reports with No Management Decision .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 51




                                                         Semiannual Report to the Congress • October 1, 2017­–March 31, 2018
           No Agency Response Within 60 Days .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 51
           Significant Revised Management Decisions .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 51
           Significant Management Decisions with Which the Inspector General Disagrees .  .  .  .  . 51
           Federal Financial Management Improvement Act of 1996  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 51
           Peer Reviews . .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 52
           Investigations into Allegations of Employee Misconduct and Whistleblower Retaliation .  . 52
           Audits or Evaluations That Were Closed and Not Disclosed  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 53
           Interference with Independence .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 53
    Appendix B: OIG Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
    Appendix C: OI Publicly Reportable Investigative Outcomes Involving Condo Conversion
    and Builder Bailout Schemes  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 95
    Appendix D: OI Publicly Reportable Investigative Outcomes Involving Loan Origination
    Schemes .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 98
    Appendix E: OI Publicly Reportable Investigative Outcomes Involving Short Sale Schemes .  . 100
    Appendix F: OI Publicly Reportable Investigative Outcomes Involving Loan Modification
    and Property Disposition Schemes  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  101
    Appendix G: OI Publicly Reportable Investigative Outcomes Involving Property
    Management and REO Schemes  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  103
    Appendix H: OI Publicly Reportable Investigative Outcomes Involving Adverse Possession
    and Distressed Property Schemes .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  104
    Appendix I: OI Publicly Reportable Investigative Outcomes Involving Multifamily Schemes .  .  .107
    Appendix J: OI Publicly Reportable Investigative Outcomes Involving Fraud Affecting the
    Enterprises, the FHLBanks, or FHLBank Member Institutions .  .  .  .  .  .  .  .  .  .  .  .  .  .  108
    Appendix K: Glossary and Acronyms .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 112
           Glossary of Terms  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 112
           Acronyms and Abbreviations .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 115
    Appendix L: Endnotes .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  117




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 holds accountable
those, whether inside or outside of the federal government, who waste, steal, or abuse 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 to promote accountability, integrity, economy,
and efficiency; advising the Director of the Agency and Congress; informing the public; and
engaging in robust law enforcement efforts to protect the interests of the American taxpayers.




                              Semiannual Report to the Congress • October 1, 2017­–March 31, 2018   1
Core Values
OIG’s core values are integrity, respect, professionalism, and results. Accordingly, we endeavor
to maintain the highest level of integrity, professionalism, accountability, and transparency in
our work. We follow the facts—wherever they lead—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 independent, risk-based, relevant, 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 FHLBanks in its role as supervisor, and its operation of Fannie Mae and Freddie Mac in
its role as conservator).

Because FHFA has been placed in the extraordinary role of supervisor and conservator of the 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 and in
accordance with our statutory obligations 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 OIG's website or calling (800) 793-7724.




2    Federal Housing Finance Agency Office of Inspector General
                 Snapshot of OIG Accomplishments
                   Semiannual Reporting Period
                              October 1, 2017–March 31, 2018




  Reports Issued                                                                                          17
    Includes audits, evaluations, compliance reviews, a
    special project, and white papers
  Recommendations                                                                                         15

  Investigative Activities:

      Indictments / Charges                                                                               47

      Arrests                                                                                             39

      Convictions / Pleas                                                                                 48

      Sentencings                                                                                         36

      Suspension / Debarment Referrals to Other Agencies                                                  47

      Suspended Counterparty Referrals to FHFA                                                            27

  Investigative Monetary Results:

      Criminal Restitution                                                                      $14,096,593

      Criminal Fines / Special Assessments / Forfeitures                                        $17,128,337

      Civil Settlements                                                                     $2,002,000,000

  Investigations Total Monetary Results*                                                    $2,033,224,930




*Includes money ordered as the result of joint investigations with other law enforcement organizations.




                                    Semiannual Report to the Congress • October 1, 2017­–March 31, 2018        3
A Message from the Inspector General
I am pleased to present this Semiannual Report on the
activities of the Federal Housing Finance Agency Office of
Inspector General, which covers the period from October
1, 2017, to March 31, 2018.

We seek to be a catalyst for effective management,
accountability, and positive change in FHFA by promoting
the economy, efficiency, and effectiveness of FHFA
programs and operations. We also seek to be a voice
for, and protect the interests of, those who have funded
Treasury’s investment in the Enterprises—the American
taxpayers. Through robust oversight efforts, we protect
FHFA, the Enterprises in its conservatorship, and the
entities it supervises against fraud, waste, and abuse.

FHFA has unique responsibilities in its dual roles as
conservator and supervisor of the Enterprises and as
supervisor of the FHLBanks. Despite their high leverage,
diminished capital buffer, conservatorship status, and            Laura S. Wertheimer
uncertain future, the Enterprises have grown during               Inspector General of the
conservatorship and, according to FHFA, their combined            Federal Housing Finance Agency
market share of newly issued mortgage-backed securities
is more than 60%. As of year-end 2017, the Enterprises
collectively reported approximately $5.4 trillion in assets. As conservator of the Enterprises,
FHFA exercises control over trillions of dollars in assets and billions of dollars in revenue
and makes business and policy decisions that influence and affect the entire mortgage finance
industry. As of year-end 2017, the FHLBanks collectively reported roughly $1.1 trillion in assets.
Given the size and complexity of the regulated entities and the dual responsibilities of FHFA, we
structure our oversight program to examine FHFA’s exercise of its dual responsibilities. Making
the right choices about what we audit, evaluate, examine for compliance, and investigate in our
oversight efforts is critical.

To best leverage our resources to strengthen OIG’s oversight, our work is risk-based and is
focused on the four management and performance challenges facing FHFA, the Enterprises in its
conservatorship, and the entities it regulates. These challenges are discussed in OIG, Strategic
Plan, Fiscal Years 2018-2022; and OIG, Fiscal Year 2018 Management and Performance
Challenges (October 15, 2017). We have established a rigorous process to develop oversight
projects based on risk. Consistent with our Core Values, once we begin an oversight project, we
follow the facts, wherever they lead, 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 independent, relevant, and timely.

During this semiannual period, we published 17 reports, including audits, evaluations,
compliance reviews, a special project report, and white papers, which are available on the



4    Federal Housing Finance Agency Office of Inspector General
OIG website and on Oversight.Gov, a publicly accessible, searchable website containing the
latest public reports from federal Inspectors General who are members of the Council of the
Inspectors General on Integrity and Efficiency. These 17 reports illustrate the broad scope of our
oversight responsibilities and results.

Where our fact-finding has identified shortcomings, deficiencies, or processes that could be
upgraded, our reports include actionable recommendations to assist FHFA in improving the
effectiveness and efficiency of its programs and operations. For this semiannual period, we
issued 15 recommendations. Appendix B of this report summarizes all of the recommendations
made by OIG during this period, recommendations made in prior periods that remain open (and
unimplemented), and all closed, unimplemented recommendations. During each reporting period,
we update information in Appendix B as new recommendations are issued or are closed, and we
publish the updated information periodically in a Compendium of Open Recommendations on
our website.

During this reporting period, we conducted a number of investigations involving civil and
criminal fraud, which resulted in significant criminal prosecutions and civil fraud enforcement,
including:

    •	 47 indictments/charges;
    •	 48 convictions/pleas;
    •	 36 sentencings;
    •	 More than $31 million in criminal restitutions, fines, special assessments, and forfeitures; 		
    	and
    •	 More than $2 billion in civil settlements.

In many of these investigations, we worked collaboratively with our law enforcement colleagues
in other agencies. A recent example was the joint investigation with the U.S. Department of
Justice into allegations that Barclays Capital, Inc. and several of its affiliates (Barclays) misled
investors about the quality of mortgage-backed securities in the years leading to the financial
crisis. Barclays agreed to pay a civil money penalty of $2 billion in settlement.

Through our written reports and our law enforcement efforts, both civilly and criminally, we hold
institutions and their officials accountable for their actions or inactions. The work described in
this Semiannual Report demonstrates the importance of effective, fair, and objective oversight
conducted by this Office.

The accomplishments described in this Semiannual Report are a credit to the talented and
dedicated professionals that I have the privilege to lead.

Laura S. Wertheimer
Inspector General
April 30, 2018




                               Semiannual Report to the Congress • October 1, 2017­–March 31, 2018   5
Executive Summary
Overview                                              Initially, the conservatorships were intended
                                                      to be a “time out” during a period of extreme
The Federal Housing Finance Agency (FHFA              stress to stabilize the mortgage markets and
or Agency) was created on July 30, 2008,              promote financial stability. Now in their
when the President signed into law the                tenth year, FHFA’s conservatorships of the
Housing and Economic Recovery Act of                  Enterprises are of unprecedented scope,
2008 (HERA). HERA charged FHFA to serve               scale, and complexity. Since September 2008,
as regulator of Fannie Mae and Freddie Mac            FHFA has served in the unique role of both
(the Enterprises) and of the Federal Home             conservator and regulator of the Enterprises
Loan Banks (FHLBanks) (collectively, the              and regulator of the FHLBank System.
regulated entities), and the FHLBanks’ fiscal
agent, the Office of Finance. HERA also               HERA also authorized the establishment
enhanced FHFA’s resolution authority to act           of OIG to oversee the work of FHFA
as conservator or receiver.                           pursuant to the Inspector General Act of
                                                      1978. OIG began operations in October
In September 2008, FHFA exercised its                 2010 when its first Inspector General
authority under HERA to place Fannie Mae              was sworn in. As a result of FHFA’s dual
and Freddie Mac into conservatorship                  responsibilities as regulator of the Enterprises
in an effort to stabilize the residential             and the FHLBanks and as conservator of
mortgage finance market. Concurrently,                the Enterprises since September 2008,
the Department of the Treasury (Treasury)             OIG’s responsibilities are correspondingly
entered into a Senior Preferred Stock                 broader than those of an Office of Inspector
Purchase Agreement (PSPA) with each                   General for other prudential federal financial
Enterprise to ensure that each maintained a           regulators because they include oversight of
positive net worth going forward. Under these         FHFA’s actions as conservator.
PSPAs, U.S. taxpayers, through Treasury,
have invested nearly $191.5 billion in the            Our mission is to promote economy,
Enterprises since 2008. As conservator of             efficiency, and effectiveness and protect
the Enterprises, FHFA succeeded to all                FHFA and the entities it regulates against
rights, titles, powers and privileges of the          fraud, waste, and abuse, contributing to the
Enterprises, and of any stockholder, officer,         liquidity and stability of the nation’s housing
or director of the Enterprises. FHFA is               finance system, and advising the Director of
authorized under HERA to:                             the Agency, Congress, and the public on our
                                                      findings and recommendations. In doing so,
    ●● Operate the Enterprises and                    we further the Agency’s statutory obligation
    ●● Take such action as may be:                    to ensure that the regulated entities operate
       ◦◦ Necessary to put the 			                    in a safe and sound manner and that their
          Enterprises in a sound and                  operations foster liquid, efficient, competitive,
          solvent condition and                       and resilient national housing finance markets.
       ◦◦ Appropriate to carry on the 		              We also engage in robust law enforcement
          Enterprises’ business and preserve          efforts to protect the interests of the regulated
          and conserve the Enterprises’ assets        entities and the American taxpayers.
          and property.1



6    Federal Housing Finance Agency Office of Inspector General
OIG’s operations are funded by annual
assessments that FHFA levies on the                 Terms and phrases in bold are defined in
                                                    Appendix K, Glossary and Acronyms. If you are
Enterprises and the FHLBanks pursuant to 12
                                                    reading an electronic version of this Semiannual
U.S.C. § 4516. For Fiscal Year (FY) 2018,           Report, then simply move your cursor to the
OIG’s operating budget is $49.9 million.            term or phrase and click for the definition.


This Report
This Semiannual Report (SAR) to the
Congress summarizes the work of OIG and
discusses OIG operations for the reporting
period of October 1, 2017, to March 31, 2018.
Among other things, this report:

   ●● Explains OIG’s risk-based oversight
      strategy;
   ●● Discusses the 17 audits, evaluations,
      compliance reviews, special report,
      and white papers published during the
      period;
   ●● Highlights some of the numerous
      OIG investigations that resulted in 47
      indictments/charges, 48 convictions/
      pleas, and 36 sentencings of individuals
      responsible for fraud, waste, or abuse
      in connection with programs and
      operations of FHFA and the Enterprises;
      more than $31 million in criminal
      restitutions, fines, special assessments,
      and forfeitures; and more than $2 billion
      in civil settlements;
   ●● Summarizes OIG’s outreach during the
      reporting period; and
   ●● Reviews the status of OIG’s
      audit, evaluation, and compliance
      recommendations.




                             Semiannual Report to the Congress • October 1, 2017­–March 31, 2018       7
OIG’s Oversight
OIG’s Risk-Based Oversight                            An integral part of OIG’s oversight is to
Strategy                                              identify and assess FHFA’s top management
                                                      and performance challenges and to align
Currently, FHFA serves as supervisor of               our work with these challenges. In October
the Enterprises and the FHLBanks and as               2017, we updated our assessment of FHFA’s
conservator of the Enterprises. FHFA’s                major management and performance
conservatorships of the Enterprises, now              challenges. We noted that these challenges
in their tenth year, are of unprecedented             all carried over from prior years and, if not
scope, scale, and complexity. FHFA serves             addressed, could adversely affect FHFA’s
in a unique role: it is both conservator and          accomplishment of its mission. (See
supervisor of the Enterprises and supervisor          OIG, Fiscal Year 2018 Management and
of the FHLBanks, and these dual roles present         Performance Challenges (October 15, 2017)).
novel challenges. Consequently, OIG must              During this reporting period, OIG continued
structure its oversight program to examine            to focus much of its oversight activities on
FHFA’s exercise of its dual responsibilities,         identifying vulnerabilities in these areas and
which differ significantly from the typical           recommending positive, meaningful actions
federal financial regulator. Beginning in             that the Agency could take to mitigate these
Fall 2014, OIG determined to focus its                risks and remediate identified deficiencies.
resources on programs and operations that             These challenges include:
pose the greatest financial, governance,
and/or reputational risk to the Agency, the                •	 Conservatorship Operations –
Enterprises, and the FHLBanks to best                         Improve Oversight of Matters
leverage its resources to strengthen oversight.               Delegated to the Enterprises and
We established an integrated approach to                      Strengthen Internal Review Processes
identify these programs and operations of                     for Non-Delegated Matters.
greatest risk and published our risk-based
Audit and Evaluation Plan in February 2015,            ince September 2008, FHFA has administered
                                                      S
which has been updated annually.                      two conservatorships of unprecedented scope
                                                      and undetermined duration. When then-
Our current Audit, Evaluation, and                    Secretary of the Treasury Henry Paulson
Compliance Plan, adopted in March                     announced the conservatorships in September
2018, describes FHFA’s and OIG’s roles                2008, he explained that they were meant to
and missions, explains our risk-based                 be a “time out” during which the Enterprises
methodology for developing this plan,                 would be stabilized, enabling the “new
provides insight into particular risks within         Congress and the next Administration [to]
four areas, and generally discusses areas             decide what role government in general,
where we will focus our audit, evaluation,            and these entities in particular, should play
and compliance resources during the 2018              in the housing market.” The current FHFA
calendar year. In addition to our risk-based          Director has echoed that view, recognizing that
work plan, OIG completes work required to             conservatorship “cannot [and] should not be a
fulfill its statutory mandates.                       permanent state” for the Enterprises. However,
                                                      putting the Enterprises into conservatorships




8    Federal Housing Finance Agency Office of Inspector General
has proven to be far easier than taking                   •	 Supervision of the Regulated Entities –
them out, and the “time out” period for the                  Upgrade Supervision of the Enterprises
conservatorships is now in its tenth year.                   and Continue Robust Supervision of
                                                             the FHLBanks.
While in conservatorship, the Enterprises have
required almost $191.5 billion in financial           As discussed earlier, FHFA plays a unique
investment from the Treasury to avert their           role as both conservator and supervisor for the
insolvency and, through March 2018, the               Enterprises and as supervisor for the FHLBank
Enterprises have paid to the Treasury more than       System. FHFA has repeatedly stated that
$278.7 billion in dividends on its investment.        effective supervision of the FHLBanks and the
Despite their high leverage, diminished capital,      Enterprises is critical to ensuring their safety
conservatorship status, and uncertain future,         and soundness.
the Enterprises have grown in size since being
placed into conservatorship in 2008 and,              Within FHFA, the Division of Federal Home
according to FHFA, their combined market              Loan Bank Regulation is responsible for
share of newly issued mortgage-backed                 supervision of the FHLBanks. Section 20 of
securities is more than 60%. As of year-end           the Federal Home Loan Bank Act requires each
2017, the Enterprises collectively reported           FHLBank to be examined at least annually.
approximately $5.4 trillion in assets and more        FHFA’s Division of Enterprise Regulation
than $5.3 trillion in debt.                           (DER) is responsible for supervision of the
                                                      Enterprises. Section 1317 of the Federal
Although market conditions have improved              Housing Enterprises Financial Safety and
and the Enterprises have paid dividends on            Soundness Act of 1992, as amended, requires
Treasury’s investments, the Enterprises’ future       FHFA to conduct annual on site examinations
profitability cannot be assured for these reasons:    of each Enterprise (codified at 12 U.S.C.
the wind down of their retained investment            § 4517). FHFA’s annual examination program
portfolios and reduction in net interest income;      assesses the financial safety and soundness
reduction in the value of the Enterprises’            and overall risk management practices of
deferred tax assets due to recent federal             each Enterprise through ongoing monitoring,
corporate tax reform (considered by FHFA              targeted examinations, and risk assessments.
to be a short-term consequence); the level of
guarantee fees they will be able to charge and            •	 Information Technology Security –
keep; the future performance of their business               Enhance Oversight of Cybersecurity
segments; and the significant uncertainties                  at the Regulated Entities and Ensure
involving key market drivers, such as mortgage               an Effective Information Security
rates, homes prices, and credit standards.                   Program at FHFA.

Under HERA, FHFA’s actions as conservator             Security of information technology (IT) and
are not subject to judicial review or intervention,   IT systems continues to be a preeminent
nor are they subject to procedural safeguards         issue for businesses and individuals alike.
that are ordinarily applicable to regulatory          The regulated entities, like most modern
activities such as rulemaking. As conservator         institutions, rely on numerous, complex
of the Enterprises, FHFA exercises control            IT systems to conduct almost every aspect
over trillions of dollars in assets and billions      of their work. These IT systems manage
of dollars in revenue and makes business and          processes to guarantee and purchase loans,
policy decisions that influence and affect the        supporting more than $5 trillion in Fannie
entire mortgage finance industry.                     Mae and Freddie Mac mortgage assets, and


                                Semiannual Report to the Congress • October 1, 2017­–March 31, 2018   9
store, process, and transmit financial data           existing processes to strengthen its oversight
and personally identifiable information (PII).        and provide FHFA with critical information
Both Enterprises and the FHLBanks have                necessary to improve its programs and
been the subject of cyberattacks, though none         operations. Given the size and complexity
caused significant harm. All entities regulated       of the regulated entities and the unique,
by FHFA acknowledge that the substantial              dual responsibilities of FHFA, making the
precautions put into place to protect their IT        right choices about what we audit, evaluate,
systems might be vulnerable, and penetration          examine for compliance, and investigate in our
of those systems poses a material risk to their       oversight efforts is critical.
business operations. Further, the Enterprises
are increasingly relying on third-party service       Office of Risk Analysis
providers, which requires the sharing of
sensitive information between Enterprise and          To assist in making those choices, we created,
third-party systems.                                  in 2015, the Office of Risk Analysis (ORA)
                                                      to enhance our ability to focus our resources
     •	 Counterparties and Third Parties –            on the areas of greatest risk to FHFA. ORA
        Enhance Oversight of the Enterprises’         is tasked with identifying, analyzing,
        Relationships with Counterparties and         monitoring, and prioritizing emerging and
        Third Parties.                                ongoing risks and with educating stakeholders
                                                      on those issues. Through its work, it has
The Enterprises rely heavily on counterparties        contributed data and information to our
and third parties for a wide array of professional    annual risk-based planning process for audits,
services, including mortgage origination              evaluations, and compliance reviews. It has
and servicing. That reliance exposes the              also made significant contributions to our
Enterprises to counterparty risk—the risk             online knowledge library accessible to OIG
that the counterparty will not meet its               employees.
contractual obligations. FHFA has delegated
to the Enterprises the management of their            During this reporting period, ORA issued
relationships with counterparties, and FHFA           three white papers discussing emerging and
reviews that management largely through               ongoing risks.
its supervisory activities. As participants in
the mortgage market change, counterparties            White Paper: Increasing Enterprise
can affect the risks to be managed by Fannie          Purchases of Adjustable-Rate Mortgages
Mae and Freddie Mac. In recent years,                 and Changes to Sellers’ Guides Creates an
the Enterprises’ businesses have changed              Emerging Risk
dramatically in terms of the types of institutions
originating and selling mortgages to them and         Adjustable-rate mortgages (ARMs) entered
servicing mortgages on their behalf.                  the single-family mortgage market nationwide
                                                      in the early 1980s. The critical feature of
                                                      every ARM is an interest rate that changes
OIG Impact Through Risk                               periodically, at intervals set by the ARM,
Analyses, Compliance Reviews,                         over the lifetime of the loan. During 1999, the
and Special Projects                                  Enterprises purchased ARMs with a principal
                                                      unpaid balance of approximately $19.6 billion,
Since the Fall of 2014, OIG has developed and         roughly 3.6% of their total single-family
implemented new initiatives and enhanced              mortgage purchases that year. By 2005, the



10     Federal Housing Finance Agency Office of Inspector General
share peaked at nearly 20% of the more than          White Paper: Private Mortgage Insurers,
$900 billion in overall Enterprise single-family     Which FHFA Has Reported as the Largest
purchases that year. After 2006, as the mortgage     Counterparty Exposure for the Enterprises,
market first softened and then deteriorated,         Are an Ongoing Risk
ARMs declined in borrower popularity. That
decline was driven by a number of factors,           Pursuant to their congressional charters,
including loss of the interest rate advantage,       the Enterprises may purchase single-family
reduction in housing prices, and tightening of       residential mortgages with loan-to-value
credit standards.                                    (LTV) ratios above 80%, provided that these
                                                     mortgages are supported by an enumerated
In 2007, the ARM share of all single-family          credit enhancement, one of which is mortgage
mortgages purchased by the Enterprises               insurance. Since 1957, private mortgage
declined to about 13% and reached a low              insurers have assumed an ever-increasing role
of 2.3% ($27 billion) of their purchases of          in providing credit enhancements and they
single-family mortgages in 2009. During              now insure the vast majority of loans over 80%
these two years, the Enterprises adopted             LTV purchased by the Enterprises. FHFA has
restrictions on purchases of ARMs but did not        reported that mortgage insurers are the largest
eliminate purchases of ARMs. According to            counterparty risk for the Enterprises.
the Enterprises, ARMs have a higher inherent
credit risk than traditional single-family fixed-    During the financial crisis, some mortgage
rate mortgages, and ARMs with nontraditional         insurers faced severe financial difficulties due
features (such as payment only of interest           to the precipitous drop in housing prices and
with no principal and/or monthly payment             increased defaults that required the insurers
choices that do not cover the full amount of         to pay more claims. Currently, the mortgage
the monthly principal and interest owed) and/        insurance industry consists of six private
or layers of additional risk (such as reduced        mortgage insurers.
loan documentation and low-down payments)
present greater credit risks.                        Our review looked at the ongoing risks
                                                     associated with private mortgage insurers
We assessed whether the volume and                   that insure loan payments on single-family
percentage of Enterprise purchases of ARMs           mortgages with LTVs greater than 80%
during the period January 2014 through April         purchased by the Enterprises. We observed that
2017 increased, whether these ARMs contain           stronger mortgage insurer capital, compliance
nontraditional features and/or layers of risk, and   with private mortgage insurer eligibility
whether the increasing volume of Enterprise          requirements (PMIERs), the ongoing effort to
ARM purchases creates an emerging risk. Our          consider whether PMIERs should be updated,
analysis found that a modest increase in ARM         and the strength of the housing market were
purchases, combined with revisions to the            positive emerging trends. We reported the
sellers’ guides to permit some risk layering,        Enterprises’ recognition that, notwithstanding
creates an emerging risk that merits ongoing         the improvement in the financial condition
monitoring. (See OIG, Fannie Mae and Freddie         of mortgage insurer counterparties approved
Mac Purchases of Adjustable-Rate Mortgages           to write mortgage insurance, some of these
(WPR-2018-001, January 4, 2018)).                    insurers may fail to fully meet their obligations.
                                                     We noted that some of the features of the
                                                     industry, including the monoline business
                                                     requirement and the cyclic housing market,



                               Semiannual Report to the Congress • October 1, 2017­–March 31, 2018      11
and emerging trends, including increasing           Office of Compliance and Special Projects
volume, high concentrations, an inability
by the Enterprises to manage concentration          Recommendations to address deficiencies
risk, mortgage insurers with credit ratings         identified during an audit, evaluation, or
below the Enterprises’ historic requirements        administrative inquiry require meaningful
and investment grade, and remaining unpaid          follow-up and oversight to ensure that the
mortgage insurer deferred obligations, are          recommendations have been fully implemented
factors that could act to increase the ongoing      and the shortcomings that gave rise to the
risks. (See OIG, Enterprise Counterparties:         recommendations have been corrected. Created
Mortgage Insurers (WPR-2018-002, February           in December 2014, the Office of Compliance
16, 2018)).                                         and Special Projects (OCom) has strengthened
                                                    our capacity to perform compliance reviews to
White Paper: Custodial Depository                   determine whether FHFA has fully implemented
Institutions Are an Ongoing Risk                    our recommendations. OCom has several
                                                    responsibilities:
Each Enterprise uses custodial depository
institutions (CDIs) to receive and hold billions      •	 Closure of Recommendations. When FHFA
of dollars in mortgage payments that borrowers           believes that its implementation efforts are
make on mortgages that the Enterprises                   well underway or that implementation is
own or guarantee. Some of those funds are                complete, FHFA provides that information
earmarked to pay investors who have purchased            to us, along with corroborating documents.
Fannie Mae or Freddie Mac mortgage-backed                We review the materials and representations
securities, and some are earmarked for payment           submitted by the Agency to determine
to the Enterprises for mortgages they own or             whether to close recommendations—and
to pay their guarantee fees. Because CDIs hold           may close some recommendations based on
billions of dollars on behalf of the Enterprises,        the Agency’s representations as to corrective
the Enterprises recognize that they may be               actions it has taken. OCom consults with
exposed to counterparty risk should one or more          each OIG division prior to the closure of
CDIs fail to meet their obligations.                     a recommendation to facilitate application
                                                         of a single standard across OIG for closing
Our review of this ongoing risk recognized that          recommendations.
the risk was mitigated by deposit insurance
up to $250,000 per borrower, servicer                 •	 Tracking of Recommendations. OCom
responsibilities, and Enterprise eligibility             maintains a database in which it tracks the
requirements for CDIs. We noted that each                status of all recommendations issued by
Enterprise reports that it regularly monitors the        OIG in its reports.
risks from CDIs, takes action, as warranted,
and continues to consider additional internal         •	 Validation Testing. We are not always able
controls and best practices for management               to assess, at the time of closure, whether
and oversight of custodial accounts. (See                the implementation actions by FHFA meet
OIG, Enterprise Counterparties: Custodial                the letter and spirit of the agreed-upon
Depository Institutions (WPR-2018-003, March             recommendation, nor can we determine,
27, 2018)).                                              at closure, whether the underlying
                                                         shortcoming has been addressed. OCom
                                                         conducts validation testing on a sample
                                                         of closed recommendations to hold FHFA



12    Federal Housing Finance Agency Office of Inspector General
   accountable for the corrective actions it has
   represented it has implemented. We publish
   the results of that validation testing to enable
   our stakeholders to assess the efficacy of
   FHFA’s implementation of actions to correct
   the underlying shortcoming.

Compliance reviews enhance our ability to
stimulate positive change in critical areas and
promote economy, efficiency, and effectiveness
at FHFA. To date, we have issued 10 compliance
reviews reporting on the validation testing of 12
closed recommendations. Our validation testing
found that FHFA had fully implemented six of
those 12 recommendations and had not fully
implemented the remaining six.

During this reporting period, OCom issued two
compliance reviews, which are discussed in the
next section entitled OIG’s Oversight of FHFA’s
Programs and Operations Through Audit,
Evaluation, and Compliance Activities During
This Reporting Period.

OCom also undertakes special projects, which
include reviews and administrative inquiries
of hotline complaints alleging non-criminal
misconduct. During this reporting period,
OCom issued a special report assessing FHFA’s
oversight of the Enterprises’ fraud reporting,
also discussed in the next section.




                              Semiannual Report to the Congress • October 1, 2017­–March 31, 2018   13
OIG’s Oversight of FHFA’s Programs and Operations
Through Audit, Evaluation, and Compliance Activities
During This Reporting Period

OIG fulfills its oversight mission through           Office of Compliance and
four operational offices. In this section,           Special Projects
OIG discusses its oversight activities in
three of its operational offices: the Office of      Typically, when an agency accepts an IG
Audits, the Office of Evaluations, and the           recommendation and takes steps to implement
Office of Compliance and Special Projects.           the corrective action, the agency reports on its
During this reporting period, OIG published          efforts to the IG and the IG relies on materials
14 reports from these offices. All of these          and representations from the agency to close
reports relate to the four ongoing major             the recommendation. As discussed in the
management and performance challenges                prior section, the validation testing conducted
that we identified to FHFA.                          by OCom holds FHFA accountable for the
                                                     corrective actions it has represented it has
Office of Audits                                     implemented.

The Office of Audits (OA) conducts                   OCom also undertakes special projects, which
independent performance audits with respect          include reviews and administrative inquiries
to the Agency’s programs and operations. OA          of hotline complaints alleging non-criminal
also undertakes projects to address statutory        misconduct. OCom performs its compliance
requirements and stakeholder requests.               reviews and special projects in accordance
As required by the Inspector General Act,            with the Blue Book.
OA performs its audits in accordance with
the audit standards promulgated by the               Oversight Activities This Period
Comptroller General of the United States,            by Risk Area
which are known as generally accepted
government auditing standards or GAGAS.              As explained earlier, OIG publishes an annual
                                                     Audit, Evaluation, and Compliance Plan
Office of Evaluations                                setting forth the four risk-based areas on
                                                     which it intends to focus its audit, evaluation,
The Office of Evaluations (OE) conducts              and compliance resources during the calendar
independent and objective reviews,                   year. That risk-based work plan aligns OIG’s
assessments, studies, and analyses of                work to the top management and performance
FHFA’s programs and operations. Under the            challenges it has identified to FHFA. We now
Inspector General Reform Act of 2008,                discuss our oversight activities during the
IGs are required to adhere to the professional       reporting period, executed by OA, OE, and
standards designated by the Council of the           OCom, by each risk area.
Inspectors General on Integrity and Efficiency
(CIGIE). OE performs its evaluations
in accordance with the standards CIGIE
established for inspections and evaluations,
which are known as the Quality Standards for
Inspection and Evaluation (Blue Book).




14    Federal Housing Finance Agency Office of Inspector General
Conservatorship Operations                            and Ethics (FM Ethics)—state that the NGC
                                                      is responsible for “approving” conflict of
Delegated Matter: Review and Resolution               interest requests from SEOs. Section 10.2.7
of Conflicts of Interest Involving Fannie             of the COI Procedure sets forth a clear,
Mae’s Senior Executive Officers Highlight             unambiguous procedure that must be used by
the Need for Closer Attention to Corporate            FM Ethics to escalate all conflicts requests
Governance Issues by FHFA                             involving SEOs to the NGC for resolution by
                                                      the NGC.
FHFA, as conservator, has delegated to each
Enterprise responsibility for a significant           According to FHFA, Fannie Mae’s
portion of day-to-day management and risk             governance documents are internally
management controls. For this governance              inconsistent with respect to responsibility
approach to succeed, FHFA must be confident           for resolution of conflicts of interest
that the Enterprises’ directors and committees        involving SEOs. The Agency pointed to the
are properly exercising the powers they have          Executive Officer Delegations of Authority
been given and fulfilling their responsibilities.     (EDoA)—a management-created document
In an administrative investigation during             not approved by the Board through which the
the last reporting period, we reviewed the            CEO delegates to subordinates the authority
policies, procedures, and codes that make up          granted to him by the Board—and Annex A
Fannie Mae’s process for conflicts of interest        to the EDoA, approved by the Board, which
involving senior executive officers (SEOs). In        lists matters requiring Board, a committee,
this evaluation, we sought to assess FHFA’s           or FHFA approval and does not identify SEO
oversight of this conflicts process.                  conflicts of interest.

We first sought to understand whether Fannie          To understand the practice followed by the
Mae’s governance documents reserved to                NGC to resolve SEO potential conflicts of
either the Board of Directors (Board) or              interest, we interviewed the NGC Chair
the Nominating and Corporate Governance               (an NGC member since December 2008
Committee (NGC) the authority to resolve              and chair since October 2015) and he
conflicts of interest issues involving SEOs.          provided two conflicting explanations of
The NGC Charter charges the NGC with                  the NGC’s practice. We sought to determine
reviewing activities of Designated Executive          what practice, if any, had been consistently
Officers—also called SEOs—that “may result            followed by the NGC over a five-year period
in a potential or actual conflict of interest”        between January 2012 and December 2016
under the Conflict of Interest Policy (COI            with respect to SEOs. We identified 57
Policy) or Conflict of Interest Procedure             potential conflicts involving SEOs, which
(COI Procedure). The Charter also states that         were documented in the company’s Case
the NGC is responsible for interpreting the           Management System (CMS), NGC meeting
COI Policy and COI Procedure where the                materials, and/or minutes. Using minutes of
interpretation relates to the Fannie Mae Chief        NGC meetings related to these matters and
Executive Officer (CEO), who is also an SEO.          CMS entries, we mapped how each potential
                                                      conflict was ultimately resolved. Of these 57
Fannie Mae’s COI Policy and COI                       potential conflicts involving SEOs, we found:
Procedure—drafted and revised by the office
responsible for assisting the NGC in fulfilling         ●●For 24 of the 57 potential conflicts (42%),
its duties, Fannie Mae’s Office of Compliance             FM Ethics presented the potential conflict



                              Semiannual Report to the Congress • October 1, 2017­–March 31, 2018   15
     and its recommended determination to the         of consistent approach and process in the
     NGC for its determination.                       resolution of these conflicts or escalated
                                                      those issues to senior FHFA management. We
 ●●For 16 of the 57 (28%), FM Ethics                  also found no evidence that FHFA’s senior
   determined on its own whether a conflict           management was aware of these issues until
   involving an SEO existed and, where it             we brought them to FHFA’s attention.
   found a conflict, took steps to address
   it and subsequently notified the NGC               Based on our review, we found failures, both
   of its determination. We found no                  by Fannie Mae’s NGC and by FHFA, which
   evidence that any NGC member: asked                created a weakness in Fannie Mae’s risk
   FM Ethics to explain why it presented              management structure. Without enhancements
   some SEO potential conflicts to the                to the NGC’s oversight, there is a significant
   NGC for its resolution, but retained and           risk that the NGC will continue to fall short
   resolved other potential SEO conflicts             in exercising its governance responsibilities.
   and subsequently notified the NGC of               We made eight recommendations to FHFA to
   its determination; pressed FM Ethics               address these shortcomings and the Agency
   to explain the basis of its authority to           agreed with those recommendations. (See
   resolve conflicts determinations for               OIG, Corporate Governance: Review and
   SEOs; provided direction to FM Ethics              Resolution of Conflicts of Interest Involving
   about its role in resolving SEO conflicts;         Fannie Mae’s Senior Executive Officers
   or raised the potential inconsistencies            Highlight the Need for Closer Attention to
   between its duties under the Charter and           Governance Issues by FHFA (EVL-2018-001,
   its duties under the COI Procedure with            January 31, 2018)).
   the Board and asked the Board to clarify
   its responsibilities.                              Delegated Matter: FHFA’s Oversight of
                                                      the Enterprises’ Compliance with the
 ●●For 17 of the 57 (30%), FM Ethics                  Required Risk Mitigants of Automated
   determined on its own whether a potential          Underwriting, Mortgage Insurance,
   conflict of interest involving an SEO              and Homeownership Education for its
   existed and took steps to resolve any              Purchases of Mortgages with a 97% LTV
   conflict that it identified. We found no
   evidence that FM Ethics ever notified              For more than 20 years, successive
   the NGC of any of these 17 conflicts               administrations agreed that a barrier to
   disclosures or determinations, which               homeownership for low- and moderate-
   deprived the NGC of its ability to satisfy         income people was a significant down
   its duties under its Charter.                      payment, and they promoted solutions to
                                                      reduce that barrier to increase accessibility
We also looked at FHFA’s oversight of the             to homeownership. Numerous studies have
NGC’s review of conflicts of interest involving       found that saving enough cash for a down
SEOs. While we found that FHFA employees              payment and other up-front closing costs
attended NGC meetings at which FM Ethics              is the greatest barrier that low-income and
presented conflicts questions involving               minority families face when considering
SEOs to the NGC for its determinations and            homeownership.
notified the NGC of its decisions regarding
SEO conflicts requests, we found no evidence          As conservator, FHFA issued an expectation
that FHFA employees identified the lack               to the Enterprises in May 2014 to “Work



16     Federal Housing Finance Agency Office of Inspector General
to increase access to mortgage credit for           underwriting, (2) mortgage insurance, and
creditworthy borrowers, consistent with the         (3) homeownership education. Our analysis
full extent of applicable credit requirements       of data provided by the Enterprises, through
and risk-management practices.” Later that          FHFA, found a high rate of compliance for
year, in October 2014, the FHFA Director            the mortgages purchased by the Enterprises
announced that FHFA was working with                under their 97% LTV mortgage programs.
the Enterprises to develop sensible and
responsible guidelines for mortgages with           Based on our inquiries to FHFA and Fannie
loan-to-value (LTV) ratios between 95% and          Mae, and our analysis of the data provided
97% (high LTV mortgages) to increase access         by the Enterprise, we found that Fannie
for creditworthy but lower-wealth borrowers.        Mae purchased 74,700 mortgages from
                                                    December 3, 2014, to December 31, 2016,
After reviewing proposals received from             under the 97% LTV mortgage program
Fannie Mae and Freddie Mac, FHFA staff              approved in the Staff Memorandum. Of those
prepared a memorandum in early December             mortgages purchased, all were underwritten
2014 (Staff Memorandum) recommending                using an automated underwriting system
that the FHFA Director approve the high             and all but two loans utilized mortgage
LTV mortgage programs proposed by                   insurance or another credit enhancement.
the Enterprises. The Staff Memorandum               Regarding homeownership education,
acknowledged that “historical performance           which was required for only about a fourth
demonstrates that higher LTV loans can              of the 97% LTV mortgage purchases,
have higher risks than lower LTV loans              we found that Fannie Mae relied on the
and can have higher loss severities,” but           lenders’ representations and warranties to
asserted that these higher risks can be safely      determine whether this requirement was
offset by thoughtful compensating factors           met. Fannie Mae quality control reviews of
and risk mitigants, including automated             purchased loans found 20 exceptions with
underwriting, private mortgage insurance,           homeownership education, representing 3%
and pre-purchase homeownership education.           of loans sampled where homeownership
The Staff Memorandum identified an                  education was a requirement. During our
additional control: FHFA’s ongoing oversight        audit, Fannie Mae advised us that in March
of Enterprise purchases of high LTV                 2017, it implemented a “fatal” rule in its Loan
mortgages. The FHFA Director accepted               Delivery system, requiring lenders to confirm
the staff recommendation and approved the           that pre-purchase homeownership education
programs on December 3, 2014.                       has been completed, when required, or the
                                                    mortgage will be rejected.
During this semiannual reporting period,
we completed two audits, one of Fannie              Based on our inquiries to FHFA and Freddie
Mae and one of Freddie Mac, to assess               Mac, and our analysis of the data provided
FHFA’s oversight of each Enterprise’s               by the Enterprise, we found that Freddie
implementation of their 97% LTV mortgage            Mac purchased 19,628 mortgages from
program. As part of assessing FHFA’s                December 3, 2014, to December 31, 2016,
oversight, we obtained (through FHFA) and           under the 97% LTV mortgage program.
analyzed each Enterprise’s data on 97% LTV          Of those mortgages purchased, all were
mortgages purchased by the Enterprise and           underwritten using an approved method of
whether those mortgages conformed to three          underwriting and contained information from
FHFA-required credit terms: (1) automated           the lender about required mortgage insurance



                            Semiannual Report to the Congress • October 1, 2017­–March 31, 2018   17
or another credit enhancement. Regarding             003, March 8, 2018) and Audit of FHFA’s
homeownership education, which was                   Oversight of Freddie Mac’s Compliance with
required for 16,074 of the 97% LTV mortgage          the Required Risk Mitigants of Automated
purchases, we found that 15,730 mortgages            Underwriting, Mortgage Insurance, and
met the credit term, which represents a              Homeownership Education for its Purchases
compliance rate of 98%. For the remaining            of Mortgages with a 97% LTV (AUD-2018-
344 mortgages, Freddie Mac reported that             004, March 8, 2018)).
the lenders could not provide evidence that
the homeownership education requirement              Delegated Matter: FHFA’s Review Process
was met for 13 mortgages and was unable to           for Transfer of Enterprise Mortgage
confirm whether the remaining 331 mortgages          Servicing Rights
met the homeownership education requirement
because of the number of lenders involved.           Fannie Mae and Freddie Mac contract
Freddie Mac advised us that, as a result of our      with banks, nonbanks, and other financial
inquiries, the Enterprise is developing and          institutions (servicers) to service the
implementing additional business rules to: (1)       mortgages they own or guarantee. Each
improve the accuracy of lenders’ recording           servicer owns the mortgage servicing rights
of homeownership education information               (MSR) for the mortgages that it services.
in its Selling System and (2) enforce the            One servicer may transfer MSR to another,
homeownership education requirement.                 provided that the Enterprise that owns or
                                                     guarantees the underlying mortgages reviews
Our audits also reviewed FHFA’s ongoing              the proposed transaction and verifies that the
oversight of the Enterprises’ purchases              acquiring servicer has the capacity to service
of high LTV mortgages. We found that                 the loans and to manage the associated
FHFA’s oversight and supervision of the              risks. FHFA has largely delegated to the
Enterprises’ 97% LTV mortgage programs,              Enterprises responsibility for reviewing and
which focused on the Enterprises’ credit             approving MSR transfers. In 2012 and 2013,
risk management, did not directly address            we identified weaknesses in the Agency’s
compliance with the three risk mitigants that        delegated approach. Accordingly, in 2013 we
were the scope of our audits.                        recommended that FHFA establish a formal
                                                     review process for significant MSR transfers,
While we made no recommendations in                  and it agreed to do so.
our audit reports, we advised FHFA that in
view of the increasing volume of 97% LTV             The Agency established a formal review
mortgages purchased by the Enterprises,              process for reviewing large transfers, or
it would be prudent for FHFA to conduct              “Significant Transfers,” of MSR in an effort
supervisory activities over their 97% LTV            to ensure that each Enterprise’s Significant
mortgage programs, consistent with the               Transfer proposals provide assurance that
recognition in the Staff Memorandum that             the acquiring servicer has the capacity to
such activities are “an important oversight          service the transferred loans and to manage
control.” (See OIG, Audit of FHFA’s                  the associated risks. The process, contained in
Oversight of Fannie Mae’s Compliance with            the Agency’s 2014 Guidelines for Reviewing
the Required Risk Mitigants of Automated             Significant MSR Transfers, sets out nine
Underwriting, Mortgage Insurance, and                factors to guide substantive consideration of
Homeownership Education for its Purchases            the proposed transfer and assigned particular
of Mortgages with a 97% LTV (AUD-2018-               responsibilities within the Agency.



18    Federal Housing Finance Agency Office of Inspector General
We performed a compliance review to                  submitted to OHRP by the Enterprises. Both
determine whether FHFA followed its formal           Enterprises ignored FHFA’s policy; one by
review process from June 2016 through                submitting everything, and the other by the
June 2017. We determined that the Agency’s           paucity of its submissions. As we reported,
documentation showed that it complied with           OHRP advised us that the small number of
the process and that its reviews were rigorous.      submissions from one Enterprise limited
(See OIG, Compliance Review of FHFA’s                OHRP’s visibility into that Enterprise’s
Review Process for Transfer of Enterprise            single-family underwriting standards
Mortgage Servicing Rights (COM-2018-001,             and risks. Therefore, we reopened the
February 6, 2018)).                                  recommendation from our 2012 audit report.

Delegated Matter: Update on FHFA’s                   On June 30, 2016, FHFA reported that the
Oversight of the Enterprises’ Single-                2013 SF Process had been revised with an
Family Mortgage Underwriting Standards               effective date of June 30, 2016, and would
and Variances                                        be implemented between July 1, 2016, and
                                                     December 30, 2016 (2016 SF Process). FHFA
In a March 22, 2012, audit report, OIG               subsequently notified us that it developed
recommended that FHFA strengthen its                 a revised process in March 2017 (the 2017
credit risk oversight by establishing a formal       SF Process), which, it stated, corrected
policy by which to review the Enterprises’           the oversight deficiencies identified in our
single-family mortgage underwriting                  2015 compliance review and 2012 audit.
standards and variances to those standards.          We undertook this compliance review in
The Agency agreed to our recommendation.             September 2017 to validate the effectiveness
In 2013, its Office of Housing and                   of these remedial actions.
Regulatory Policy (OHRP) adopted a formal
policy and process that included standards           According to the Senior Associate Director
for reviewing the Enterprises’ variance and          (head) of OHRP, she explained the
bulk transfer activities, as well as proposed        submission standard in the 2016 SF Process
new and revised mortgage selling policies            to the Enterprises but they persisted in
(2013 SF Process).                                   following their prior interpretations of the
                                                     2012 RLOI. She reported to us that she made
In a December 2015 compliance review,                FHFA’s Division of Conservatorship (DOC)
we found that OHRP did not follow                    well aware of the challenges and frustrations
most of the procedures in the 2013 SF                caused by one of the Enterprise’s continued
Process for its review of variances and              insistence on submitting mortgage selling
bulk transfers. We also found that neither           policies pursuant to its interpretation of the
Enterprise submitted proposed new and                2012 RLOI. DOC represented to us in writing
revised mortgage selling policies to OHRP            that it took no action to secure the Enterprises’
pursuant to the standard announced in the            adherence to the submission standard in the
2013 SF Process. Instead, each Enterprise            2016 SF Process. We found no evidence
relied on its own interpretation of FHFA’s           that either DOC or the Division of Housing
2012 Revised Letters of Instruction (2012            Mission and Goals (DHMG) (the division
RLOI) to determine which mortgage selling            to which OHRP reports) sought to timely
policies to submit to OHRP for review. Their         resolve the matter by a targeted revision of
differing interpretations resulted in disparate      the 2012 RLOI in 2016 to the FHFA Director.
numbers of mortgage selling policies                 We explained that the problem we identified



                             Semiannual Report to the Congress • October 1, 2017­–March 31, 2018   19
in 2015 persists: the mortgage selling policy         FHFA expects the Enterprises to take
submissions from one Enterprise have                  corrective action to remediate MRAs,
remained too few to provide OHRP with full            and DER is responsible for monitoring
visibility into that Enterprise’s single-family       the remediation process. When Enterprise
underwriting standards and risks.                     management determines that it has completed
                                                      remediation of an MRA, FHFA expects the
In our view, FHFA’s failure to require the            Enterprise’s internal audit (IA) functions to
Enterprises to comply with its submission             review the corrective action and “validate”
standards from February 2013 until the                that remediation has been fully implemented
end of 2017, and its continued lack of full           as intended. The Enterprise then submits
visibility into one Enterprise’s single-family        a closure package to DER that contains
underwriting policies, raise serious questions        documentation of IA’s validation work. Based
about the effectiveness of FHFA’s oversight           on a review of the closure package, and any
of this area and the significant risks associated     other follow-up examination work that DER
with it. We determined that the record                may conduct, DER determines whether the
provided an insufficient basis on which to            MRA has been satisfactorily addressed and
close the outstanding recommendation. (See            notifies the Enterprise of its determination.
OIG, Update on FHFA’s Implementation
of its Revised Procedures for Overseeing              In a 2016 evaluation, we found that some
the Enterprises’ Single-Family Mortgage               DER examiners appeared to have accepted
Underwriting Standards and Variances                  MRA validation work conducted by the
(COM-2018-003, March 27, 2018)).                      Enterprises’ IA functions without evidence
                                                      of independent analysis. During this
Supervision of the                                    reporting period, we completed two follow-
Regulated Entities                                    up evaluations. In one report, we reviewed
                                                      DER’s guidance and standards for reliance
Supervision of the Enterprises: FHFA                  on the Enterprises’ IA functions when
Examiners’ Use of the Enterprises’ Internal           examiners assess the remediation of MRAs.
Audit Work When Assessing Remediation                 We compared FHFA guidance (including
of Matters Requiring Attention                        DER’s guidance and standards) to guidance
                                                      issued by the Office of the Comptroller
When DER conducts supervisory activities, it          of the Currency (OCC) and the Board of
may identify significant deficiencies related to      Governors of the Federal Reserve System
risk management, risk exposure, or violations         (Federal Reserve), and interviewed DER
of laws, regulations, or orders affecting the         officials and staff. Federal Reserve and OCC
performance or condition of a regulated               guidance direct their respective examiners
entity. Among these “adverse examination              to periodically assess and conclude on the
findings” are matters requiring attention             overall effectiveness or strength of the
(MRAs), which consist of either “critical             IA functions at their regulated financial
supervisory matters (the highest priority),           institutions. Federal Reserve guidance permits
which pose substantial risk to the safety             reliance on IA MRA follow-up only when
and soundness of the regulated entity” or             the Federal Reserve has rated the institution’s
“deficiencies,” which if not corrected, could         IA function as effective overall. We found,
“escalate and potentially negatively affect”          however, that FHFA has not concluded on
the regulated entity.                                 the overall effectiveness of the Enterprises’
                                                      IA functions and that DER has no present



20     Federal Housing Finance Agency Office of Inspector General
plans to do so. As a result, we concluded            In a companion evaluation, we reviewed
that DER examiners lack assurance of the             DER’s practices for closing MRAs in
overall quality, reliability, competency, and        order to understand (1) the extent to
objectivity of the IA function when they use         which examiners accepted, relied on, or
IA validation work.                                  otherwise used IA’s validation work in
                                                     their assessment of the adequacy of MRA
In addition, we found that FHFA                      remediation and (2) whether they conducted
guidance does not address whether, or                independent assessments of the adequacy
the circumstances under which, FHFA                  of the remediation. We reviewed key
examiners may rely on, accept, or otherwise          documentation for a sample of 22 out of 78
use information, analyses, or conclusions            MRAs issued to Fannie Mae and Freddie
provided by an Enterprise’s IA function              Mac and closed by DER between January
when determining whether an Enterprise               2015 and October 2017. In our interviews
has satisfactorily remediated an MRA.                of the examination managers and examiners
Accordingly, DER examiners are given wide            responsible for closing these MRAs, varying
discretion to determine whether and to what          explanations were offered for the difference
extent to rely on, accept, or otherwise use IA       between relying on and leveraging IA’s
validation work as a basis to close MRAs. In         validation work but no clear distinction was
our view, such discretion to use IA validation       provided. No uniform view was expressed
work to close MRAs, without a predicate              whether DER examiners were expected
supervisory conclusion on the overall                to conduct any testing as part of their
effectiveness of the IA function, creates the        assessment of MRA remediation. For the 22
risk that DER’s assessment of the adequacy of        MRAs in our sample, we found that DER
Enterprise remediation will be impaired.             examiners generally relied on the validation
                                                     testing conducted by the Enterprise’s IA
We made three recommendations to FHFA                function when testing of the sufficiency of
to address these shortcomings. FHFA agreed           MRA remediation was conducted.
with one recommendation and disagreed
with two. FHFA agreed to issue more                  Because FHFA only issues MRAs for the
detailed examiner guidance regarding the             most significant deficiencies, determinations
use of IA work in assessment of Enterprise           to close MRAs should be based on the
remediation of MRAs by October 31,                   examiners’ independent assessments of the
2018. FHFA did not agree to conclude                 Enterprises’ remedial actions. Current FHFA
periodically on the overall effectiveness of         guidance directs examiners to independently
the Enterprises’ IA functions and did not            review and assess the documents in the
agree to direct that examiners can use IA            Enterprise’s closure package, including
work to assess MRA remediation only if               some independent review or assessment of
FHFA has concluded that the IA function is           documentation provided by the Enterprise’s
effective overall. (See OIG, FHFA Requires           business unit and/or IA. As FHFA does not
the Enterprises’ Internal Audit Functions to         identify the steps that examiners should
Validate Remediation of Serious Deficiencies         undertake to assess the sufficiency of MRA
but Provides No Guidance and Imposes No              remediation, we found that examination
Preconditions on Examiners’ Use of that              managers and examiners have broad
Validation Work (EVL-2018-002, March 28,             discretion in determining the scope of their
2018)).                                              independent assessment of the adequacy of
                                                     the remedial actions. We determined, from our



                             Semiannual Report to the Congress • October 1, 2017­–March 31, 2018   21
review of key examiner workpapers for the            Three Fannie Mae Cybersecurity MRAs after
22 MRAs in our sample, that the workpapers           Independently Determining the Enterprise
reflected some independent assessment of             Completed its Planned Remedial Actions
the sufficiency of management’s remediation          (AUD-2018-007, March 28, 2018)).
activities and/or IA’s validation work for
nearly all of the 22 MRAs in our sample,             Our second audit sought to determine, for
although the scope of that assessment varied         an MRA issued in 2012, whether FHFA
among examiners.                                     examiners followed the requirements in
                                                     place at the time in issuing “non-objection”
FHFA agreed with our recommendation to               letters to Freddie Mac’s remedial plans and
adopt clear guidance that identifies the work        in independently verifying Freddie Mac’s
steps that should be included in examiners’          implementation of its remedial plans. We
independent assessments of IA’s work when            found that, from 2012 to 2014, Freddie Mac
assessing the sufficiency of MRA remediation         submitted three remedial plans to DER to
and specifies the conditions under which             address this MRA. While DER examiners
examiner testing is expected. The Agency             expected to determine whether the proposed
represented that it would provide more               remedial plan(s) was “sufficiently detailed
detailed guidance by October 31, 2018. (See          and appropriate to resolve the MRAs,” we
OIG, FHFA’s Adoption of Clear Guidance               found that the three remedial plans, together,
on the Review of the Enterprises’ Internal           did not address one of the critical deficiencies
Audit Work When Assessing the Sufficiency of         giving rise to the MRA.
Remediation of Serious Deficiencies Would
Assist FHFA Examiners (EVL-2018-003,                 We sought to determine whether DER
March 28, 2018)).                                    followed its guidance in closing this MRA.
                                                     We found that DER documented its review
Information Technology                               of evidence submitted by Freddie Mac to
Security                                             demonstrate that the corrective action items
                                                     and/or milestones in the three remedial
FHFA’s Oversight of the Enterprises’                 plans were met, which met DER’s guidance.
Closure of Cybersecurity-Related Matters             Because none of Freddie Mac’s remedial
Requiring Attention                                  plans addressed one of the critical deficiencies
                                                     giving rise to the MRA, DER had no evidence
During this reporting period, we completed           that this deficiency was remediated.
two audits that built upon our prior audit
work regarding DER’s oversight of                    We made two recommendations to FHFA to
cybersecurity risks at the Enterprises. In           address the shortcomings identified in this
one audit, we sought to determine, for the           audit. FHFA agreed with the recommendations.
three MRAs closed in 2016, whether FHFA              Its planned corrective actions are responsive
examiners followed the requirements in               to the recommendations. (See OIG, FHFA
place at the time to independently verify            Failed to Ensure Freddie Mac’s Remedial
Fannie Mae’s implementation of its remedial          Plans for a Cybersecurity MRA Addressed
plans. For all three MRAs, we found that             All Deficiencies; as Allowed by its Standard,
DER independently verified Fannie Mae’s              FHFA Closed the MRA after Independently
implementation of its remedial plans and met         Determining the Enterprise Completed its
its standard in closing these MRAs. (See OIG,        Planned Remedial Actions (AUD-2018-008,
As Allowed by its Standard, FHFA Closed              March 28, 2018)).



22    Federal Housing Finance Agency Office of Inspector General
Statutory Audit: FHFA’s and OIG’s                    mortgages into securities for which
Information Security Programs                        they guarantee principal and interest. In
                                                     guaranteeing the securities, the Enterprises
We completed two audits during the reporting         assume the credit risk from possible default
period assessing the existing security               of the underlying mortgages. To mitigate this
programs at FHFA and OIG pursuant to the             risk, the Enterprises require lenders from
Federal Information Security Modernization           whom they purchase residential mortgages
Act of 2014. (See OIG, Performance Audit             to make contractual representations and
of the Federal Housing Finance Agency’s              warranties wherein the lenders represent that
Information Security Program, Fiscal Year            the mortgages meet specific underwriting
2017 (AUD-2018-001, October 17, 2017)                requirements. Historically, the Enterprises
and Performance Audit of the Federal                 have relied on the lenders’ representations
Housing Finance Agency Office of Inspector           and warranties that underwriting requirements
General’s Information Security Program,              were met and conducted limited due diligence
Fiscal Year 2017 (AUD-2018-002, October              at the time the mortgages were purchased.
17, 2017)). Both audits were performed               When mortgages defaulted or the borrower
by an independent public accounting firm,            missed payments, the Enterprises would then
Kearney & Company, P.C., under contract              review the loan files for evidence of breach
with OIG. The objectives of these audits             of the representations and warranties and
were to evaluate the effectiveness of FHFA’s         exercise their contractual rights to require
and OIG’s information security programs              lenders to repurchase, or buy back, non-
and practices and respond to the Department          compliant loans. The Enterprises’ contractual
of Homeland Security’s FY 2017 Inspector             rights to put back non-compliant loans at any
General Federal Information Security                 point during the term of the loans enabled
Modernization Act of 2014 Reporting                  the Enterprises to reduce losses caused by
Metrics, dated April 17, 2017. Because               underwriting defects.
information in these reports could be used
to circumvent FHFA’s and OIG’s internal              In September 2012, FHFA announced
controls, the complete text of the reports has       that the Enterprises would launch a new
not been released publicly.                          representation and warranty framework
                                                     (new framework). The objective of the new
Counterparties and                                   framework was to enhance transparency and
Third Parties                                        certainty for lenders by clarifying when a
                                                     mortgage loan may be subject to repurchase.
FHFA Completed Planned Procedures                    The new framework, designed by the
for Representation and Warranty                      Enterprises to meet FHFA’s stated objective,
Framework Targeted Examinations at                   shifted some risk of non-compliance with
the Enterprises, but Did Not Sufficiently            representations and warranties from the
Document Changes to Planned Testing and              lenders to the Enterprises (and therefore to
Examination Work                                     taxpayers). The new framework required
                                                     operational changes at the Enterprises to
Fannie Mae and Freddie Mac provide                   mitigate the additional risk. FHFA recognized
liquidity to the U.S. housing finance system         the need to test the adequacy of those
by purchasing residential mortgages from             operational changes, through its supervisory
lenders and either holding these mortgages           activities, to ensure that the additional risk
in their portfolios or bundling the purchased        had been mitigated.



                             Semiannual Report to the Congress • October 1, 2017­–March 31, 2018   23
For the previous semiannual reporting                needing continued and continual examiner
period, we reported that we completed                and management attention. (See OIG, FHFA
separate audits of DER’s supervision over            Completed its Planned Procedures for a 2015
each Enterprise’s implementation of the              Representation and Warranty Framework
new framework to assess (1) whether DER’s            Targeted Examination at Fannie Mae, but Did
planned supervisory activities relating to           Not Document a Change to Planned Testing
the Enterprises’ implementation of the               (AUD-2018-005, March 13, 2018)).
new framework for the 2015 and 2016
examination cycles could be tracked to its           For DER’s 2016 Freddie Mac targeted
risk assessments and supervisory strategies          examination entitled Representation and
and (2) whether DER executed these planned           Warranty Framework, we found that DER
supervisory activities during the 2015               performed its planned procedures, and
and 2016 examination cycles. During this             prepared the required examination documents.
semiannual reporting period, we completed            The conclusions DER presented to Freddie
separate audits for Fannie Mae and Freddie           Mac were consistent with those detailed
Mac to determine whether DER performed               in the targeted examination workpapers.
its planned procedures and sufficiently              However, the examiner did not prepare the
supported its conclusions for select new             examination workpapers for this targeted
framework-related targeted examinations.             examination in a manner that provided a
                                                     third party with a clear understanding of the
For DER’s 2015 Fannie Mae targeted                   examination work performed. Specifically,
examination entitled Single-Family Loan              certain examination work that, upon inquiry,
Quality Center, we found that DER performed          was cited by the Examination Manager
its planned procedures and the conclusions           to support the conclusion reached for this
presented to Fannie Mae were consistent              targeted examination was not documented in
with those detailed in the workpapers. We            the workpapers.
also found that the workpapers sufficiently
supported DER’s conclusions. However, we             To address this weakness, we recommended
also found one instance in which DER did             that FHFA reinforce, in examiner training,
not document, in accordance with DER’s               the need to prepare workpapers for targeted
guidance on sampling practices, the rationale        examinations with sufficient detail and
for reduced transaction testing. We did              clarity to provide a third party with a clear
not make a recommendation for this audit             understanding of the examination work
because we only found a lapse in examiner            performed; the examination findings,
adherence to FHFA and DER workpaper                  conclusions, and ratings reached; and any
directives for a single procedure that did not       implications of the findings, conclusions,
inhibit a third party’s ability to understand        and ratings. FHFA agreed with our
the conclusions reached for the targeted             recommendation to address this shortcoming.
examination that was the scope of this audit.        (See OIG, FHFA Completed its Planned
However, we counseled that the sufficiency           Procedures for a 2016 Representation and
of examination workpapers—to provide                 Warranty Framework Targeted Examination
a third-party with a clear understanding             at Freddie Mac, but the Supporting
of the examination work performed, the               Workpapers Did Not Sufficiently Document
examination findings, conclusions, and               the Examination Work (AUD-2018-006,
ratings reached, and any implications of the         March 13, 2018)).
findings, conclusions, and ratings—is a matter



24    Federal Housing Finance Agency Office of Inspector General
FHFA Should Address the Potential Disparity          strengthen regulatory oversight, we questioned
Between the Statutory Requirement for                whether an interpretation that appears to
Fraud Reporting and its Implementing                 weaken the statutory requirement to timely
Regulation and Advisory Bulletin                     report suspected possible fraud is reasonable.

Fannie Mae and Freddie Mac face the                  FHFA’s implementing regulation requires an
risk of fraud from various actors in the             Enterprise to report “immediately” fraud and
mortgage market, including originators,              suspicion of possible fraud with significant
counterparties, and insiders. Fraud may              impact. FHFA’s definition of “possible fraud”
subject the Enterprises to significant               caused the Enterprises to conduct inquiries,
financial, operational, legal, or reputational       which may have delayed reporting of possible
harm. For this reason, the Enterprises are           fraud with potential significant impact.
subject to fraud reporting requirements              One Enterprise notified the Agency after
prescribed by statute, regulation, and               conducting a six-week inquiry and was unable
guidance issued by FHFA.                             to state when, during its inquiry, it determined
                                                     that the fraud allegations warranted
During this reporting period, we undertook           “immediate” reporting. We were not able
a special project to assess FHFA’s oversight         to determine, from the record, whether the
of the Enterprises’ reporting of actual or           Enterprise’s “immediate notification” was
potential fraud. We found a potential disparity      timely (i.e., within one reporting day). (See
between the fraud reporting requirement in           OIG, FHFA Should Address the Potential
the statute and that in the Agency’s regulation      Disparity Between the Statutory Requirement
and guidance. By statute, an Enterprise must         for Fraud Reporting and its Implementing
“timely report” to the Agency each occurrence        Regulation and Advisory Bulletin (COM-
involving the purchase or sale of a loan or          2018-002, March 23, 2018)).
financial instrument when the Enterprise
discovers fraud or “suspects a possible fraud.”
The statute also insulates a regulated entity
from all liability in connection with making
a “good faith” report. FHFA’s implementing
regulation defines “possible fraud” to require
an Enterprise to conduct and complete an
inquiry and develop a “reasonable belief” of
its existence. The inquiry built into FHFA’s
definition of “possible fraud” appears to
contemplate a higher reporting threshold than
the statutory direction to “timely report” a
suspicion of possible fraud.

We are mindful of the deference to be given
an agency’s construction of a statute that
the agency administers where the statute
is ambiguous and the agency’s position is
reasonable. Given that the fraud reporting
requirement is contained in a statute intended
to restore confidence in the Enterprises and



                             Semiannual Report to the Congress • October 1, 2017­–March 31, 2018   25
Reports and Recommendations
Below are the 17 audits, evaluations, compliance reviews, special project report, and white papers
published during the period. A list of the recommendations made in these OIG reports is provided
in Appendix B. See OIG’s website for a complete list of all reports issued by OIG since its
inception.


                                  Report                                            Date

 Performance Audit of the Federal Housing Finance Agency’s                    October 17, 2017
 Information Security Program, Fiscal Year 2017 (AUD-2018-001)

 Performance Audit of the Federal Housing Finance Agency Office of            October 17, 2017
 Inspector General’s Information Security Program, Fiscal Year 2017
 (AUD-2018-002)

 Fannie Mae and Freddie Mac Purchases of Adjustable-Rate                       January 4, 2018
 Mortgages (WPR-2018-001)

 Corporate Governance: Review and Resolution of Conflicts of Interest         January 31, 2018
 Involving Fannie Mae’s Senior Executive Officers Highlight the Need
 for Closer Attention to Governance Issues by FHFA (EVL-2018-001)

 Compliance Review of FHFA’s Review Process for Transfers of                  February 6, 2018
 Enterprise Mortgage Servicing Rights (COM-2018-001)

 Enterprise Counterparties: Mortgage Insurers (WPR-2018-002)                 February 16, 2018

 Audit of FHFA’s Oversight of Fannie Mae’s Compliance with the                 March 8, 2018
 Required Risk Mitigants of Automated Underwriting, Mortgage
 Insurance, and Homeownership Education for its Purchases of
 Mortgages with a 97% LTV (AUD-2018-003)

 Audit of FHFA’s Oversight of Freddie Mac’s Compliance with the                March 8, 2018
 Required Risk Mitigants of Automated Underwriting, Mortgage
 Insurance, and Homeownership Education for its Purchases of
 Mortgages with a 97% LTV (AUD-2018-004)

 FHFA Completed its Planned Procedures for a 2015 Representation               March 13, 2018
 and Warranty Framework Targeted Examination at Fannie Mae, but
 Did Not Document a Change to Planned Testing (AUD-2018-005)




  26    Federal Housing Finance Agency Office of Inspector General
                               Report                                                 Date

FHFA Completed its Planned Procedures for a 2016 Representation                 March 13, 2018
and Warranty Framework Targeted Examination at Freddie Mac,
but the Supporting Workpapers Did Not Sufficiently Document the
Examination Work (AUD-2018-006)

FHFA Should Address the Potential Disparity Between the Statutory               March 23, 2018
Requirement for Fraud Reporting and its Implementing Regulation
and Advisory Bulletin (COM-2018-002)

Enterprise Counterparties: Custodial Depository Institutions                    March 27, 2018
(WPR-2018-003)

Update on FHFA’s Implementation of its Revised Procedures for                   March 27, 2018
Overseeing the Enterprises’ Single-Family Mortgage Underwriting
Standards and Variances (COM-2018-003)

FHFA Requires the Enterprises’ Internal Audit Functions to Validate             March 28, 2018
Remediation of Serious Deficiencies but Provides No Guidance and
Imposes No Preconditions on Examiners’ Use of that Validation Work
(EVL-2018-002)

FHFA’s Adoption of Clear Guidance on the Review of the Enterprises’             March 28, 2018
Internal Audit Work When Assessing the Sufficiency of Remediation of
Serious Deficiencies Would Assist FHFA Examiners (EVL-2018-003)

As Allowed by its Standard, FHFA Closed Three Fannie Mae                        March 28, 2018
Cybersecurity MRAs after Independently Determining the Enterprise
Completed its Planned Remedial Actions (AUD-2018-007)

FHFA Failed to Ensure Freddie Mac’s Remedial Plans for a                        March 28, 2018
Cybersecurity MRA Addressed All Deficiencies; as Allowed by its
Standard, FHFA Closed the MRA after Independently Determining the
Enterprise Completed its Planned Remedial Actions (AUD-2018-008)




                          Semiannual Report to the Congress • October 1, 2017­–March 31, 2018   27
Oversight Through OIG’s Investigations
OIG is vested with statutory law enforcement         documents necessary to spot indications of
authority that is exercised by its Office of         fraud. Fraudulent loan modification schemes
Investigations. OI conducts criminal and civil       sometimes involve hundreds of victims.
investigations into those, whether inside or         Those investigations require comprehensive
outside of government, who waste, steal, or          document and financial records reviews,
abuse government monies in connection with           victim interviews, and the tracking of illicitly
programs and operations of the Agency and            received fees charged by the perpetrators.
the regulated entities.                              In condominium or builder bailout scheme
                                                     investigations, SAs carefully examine
Depending on the type of misconduct                  mortgage and bank documents to determine
uncovered, OI investigations may result              fraudulent patterns of behavior, including
in criminal charges, civil complaints, and/          undisclosed incentives to attract buyers to
or administrative sanctions and decisions.           purchase and invest in properties. In these
Civil claims can lead to settlements or              investigations, SAs locate and interview
verdicts with restitutions, fines, penalties,        investors, learn the nuances of how the
forfeitures, assessments, and exclusion of           scheme is organized, and determine how
individuals or entities from participation           the perpetrators financially benefitted. In
in federal programs. Criminal charges filed          bankruptcy or foreclosure-delay schemes,
against individuals or entities may result           SAs cull through documents received by the
in plea agreements or trials, incarceration,         Enterprises and the FHLBanks, calculate
restitution, fines,                                  scheme losses, and coordinate with the
and penalties. This                                  United States Trustee’s Office to determine if
reporting period,                36                  fraudulent paperwork has been submitted to
as a result of OIG        Defendants                 initiate a bankruptcy. Other labor-intensive
investigations, 36                                   investigations conducted by SAs include
defendants were                  66                  real estate owned (REO), multifamily, and
sentenced to an                                      adverse possession schemes. Each of these
aggregate total of
                       Years in Prison               schemes presents with unique circumstances
66 years in prison.                                  and requires many hours of intense document
                                                     analysis, potential victim and witness
OI is staffed with special agents (SAs),             interviews, and other investigative techniques.
investigative counsels, analysts, and attorney
advisors. OIG’s SAs investigate criminal             To increase OIG’s effectiveness, four of
matters involving allegations of fraud and           OIG’s attorney-investigators have been
misconduct.                                          appointed as Special Assistant U.S. Attorneys
                                                     in several judicial districts throughout the
Various elements contribute to determining           country. They have been assigned criminal
the resources needed for each investigation          matters arising from OI’s investigations in
and the length of time necessary to complete         the districts where they have been appointed
each investigation. For example, loan                and have pursued these investigations to
origination and short sale schemes—common            conviction and sentencing.
types of mortgage fraud—can be labor
intensive due to the extensive review and            To maximize criminal and civil law
analysis of mortgage loan files and bank             enforcement, OI works closely with other


28    Federal Housing Finance Agency Office of Inspector General
law enforcement agencies, including the                              of Inspector General (HUD-OIG), Internal
Department of Justice (DOJ), the Federal                             Revenue Service-Criminal Investigation
Bureau of Investigation (FBI), the Department                        (IRS-CI), and state and local law enforcement
of Housing and Urban Development Office                              entities nationwide.


         Figure 2. OI Monetary Results
         October 1, 2017 – March 31, 2018
                                                                      Criminal                         Civil
                                                                    Investigations                 Investigations

         Fines*                                                           $17,128,337                                 $–

         Settlements                                                                    $–          $2,002,000,000

         Restitutions                                                     $14,096,593                                 $–

         Total                                                            $31,224,930               $2,002,000,000
       *Fines include criminal fines, forfeiture and special assessments, and civil fines imposed by federal court.


         Figure 3. Reports, Referrals, Prosecutions, and Convictions
         October 1, 2017 – March 31, 2018*

         Investigative Reports**                                                                                       62

         Criminal Referrals to DOJ                                                                                     55

         Criminal Referrals to State and Local Prosecuting Authorities                                                      3

         Indictments and Informations during the Reporting Period that Resulted                                        40
         from Referral to Prosecutors during Prior Reporting Periods

         Total Indictments and Informations during the Reporting Period Resulting                                      47
         from OIG Referrals

         Trials                                                                                                             8

         Defendants Tried                                                                                              14

         Convictions/Pleas                                                                                             48

         Sentencings                                                                                                   36

       *All criminal charges and successive actions (pleas/convictions/sentencings) are supported with documents
       filed with the corresponding federal or state court. This includes both public and non-public documents (sealed).
       All referrals made to DOJ and to state prosecutors are captured within each investigative file; these actions are
       tabulated via a statistical report run in OIG’s case management system. Criminal referrals on this chart include both
       individuals and entities.

       **For the purposes of this SAR, an investigative report is defined as the Report of Investigation finalized at the
       conclusion of the investigation, prior to case closure.




                                     Semiannual Report to the Congress • October 1, 2017­–March 31, 2018                        29
Since its inception, OIG has also maintained         Investigations: Civil Cases
a hotline to provide easy access for
individuals to report tips, complaints, or           During the semiannual reporting period, OI
referrals (TCRs) of alleged violations of            continued to actively participate in residential
criminal and civil laws in connection with           mortgage-backed securities (RMBS)
programs and operations of the Agency. OI            investigations by working closely with U.S.
is responsible for conducting a preliminary          Attorneys’ offices to investigate allegations
review of all hotline TCRs. OIG’s hotline is         of fraud committed by financial institutions
staffed by a third-party vendor to protect the       and individuals in connection with RMBS.
anonymity of the callers and to provide easy         OI SAs and attorneys reviewed evidence
access for reporting. Every TCR, whether             produced by various parties, conducted
made by telephone directly to the hotline,           witness interviews, provided strategic
email, website, or in person, is sent to the         litigation advice, and briefed other law
hotline and logged by the hotline. Attorneys         enforcement agencies on the operations of the
in OI conduct a preliminary assessment               RMBS market.
to determine whether further review and
investigation is appropriate. During this            Barclays Agrees to Pay $2 Billion in Civil
reporting period, 507 discrete contacts to the       Penalties to Resolve Claims for Fraud in
hotline were made involving TCRs, and 124            the Sale of RMBS; Two Former Barclays
separate TCRs were logged by the hotline.            Executives Agree to Pay $2 Million to
                                                     Resolve Claims Brought Against Them
During the semiannual reporting period, OI           Individually
conducted numerous criminal, civil, and
administrative investigations, which resulted        On March 29, 2018, DOJ reached agreement
in the filing of criminal charges against 47         with Barclays Capital, Inc. (Barclays) to
individuals, the conviction of 48 individuals,       settle a civil action filed in December 2016 in
and 36 sentencings, as well as court-ordered         which the United States sought civil penalties
fines and restitution awards.                        for alleged conduct related to Barclays’
                                                     underwriting and issuance of RMBS between
Figures 2 and 3 (see above) summarize the            2005 and 2007.
results obtained during this reporting period
from our investigative efforts.                      Barclays will pay the United States $2 billion
                                                     in civil penalties in exchange for dismissal of
Below, we discuss some of our civil and              the Amended Complaint.
criminal cases. For ease of review, we group
our criminal investigations during this              Agreement has also been reached with
period into the categories described below.          the two former Barclays executives who
In each category, we describe the nature of          were named as defendants in the suit:
the crime and include a few highlights of            Paul Menefee, who served as Barclays’
matters investigated by OIG. For a summary           head banker on its subprime RMBS
of publicly reportable investigative outcomes        securitizations, and John Carroll, who served
for each category during this reporting period,      as Barclays’ head trader for subprime loan
see Appendices C-J.                                  acquisitions. In exchange for dismissal of the
                                                     claims against them, Menefee and Carroll
                                                     agreed to pay the United States the combined



30    Federal Housing Finance Agency Office of Inspector General
                                                      inflated bills for foreclosure-related expenses
                                                      and causing those expenses to be submitted to
“The actions of Barclays and the two                  and paid for by Fannie Mae.
individual defendants resulted in enormous
                                                      As alleged in the complaint, Rosicki acted
losses to the investors who purchased the
                                                      as counsel to various mortgage servicing
Residential Mortgage-Backed Securities                companies and in that capacity effectuated
backed by defective loans. [The] settlement           mortgage foreclosures on Fannie Mae-owned
holds accountable those who waste, steal or           loans. EPS was a service-of-process company
abuse funds in connection with FHFA or                and Paramount was a title search company.
any of the entities it regulates.”                    Both EPS and Paramount were wholly owned
        	– Inspector General                          and controlled by the two founding partners
	          	      Laura S. Wertheimer                 of Rosicki.

                                                      Rosicki, EPS, and Paramount allegedly
sum of $2 million in civil penalties.                 perpetrated a scheme whereby Rosicki
The scheme alleged in the complaint involved          exclusively engaged EPS and Paramount
36 RMBS deals in which over $31 billion               to serve process and perform title searches
worth of subprime and Alt-A mortgage                  that were required to complete mortgage
loans were securitized, more than half of             foreclosures on Fannie Mae-owned loans.
which defaulted. The complaint alleged that           In reality, however, EPS and Paramount
in publicly filed offering documents and in           engaged third-party vendors to perform
direct communications with investors and              the majority of the work, and then applied
rating agencies, Barclays systematically and          exponential markups, as much as 750%, to
intentionally misrepresented key characteristics      those vendors’ bills for foreclosure-related
of the loans it included in these RMBS deals.         services, while adding little if any value to
In general, the borrowers whose loans backed          the services that the vendors had performed.
these deals were significantly less creditworthy      EPS and Paramount allegedly submitted their
than Barclays represented, and these loans            marked-up expenses, which significantly
defaulted at exceptionally high rates early in        exceeded market rates, to Rosicki. Rosicki, in
the life of the deals. In addition, as alleged in     turn, billed the mortgage servicers for those
the complaint, the mortgaged properties were          inflated expenses, which Rosicki allegedly
systematically worth less than what Barclays          represented were the actual expenses incurred
represented to investors.                             for the foreclosure-related services, with
                                                      knowledge that the mortgage servicers
Civil Complaint Filed Against Foreclosure             would submit claims to Fannie Mae for
Law Firm for Systematically Overbilling               full reimbursement of the expenses. The
Fannie Mae for Foreclosure Expenses                   submission of these fraudulently inflated
                                                      expenses allegedly caused Fannie Mae to
On March 27, 2018, a civil complaint-in-              pay millions of dollars for falsely inflated
intervention was filed against Rosicki, Rosicki       foreclosure expenses.
& Associates, P.C. (Rosicki), a foreclosure
law firm in New York, and its wholly-owned
affiliates, Enterprise Process Service, Inc.
(EPS) and Paramount Land, Inc. (Paramount)
for engaging in a scheme to generate false and



                              Semiannual Report to the Congress • October 1, 2017­–March 31, 2018   31
Investigations: Criminal Cases
Below we highlight OIG criminal
investigations during this semiannual
reporting period in a number of different
categories, which resulted in criminal charges,
convictions, plea agreements, sentencings, and
court-ordered fines and restitution judgments.

Condo Conversion and Builder
Bailout Schemes

In these types of schemes, the sellers
or developers wrongfully conceal from
prospective lenders the incentives they have
offered to investors and the true value of
the properties. The lenders, acting on this                   Marketing flyer used by defendant.
misinformation, make loans that are far riskier
than they have been led to believe. Such loans       The co-defendants used an assortment of
often default and go into foreclosure, causing       advertising methods and sales pitches—
the lenders to suffer large losses.                  on air, online, in writing, and at live
                                                     presentations—to falsely promote the
Below we summarize three OIG                         purchase of condominiums at the Woods as a
investigations in this category that resulted        means to financial independence and wealth,
in trial convictions, plea agreements and            enticing prospective condominium buyers
an indictment, and a sentencing with court           with substantial, unsustainable financial
ordered restitution during this semiannual           incentives, including down payment refunds
reporting period. (See Appendix C for a              and up to three years’ worth of mortgage
summary of publicly reportable investigative         payments, maintenance costs, and property
outcomes in this category.)                          tax payments.

Three Found Guilty in Builder Bailout                Additionally, the co-defendants colluded to
Fraud Scheme Trial, Illinois                         misrepresent and conceal material facts from
                                                     banks and mortgage lenders to fraudulently
On October 16, 2017, Theodore Wojtas,                induce them to approve non-conforming
Jr., Karin Ganser, and David Belconis were           loans to unqualified buyers, thereby exposing
convicted by a federal jury on charges of wire       lenders and the Enterprises to millions of
fraud and mail fraud for their participation         dollars in potential losses. The Enterprises
in a mortgage fraud scheme involving the             purchased over $32 million in mortgage loans
marketing and sale of condominiums at a 50           that had been made to condominium buyers
acre development known as The Woods at               at the Woods. The fraud scheme caused more
Countryside in Palatine, Illinois (the Woods).       than $16 million in losses to banks, mortgage
Belconis was additionally convicted on               lenders, and the Enterprises, whose combined
charges of false statements.                         losses are over $1.3 million.




32    Federal Housing Finance Agency Office of Inspector General
            The Woods at Countryside Leasing Center where the mortgage fraud scheme occurred.


Guilty Pleas of Mortgage Loan Officer and              agreement, to sell the units, Cardenas and
Straw Buyers and Indictment of Licensed                other co-conspirators offered incentives to
Mortgage Broker, Florida                               interested buyers, including cash back, down
                                                       payment assistance, mortgage payments, and
During March 2018, Daniel Cardenas and                 homeowner’s association dues. The incentives
Abdelghani Mellouki pled guilty to conspiracy          provided to the borrowers were concealed from
to commit wire fraud and conspiracy to                 the lenders. Furthermore, Cardenas and other
commit wire fraud affecting a financial                co-conspirators at TLG prepared and submitted
institution, respectively, for their roles in a        to lenders loan applications that misrepresented
condominium conversion fraud scheme.                   the borrowers’ incomes, assets, and/or sources
                                                       of their down payments. One of the buyers was
Cardenas was a loan officer at Transcontinental        co-defendant Mellouki, who, in coordination
Lending Group (TLG), a company that                    with Cardenas and other co-conspirators,
originated mortgage loans and marketed units           knowingly signed fraudulent loan applications
at The Preserves at Temple Terrace, a condo            submitted to potential lenders.
conversion project. According to the plea



                              Semiannual Report to the Congress • October 1, 2017­–March 31, 2018   33
In related cases, during November to                 They typically involve falsifying borrowers’
December 2017, Jonathan Marmol, a licensed           income, assets, employment histories, and
mortgage broker at TLG, was indicted                 credit profiles to make them more attractive
on charges of conspiracy to commit bank              to lenders. Perpetrators often employ bogus
fraud and bank fraud. Joaquin Cadavid,               Social Security numbers and fake or altered
a straw buyer, pled guilty to conspiracy             documents such as W-2s and bank statements
to commit bank and wire fraud. Cadavid               to cause lenders to make loans they would not
was additionally ordered to pay $77,680              otherwise make.
in forfeiture. The Enterprises and financial
institutions suffered approximately $6.1             Below we summarize four OIG
million in losses as a result of the scheme.         investigations in this category that resulted
                                                     in trial convictions, plea agreements, and
Sentencing of Recruiter in Builder Bailout           a sentencing with court-ordered restitution
Scheme, Illinois                                     during this semiannual reporting period.
                                                     (See Appendix D for a summary of publicly
On November 30, 2017, Leonardo Sanders               reportable investigative outcomes in this
was sentenced to 28 months in prison, 2              category.)
years of supervised release, and ordered to
pay over $1 million in restitution, jointly          Trial Conviction of Business Owner in
and severally, for his role in a builder bailout     Origination Fraud Scheme, Texas
scheme. Sanders, a recruiter, previously pled
guilty to bank fraud for conspiring with others      On March 15, 2018, a federal jury convicted
to defraud mortgage lenders and financial            Chukwuma Osuagwu on charges of bank
institutions by obtaining over $22 million           fraud and conspiracy to commit bank fraud
in fraudulent mortgages for the purchase of          related to a mortgage fraud scheme.
dozens of condominium units in Illinois.
                                                     According to evidence presented at trial,
According to the plea agreement, Sanders             Osuagwu engaged in a series of fraudulent
received funds from co-conspirators, which           real estate transactions in which he either
he provided to buyers to use as their down           personally purchased or sold to one or
payments, pay homeowners assessments, and            more straw buyers or co-conspirators
closing costs. Sanders and others facilitated        residential condominium units in Dallas,
the production of false loan documents that          Texas. Osuagwu was able to personally
did not disclose the true source of the buyers’      purchase or assist others in purchasing these
down payments. Sanders recruited straw               units by submitting fraudulent documents,
buyers and coordinated their receipt of down         including false bank statements, employment
payment funds and other buyer incentives.            letters, IRS W-2 statements, and paystubs
                                                     fraudulently indicating the purchaser worked
Losses to the Enterprises associated with this       for Osuagwu’s company, Inforation, Inc.
scheme are greater than $2 million; overall          These documents caused financial institutions
scheme losses are in excess of $13 million.          to issue mortgage loans they otherwise would
                                                     not have issued. Fraud losses suffered by the
Loan Origination Schemes                             banks and Fannie Mae are over $1.5 million.

Loan or mortgage origination schemes are
the most common type of mortgage fraud.



34    Federal Housing Finance Agency Office of Inspector General
                Nearly identical fictitious IRS Form W-2s that were used by co-conspirators
                       as supporting documentation for their mortgage applications.



Guilty Verdict and Plea of Attorney and                 them to a loan officer—co-defendant Maria
Loan Officer in Mortgage Fraud Scheme,                  Bartko—and a straw buyer whom O’Brien
Illinois                                                knew would be fraudulently qualified to
                                                        obtain mortgage loans.
On February 15, 2018, a federal jury
convicted Jessica O’Brien of bank fraud and             Evidence at trial revealed that O’Brien engaged
mail fraud affecting a financial institution            in the alleged wrongful activities and, while
for fraudulently obtaining loans related                carrying them out, was employed as a Special
to the purchase, maintenance, and sale of               Assistant Attorney General for the Illinois
properties in Chicago, Illinois. The jury               Department of Revenue, owned a real estate
found that O’Brien caused lenders to issue              company, and was employed with Bartko as a
and refinance approximately $1.4 million in             loan officer at a mortgage company.
mortgage and commercial loans by making
false representations and concealing material           On January 26, 2018, co-defendant Bartko
facts in documents submitted to the lenders.            pled guilty to mail fraud affecting a financial
Trial evidence demonstrated that O’Brien                institution for her role in this scheme.
used the fraudulently obtained mortgage loan
proceeds to purchase an investment property             Freddie Mac suffered losses as a result of
in Chicago, then refinanced the mortgage on             this scheme.
the property and another investment property
using fictitious documentation. Additionally,
O’Brien obtained a commercial line of credit
to maintain the properties, before selling



                             Semiannual Report to the Congress • October 1, 2017­–March 31, 2018     35
Real Estate Brokers Enter Guilty Pleas in            personal use and business operating expenses.
HELOC “Shotgun” Fraud Scheme,
New Jersey                                           Freddie Mac, the investor on several loans
                                                     involved in this scheme, suffered losses.
On November 3, 2017, Simon Curanaj and
Michael Arroyo, real estate brokers, pled            Loan Modification and Property
guilty to conspiracy to commit bank fraud and        Disposition Schemes
were subsequently ordered to pay forfeiture
of over $1.2 million and $5,500, respectively.       These schemes prey on homeowners.
According to court documents and statements          Businesses typically advertise that they can
made in court, Curanaj, Arroyo, and other co-        secure loan modifications if the homeowners
conspirators obtained multiple Home Equity           pay significant upfront fees or take other
Lines of Credit (HELOCs) from multiple               action that enriches the defendant. Typically,
banks, utilizing false representations and           these businesses take little or no action,
information, while repeatedly pledging the           leaving homeowners in a worse position.
same property as collateral. The property was
pledged as collateral to multiple banks within       Below we summarize two OIG investigations
a short period of time to prevent lenders from       in this category that resulted in a plea
discovering the existence of other pending or        agreement and a sentencing with court-
approved HELOCs. Curanaj, Arroyo, and co-            ordered restitution during this semiannual
conspirators facilitated the submission of false     reporting period. (See Appendix F for a
information to lenders, which ultimately led         summary of publicly reportable investigative
to the approval and disbursement of HELOC            outcomes in this category.)
funds in excess of $1 million. Defendants
received tens of thousands of dollars in             Guilty Plea in Multi-State Loan
HELOC proceeds on loans that went into               Modification Scheme with More Than 550
default. Overall scheme losses are estimated         Victims, Kansas
to be greater than $4.5 million.
                                                     On January 22, 2018, Tyler Korn pled guilty to
Sentencing of Title Agency Owner, Ohio               conspiracy to commit mail and wire fraud for
                                                     his role in a loan modification fraud scheme.
On October 31, 2017, Kimberli Himmel was
sentenced to 60 months in prison, 3 years of         According to the plea agreement, Korn was
supervised release, and ordered to pay more          a co-owner and operator of Reliant Home
than $2.4 million in restitution for her role        Financial Group. He pled guilty to conspiring
in a bank fraud scheme. Himmel previously            with others to defraud distressed homeowners
pled guilty to bank fraud and theft of               by offering fraudulent loan modifications,
government funds.                                    lowered interest rates, and lowered monthly
                                                     mortgage payments.
According to the plea agreement, Himmel
was the owner and operator of Netwide Title          More than 550 victims have been identified
Agency, Inc. (Netwide). Himmel was found             in 24 states, who suffered over $1.2 million in
to have deceived lenders by directing them           direct monetary loss. This loss does not include
to wire escrow funds to her personal bank            additional fees paid by victims to their lenders
account instead of the Netwide official escrow       or losses to lenders and the Enterprises caused
account and to have used the funds for her own       by subsequent foreclosures.



36    Federal Housing Finance Agency Office of Inspector General
Sentencing of Loan Modification Scheme               the property is worth—to sell his/her property
Operator with Approximately 4,000                    for less than the debt owed. Short sale fraud
Victims, California                                  usually involves a borrower who intentionally
                                                     misrepresents or fails to disclose material facts
On February 23, 2018, after previously               to induce a lender to agree to a short sale.
pleading guilty to conspiracy and attempt
to evade or defeat tax, Damian Kutzner was           Below we summarize an OIG investigation
sentenced to 70 months in prison, 3 years            in this category that resulted in a sentencing
of supervised release, and ordered to pay            and court-ordered forfeiture during this
$587,864 in restitution for his role in the          semiannual reporting period. (See Appendix
operation of a loan modification fraud scheme.       E for a summary of publicly reportable
                                                     investigative outcomes in this category.)
Kutzner and others operated United Law
Group (ULG), a California corporation that           Sentencing of Real Estate Flipper in Multi-
claimed to be the largest law firm in the United     Million Dollar Mortgage Fraud Scheme,
States involved with loan modification and           New York
foreclosure prevention law. Kutzner directed
and controlled the operations of ULG.                On January 26, 2018, Dirk Hall was
According to the plea agreement, Kutzner             sentenced to 41 months in prison, 5 years
and others, collectively acting through ULG,         of supervised release, and ordered to pay
defrauded financially distressed homeowners          $550,000 in forfeiture for his role relating to a
by making false promises, including that ULG         multi-million dollar mortgage fraud scheme.
had attorneys nationwide working to file class       Hall previously pled guilty to conspiracy
action lawsuits against major lenders that           to commit bank fraud and wire fraud.
failed to help troubled homeowners. ULG              Previously, six of Hall’s co-conspirators pled
charged fees for their purported attorney            guilty in this scheme, and one co-conspirator
services, including fees to negotiate with           was convicted at trial.
the homeowners’ lenders and to obtain loan
modifications. In reality however, ULG               According to court filings and facts
attorneys rarely, if ever, negotiated with           presented at the sentencing hearing, Hall,
mortgage lenders and ULG did not have                together with others, caused mortgage loan
attorneys on staff with sufficient experience to     applications with false information to be
commence the class action lawsuits.                  submitted to lending institutions to purchase
                                                     residential properties. These applications
The plea agreement stated that ULG                   contained fraudulently inflated purchase
fraudulently collected more than $3                  prices, as well as false information about
million from approximately 4,000 victim              the assets and income of the buyers of
homeowners with this scheme. The                     the properties, many of whom were being
Enterprises, as investors with some of the           compensated as straw buyers. Hall and his
mortgages in this scheme, suffered losses.           co-conspirators also provided false down
                                                     payment checks to make it appear as if the
Short Sale Schemes                                   straw buyers had made down payments
                                                     relating to the purchase of the properties,
Short sales occur when a lender allows a             which was a condition of the lending
borrower who is “underwater” on his/her              institutions for issuing the mortgage loans.
loan—that is, the borrower owes more than



                             Semiannual Report to the Congress • October 1, 2017­–March 31, 2018   37
To conceal their criminal involvement and             H for a summary of publicly reportable
inflate the value of the properties, Hall and         investigative outcomes in this category.)
his co-conspirators conducted simultaneous
purchases and sales of the properties. To             Four Indicted in $2 Million Mortgage
that end, Hall and his co-conspirators                Fraud Scheme, California
used backdated and falsified documents to
conceal from the lending institutions that the        On January 25, 2018, Andrew Valles, Jemal
purchases and sales occurred on the same              Lilly, Mark Bellinger, and Arnold Millman
day and, instead, made it appear as if the            were indicted for grand theft, filing false
transactions between the homeowners and the           or forged documents in a public office,
co-conspirators had occurred over 60 days             conspiracy, and identity theft for their roles in
prior to the sale from the co-conspirators to         a large-scale mortgage fraud scheme.
the straw purchasers.
                                                      According to an indictment, the defendants
Because of the false applications and                 allegedly operated “SafeCare,” a fictitious
appraisals, the lending institutions were             insurance company that purported to sell,
fraudulently induced to issue millions of             for upfront fees, low-interest real estate
dollars of mortgage loans secured by properties       loans. These fictional loans were offered
that had inflated appraisal values to unqualified     with no down-payment requirement and
buyers. In many instances, the straw buyers           were primarily marketed to Latino and
defaulted on their mortgages. Hall and his co-        African American families. The defendants
conspirators profited over $2.7 million from          allegedly filed false bankruptcy and other
this scheme which involved over $5.5 million          court documents using fictitious names to
in mortgage loans, causing losses to financial        delay foreclosure and eviction actions and
institutions and Freddie Mac.                         instructed victims to deposit fees into a bank
                                                      account they controlled. To further victimize
Adverse Possession and Distressed                     their clients, one defendant allegedly posed as
Property Schemes                                      an attorney and charged the victims additional
                                                      fees for legal services. The victims did not
Adverse possession schemes use illegal                receive real estate loans and in fact, many
adverse possession (also known as “home               ultimately lost their homes and life savings.
squatting”) or fraudulent documentation to            Scheme losses to date are approximately
control distressed homes, foreclosed homes,           $2 million to lenders and victims. Potential
and REO properties. In distressed property            losses to the Enterprises are $1 million.
schemes, perpetrators falsely purport to assist
struggling homeowners seeking to delay or             Guilty Verdicts and Plea of Family
avoid foreclosure. They use fraudulent tactics,       Members in $30 Million Mortgage Relief
such as filing false bankruptcy petitions,            Scheme, California
while collecting significant fees from the
homeowners.                                           On December 13, 2017, Jamie Matsuba,
                                                      and her father, Thomas Matsuba, were
Below we summarize three OIG                          convicted after a one-week trial on charges
investigations in this category that resulted         of conspiracy to commit wire fraud, making
in criminal indictments, trial convictions and        false statements to federally insured banks,
a guilty plea, and a sentencing during this           and identity theft.
semiannual reporting period. (See Appendix



38     Federal Housing Finance Agency Office of Inspector General
According to evidence presented at trial,             properties. Ortiz then changed the locks on
Jamie Matsuba, Thomas Matsuba, and others             the homes, installed over $50,000 in security
engaged in a scheme to defraud financially            equipment, and contracted with home security
distressed homeowners by offering to prevent          companies to monitor the stolen properties.
foreclosure on their properties through short         Ortiz later listed the stolen properties as
sales. Instead, the co-defendants rented out          collateral on loan applications.
the properties to third parties, did not pay the
mortgages on the properties, and submitted            Ortiz defrauded over $575,000 from banks,
false and fraudulent documents to mortgage            investors, renters, and home security
lenders and servicers to delay foreclosure.           companies because of this scheme. Ortiz
The evidence further established that the co-         deeded two Fannie Mae owned properties
defendants obtained mortgages with stolen             to himself that caused an exposure of over
identities, and used additional fraudulent            $500,000 to Fannie Mae.
tactics, including filing bankruptcy in the
names of distressed homeowners without
their knowledge and fabricating liens on the
distressed properties, to further their scheme.

In a related case, on December 4, 2017,
Dorothy Matsuba pled guilty to conspiracy to
commit wire fraud, wire fraud, making false
statements to federally insured banks, and
aggravated identity theft.

Fannie Mae’s exposure because of this
scheme is approximately $58 million; loss
calculations are ongoing.                           Cadillac Escalade purchased by defendant with proceeds
                                                                    from the fraud scheme.

Sentencing in Deed Fraud Scheme Using
Forged Fannie Mae Executive’s Signature,              Fraud Affecting the Enterprises, the
Texas                                                 FHLBanks, or FHLBank Member
                                                      Institutions
On January 11, 2018, Arnoldo Antonio Ortiz
was sentenced to 10 years in prison for his role      Investigations in this category include a
in a scheme involving the fraudulent deeding          variety of schemes involving Fannie Mae,
of 27 properties valued at over $18 million to        Freddie Mac, the FHLBanks, or members of
entities or individuals that he controlled. Ortiz     FHLBanks.
previously pled guilty to multiple state charges
including theft of property and false statements      Below we summarize three OIG investigations
for property/credit.                                  in this category that resulted in trial
                                                      convictions, a plea, a sentencing, and court-
The investigation revealed that Ortiz forged          ordered restitution and forfeiture during this
the signatures of banks, homeowners, and that         semiannual reporting period. (See Appendix
of a Fannie Mae Executive Vice President              J for a summary of publicly reportable
that were filed with the Dallas County Clerk’s        investigative outcomes in this category.)
Office to obtain distressed or foreclosed



                              Semiannual Report to the Congress • October 1, 2017­–March 31, 2018      39
Attorney, Former CEO, and Former Chief               file one day prior to SVB’s examination by
Loan Officer of Failed Bank Convicted                the Federal Deposit Insurance Corporation
After Trial, California                              (FDIC) and State of California’s Department
                                                     of Financial Institutions. This was an effort
On December 18, 2017, Sean Cutting and               by Cutting to hide the true beneficiary of
Brian Melland, former executives of Sonoma           the 101 Houseco, LLC loan from regulators
Valley Bank (SVB), were convicted of                 because he knew SVB could not loan
conspiracy, bank fraud, wire fraud, money            additional funds to Madjlessi.
laundering, falsifying bank records, lying
to bank regulators, and other crimes. Co-            In addition, Melland was convicted
defendant David Lonich, an attorney for              of receiving a bribe from Madjlessi of
indicted real estate developer Bijan Madjlessi       approximately $50,000. The day after he
(deceased) was also convicted of conspiracy,         received the bribe, Melland recommended
bank fraud, wire fraud, attempted obstruction        that SVB lend approximately $3.65 million to
of justice, and other offenses.                      a straw borrower controlled by Madjlessi.

The evidence at trial demonstrated that Cutting,     In another scheme, according to evidence
Melland, and Lonich were involved in multiple        admitted at trial, Lonich conspired with
schemes to defraud SVB, which ultimately             Cutting and Melland to mislead SVB into
failed, and other financial institutions. The        lending millions to Madjlessi, in the name of
schemes involved years of illegal lending to         a straw borrower, so Madjlessi could illegally
Madjlessi, often using straw borrowers, for          buy back a debt he owed to IndyMac Bank.
real estate projects Park Lane Villas in Santa       IndyMac Bank had failed and been taken over
Rosa, California, and Petaluma Greenbriar            by the FDIC. The defendants conspired to
Apartments in Petaluma, California.                  lend the money to Madjlessi’s straw buyer so
                                                     that Madjlessi could buy the approximately
According to the evidence admitted at trial,         $27 million debt back for only approximately
SVB loaned Madjlessi and persons and                 $4 million, in violation of FDIC rules that
entities he controlled more than $35 million,        prohibit delinquent borrowers from buying
approximately $24.7 million more than the            their own, defaulted notes at auction.
legal lending limit set by SVB’s regulators.
To conceal the high concentration of lending,        Evidence also showed that to help Lonich
Melland and Cutting recommended the bank             gain control of additional units at the Park
approve multi-million dollar loans to straw          Loan Villas, Cutting issued letters on SVB
borrowers, knowing that millions in loan             letterhead stating that Lonich’s potential
proceeds to these straw borrowers would go           straw buyers had sufficient funds at SVB
to Madjlessi and the companies he controlled.        to purchase the units. Upon learning of the
In total, Cutting and Melland gave Madjlessi         federal investigation, Lonich attempted to
and his companies more than $8.6 million in          obstruct justice by instructing a straw buyer to
proceeds from fraudulently obtained loans.           make false statements to federal agents.

The trial exhibit below represents an email          SVB and IndyMac Bank were member banks
chain from SVB’s former Chief Credit                 of the FHLBank of San Francisco. SVB’s
Officer, created to document Cutting’s               failure caused more than $20 million in losses
request that she remove all references to            to the taxpayers.
Madjlessi from the 101 Houseco LLC loan



40    Federal Housing Finance Agency Office of Inspector General
 Evidence presented at trial in the SVB case.




Semiannual Report to the Congress • October 1, 2017­–March 31, 2018   41
Guilty Plea of Mortgage and Title Company             Former Settlement Agent Sentenced After
Owner in Lien Fraud Scheme, Virginia                  Guilty Trial Verdict, New Jersey

On January 30, 2018, Roberto Jaramillo                On March 12, 2018, Mark Andreotti was
pled guilty to wire fraud for his role in a           sentenced to 144 months in prison, 5 years of
misapplied lien funds fraud scheme.                   supervised release, and ordered to pay over
                                                      $2.1 million in restitution. Andreotti was
Jaramillo was a licensed mortgage broker              previously convicted at trial on charges of
and owner of Trust Mortgage LLC (Trust                bank fraud, conspiracy to commit bank fraud,
Mortgage), and Trust Title Services LLC               tax evasion, and failure to file tax returns.
(Trust Title). Trust Mortgage brokered loans
and used a warehouse line of credit at Ameris         According to documents filed in this case
Bank to extend loans to borrowers. Trust Title        and evidence presented at trial, Andreotti
performed closings, or settlements, for sales,        submitted a loan application to a bank
purchases, and refinances of real estate. As          requesting $625,000 to refinance his home
part of its function, Trust Title transferred         mortgage. Andreotti, who owned and operated
liens from one lender to another after                Metropolitan Title and Abstract (Metropolitan),
disbursing collected funds to satisfy existing        used Metropolitan as the settlement agent on
liens and mortgages.                                  the transaction. After the bank transferred the
                                                      $625,000 for the refinance to Metropolitan’s
In his role as the owner of Trust Mortgage,           escrow account, Andreotti spent the money on
Jaramillo certified that all funds advanced           other expenses instead of paying off the first
on the line of credit were maintained in an           mortgage on the house.
escrow account and would be disbursed only
in accordance with the settlement sheet, or           Later, Andreotti conspired with another
HUD-1.                                                individual who worked as a real estate attorney
                                                      to obtain $480,000 by claiming that the money
According to the plea agreement, Jaramillo            would be used to refinance the mortgage on
admitted to transferring funds intended to            the attorney’s house. After the bank transferred
pay off liens for real estate purchases and           the money for the refinance to Metropolitan’s
refinances and instead, used the funds to pay         escrow account, Andreotti kept $110,000 for
business expenses and outstanding debts on            himself before transferring the remaining funds
prior real estate transactions. Neither Ameris        to the other conspirator.
Bank nor the title insurance company was
aware of his fraudulent actions.                      This scheme resulted in at least $1.1 million in
                                                      losses to financial institutions and Fannie Mae.
Jaramillo admitted to fraudulently disbursing
funds during seven separate real estate
transactions. Some loans in this scheme were
purchased by the Enterprises. Exposure to
lenders and the Enterprises because of this
scheme is over $1.2 million.




42     Federal Housing Finance Agency Office of Inspector General
Demonstrative trial exhibit illustrating how wired funds of $629,201.50 that should have been used to pay off
Andreotti’s mortgage were instead kept in Andreotti’s trust account and disbursed to pay unrelated mortgages.




                              Semiannual Report to the Congress • October 1, 2017­–March 31, 2018           43
Outreach                                            Investigations: Administrative
                                                    Actions
OIG develops public-private partnerships
where appropriate. It delivered 48 fraud            In addition to the criminal cases brought
awareness briefings to different audiences          as a result of OIG investigations, OI’s
to raise awareness of its law enforcement           investigative work regularly results in
mission and of fraud schemes targeting              administrative referrals to other entities
FHFA programs.                                      for action. For example, a criminal case of
                                                    mortgage fraud that results in a guilty plea
OIG has developed and intends to further            by a licensed real estate agent, attorney, or
strengthen ongoing close working                    certified public accountant for participation
relationships with other law enforcement            in a bank fraud scheme might result in a
agencies, including DOJ and U.S. Attorneys’         referral by OIG to a state licensing body
offices; FBI; HUD-OIG; FDIC-OIG; IRS-CI;            for disciplinary actions. When a real estate
the Office of the Special Inspector General         professional is prosecuted for mortgage fraud,
for the Troubled Asset Relief Program; the          that prosecution may cause OIG to refer the
Financial Crimes Enforcement Network; state         matter to another federal agency for possible
attorneys general; mortgage fraud working           suspension or debarment of that individual
groups; and other federal, state, and local law     from participation in federal programs.
enforcement agencies nationwide. OI also            During this reporting period, OIG made 47
works closely with Fannie Mae and Freddie           such referrals for suspension and debarment.
Mac to combat fraud.
                                                    Suspended Counterparty
During this reporting period, OIG worked            Referrals
with additional local and state partners,
including the Richmond County, New York,            FHFA has adopted a Suspended Counterparty
District Attorney’s Office; the Los Angeles         Program under which it issues “suspension
County Sheriff’s Office; the Mesquite, Texas,       orders directing the regulated entities to
Police Department; the California Department        cease or refrain” from doing business with
of Justice; the California Department of            counterparties (and their affiliates) that
Insurance; the Prince George’s County,              were previously found to have “engaged
Maryland, Police Department; the Orange             in covered misconduct.” Suspension of
County, California, District Attorney’s             such counterparties is warranted to protect
Office; the Miami-Dade Police Department;           the safety and soundness of the regulated
the Anderson County, Texas, Sheriff’s               entities. For purposes of the program,
Office; the Stanislas County, California,           “covered misconduct” includes convictions or
District Attorney’s Office; the New York            administrative sanctions within the past three
State Department of Financial Services;             years based on fraud or similar misconduct in
the Los Angeles County Recorder’s Office;           connection with the mortgage business. FHFA
the San Diego County Recorder’s Office;             issues suspension orders if the misconduct
the Alameda County Recorder’s Office; the           “is of a type that would be likely to cause
California Department of Consumer Affairs;          significant financial or reputational harm to a
the State Bar of California; the King County,       regulated entity or otherwise threaten the safe
Washington, District Attorney’s Office; and         and sound operation of a regulated entity.”2
the Cedar Hill, Texas, Police Department.




44    Federal Housing Finance Agency Office of Inspector General
During this reporting period, OIG made             A summary of OIG’s referrals during the
27 referrals of counterparties to FHFA for         reporting period is captured in Figure 4
consideration of potential suspension under its    (see below).
Suspended Counterparty Program.


                Figure 4. Administrative Actions
                October 1, 2017 – March 31, 2018

                Suspension/Debarment Referrals to Other Agencies                  47

                Suspended Counterparty Program Referrals to FHFA                  27




                            Semiannual Report to the Congress • October 1, 2017­–March 31, 2018   45
OIG’s Regulatory Activities and Outreach
Regulatory Activities                                 Highlights of our efforts during this reporting
                                                      period include the following:
Pursuant to the Inspector General Act, OIG
assesses whether proposed legislation and             Congress
regulations related to FHFA are efficient,
economical, legal, or susceptible to fraud            To fulfill its mission, OIG works closely
and abuse. OIG is currently assessing                 with Congress and is committed to keeping
proposed, interim final, and final rules              it fully apprised of our oversight of FHFA.
published by FHFA in the Federal Register.            During this semiannual reporting period,
Any recommendations or comments upon                  OIG provided information and briefings to
those rules will be made after these                  congressional staff on OIG work.
assessments conclude.
                                                      Hotline
Public and Private Partnerships,
Outreach, and Communications                          During this reporting period, the OIG hotline
                                                      continued to serve as a vehicle through
The Enterprises and the FHLBanks play                 which Agency, Enterprise, and FHLBank
a critical role in the U.S. housing finance           employees and members of the public
system, and the financial crisis has shown that       can report suspected fraud, waste, abuse,
financial distress at the Enterprises can threaten    mismanagement, or misconduct in Agency
the U.S. economy. American taxpayers put              programs and operations. The individuals
their money and confidence in the hands of            reporting can choose to remain anonymous.
regulators and lawmakers to restore stability
to the economy, and decisions were made to            Close Coordination with Other Oversight
invest $191.5 billion in the Enterprises. The         Organizations
continuing significant role of the Enterprises
and FHLBanks in housing finance demands               During the reporting period, OIG made
constant supervision and monitoring.                  numerous presentations to state and local law
Fundamental to OIG’s mission is independent           enforcement agencies, prosecutors, mortgage
and transparent oversight of Agency programs          fraud working groups across the country,
and operations and of the Enterprises to the          and individual federal agencies sometimes
extent FHFA, as conservator, has delegated            involved in mortgage fraud investigations,
responsibilities to them.                             such as HUD-OIG, FBI, U.S. Postal
                                                      Inspection Service, IRS-CI, and DOJ.
OIG prioritizes outreach and engagement
to communicate its mission and work to                We maintained active participation in
members of Congress and to the public and             coordinated oversight activities during this
to actively participate in government-wide            reporting period:
oversight community activities. We continue
to forge public and private partnerships to           •	 FBI Cybercrimes Task Force. The FBI’s
prevent fraud, encourage transparency, and               Washington, D.C., field office spearheads a
ensure accountability, responsibility, and               cybercrimes task force, and OIG has assigned
ethical leadership.                                       three special agents to it. This multiagency



46     Federal Housing Finance Agency Office of Inspector General
 task force focuses on investigating                  (nationwide); the Colorado Mortgage Lenders
 cybercrimes. OIG made this assignment                Association; Consumer Protection Week
 to help combat such crimes and to work in            in Los Angeles, California; Fort Stanton
 partnership with multiple federal agencies.          Community Center Senior Group; Office
 This concerted effort will help prosecute            of New York City Public Advocate; Reid
 cybercriminals and stop cyberattacks made            Temple Senior Group; Office of New York
 against institutions maintaining PII, trade          City Comptroller; the American Land Title
 secrets, and financial data.                         Association and local and regional banks.

•	 CIGIE. OIG actively participates in several
    CIGIE committees and working groups:
	     o The Inspection and Evaluation
        Committee
	     o The Investigations Committee
	     o The Audit Committee

•	 Council of Inspectors General on
    Financial Oversight (CIGFO). CIGFO
    was created by the Dodd-Frank Wall
    Street Reform and Consumer Protection
    Act of 2010 to oversee the Financial
    Stability Oversight Council (FSOC),
    which is charged with identifying risks
    to the financial stability of the United
    States, promoting market discipline, and
    responding to emerging risks to the stability
    of the U.S. financial system. The FHFA
    IG is a permanent member of CIGFO,
    along with the IGs of Treasury, FDIC, the
    Securities and Exchange Commission, and
    others. By statute, CIGFO may convene
    working groups to evaluate the effectiveness
    and internal operations of FSOC.

Private-Public Partnerships

Housing finance professionals are on
the frontlines and often have a real-time
understanding of emerging threats and
misconduct. We speak with officials at the
FHLBanks and the Enterprises to benefit
from their insights and make presentations
to industry groups. Recent presentations
include: the United States Trustee Program
(nationwide); the North Texas Consumer Task
Force, the Mortgage Bankers Association



                              Semiannual Report to the Congress • October 1, 2017­–March 31, 2018   47
Appendices
Appendix A:
Information Required
by the Inspector                                     activities during the immediately preceding
                                                     six-month periods ending March 31 and
General Act                                          September 30.

Section 5(a) of the Inspector General Act, as        Below, OIG presents a table that directs the
amended, provides that OIG shall, not later          reader to the pages of this report on which
than April 30 and October 31 of each year,           various information required by the Inspector
prepare semiannual reports summarizing our           General Act, as amended, may be found.

                          Source/Requirement                                        Pages

 Section 5(a)(1) – A description of significant problems, abuses, and            8-10, 15-27
 deficiencies relating to the administration of programs and operations
 of FHFA.

 Section 5(a)(2) – A description of the recommendations for                      15-27, 54-86
 corrective action made by OIG with respect to significant problems,
 abuses, or deficiencies.

 Section 5(a)(3) – An identification of each significant recommendation             54-94
 described in previous semiannual reports on which corrective action
 has not been completed.

 Section 5(a)(4) – A summary of matters referred to prosecutive                 28-43, 95-111
 authorities and the prosecutions and convictions that have resulted.

 Section 5(a)(5) – A summary of each report made to the Director of                   53
 FHFA about information or assistance requested and unreasonably
 refused or not provided.

 Section 5(a)(6) – A listing, subdivided according to subject matter, of          15-27, 51
 each audit and evaluation report issued by OIG during the reporting
 period and for each report, where applicable, the total dollar value of
 questioned 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.            10-12, 15-27




48    Federal Housing Finance Agency Office of Inspector General
                        Source/Requirement                                           Pages

Section 5(a)(8) – Statistical tables showing the total number of audit            3, 26-27, 51
and evaluation reports and the total dollar value of questioned and
unsupported costs.

Section 5(a)(9) – Statistical tables showing the total number of audit            3, 26-27, 51
and evaluation reports and the dollar value of recommendations that
funds be put to better use by management.

Section 5(a)(10)(A) – A summary of each audit and evaluation report                    51
issued before the commencement of the reporting period for which no
management decision has been made by the end of the reporting period.

Section 5(a)(10)(B) – A summary of each audit and evaluation report                    51
issued before the commencement of the reporting period for which no
FHFA comment was returned within 60 days of providing the report
to the Agency.

Section 5(a)(10)(C) – A summary of each audit and evaluation report                  54-94
issued before the commencement of the reporting period for which
there are any outstanding unimplemented recommendations, including
the aggregate potential cost savings of those recommendations.

Section 5(a)(11) – A description and explanation of the reasons                        51
for any significant revised management decision made during the
reporting period.

Section 5(a)(12) – Information concerning any significant management                   51
decision with which the Inspector General is in disagreement.

Section 5(a)(13) – The information described under section 804(b) of                 51-52
the Federal Financial Management Improvement Act of 1996.

Section 5(a)(14) – An appendix containing the results of any peer                      52
review conducted by another IG; or the date 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                      52
any peer review conducted by another IG that have not been fully
implemented.

Section 5(a)(16) – A list of any peer reviews of another IG during the                 52
reporting period.



                           Semiannual Report to the Congress • October 1, 2017­–March 31, 2018   49
                          Source/Requirement                                Pages
 Section 5(a)(17) – Statistical tables showing, for the reporting period,    29
 the total number of: investigative reports issued; persons referred
 to DOJ for criminal prosecution; persons referred to State and local
 prosecuting authorities for criminal prosecution; and indictments
 and criminal informations that resulted from any prior referral to
 prosecuting authorities.

 Section 5(a)(18) – A description of the metrics used for developing         29
 the data for the statistical tables under paragraph (17).

 Section 5(a)(19) – A report on each investigation conducted by              52
 OIG involving a senior Government employee where allegations of
 misconduct were substantiated, including a detailed description of
 the facts and circumstances of the investigation, and the status and
 disposition of the matter.

 Section 5(a)(20) – A detailed description of any instance of               52-53
 whistleblower retaliation, including information about the official
 found to have engaged in retaliation and what, if any, consequences
 FHFA imposed to hold that official accountable.

 Section 5(a)(21) – A detailed description of any attempt by FHFA            53
 to interfere with the independence of OIG, including with budget
 constraints designed to limit OIG’s capabilities, and incidents where
 FHFA has resisted or objected to OIG oversight activities or restricted
 or significantly delayed access to information.

 Section 5(a)(22)(A) – Detailed descriptions of the particular               53
 circumstances of each evaluation and audit conducted by OIG that is
 closed and was not disclosed to the public.

 Section 5(a)(22)(B) – Detailed descriptions of the particular              52-53
 circumstances of each investigation conducted by OIG involving a
 senior Government employee that is closed and was not disclosed to
 the public.




50   Federal Housing Finance Agency Office of Inspector General
Reports Identifying Questioned Costs, No Agency Response Within 60 Days
Unsupported Costs, and Funds to Be
Put to Better Use by Management       Section 5(a)(10)(B) of the Inspector General
Issued During the Semiannual Period Act, as amended, requires that OIG report on
                                                  each audit, inspection, and evaluation report
Section 5(a)(6) of the Inspector General Act,     issued before the commencement of the
as amended, requires that OIG list its audit      reporting period for which no FHFA comment
reports, inspection reports, and evaluation       was returned within 60 days of providing the
reports issued during the semiannual              report to the Agency. There were no audit,
period that include questioned costs,             inspection, or evaluation reports issued before
unsupported costs, and funds to be put to         October 1, 2017, for which OIG did not
better use. Section 5(a)(8) and section 5(a)      receive a response within 60 days of providing
(9), respectively, require OIG to publish         the report to the Agency for comment.
statistical tables showing the total number
of audit reports, inspection reports, and         Significant Revised Management
evaluation reports and the dollar value of        Decisions
questioned and unsupported costs, and of
recommendations that funds be put to better       Section 5(a)(11) of the Inspector General
use by management. Oversight conducted            Act, as amended, requires that OIG report
by OIG is not limited to reports issuing          information concerning the reasons for any
from inspections, audits, and evaluations.        significant revised management decision made
OIG also issues management alerts, special        during the reporting period. During the six-
reports, status reports, and compliance           month reporting period ended March 31, 2018,
reviews in furtherance of its mission. During     there were no significant revised management
this semiannual reporting period, we had no       decisions by FHFA.
questioned and unsupported costs identified in
an OIG report issued during the period and no     Significant Management Decisions
recommendations that funds be put to better       with Which the Inspector General
use.                                              Disagrees

Audit and Evaluation Reports with                 Section 5(a)(12) of the Inspector General
No Management Decision                            Act, as amended, requires that OIG report
                                                  information concerning any significant
Section 5(a)(10)(A) of the Inspector General      management decision with which the Inspector
Act, as amended, requires that OIG report         General is in disagreement. During the six-
on each audit, inspection, and evaluation         month reporting period ended March 31,
report issued before the commencement             2018, there were no significant management
of the reporting period for which no              decisions by FHFA with which the Inspector
management decision has been made by              General disagreed.
the end of the reporting period. There were
no audit, inspection, or evaluation reports       Federal Financial Management
issued before October 1, 2017, that await a       Improvement Act of 1996
management decision.
                                                  Section 5(a)(13) of the Inspector General
                                                  Act, as amended, requires that OIG report
                                                  information concerning instances of and



                           Semiannual Report to the Congress • October 1, 2017­–March 31, 2018   51
reasons for failures to meet any intermediate       function is in compliance with the quality
target dates from remediation plans designed        standards established by the CIGIE and the
to remedy findings that the Agency’s financial      applicable Attorney General guidelines. In the
management systems do not comply with               Letter of Observations, NRC-OIG recognized
federal financial management system                 OIG for employing five “best practices” in its
requirements, applicable federal accounting         investigative operations.
standards, and the United States Government
Standard General Ledger at the transaction          The most recent peer review of our audit
level. For the six-month reporting period ended     organization was conducted by the Pension
March 31, 2018, this reporting provision did not    Benefit Guaranty Corporation Office of
apply to the Agency or OIG.                         Inspector General and reported on February
                                                    28, 2017. OIG received a final System
HERA requires the Government Accountability         Review Report with a rating of pass, which
Office (GAO) to audit FHFA financial                is the highest rating that can be issued to an
statements. In its Financial Audit: Federal         audit organization.
Housing Finance Agency’s Fiscal Years 2017
and 2016 Financial Statements report, GAO           Copies of both peer review reports are on OIG’s
did not identify any deficiencies in FHFA’s         website under Current Peer Review Reports.
internal controls over financial reporting that
it considered to be a material weakness or          During this semiannual reporting period,
significant deficiency. GAO also reported           we conducted an external peer review of the
that its test for compliance with provisions        National Labor Relations Board Office of
of applicable laws, regulations, contracts,         Inspector General audit organization.
and grant agreements disclosed no reportable
instances of noncompliance.                         Investigations into Allegations
                                                    of Employee Misconduct and
Peer Reviews                                        Whistleblower Retaliation

Sections 5(a)(14), (15), and (16) of the            In accordance with the Inspector General Act,
Inspector General Act, as amended, require          as amended, Sections 5(a)(19), (20), (22)(B),
that OIG provide information relevant to the        and 5(e), OIG is required to report certain
semiannual period on any peer reviews of OIG,       information regarding (1) investigations
unimplemented recommendations from any              involving senior government employees or (2)
peer reviews of OIG, and any peer reviews           government officials found to have engaged in
conducted by OIG.                                   whistleblower retaliation.

The most recent peer review of our                  Sections 5(a)(19) and 5(e)(1) of the Inspector
investigative function was conducted by the         General Act, as amended, require that OIG
United States Nuclear Regulatory Commission         report—to the extent that public disclosure
Office of Inspector General (NRC-OIG) and           of the information is not prohibited by law
reported on July 12, 2017. NRC-OIG issued           (e.g., the Privacy Act of 1974)—on each
an Opinion Letter and a Letter of Observations      investigation it conducted involving a senior
detailing the results of its review. In the         government employee when allegations of
Opinion Letter, the NRC-OIG reported that           misconduct were substantiated. OIG does not
OIG’s system of internal safeguards and             have any reportable information during the
management procedures for our investigative         applicable time frame.



52    Federal Housing Finance Agency Office of Inspector General
Sections 5(a)(20) and 5(e)(1) of the Inspector      Interference with Independence
General Act, as amended, require that OIG
report—to the extent that public disclosure of      Section 5(a)(21) of the Inspector General
the information is not prohibited by law (e.g.,     Act, as amended, requires that OIG report
the Privacy Act of 1974)—on any instance of         any attempt by FHFA to interfere with the
whistleblower retaliation by an official found      independence of the office, including through
to have engaged in retaliation. OIG does not        budget constraints designed to limit OIG’s
have any reportable information during the          capabilities and resistance or objection to
applicable time frame.                              OIG’s oversight activities or restricting or
                                                    significantly delaying access to information.
Sections 5(a)(22)(B) and 5(e)(1) of the             OIG does not have any reportable information
Inspector General Act, as amended, require          during the applicable time frame.
that OIG report—to the extent that public            
disclosure of the information is not prohibited
by law (e.g., the Privacy Act of 1974)—
on each investigation involving a senior
government employee that is closed and was
not disclosed to the public. OIG does not
have any reportable information during the
applicable time frame.

Audits or Evaluations That Were
Closed and Not Disclosed

Sections 5(a)(22)(A) and 5(e)(1) of the
Inspector General Act, as amended, require
that OIG report—to the extent that public
disclosure of the information is not prohibited
by law (e.g., the Privacy Act of 1974,
confidential supervisory information, trade
secrets)—the particular circumstances of
each inspection, evaluation, and audit OIG
conducted that is closed and was not disclosed
to the public. During this reporting period,
OIG did not close any inspection, evaluation,
or audit without disclosing the existence of
the report to the public. OIG issued several
reports during this reporting period that
contained information which is privileged,
confidential, or could be used to circumvent
FHFA’s internal controls, and, accordingly,
OIG has not publicly disclosed such contents.
It has provided unredacted reports to its
congressional oversight committees.




                             Semiannual Report to the Congress • October 1, 2017­–March 31, 2018   53
Appendix B: OIG                                      summarizes OIG’s recommendations still
                                                     pending, and includes all recommendations
Recommendations                                      made during this reporting period. Figure 6
                                                     (see page 73) summarizes OIG’s outstanding
In accordance with the provisions of the             unimplemented recommendations. Figure
Inspector General Act, one of the key                7 (see page 74) lists OIG’s outstanding
duties of OIG is to provide to FHFA                  unimplemented open recommendations,
recommendations that promote economy,                organized by risk area. Figure 8 (see page
efficiency, and effectiveness in the Agency’s        87) lists OIG’s closed, unimplemented
operations and aid in the prevention                 recommendations. Summaries for all reports
and detection of fraud, waste, or abuse.             are available on OIG’s website or through the
Since OIG began operations in October                links provided in the accompanying tables.
2010, we have made approximately 400                 OIG also publishes a Compendium of Open
recommendations. Figure 5 (see page 55)              Recommendations on its website.




54    Federal Housing Finance Agency Office of Inspector General
Figure 5.
Summary of OIG Recommendations
                                                              Report Name
   Number                  Recommendation                       and Date                 Status
AUD-2018-008-1 FHFA should train DER examiners         FHFA Failed to Ensure       Recommendation
               on the elements of the current OPB      Freddie Mac’s Remedial      agreed to
               standard for MRA issuance, follow-      Plans for a Cybersecurity   by FHFA;
               up and closure, which include: (a) a    MRA Addressed All           implementation of
               requirement that examiners ensure       Deficiencies; as Allowed    recommendation
               that proposed corrective actions        by its Standard, FHFA       pending.
               in remedial plans are sufficient to     Closed the MRA
               address the deficiency underlying an    after Independently
               MRA before issuing non-objection        Determining the
               letters; and (b) a requirement that     Enterprise Completed
               examiners determine, after an           its Planned Remedial
               Enterprise implements its remedial      Actions (AUD-2018-
               plan, that the deficiency giving rise   008, March 28, 2018)
               to the MRA has been satisfactorily
               addressed.
AUD-2018-008-2 FHFA should ensure that Freddie Mac     FHFA Failed to Ensure       Recommendation
               takes, or has taken, remedial action    Freddie Mac’s Remedial      agreed to
               to address the deficiency underlying    Plans for a Cybersecurity   by FHFA;
               the MRA regarding the need to           MRA Addressed All           implementation of
               implement a process to verify and       Deficiencies; as Allowed    recommendation
               monitor [certain matters].              by its Standard, FHFA       pending.
                                                       Closed the MRA
                                                       after Independently
                                                       Determining the
                                                       Enterprise Completed
                                                       its Planned Remedial
                                                       Actions (AUD-2018-
                                                       008, March 28, 2018)




                           Semiannual Report to the Congress • October 1, 2017­–March 31, 2018    55
                                                             Report Name
   Number                 Recommendation                       and Date                 Status
AUD-2018-006-1 FHFA should reinforce, in examiner      FHFA Completed its         Recommendation
               training, the need to prepare           Planned Procedures for a   agreed to
               workpapers for targeted examinations 2016 Representation and       by FHFA;
               with sufficient detail and clarity to   Warranty Framework         implementation of
               provide a third party with a clear      Targeted Examination       recommendation
               understanding of the examination        at Freddie Mac,            pending.
               work performed; the examination         but the Supporting
               findings, conclusions, and ratings      Workpapers Did Not
               reached; and any implications of the Sufficiently Document
               findings, conclusions, and ratings.     the Examination Work
                                                       (AUD-2018-006, March
                                                       13, 2018)
AUD-2017-010-2 FHFA should reinforce through           FHFA Failed to             Recommendation
               training and supervision of DER         Complete Non-MRA           partially agreed
AUD-2017-011-1
               personnel, the requirements             Supervisory Activities     to by FHFA;
               established by FHFA and reinforced      Related to Cybersecurity   implementation of
               by DER guidance, for the risk           Risks at Fannie Mae        recommendation
               assessment and supervisory planning Planned for the 2016           pending.
               process. Specifically:                  Examination Cycle
                                                       (AUD-2017-010,
                a.	 Ensure that the annual
                                                       September 27, 2017);
                     supervisory strategy identifies
                                                       FHFA Did Not Complete
                     significant risks and supervisory
                                                       All Planned Supervisory
                     concerns and explains how the
                                                       Activities Related to
                     planned supervisory activities
                                                       Cybersecurity Risk at
                     to be conducted during the
                                                       Freddie Mac for the
                     examination cycle address the
                                                       2016 Examination
                     most significant risks in the
                                                       Cycle (AUD-2017-011,
                     operational risk assessment.
                                                       September 27, 2017)
                     (Applies to AUD-2017-010 and
                     AUD-2017-011)

                    b.	 Ensure that supervisory
                        activities planned during an
                        examination cycle to address
                        the most significant risks in
                        the operational risk assessment
                        are completed within the
                        examination cycle. (Applies to
                        AUD-2017-010)


56    Federal Housing Finance Agency Office of Inspector General
                                                               Report Name
   Number                 Recommendation                         and Date                 Status
AUD-2017-010-3 FHFA should, except for rare              FHFA Failed to             Recommendation
               instances where DER has an urgent         Complete Non-MRA           agreed to
AUD-2017-011-2
               need to communicate significant           Supervisory Activities     by FHFA;
               supervisory concerns to an Enterprise     Related to Cybersecurity   implementation of
               board, ensure that all supervisory        Risks at Fannie Mae        recommendation
               conclusions and findings reported         Planned for the 2016       pending.
               by DER in the Enterprise’s annual         Examination Cycle
               reports of examination (ROEs) are         (AUD-2017-010,
               based on completed work that has          September 27, 2017);
               been previously communicated, when        FHFA Did Not Complete
               required, in writing to the Enterprise.   All Planned Supervisory
                                                         Activities Related to
                                                         Cybersecurity Risk at
                                                         Freddie Mac for the
                                                         2016 Examination
                                                         Cycle (AUD-2017-011,
                                                         September 27, 2017)
AUD-2017-010-1 FHFA should assess whether DER            FHFA Failed to             Recommendation
               has a sufficient complement of            Complete Non-MRA           partially agreed
               qualified examiners to conduct and        Supervisory Activities     to by FHFA;
               complete those examinations rated         Related to Cybersecurity   implementation of
               by DER to be of high-priority             Risks at Fannie Mae        recommendation
               within each supervisory cycle and         Planned for the 2016       pending.
               address the resource constraints          Examination Cycle
               that have adversely affected DER’s        (AUD-2017-010,
               ability to carry out its risk-based       September 27, 2017)
               supervisory plans.
AUD-2017-008-1 FHFA should reinforce the                 FHFA’s 2015 Report of      Recommendation
               requirements of DEROPB02 and              Examination to Fannie      agreed to
               hold DER leadership accountable           Mae Failed to Follow       by FHFA;
               to ensure that targeted examination       FHFA’s Standards           implementation of
               conclusions presented in the ROE          Because it Reported        recommendation
               are based on work that has either (1)     on an Incomplete           pending.
               undergone quality control review and      Targeted Examination
               been communicated in writing to the       of the Enterprise’s New
               Enterprise, or (2) the required quality   Representation and
               control review has been waived by         Warranty Framework
               the Deputy Director of DER and            (AUD-2017-008,
               documented in writing.                    September 22, 2017)


                            Semiannual Report to the Congress • October 1, 2017­–March 31, 2018    57
                                                            Report Name
   Number                  Recommendation                     and Date              Status
AUD-2017-007-1 The FHFA Privacy Office should         Performance Audit of    Recommendation
               conduct a comprehensive business       the Federal Housing     agreed to
               process analysis to identify all FHFA Finance Agency’s         by FHFA;
               business processes that collect PII in (FHFA) Privacy          implementation of
               electronic and hardcopy form to build Program (AUD-2017-       recommendation
               an inventory of where PII is stored.   007, August 30, 2017)   pending.
AUD-2017-007-2 The FHFA Privacy Office should         Performance Audit of    Recommendation
               develop manual and automated           the Federal Housing     agreed to
               processes to maintain an accurate and Finance Agency’s         by FHFA;
               complete inventory of where PII is     (FHFA) Privacy          implementation of
               stored.                                Program (AUD-2017-      recommendation
                                                      007, August 30, 2017)   pending.
AUD-2017-007-3 The FHFA Privacy Office should         Performance Audit of    Recommendation
               establish, implement, and train end    the Federal Housing     agreed to
               users to apply naming conventions to Finance Agency’s          by FHFA;
               files and folders containing PII.      (FHFA) Privacy          implementation of
                                                      Program (AUD-2017-      recommendation
                                                      007, August 30, 2017)   pending.
AUD-2017-007-4 The FHFA Privacy Office should         Performance Audit of    Recommendation
               conduct a feasibility study of         the Federal Housing     agreed to
               available technologies to supplement Finance Agency’s          by FHFA;
               the manual and automated processes (FHFA) Privacy              implementation of
               to identify and secure PII at rest and Program (AUD-2017-      recommendation
               in transit.                            007, August 30, 2017)   pending.
AUD-2017-007-5 FHFA should enhance System Owner Performance Audit of          OIG review
               training to include FHFA access        the Federal Housing     pending closure.
               control policies.                      Finance Agency’s
                                                      (FHFA) Privacy
                                                      Program (AUD-2017-
                                                      007, August 30, 2017)
AUD-2017-007-6 FHFA should review all privileged      Performance Audit of    Recommendation
               user accounts, obtain authorizations   the Federal Housing     agreed to
               for users where none are currently     Finance Agency’s        by FHFA;
               documented, and remove access for      (FHFA) Privacy          implementation of
               those not authorized.                  Program (AUD-2017-      recommendation
                                                      007, August 30, 2017)   pending.




58   Federal Housing Finance Agency Office of Inspector General
                                                               Report Name
   Number               Recommendation                           and Date               Status
AUD-2017-006-1 FHFA should, based on the goals and       NPL Sales: Additional    OIG review
               requirements of non-performing loan       Controls Would           pending closure.
               (NPL) sales, as established by the        Increase Compliance
               Agency:                                   with FHFA’s Sales
                                                         Requirements (AUD-
                   a.	 Determine the information
                                                         2017-006, July 24, 2017)
                       necessary to assess whether all
                       of the goals and requirements
                       are being met;

                   b.	 Update/modify the NPL
                       sales reporting requirements
                       as necessary to obtain that
                       information; and

                c.	 Update/modify the templates the
                     Enterprises use to collect loan-
                     level data from NPL buyers and
                     servicers, as necessary.
AUD-2017-005-2 Because information in the report         FHFA’s Processes for     OIG review
               could be used to circumvent FHFA’s        General Support System   pending closure.
               internal controls, it has not been        Component Inventory
               released publicly.                        Need Improvement
                                                         (AUD-2017-005,
                                                         May 25, 2017)




                            Semiannual Report to the Congress • October 1, 2017­–March 31, 2018      59
                                                              Report Name
   Number                 Recommendation                         and Date                   Status
AUD-2016-007-2 FHFA should assess whether DER           FHFA’s Targeted             Recommendation
               has a sufficient complement of           Examinations of             partially agreed
AUD-2016-006-2
               qualified examiners to conduct and       Freddie Mac: Just Over      to by FHFA;
               complete those examinations rated        Half of the Targeted        implementation of
               by DER to be of high-priority within     Examinations Planned        recommendation
               each supervisory cycle and address       for 2012 through 2015       pending. FHFA
               the resource constraints that have       Were Completed (AUD-        provided
               adversely affected DER’s ability to      2016-007, September         documentation
               carry out its risk-based supervisory     30, 2016); FHFA’s           on August 17,
               plans.                                   Targeted Examinations       2017, that it
                                                        of Fannie Mae: Less         assessed whether
                                                        than Half of the Targeted   staffing levels
                                                        Examinations Planned        were sufficient
                                                        for 2012 through 2015       to carry out DER
                                                        Were Completed and          responsibilities
                                                        No Examinations             for fulfillment of
                                                        Planned for 2015 Were       FHFA’s mission
                                                        Completed Before the        for fiscal year
                                                        Report of Examination       2018. However,
                                                        Issued (AUD-2016-006,       we made the same
                                                        September 30, 2016)         recommendation
                                                                                    in AUD-2017-010
                                                                                    and reported the
                                                                                    recommendation
                                                                                    remained opened.




60   Federal Housing Finance Agency Office of Inspector General
                                                             Report Name
   Number                 Recommendation                       and Date                 Status
AUD-2012-003-1 FHFA’s Division of Housing Mission       FHFA’s Oversight of      Recommendation
               and Goals should formally establish      Fannie Mae’s Single-     agreed to
               a policy for its review process of       Family Underwriting      by FHFA;
               underwriting standards and variances     Standards (AUD-2012-     implementation of
               including escalation of unresolved       003, March 22, 2012)     recommendation
               issues reflecting potential lack of                               pending. Based
               agreement.                                                        on COM-
                                                                                 2016-001, the
                                                                                 recommendation
                                                                                 was reopened.
                                                                                 OIG conducted
                                                                                 a review in
                                                                                 September 2017
                                                                                 to validate the
                                                                                 effectiveness of
                                                                                 FHFA’s remedial
                                                                                 actions and
                                                                                 concluded that the
                                                                                 record provided
                                                                                 an insufficient
                                                                                 basis on which
                                                                                 to close the
                                                                                 recommendation.
                                                                                 See COM-2018-
                                                                                 003.
EVL-2018-003-1 FHFA should adopt clear guidance for      FHFA’s Adoption         Recommendation
               examiners to follow when assessing       of Clear Guidance        agreed to
               the sufficiency of MRA remediation       on the Review of         by FHFA;
               by the Enterprises that identifies the   the Enterprises’         implementation of
               work steps that should be included in    Internal Audit Work      recommendation
               examiners’ independent assessments       When Assessing           pending.
               of Internal Audit’s work and specifies   the Sufficiency of
               the conditions under which examiner      Remediation of Serious
               testing is expected.                     Deficiencies Would
                                                        Assist FHFA Examiners
                                                        (EVL-2018-003, March
                                                        28, 2018)




                           Semiannual Report to the Congress • October 1, 2017­–March 31, 2018   61
                                                            Report Name
   Number                 Recommendation                      and Date                 Status
EVL-2018-002-1 FHFA should periodically conclude,     FHFA Requires the         Recommendation
               based upon sufficient examination      Enterprises’ Internal     not accepted by
               work, on the overall effectiveness of Audit Functions to         FHFA.
               the Internal Audit functions at Fannie Validate Remediation
               Mae and Freddie Mac.                   of Serious Deficiencies
                                                      but Provides No
                                                      Guidance and Imposes
                                                      No Preconditions on
                                                      Examiners’ Use of that
                                                      Validation Work (EVL-
                                                      2018-002, March 28,
                                                      2018)
EVL-2018-002-2 FHFA should revise its guidance to     FHFA Requires the         Recommendation
               provide clear direction to examiners   Enterprises’ Internal     agreed to
               on whether, or the circumstances       Audit Functions to        by FHFA;
               under which, its examiners may         Validate Remediation      implementation of
               rely on information, analyses,         of Serious Deficiencies   recommendation
               or conclusions provided by an          but Provides No           pending.
               Enterprise’s Internal Audit function   Guidance and Imposes
               when assessing the adequacy of MRA No Preconditions on
               remediation.                           Examiners’ Use of that
                                                      Validation Work (EVL-
                                                      2018-002, March 28,
                                                      2018)
EVL-2018-002-3 FHFA should direct that examiners      FHFA Requires the         Recommendation
               can use Internal Audit work to assess Enterprises’ Internal      not accepted by
               the adequacy of MRA remediation        Audit Functions to        FHFA.
               only if FHFA has concluded that the    Validate Remediation
               Internal Audit function is effective   of Serious Deficiencies
               overall.                               but Provides No
                                                      Guidance and Imposes
                                                      No Preconditions on
                                                      Examiners’ Use of that
                                                      Validation Work (EVL-
                                                      2018-002, March 28,
                                                      2018)




62   Federal Housing Finance Agency Office of Inspector General
                                                              Report Name
   Number                Recommendation                         and Date                 Status
EVL-2018-001-1 FHFA should provide guidance to          Corporate Governance:      Recommendation
               Fannie Mae on FHFA governance            Review and Resolution      agreed to
               expectations regarding authority to      of Conflicts of Interest   by FHFA;
               review and resolve actual, potential,    Involving Fannie           implementation of
               and apparent conflicts of interest       Mae’s Senior Executive     recommendation
               involving SEO positions.                 Officers Highlight         pending.
                                                        the Need for Closer
                                                        Attention to Governance
                                                        Issues by FHFA (EVL-
                                                        2018-001, January 31,
                                                        2018).
EVL-2018-001-2 FHFA should direct Fannie Mae            Corporate Governance:      Recommendation
               to conduct a comprehensive               Review and Resolution      agreed to
               internal review of its governance        of Conflicts of Interest   by FHFA;
               documents (both board and                Involving Fannie           implementation of
               management generated) for                Mae’s Senior Executive     recommendation
               consistency and clarity, with specific   Officers Highlight         pending.
               emphasis on the assignment of            the Need for Closer
               authority to review and resolve          Attention to Governance
               conflict of interest matters involving   Issues by FHFA (EVL-
               SEO positions, by seniority and rank,    2018-001, January 31,
               and the process to be used to review     2018).
               and resolve such conflicts.




                            Semiannual Report to the Congress • October 1, 2017­–March 31, 2018   63
                                                                 Report Name
   Number                  Recommendation                          and Date                 Status
EVL-2018-001-3 FHFA should direct the Fannie               Corporate Governance:      Recommendation
               Mae Board of Directors to review            Review and Resolution      agreed to
               the results of the comprehensive            of Conflicts of Interest   by FHFA;
               internal review and determine               Involving Fannie           implementation of
               whether authority to review and             Mae’s Senior Executive     recommendation
               resolve conflict of interest matters        Officers Highlight         pending.
               involving specific SEO positions, by        the Need for Closer
               seniority and rank, should be vested        Attention to Governance
               in a Board committee or delegated           Issues by FHFA (EVL-
               to Fannie Mae management, and               2018-001, January 31,
               determine the process to be used to         2018).
               review and resolve such conflicts.
               Should the Board determine to
               delegate to management authority
               to review and resolve all potential,
               actual, or apparent conflicts of interest
               involving the CEO and the CEO’s
               direct reports, counsel the Board on
               the process that should be put into
               place to require management to report
               its resolution of all such conflicts to a
               Board committee for its review.
EVL-2018-001-4 FHFA should, to the extent that             Corporate Governance:      Recommendation
               the Fannie Mae Board of Directors           Review and Resolution      agreed to
               determines to delegate authority to the     of Conflicts of Interest   by FHFA;
               Chief Compliance and Ethics Officer         Involving Fannie           implementation of
               (CCO) and FM Ethics to review and           Mae’s Senior Executive     recommendation
               resolve certain conflicts of interest       Officers Highlight         pending.
               involving SEOs, counsel the Board           the Need for Closer
               to amend the relevant governance            Attention to Governance
               documents and establish a reporting         Issues by FHFA (EVL-
               relationship between the NGC, FM            2018-001, January 31,
               Ethics, and the CCO.                        2018).




64    Federal Housing Finance Agency Office of Inspector General
                                                              Report Name
   Number                  Recommendation                       and Date                 Status
EVL-2018-001-5 FHFA should direct FHFA employees Corporate Governance:             Recommendation
               to monitor the review and resolution Review and Resolution          agreed to
               of SEO disclosures of potential,         of Conflicts of Interest   by FHFA;
               actual, or apparent conflicts of         Involving Fannie           implementation of
               interest to ensure that revised          Mae’s Senior Executive     recommendation
               Board committee charter(s) and           Officers Highlight         pending.
               management policies and procedures the Need for Closer
               are being followed.                      Attention to Governance
                                                        Issues by FHFA (EVL-
                                                        2018-001, January 31,
                                                        2018).
EVL-2018-001-6 FHFA should direct the NGC to use        Corporate Governance:      Recommendation
               its authority to retain, as appropriate, Review and Resolution      agreed to
               independent outside corporate            of Conflicts of Interest   by FHFA;
               governance experts to assist it in       Involving Fannie           implementation of
               fulfilling its obligations under the     Mae’s Senior Executive     recommendation
               NGC Charter.                             Officers Highlight         pending.
                                                        the Need for Closer
                                                        Attention to Governance
                                                        Issues by FHFA (EVL-
                                                        2018-001, January 31,
                                                        2018).
EVL-2018-001-7 FHFA should direct the Fannie Mae        Corporate Governance:      Recommendation
               Board of Directors to assess the         Review and Resolution      agreed to
               skills and professional experiences      of Conflicts of Interest   by FHFA;
               of current board members and, as         Involving Fannie           implementation of
               vacancies occur, prioritize candidates Mae’s Senior Executive       recommendation
               with demonstrable expertise in           Officers Highlight         pending.
               corporate governance.                    the Need for Closer
                                                        Attention to Governance
                                                        Issues by FHFA (EVL-
                                                        2018-001, January 31,
                                                        2018).




                            Semiannual Report to the Congress • October 1, 2017­–March 31, 2018   65
                                                            Report Name
   Number                  Recommendation                     and Date                 Status
EVL-2018-001-8 FHFA should require the NGC to         Corporate Governance:      Recommendation
               fully document, in meeting minutes,    Review and Resolution      agreed to
               its discussions, deliberations, and    of Conflicts of Interest   by FHFA;
               actions at each meeting to ensure      Involving Fannie           implementation of
               an effective flow of information       Mae’s Senior Executive     recommendation
               between the NGC and other directors Officers Highlight            pending.
               and to provide FHFA with sufficient    the Need for Closer
               information to enable it to assess     Attention to Governance
               whether the NGC is meeting the         Issues by FHFA (EVL-
               responsibilities and obligations set   2018-001, January 31,
               forth in its Charter.                  2018).
EVL-2017-006-1 DER should enhance its quality         The Gap in FHFA’s          Recommendation
               control review program so that         Quality Control Review     agreed to
               examination conclusions from           Program Increases          by FHFA;
               ongoing monitoring activities          the Risk of Inaccurate     implementation of
               which do not result in findings or     Conclusions in its         recommendation
               remediation letters are subject to a   Reports of Examination     pending.
               quality control review prior to being  of Fannie Mae and
               communicated to the Enterprises in     Freddie Mac (EVL-
               ROEs.                                  2017-006, August 17,
                                                      2017)
EVL-2017-002-1 In 2017, or as expeditiously as        FHFA’s Examinations        OIG review
               possible, FHFA should complete the Have Not Confirmed             pending closure.
               examination activities necessary to    Compliance by One
               determine whether [the Enterprise’s] Enterprise with its
               risk management of nonbank seller/     Advisory Bulletins
               servicers meets FHFA’s supervisory     Regarding Risk
               expectations as set forth in its       Management of
               supervisory guidance. These activities Nonbank Sellers and
               should include an independent          Servicers (EVL-2017-
               assessment of the [related matters].   002, December 21,
                                                      2016)




66   Federal Housing Finance Agency Office of Inspector General
                                                             Report Name
   Number                 Recommendation                       and Date                 Status
EVL-2016-007-1 FHFA should require the Enterprises FHFA’s Inconsistent            OIG review
               to provide, in their remediation plans, Practices in Assessing     pending closure.
               the target date in which their internal Enterprise Remediation
               audit departments expect to validate    of Serious Deficiencies
               management’s remediation of MRAs, and Weaknesses in its
               and require examiners to enter that     Tracking Systems Limit
               date into a dedicated field in the MRA the Effectiveness of
               tracking system.                        FHFA’s Supervision of
                                                       the Enterprises (EVL-
                                                       2016-007, July 14, 2016)
EVL-2016-006-1 FHFA should direct the Fannie Mae       Corporate Governance:      Recommendation
               Board to enhance Fannie Mae’s           Cyber Risk Oversight by    agreed to
               existing cyber risk management          the Fannie Mae Board of    by FHFA;
               policies to:                            Directors Highlights the   implementation of
                                                       Need for FHFA’s Closer     recommendation
                a.	 Require a baseline Enterprise-
                                                       Attention to Governance    pending.
                     wide cyber risk assessment with
                                                       Issues (EVL-2016-006,
                     subsequent periodic updates;
                                                       March 31, 2016)
                b.	 Describe information to be
                     reported to the Board and
                     committees;

                   c.	 Include a cyber risk framework
                       and cyber risk appetite.




                            Semiannual Report to the Congress • October 1, 2017­–March 31, 2018      67
                                                               Report Name
   Number                  Recommendation                        and Date                 Status
EVL-2016-006-3 FHFA should direct the Fannie Mae         Corporate Governance:      Recommendation
               Board to oversee management’s             Cyber Risk Oversight by    agreed to
               efforts to leverage industry standards    the Fannie Mae Board of    by FHFA;
               to:                                       Directors Highlights the   implementation of
                                                         Need for FHFA’s Closer     recommendation
                    a.	 Protect against and detect
                                                         Attention to Governance    pending.
                        existing threats;
                                                         Issues (EVL-2016-006,
                    b.	 Remain informed on emerging      March 31, 2016)
                        risks;

                    c.	 Enable timely response and
                        recovery 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-2016-003-3 FHFA should comply with FSOC              FHFA Should Map            Recommendation
               recommendations to address the            Its Supervisory            agreed to
               gaps, as prioritized, to reflect and      Standards for Cyber        by FHFA;
               incorporate appropriate elements of       Risk Management to         implementation of
               the National Institute of Standards       Appropriate Elements       recommendation
               and Technology (NIST) Framework.          of the NIST Framework      pending.
                                                         (EVL-2016-003, March
                                                         28, 2016)
EVL-2016-003-4 FHFA should comply with FSOC              FHFA Should Map            Recommendation
               recommendations to revise existing        Its Supervisory            agreed to
               regulatory guidance to reflect and        Standards for Cyber        by FHFA;
               incorporate appropriate elements of       Risk Management to         implementation of
               the NIST Framework in a manner            Appropriate Elements       recommendation
               that achieves consistency with other      of the NIST Framework      pending.
               federal financial regulators.             (EVL-2016-003, March
                                                         28, 2016)




68    Federal Housing Finance Agency Office of Inspector General
                                                            Report Name
   Number                  Recommendation                      and Date                Status
EVL-2016-001-1 FHFA should implement detailed risk Utility of FHFA’s             OIG review
               assessment guidance that provides      Semi-Annual Risk           pending closure.
               minimum requirements for risk          Assessments Would
               assessments that facilitate comparable Be Enhanced Through
               analyses for each Enterprise’s risk    Adoption of Clear
               positions, including common criteria Standards and Defined
               for determining whether risk levels    Measures of Risk Levels
               are high, medium, or low, year over    (EVL-2016-001, January
               year.                                  4, 2016)
EVL-2016-001-2 FHFA should implement detailed risk Utility of FHFA’s             OIG review
               assessment guidance that provides      Semi-Annual Risk           pending closure.
               standard requirements for format       Assessments Would
               and the documentation necessary        Be Enhanced Through
               to support conclusions in order to     Adoption of Clear
               facilitate comparisons between         Standards and Defined
               Enterprises and reduce variability     Measures of Risk Levels
               among DER’s risk assessments for       (EVL-2016-001, January
               each Enterprise and between the        4, 2016)
               Enterprises.
EVL-2016-001-3 FHFA should direct DER to train        Utility of FHFA’s          OIG review
               its examiners-in-charge (EICs) and     Semi-Annual Risk           pending closure.
               exam managers in the preparation of Assessments Would
               semi-annual risk assessments, using    Be Enhanced Through
               enhanced risk assessment guidance      Adoption of Clear
               consistent with recommendations        Standards and Defined
               EVL-2016-001-1 and EVL-2016-           Measures of Risk Levels
               001-2.                                 (EVL-2016-001, January
                                                      4, 2016)
EVL-2015-003-2 FHFA should regularly analyze          Women and Minorities       Recommendation
               Agency workforce data and assess       in FHFA’s Workforce        agreed to by FHFA;
               trends in hiring, awards, and          (EVL-2015-003, January     implementation of
               promotions.                            13, 2015)                  recommendation
                                                                                 pending.




                           Semiannual Report to the Congress • October 1, 2017­–March 31, 2018      69
                                                                 Report Name
   Number                Recommendation                             and Date                 Status
EVL-2014-002-2 FHFA should develop a process that          Update on FHFA’s            Recommendation
               links annual Enterprise examination         Efforts to Strengthen its   agreed to by FHFA;
               plans with core team resource               Capacity to Examine         implementation of
               requirements.                               the Enterprises (EVL-       recommendation
                                                           2014-002, December 19,      pending.
                                                           2013)
EVL-2014-002-3 FHFA should establish a strategy to         Update on FHFA’s            Recommendation
               ensure that the necessary resources         Efforts to Strengthen its   agreed to
               are in place to ensure timely and           Capacity to Examine         by FHFA;
               effective Enterprise examination            the Enterprises (EVL-       implementation of
               oversight.                                  2014-002, December 19,      recommendation
                                                           2013)                       pending.
EVL-2013-012-2 FHFA should require Fannie Mae to:          Evaluation of Fannie        OIG review
                                                           Mae’s Servicer              pending closure.
                   •	 Quantify and aggregate its
                                                           Reimbursement
                      overpayments to servicers
                                                           Operations for
                      regularly;
                                                           Delinquency Expenses
                   •	 Implement a plan to reduce these     (EVL-2013-012,
                      overpayments by (1) identifying      September 18, 2013)
                      their root causes, (2) creating
                      reduction targets, and (3) holding
                      managers accountable; and

                •	 Report its findings and progress
                    to FHFA periodically.
EVL-2013-010-1 Because information in                      Reducing Risk and           OIG review
               the report could be used to                 Preventing Fraud in         pending closure.
               exploit vulnerabilities and                 the New Securitization
               circumvent countermeasures, the             Infrastructure (EVL-
               recommendations have not been               2013-010, August 22,
               released publicly.                          2013)
EVL-2013-010-3 Because information in                      Reducing Risk and           OIG review
               the report could be used to                 Preventing Fraud in         pending closure.
               exploit vulnerabilities and                 the New Securitization
               circumvent countermeasures, the             Infrastructure (EVL-
               recommendations have not been               2013-010, August 22,
               released publicly.                          2013)




70   Federal Housing Finance Agency Office of Inspector General
                                                          Report Name
   Number                 Recommendation                     and Date                    Status
EVL-2013-010-4 Because information in               Reducing Risk and              OIG review
               the report could be used to          Preventing Fraud in            pending closure.
               exploit vulnerabilities and          the New Securitization
               circumvent countermeasures, the      Infrastructure (EVL-
               recommendations have not been        2013-010, August 22,
               released publicly.                   2013)
EVL-2012-005-2 To strengthen the regulatory         FHFA’s Oversight of            OIG review
               framework around the extension of    the Federal Home Loan          pending closure.
               unsecured credit by the FHLBanks, as Banks’ Unsecured Credit
               a component of future rulemakings,   Risk Management
               FHFA should consider the utility of: Practices (EVL-2012-
                                                    005, June 28, 2012)
                •	 Establishing maximum overall
                    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-2015-001-1 FHFA should determine the causes of        OIG’s Compliance         OIG review
               the shortfalls in the Housing Finance      Review of FHFA’s         pending closure.
               Examiner Commission Program that           Implementation of
               we have identified, and implement a        Its Housing Finance
               strategy to ensure the program fulfills    Examiner Commission
               its central objective of producing         Program (COM-2015-
               commissioned examiners who are             001, July 29, 2015)
               qualified to lead major risk sections of
               government-sponsored enterprise
               (GSE) examinations.




                             Semiannual Report to the Congress • October 1, 2017­–March 31, 2018      71
                                                                  Report Name
   Number                    Recommendation                         and Date                Status
OIG-2017-005-1    FHFA, as conservator, should              Management Alert—         Recommendation
                  direct the Freddie Mac Board to           Need for Increased        agreed to
                  clarify the scope of the Nominating       Oversight by FHFA, as     by FHFA;
                  and Governance Committee’s                Conservator, to Ensure    implementation of
                  responsibilities under its Charter that that Freddie Mac’s          recommendation
                  relate to conflicts of interest involving Policies and Procedures   pending.
                  executive officers.                       for Resolution of
                                                            Executive Officer
                                                            Conflicts of Interest
                                                            Align with the
                                                            Responsibilities of
                                                            the Nominating and
                                                            Governance Committee
                                                            of the Freddie Mac
                                                            Board of Directors
                                                            (OIG-2017-005,
                                                            September 27, 2017)
OIG-2017-005-2    FHFA, as conservator, should              Management Alert—         Recommendation
                  direct Freddie Mac to revise its          Need for Increased        agreed to
                  policies and procedures to align          Oversight by FHFA, as     by FHFA;
                  with the responsibilities assigned        Conservator, to Ensure    implementation of
                  to the Nominating and Governance          that Freddie Mac’s        recommendation
                  Committee and facilitate the              Policies and Procedures   pending.
                  Nominating and Governance                 for Resolution of
                  Committee’s execution of its              Executive Officer
                  responsibilities.                         Conflicts of Interest
                                                            Align with the
                                                            Responsibilities of
                                                            the Nominating and
                                                            Governance Committee
                                                            of the Freddie Mac
                                                            Board of Directors
                                                            (OIG-2017-005,
                                                            September 27, 2017)




72   Federal Housing Finance Agency Office of Inspector General
Figure 6.1
Summary of OIG Outstanding Unimplemented
Recommendations

                                                                                                 Dollar Value
                                                           Total Number of Reports               of Aggregate
                      Number of Unimplemented                with Unimplemented                 Potential Cost
    Fiscal Year            Recommendations                    Recommendations                       Savings
    2012             2 open recommendations                           2                                     $–
                     0 closed, rejected
                     recommendations
    2013             4 open recommendations                              2                                   $–
                     1 closed, rejected
                     recommendation
    2014             2 open recommendations                              7                          $5,015,505
                     8 closed, rejected
                     recommendations
    2015             2 open recommendations                              3                                   $–
                     1 closed, rejected
                     recommendation
    2016             9 open recommendations                             132                                  $–
                     13 closed, rejected
                     recommendations
    2017             16 open recommendations                            103                                  $–
                     2 closed, rejected
                     recommendations
    2018             15 open recommendations                             5                                   $–
                     0 closed, rejected
                     recommendations
    TOTAL            50 open recommendations                            42                          $5,015,505
                     25 closed, rejected
                     recommendations


1 Figure 6 summarizes OIG’s outstanding unimplemented recommendations, comprised of open recommendations
and closed, rejected recommendations, which were closed in light of the Agency’s permanent rejection or failure to
follow through on corrective action.
2 Recommendations from AUD-2016-007 are repeated in AUD-2016-006 and AUD-2016-005. Each repeated

recommendation is only counted once; the reports are counted separately.
3 As with 2016, some audit recommendations appear in two reports (AUD-2017-010 and AUD-2017-011).

Recommendations are counted only once; reports are counted separately.




                                  Semiannual Report to the Congress • October 1, 2017­–March 31, 2018           73
Figure 7.
Summary of OIG Open Recommendations
Specific Risk to                                              Expected         Report Name
  be Mitigated              Recommendation                     Impact           and Date
Open Recommendations
Conservatorship: Delegated Responsibilities
Development      Because information in                   Improved fraud   Reducing Risk and
of Common        the report could be used to              prevention       Preventing Fraud in
Securitization   exploit vulnerabilities and                               the New Securitization
Platform         circumvent countermeasures,                               Infrastructure
                 the recommendations have not                              (EVL-2013-010,
                 been released publicly.                                   August 22, 2013)
                 Because information in                   Improved fraud   Reducing Risk and
                 the report could be used to              prevention       Preventing Fraud in
                 exploit vulnerabilities and                               the New Securitization
                 circumvent countermeasures,                               Infrastructure
                 the recommendations have not                              (EVL-2013-010,
                 been released publicly.                                   August 22, 2013)
                 Because information in                   Improved fraud   Reducing Risk and
                 the report could be used to              prevention       Preventing Fraud in
                 exploit vulnerabilities and                               the New Securitization
                 circumvent countermeasures,                               Infrastructure
                 the recommendations have not                              (EVL-2013-010,
                 been released publicly.                                   August 22, 2013)
Review and       FHFA’s Division of Housing Mission       Improved         FHFA’s Oversight of
Enhancement      and Goals should formally establish      oversight        Fannie Mae’s Single-
of Underwriting a policy for its review process of                         Family Underwriting
Standards        underwriting standards and variances,                     Standards
                 including escalation of unresolved                        (AUD-2012-003, March
                 issues reflecting potential lack of                       22, 2012); see also
                 agreement.                                                Compliance Review of
                                                                           FHFA’s Implementation
                                                                           of Its Procedures
                                                                           for Overseeing the
                                                                           Enterprises’ Single-
                                                                           Family Mortgage
                                                                           Underwriting Standards
                                                                           and Variances
                                                                           (COM-2016-001,
                                                                           December 17, 2015)
                                                                           and Update on FHFA’s
                                                                           Implementation of its
                                                                           Revised Procedures
                                                                           for Overseeing the
                                                                           Enterprises’ Single-
                                                                           Family Mortgage
                                                                           Underwriting Standards
                                                                           and Variances (COM-
                                                                           2018-003, March 27,
                                                                           2018)




74    Federal Housing Finance Agency Office of Inspector General
 Specific Risk to                                                   Expected        Report Name
  be Mitigated              Recommendation                            Impact           and Date
Conflicts of      FHFA should provide guidance to                Improved      Corporate Governance:
Interest          Fannie Mae on FHFA governance                  oversight     Review and Resolution
                  expectations regarding authority to                          of Conflicts of Interest
                  review and resolve actual, potential,                        Involving Fannie
                  and apparent conflicts of interest                           Mae’s Senior Executive
                  involving SEO positions.                                     Officers Highlight
                                                                               the Need for Closer
                                                                               Attention to Governance
                                                                               Issues by FHFA (EVL-
                                                                               2018-001, January 31,
                                                                               2018)
                   FHFA should direct Fannie Mae to              Improved      Corporate Governance:
                   conduct a comprehensive internal              oversight     Review and Resolution
                   review of its governance documents                          of Conflicts of Interest
                   (both board and management                                  Involving Fannie
                   generated) for consistency and                              Mae’s Senior Executive
                   clarity, with specific emphasis on the                      Officers Highlight
                   assignment of authority to review and                       the Need for Closer
                   resolve conflict of interest matters                        Attention to Governance
                   involving SEO positions, by seniority                       Issues by FHFA (EVL-
                   and rank, and the process to be used to                     2018-001, January 31,
                   review and resolve such conflicts.                          2018)
                   FHFA should direct the Fannie Mae             Improved      Corporate Governance:
                   Board of Directors to review the results      oversight     Review and Resolution
                   of the comprehensive internal review                        of Conflicts of Interest
                   and determine whether authority to                          Involving Fannie
                   review and resolve conflict of interest                     Mae’s Senior Executive
                   matters involving specific SEO                              Officers Highlight
                   positions, by seniority and rank, should                    the Need for Closer
                   be vested in a Board committee or                           Attention to Governance
                   delegated to Fannie Mae management,                         Issues by FHFA (EVL-
                   and determine the process to be used                        2018-001, January 31,
                   to review and resolve such conflicts.                       2018)
                   Should the Board determine to delegate
                   to management authority to review and
                   resolve all potential, actual, or apparent
                   conflicts of interest involving the CEO
                   and the CEO’s direct reports, counsel
                   the Board on the process that should be
                   put into place to require management to
                   report its resolution of all such conflicts
                   to a Board committee for its review




                               Semiannual Report to the Congress • October 1, 2017­–March 31, 2018   75
Specific Risk to                                                 Expected        Report Name
 be Mitigated                 Recommendation                       Impact           and Date
                   FHFA should, to the extent that            Improved      Corporate Governance:
                   the Fannie Mae Board of Directors          oversight     Review and Resolution
                   determines to delegate authority to the                  of Conflicts of Interest
                   CCO and FM Ethics to review and                          Involving Fannie
                   resolve certain conflicts of interest                    Mae’s Senior Executive
                   involving SEOs, counsel the Board                        Officers Highlight
                   to amend the relevant governance                         the Need for Closer
                   documents and establish a reporting                      Attention to Governance
                   relationship between the NGC, FM                         Issues by FHFA (EVL-
                   Ethics, and the CCO.                                     2018-001, January 31,
                                                                            2018)
                   FHFA should direct FHFA employees Improved               Corporate Governance:
                   to monitor the review and resolution     oversight       Review and Resolution
                   of SEO disclosures of potential, actual,                 of Conflicts of Interest
                   or apparent conflicts of interest to                     Involving Fannie
                   ensure that revised Board committee                      Mae’s Senior Executive
                   charter(s) and management policies                       Officers Highlight
                   and procedures are being followed.                       the Need for Closer
                                                                            Attention to Governance
                                                                            Issues by FHFA (EVL-
                                                                            2018-001, January 31,
                                                                            2018)
                   FHFA should direct the NGC to use          Improved      Corporate Governance:
                   its authority to retain, as appropriate,   oversight     Review and Resolution
                   independent outside corporate                            of Conflicts of Interest
                   governance experts to assist it in                       Involving Fannie
                   fulfilling its obligations under the                     Mae’s Senior Executive
                   NGC Charter.                                             Officers Highlight
                                                                            the Need for Closer
                                                                            Attention to Governance
                                                                            Issues by FHFA (EVL-
                                                                            2018-001, January 31,
                                                                            2018)
                   FHFA should direct the Fannie Mae          Improved      Corporate Governance:
                   Board of Directors to assess the           oversight     Review and Resolution
                   skills and professional experiences                      of Conflicts of Interest
                   of current board members and, as                         Involving Fannie
                   vacancies occur, prioritize candidates                   Mae’s Senior Executive
                   with demonstrable expertise in                           Officers Highlight
                   corporate governance.                                    the Need for Closer
                                                                            Attention to Governance
                                                                            Issues by FHFA (EVL-
                                                                            2018-001, January 31,
                                                                            2018)
                   FHFA should require the NGC to fully Improved            Corporate Governance:
                   document, in meeting minutes, its       oversight        Review and Resolution
                   discussions, deliberations, and actions                  of Conflicts of Interest
                   at each meeting to ensure an effective                   Involving Fannie
                   flow of information between the NGC                      Mae’s Senior Executive
                   and other directors and to provide                       Officers Highlight
                   FHFA with sufficient information to                      the Need for Closer
                   enable it to assess whether the NGC                      Attention to Governance
                   is meeting the responsibilities and                      Issues by FHFA (EVL-
                   obligations set forth in its Charter.                    2018-001, January 31,
76   Federal Housing Finance Agency Office of Inspector General             2018)
Specific Risk to                                                  Expected          Report Name
 be Mitigated                 Recommendation                        Impact             and Date
                   FHFA, as conservator, should                Improved        Management Alert:
                   direct the Freddie Mac Board to             oversight       Need for Increased
                   clarify the scope of the Nominating                         Oversight by FHFA,
                   and Governance Committee’s                                  as Conservator, to
                   responsibilities under its Charter that                     Ensure that Freddie
                   relate to conflicts of interest involving                   Mac’s Policies
                   executive officers.                                         and Procedures for
                                                                               Resolution of Executive
                                                                               Officer Conflicts of
                                                                               Interest Align with
                                                                               the Responsibilities of
                                                                               the Nominating and
                                                                               Governance Committee
                                                                               of the Freddie Mac
                                                                               Board of Directors
                                                                               (OIG-2017-005,
                                                                               September 27, 2017)
                   FHFA, as conservator, should                Improved        Management Alert:
                   direct Freddie Mac to revise its            oversight       Need for Increased
                   policies and procedures to align                            Oversight by FHFA,
                   with the responsibilities assigned                          as Conservator, to
                   to the Nominating and Governance                            Ensure that Freddie
                   Committee and facilitate the                                Mac’s Policies
                   Nominating and Governance                                   and Procedures for
                   Committee’s execution of its                                Resolution of Executive
                   responsibilities.                                           Officer Conflicts of
                                                                               Interest Align with
                                                                               the Responsibilities of
                                                                               the Nominating and
                                                                               Governance Committee
                                                                               of the Freddie Mac
                                                                               Board of Directors
                                                                               (OIG-2017-005,
                                                                               September 27, 2017)
Compliance         FHFA should, based on the goals             Improved        NPL Sales: Additional
with               and requirements of NPL sales, as           compliance      Controls Would
Requirements       established by the Agency:                                  Increase Compliance
                                                                               with FHFA’s Sales
                    a.	 Determine the information                              Requirements (AUD-
                        necessary to assess whether all                        2017-006, July 24,
                        of the goals and requirements are                      2017)
                        being met;
                    b.	 Update/modify the NPL
                        sales reporting requirements
                        as necessary to obtain that
                        information; and
                    c.	 Update/modify the templates the
                        Enterprises use to collect loan-
                        level data from NPL buyers and
                        servicers, as necessary.



                              Semiannual Report to the Congress • October 1, 2017­–March 31, 2018   77
Specific Risk to                                                Expected           Report Name
 be Mitigated              Recommendation                        Impact             and Date
Supervision
Examiner         FHFA should develop a process that          Improved         Update on FHFA’s
Capacity         links annual Enterprise examination         supervision      Efforts to Strengthen its
                 plans with core team resource                                Capacity to Examine the
                 requirements.                                                Enterprises (EVL-2014-
                                                                              002, December 19, 2013)
                   FHFA should establish a strategy to     Improved           Update on FHFA’s
                   ensure that the necessary resources are supervision        Efforts to Strengthen its
                   in place to ensure timely and effective                    Capacity to Examine the
                   Enterprise examination oversight.                          Enterprises (EVL-2014-
                                                                              002, December 19, 2013)
                 FHFA should assess whether DER              Improved         FHFA Failed to
                 has a sufficient complement of              supervision      Complete Non-
                 qualified examiners to conduct and                           MRA Supervisory
                 complete those examinations rated                            Activities Related to
                 by DER to be of high-priority within                         Cybersecurity Risks at
                 each supervisory cycle and address                           Fannie Mae Planned for
                 the resource constraints that have                           the 2016 Examination
                 adversely affected DER’s ability to                          Cycle (AUD-2017-010,
                 carry out its risk-based supervisory                         September 27, 2017)
                 plans.
Accreditation of FHFA should determine the causes of         Improved quality OIG’s Compliance
Examiners        the shortfalls in the Housing Finance                        Review of FHFA’s
                 Examiner Commission Program that                             Implementation of
                 we have identified, and implement a                          Its Housing Finance
                 strategy to ensure the program fulfills                      Examiner Commission
                 its central objective of producing                           Program (COM-2015-
                 commissioned examiners who are                               001, July 29, 2015)
                 qualified to lead major risk sections
                 of government-sponsored enterprise
                 (GSE) examinations.
Quality Control DER should enhance its quality               Improved quality The Gap in FHFA’s
                 control review program so that                               Quality Control Review
                 examination conclusions from ongoing                         Program Increases
                 monitoring activities which do not                           the Risk of Inaccurate
                 result in findings or remediation letters                    Conclusions in its
                 are subject to a quality control review                      Reports of Examination
                 prior to being communicated to the                           of Fannie Mae and
                 Enterprises in ROEs.                                         Freddie Mac (EVL-2017-
                                                                              006, August 17, 2017)




78    Federal Housing Finance Agency Office of Inspector General
Specific Risk to                                                Expected          Report Name
 be Mitigated                  Recommendation                    Impact             and Date
                   FHFA should reinforce the               Improved quality FHFA’s 2015 Report of
                   requirements of DER-OPB-02 and                           Examination to Fannie
                   hold DER leadership accountable                          Mae Failed to Follow
                   to ensure that targeted examination                      FHFA’s Standards
                   conclusions presented in the ROE                         Because it Reported
                   are based on work that has either (1)                    on an Incomplete
                   undergone quality control review and                     Targeted Examination
                   been communicated in writing to the                      of the Enterprise’s New
                   Enterprise, or (2) the required quality                  Representation and
                   control review has been waived by                        Warranty Framework
                   the Deputy Director of DER and                           (AUD-2017-008,
                   documented in writing.                                   September 22, 2017)
Risk               FHFA should implement detailed risk Improved             Utility of FHFA’s
Assessments        assessment guidance that provides       understanding of Semi-Annual Risk
for Supervisory    minimum requirements for risk           risk             Assessments Would
Planning           assessments that facilitate comparable                   Be Enhanced Through
                   analyses for each Enterprise’s risk                      Adoption of Clear
                   positions, including common criteria                     Standards and Defined
                   for determining whether risk levels are                  Measures of Risk
                   high, medium, or low, year over year.                    Levels (EVL-2016-001,
                                                                            January 4, 2016)
                   FHFA should implement detailed risk Improved             Utility of FHFA’s
                   assessment guidance that provides       understanding of Semi-Annual Risk
                   standard requirements for format        risk             Assessments Would
                   and the documentation necessary                          Be Enhanced Through
                   to support conclusions in order                          Adoption of Clear
                   to facilitate comparisons between                        Standards and Defined
                   Enterprises and reduce variability                       Measures of Risk
                   among DER’s risk assessments for                         Levels (EVL-2016-001,
                   each Enterprise and between the                          January 4, 2016)
                   Enterprises.
                   FHFA should direct DER to train         Improved         Utility of FHFA’s
                   its EICs and exam managers in the       understanding of Semi-Annual Risk
                   preparation of semi-annual risk         risk             Assessments Would
                   assessments, using enhanced risk                         Be Enhanced Through
                   assessment guidance consistent with                      Adoption of Clear
                   recommendations EVL-2016-001-1                           Standards and Defined
                   and EVL-2016-001-2.                                      Measures of Risk
                                                                            Levels (EVL-2016-001,
                                                                            January 4, 2016)




                             Semiannual Report to the Congress • October 1, 2017­–March 31, 2018   79
Specific Risk to                                               Expected        Report Name
 be Mitigated                 Recommendation                     Impact           and Date
                   FHFA should reinforce, through           Improved      FHFA Failed to
                   training and supervision of DER          supervision   Complete Non-
                   personnel, the requirements                            MRA Supervisory
                   established by FHFA, and reinforced                    Activities Related to
                   by DER guidance, for the risk                          Cybersecurity Risks at
                   assessment and supervisory planning                    Fannie Mae Planned for
                   process. Specifically:                                 the 2016 Examination
                                                                          Cycle (AUD-2017-
                    a.	 Ensure that the annual                            010, September 27,
                        supervisory strategy identifies                   2017); FHFA Did Not
                        significant risks and supervisory                 Complete All Planned
                        concerns and explains how the                     Supervisory Activities
                        planned supervisory activities                    Related to Cybersecurity
                        to be conducted during the                        Risks at Freddie Mac for
                        examination cycle address the                     the 2016 Examination
                        most significant risks in the                     Cycle (AUD-2017-011,
                        operational risk assessment.                      September 27, 2017)
                        (Applies to AUD-2017-010 and
                        AUD-2017-011)
                     b.	 Ensure that supervisory
                         activities planned during an
                         examination cycle to address
                         the most significant risks in
                         the operational risk assessment
                         are completed within the
                         examination cycle. (Applies to
                         AUD-2017-010)
Targeted           FHFA should reinforce, in examiner       Improved      FHFA Completed its
Examinations       training, the need to prepare            supervision   Planned Procedures for
Completed          workpapers for targeted examinations                   a 2016 Representation
                   with sufficient detail and clarity to                  and Warranty
                   provide a third party with a clear                     Framework Targeted
                   understanding of the examination                       Examination at Freddie
                   work performed; the examination                        Mac, but the Supporting
                   findings, conclusions, and ratings                     Workpapers Did Not
                   reached; and any implications of the                   Sufficiently Document
                   findings, conclusions, and ratings.                    the Examination Work
                                                                          (AUD-2018-006,
                                                                          March 13, 2018)




80   Federal Housing Finance Agency Office of Inspector General
Specific Risk to                                             Expected              Report Name
 be Mitigated                 Recommendation                   Impact                 and Date
                   FHFA should assess whether DER         Improved            FHFA’s Targeted
                   has a sufficient complement of         supervision         Examinations of
                   qualified examiners to conduct and                         Freddie Mac: Just Over
                   complete those examinations rated                          Half of the Targeted
                   by DER to be of high-priority within                       Examinations Planned
                   each supervisory cycle and address                         for 2012 through
                   the resource constraints that have                         2015 Were Completed
                   adversely affected DER’s ability to                        (AUD-2016-007,
                   carry out its risk-based supervisory                       September 30, 2016);
                   plans.                                                     FHFA’s Targeted
                                                                              Examinations of
                                                                              Fannie Mae: Less than
                                                                              Half of the Targeted
                                                                              Examinations Planned
                                                                              for 2012 through 2015
                                                                              Were Completed and
                                                                              No Examinations
                                                                              Planned for 2015 Were
                                                                              Completed Before the
                                                                              Report of Examination
                                                                              Issued (AUD-2016-006,
                                                                              September 30, 2016)
Communication      FHFA should, except for rare instances Improved            FHFA Failed to
of Deficiencies    where DER has an urgent need to         supervision        Complete Non-
to Enterprise      communicate significant supervisory                        MRA Supervisory
Boards             concerns to an Enterprise board,                           Activities Related to
                   ensure that all supervisory conclusions                    Cybersecurity Risks at
                   and findings reported by DER in the                        Fannie Mae Planned for
                   Enterprise’s annual ROEs are based                         the 2016 Examination
                   on completed work that has been                            Cycle (AUD-2017-
                   previously communicated, when                              010, September 27,
                   required, in writing to the Enterprise.                    2017); FHFA Did Not
                                                                              Complete All Planned
                                                                              Supervisory Activities
                                                                              Related to Cybersecurity
                                                                              Risks at Freddie Mac for
                                                                              the 2016 Examination
                                                                              Cycle (AUD-2017-011,
                                                                              September 27, 2017)




                             Semiannual Report to the Congress • October 1, 2017­–March 31, 2018   81
Specific Risk to                                                Expected           Report Name
 be Mitigated               Recommendation                       Impact              and Date
Assessing        FHFA should train DER examiners            Improved         FHFA Failed to Ensure
Remediation of on the elements of the current OPB           remediation of   Freddie Mac’s Remedial
Deficiencies     standard for MRA issuance, follow-         deficiencies     Plans for a Cybersecurity
                 up and closure, which include: (a) a                        MRA Addressed All
                 requirement that examiners ensure                           Deficiencies; as Allowed
                 that proposed corrective actions in                         by its Standard, FHFA
                 remedial plans are sufficient to address                    Closed the MRA
                 the deficiency underlying an MRA                            after Independently
                 before issuing non-objection letters;                       Determining the
                 and (b) a requirement that examiners                        Enterprise Completed
                 determine, after an Enterprise                              its Planned Remedial
                 implements its remedial plan, that the                      Actions (AUD-2018-
                 deficiency giving rise to the MRA has                       008, March 28, 2018)
                 been satisfactorily addressed.
                 FHFA should ensure that Freddie Mac        Improved         FHFA Failed to Ensure
                 takes, or has taken, remedial action to    remediation of   Freddie Mac’s Remedial
                 address the deficiency underlying the      deficiencies     Plans for a Cybersecurity
                 MRA regarding the need to implement                         MRA Addressed All
                 a process to verify and monitor                             Deficiencies; as Allowed
                 [certain matters].                                          by its Standard, FHFA
                                                                             Closed the MRA
                                                                             after Independently
                                                                             Determining the
                                                                             Enterprise Completed
                                                                             its Planned Remedial
                                                                             Actions (AUD-2018-
                                                                             008, March 28, 2018)
                  FHFA should adopt clear guidance for      Improved         FHFA’s Adoption
                  examiners to follow when assessing        remediation of   of Clear Guidance
                  the sufficiency of MRA remediation        deficiencies     on the Review of
                  by the Enterprises that identifies the                     the Enterprises’
                  work steps that should be included in                      Internal Audit Work
                  examiners’ independent assessments                         When Assessing
                  of Internal Audit’s work and specifies                     the Sufficiency of
                  the conditions under which examiner                        Remediation of Serious
                  testing is expected.                                       Deficiencies Would
                                                                             Assist FHFA Examiners
                                                                             (EVL-2018-003, March
                                                                             28, 2018)
                  FHFA should periodically conclude,        Improved         FHFA Requires the
                  based upon sufficient examination         remediation of   Enterprises’ Internal Audit
                  work, on the overall effectiveness of     deficiencies     Functions to Validate
                  the Internal Audit functions at Fannie                     Remediation of Serious
                  Mae and Freddie Mac.                                       Deficiencies but Provides
                                                                             No Guidance and Imposes
                                                                             No Preconditions on
                                                                             Examiners’ Use of that
                                                                             Validation Work (EVL-
                                                                             2018-002, March 28,
                                                                             2018)




82    Federal Housing Finance Agency Office of Inspector General
Specific Risk to                                              Expected             Report Name
 be Mitigated                 Recommendation                   Impact                 and Date
                   FHFA should revise its guidance to     Improved            FHFA Requires the
                   provide clear direction to examiners   remediation of      Enterprises’ Internal
                   on whether, or the circumstances under deficiencies        Audit Functions to
                   which, its examiners may rely on                           Validate Remediation
                   information, analyses, or conclusions                      of Serious Deficiencies
                   provided by an Enterprise’s Internal                       but Provides No
                   Audit function when assessing the                          Guidance and Imposes
                   adequacy of MRA remediation.                               No Preconditions on
                                                                              Examiners’ Use of that
                                                                              Validation Work (EVL-
                                                                              2018-002, March 28,
                                                                              2018)
                   FHFA should direct that examiners can Improved             FHFA Requires the
                   use Internal Audit work to assess the remediation of       Enterprises’ Internal
                   adequacy of MRA remediation only if deficiencies           Audit Functions to
                   FHFA has concluded that the Internal                       Validate Remediation
                   Audit function is effective overall                        of Serious Deficiencies
                                                                              but Provides No
                                                                              Guidance and Imposes
                                                                              No Preconditions on
                                                                              Examiners’ Use of that
                                                                              Validation Work (EVL-
                                                                              2018-002, March 28,
                                                                              2018)
                   FHFA should require the Enterprises       Improved         FHFA’s Inconsistent
                   to provide, in their remediation plans,   remediation of   Practices in Assessing
                   the target date in which their internal   deficiencies     Enterprise Remediation
                   audit departments expect to validate                       of Serious Deficiencies
                   management’s remediation of MRAs,                          and Weaknesses in its
                   and require examiners to enter that                        Tracking Systems Limit
                   date into a dedicated field in the MRA                     the Effectiveness of
                   tracking system                                            FHFA’s Supervision of
                                                                              the Enterprises (EVL-
                                                                              2016-007, July 14, 2016)
Extension of       To strengthen the regulatory              Improved         FHFA’s Oversight
Unsecured          framework around the extension of         compliance       of the Federal
Credit by          unsecured credit by the FHLBanks, as                       Home Loan Banks’
Federal Home       a component of future rulemakings,                         Unsecured Credit Risk
Loan Banks         FHFA should consider the utility of:                       Management Practices
                                                                              (EVL-2012-005,
                    •	 Establishing maximum overall                           June 28, 2012)
                       exposure limits;
                    •	 Lowering the existing individual
                       counterparty limits; and
                    •	 Ensuring that the unsecured
                       exposure limits are consistent with
                       the FHLBank System’s housing
                       mission




                              Semiannual Report to the Congress • October 1, 2017­–March 31, 2018   83
Specific Risk to                                               Expected         Report Name
  be Mitigated             Recommendation                       Impact           and Date
Counterparties
Collection of    FHFA should require Fannie Mae to:         Improved        Evaluation of Fannie
Funds from                                                  financial       Mae’s Servicer
Servicers         •	 Quantify and aggregate its             management      Reimbursement
                     overpayments to servicers                              Operations for
                     regularly;                                             Delinquency Expenses
                    •	 Implement a plan to reduce these                     (EVL-2013-012,
                       overpayments by (1) identifying                      September 18, 2013)
                       their root causes, (2) creating
                       reduction targets, and (3) holding
                       managers accountable; and
                    •	 Report its findings and progress to
                       FHFA periodically.
Compliance        In 2017, or as expeditiously as          Improved risk    FHFA’s Examinations
with Advisory     possible, FHFA should complete the       management       Have Not Confirmed
Bulletins         examination activities necessary to                       Compliance by One
                  determine whether [the Enterprise’s]                      Enterprise with its
                  risk management of nonbank seller/                        Advisory Bulletins
                  servicers meets FHFA’s supervisory                        Regarding Risk
                  expectations as set forth in its                          Management of
                  supervisory guidance. These activities                    Nonbank Sellers and
                  should include an independent                             Servicers (EVL-2017-
                  assessment of the [related matters].                      002, December 21,
                                                                            2016)
Information Technology
FHFA             Because information in the report      Improved            FHFA’s Processes
Information      could be used to circumvent FHFA’s     information         for General Support
Technology       internal controls, the recommendations security            System Component
Security         have not been released publicly.                           Inventory Need
                                                                            Improvement
                                                                            (AUD-2017-005,
                                                                            May 25, 2017)
Information     FHFA should comply with FSOC                Improved risk   FHFA Should Map
Technology Risk recommendations to address the              management      Its Supervisory
Examinations    gaps, as prioritized, to reflect and                        Standards for Cyber
                incorporate appropriate elements of                         Risk Management to
                the NIST Framework.                                         Appropriate Elements of
                                                                            the NIST Framework
                                                                            (EVL-2016-003,
                                                                            March 28, 2016)
                  FHFA should comply with FSOC              Improved risk   FHFA Should Map
                  recommendations to revise existing        management      Its Supervisory
                  regulatory guidance to reflect and                        Standards for Cyber
                  incorporate appropriate elements of                       Risk Management to
                  the NIST framework in a manner                            Appropriate Elements of
                  that achieves consistency with other                      the NIST Framework
                  federal financial regulators.                             (EVL-2016-003,
                                                                            March 28, 2016)




84    Federal Housing Finance Agency Office of Inspector General
Specific Risk to                                              Expected           Report Name
 be Mitigated               Recommendation                     Impact               and Date
Cyber Risk       FHFA should direct the Fannie Mae         Improved risk    Corporate Governance:
Oversight        Board to enhance Fannie Mae’s             management       Cyber Risk Oversight
                 existing cyber risk management                             by the Fannie Mae
                 policies to:                                               Board of Directors
                                                                            Highlights the Need for
                  a   Require a baseline Enterprise-                        FHFA’s Closer Attention
                      wide cyber risk assessment with                       to Governance Issues
                      subsequent periodic updates;                          (EVL-2016-006, March
                  b   Describe information to be                            31, 2016)
                      reported to the Board and
                      committees;
                  c    Include a cyber risk framework
                       and cyber risk appetite
                 FHFA should direct the Fannie Mae     Improved risk        Cyber Risk Oversight
                 Board to oversee management’s efforts management           by the Fannie Mae
                 to leverage industry standards to:                         Board of Directors
                                                                            Highlights the Need for
                  a   Protect against and detect                            FHFA’s Closer Attention
                      existing threats;                                     to Governance Issues
                  b   Remain informed on emerging                           (EVL-2016-006, March
                      risks;                                                31, 2016)

                  c   Enable timely response and
                      recovery 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
Privacy          The FHFA Privacy Office should            Improved         Performance Audit of
Information      conduct a comprehensive business          protection       the Federal Housing
and Data         process analysis to identify all FHFA     of privacy       Finance Agency’s
Protection       business processes that collect PII in    information      (FHFA) Privacy
                 electronic and hardcopy form to build                      Program (AUD-2017-
                 an inventory of where PII is stored                        007, August 30, 2017)
                 The FHFA Privacy Office should            Improved         Performance Audit of
                 develop manual and automated              protection       the Federal Housing
                 processes to maintain an accurate and     of privacy       Finance Agency’s
                 complete inventory of where PII is        information      (FHFA) Privacy
                 stored                                                     Program (AUD-2017-
                                                                            007, August 30, 2017)
                 The FHFA Privacy Office should            Improved         Performance Audit of
                 establish, implement, and train end       protection       the Federal Housing
                 users to apply naming conventions to      of privacy       Finance Agency’s
                 files and folders containing PII.         information      (FHFA) Privacy
                                                                            Program (AUD-2017-
                                                                            007, August 30, 2017)




                            Semiannual Report to the Congress • October 1, 2017­–March 31, 2018     85
Specific Risk to                                                Expected        Report Name
 be Mitigated                Recommendation                      Impact           and Date
                   The FHFA Privacy Office should           Improved       Performance Audit of
                   conduct a feasibility study of available protection     the Federal Housing
                   technologies to supplement the manual of privacy        Finance Agency’s
                   and automated processes to identify      information    (FHFA) Privacy
                   and secure PII at rest and in transit.                  Program (AUD-2017-
                                                                           007, August 30, 2017)
                   FHFA should enhance System Owner       Improved         Performance Audit of
                   training to include FHFA access        information      the Federal Housing
                   control policies.                      security         Finance Agency’s
                                                                           (FHFA) Privacy
                                                                           Program (AUD-2017-
                                                                           007, August 30, 2017)
                   FHFA should review all privileged      Improved         Performance Audit of
                   user accounts, obtain authorizations   information      the Federal Housing
                   for users where none are currently     security         Finance Agency’s
                   documented, and remove access for                       (FHFA) Privacy
                   those not authorized.                                   Program (AUD-2017-
                                                                           007, August 30, 2017)
Agency Operations
Oversight       FHFA should regularly analyze             Improved          Women and Minorities
of FHFA         Agency workforce data and assess          opportunities and in FHFA’s Workforce
Workforce       trends in hiring, awards, and             oversight         (EVL-2015-003,
Matters         promotions.                                                 January 13, 2015)




86   Federal Housing Finance Agency Office of Inspector General
Figure 8.
Summary of Closed, Unimplemented Recommendations
 Specific Risk to                                               Expected          Report Name
  be Mitigated                 Recommendation                    Impact              and Date
Property            FHFA should direct the Enterprises      Improved quality FHFA Oversight of
Inspection          to establish uniform pre-foreclosure                     Enterprise Controls
Quality             inspection quality standards and                         Over Pre-Foreclosure
Controls            quality control processes for                            Property Inspections
                    inspectors.                                              (AUD-2014-012, March
                                                                             25, 2014)
Improperly          FHFA should direct Fannie Mae to        Improved         FHFA Oversight
Reimbursed          obtain a refund from servicers for      accuracy         of Fannie Mae’s
Property            improperly reimbursed property                           Reimbursement Process
Inspection          inspection claims, resulting in                          for Pre-Foreclosure
Claims              estimated funds put to better use of                     Property Inspections
                    $5,015,505.                                              (AUD-2014-005,
                                                                             January 15, 2014)
Seller/Servicer FHFA should promptly quantify the           Improved         FHFA Oversight of
Resolution      potential benefit of implementing a         oversight        Enterprise Handling
of Aged         repurchase late fee program at Fannie                        of Aged Repurchase
Repurchase      Mae, and then determine whether                              Demands (AUD-2014-
Demands         the potential cost of from $500,000                          009, February 12, 2014)
                to $5.4 million still outweighs the
                potential benefit.
Oversight of    FHFA should perform a                       Improved           FHFA’s Representation
Enterprise      comprehensive analysis to assess            framework          and Warranty
Implementation whether financial risks associated with      management         Framework (AUD-
of              the new representation and warranty                            2014-016, September
Representation framework, including with regard                                17, 2014)
and Warranty    to sunset periods, are appropriately
Framework       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.
Seller/Servicer FHFA should direct Fannie Mae and           Improved           FHFA’s Oversight of
Compliance      Freddie Mac to assess the cost/benefit      compliance         Risks Associated with
with Guidance   of a risk-based approach to requiring                          the Enterprises Relying
                their sellers and servicers to provide                         on Counterparties
                independent, third-party attestation                           to Comply with
                reports on compliance with Enterprise                          Selling and Servicing
                origination and servicing guidance.                            Guidelines (AUD-2014-
                                                                               018, September 26,
                                                                               2014)




                               Semiannual Report to the Congress • October 1, 2017­–March 31, 2018   87
Specific Risk to                                                 Expected        Report Name
  be Mitigated             Recommendation                         Impact           and Date
Collection of    FHFA should publish Fannie Mae’s            Improved       Evaluation of Fannie
Funds from       reduction targets and overpayment           transparency   Mae’s Servicer
Servicers        findings.                                                  Reimbursement
                                                                            Operations for
                                                                            Delinquency Expenses
                                                                            (EVL-2013-012,
                                                                            September 18, 2013)
Examination      DER should adopt a comprehensive            Improved       Evaluation of the
Recordkeeping    examination workpaper index and             efficiency     Division of Enterprise
Practices        standardize electronic workpaper                           Regulation’s 2013
                 folder structures and naming                               Examination Records:
                 conventions between the two Core                           Successes and
                 Teams. In addition, FHFA and DER                           Opportunities (EVL-
                 should upgrade recordkeeping                               2015-001, October 6,
                 practices as necessary to enhance the                      2014)
                 identification and retrieval of critical
                 workpapers.
Oversight of     FHFA should develop a strategy to           Improved       Compliance Review of
Enterprise       enhance the Executive Compensation          oversight      FHFA’s Oversight of
Executive        Branch’s capacity to review the                            Enterprise Executive
Compensation     reasonableness and justification of                        Compensation Based
                 the Enterprises’ annual proposals to                       on Corporate Scorecard
                 compensate their executives based                          Performance (COM-
                 on Corporate Scorecard performance.                        2016-002, March 17,
                 To this end, FHFA should ensure                            2016)
                 that: the Enterprises submit proposals
                 containing information sufficient to
                 facilitate a comprehensive review by
                 the Executive Compensation Branch;
                 the Executive Compensation Branch
                 tests and verifies the information in the
                 Enterprises’ proposals, perhaps on a
                 randomized basis; and the Executive
                 Compensation Branch follows up
                 with the Enterprises to resolve any
                 proposals that do not appear to be
                 reasonable and justified.
                 FHFA should develop a policy under          Improved       Compliance Review of
                 which it is required to notify OIG          oversight      FHFA’s Oversight of
                 within 10 days of its decision not to                      Enterprise Executive
                 fully implement, substantially alter, or                   Compensation Based
                 abandon a corrective action that served                    on Corporate Scorecard
                 as the basis for OIG’s decision to close                   Performance (COM-
                 a recommendation.                                          2016-002, March 17,
                                                                            2016)




88   Federal Housing Finance Agency Office of Inspector General
 Specific Risk to                                               Expected             Report Name
  be Mitigated                 Recommendation                    Impact                 and Date
Oversight           FHFA’s Division of Housing              Improved           FHFA’s Oversight of
of Servicing        Mission and Goals Deputy Director       servicing          the Servicing Alignment
Alignment           should establish an ongoing process     compliance and     Initiative (EVL-2014-
Initiative          to evaluate servicers’ Servicing        minimized losses   003, February 12, 2014)
                    Alignment Initiative compliance and
                    the effectiveness of the Enterprises’
                    remediation efforts.
                    FHFA’s Division of Housing Mission      Improved           FHFA’s Oversight of
                    and Goals Deputy Director should        servicing          the Servicing Alignment
                    direct the Enterprises to provide       compliance and     Initiative (EVL-2014-
                    routinely their internal reports and    minimized losses   003, February 12, 2014)
                    reviews for the Division of Housing
                    Mission and Goals’ assessment.
                    FHFA’s Division of Housing Mission      Improved           FHFA’s Oversight of
                    and Goals Deputy Director should        servicing          the Servicing Alignment
                    regularly review Servicing Alignment    compliance and     Initiative (EVL-2014-
                    Initiative-related guidelines for       minimized losses   003, February 12, 2014)
                    enhancements or revisions, as
                    necessary, based on servicers’ actual
                    versus expected performance.




                              Semiannual Report to the Congress • October 1, 2017­–March 31, 2018   89
Specific Risk to                                              Expected        Report Name
 be Mitigated              Recommendation                       Impact           and Date
Targeted         FHFA should revise existing               Improved      FHFA’s Targeted
Examinations     guidance to require examiners to          supervision   Examinations of
Completed        prepare complete documentation of                       Freddie Mac: Just Over
                 supervisory activities and maintain                     Half of the Targeted
                 such documentation in the official                      Examinations Planned
                 system of record, and train DER                         for 2012 through
                 examiners on this guidance.                             2015 Were Completed
                                                                         (AUD-2016-007,
                                                                         September 30, 2016);
                                                                         FHFA’s Targeted
                                                                         Examinations of
                                                                         Fannie Mae: Less than
                                                                         Half of the Targeted
                                                                         Examinations Planned
                                                                         for 2012 through 2015
                                                                         Were Completed and
                                                                         No Examinations
                                                                         Planned for 2015 Were
                                                                         Completed Before the
                                                                         Report of Examination
                                                                         Issued (AUD-2016-006,
                                                                         September 30, 2016);
                                                                         FHFA’s Supervisory
                                                                         Planning Process for the
                                                                         Enterprises: Roughly
                                                                         Half of FHFA’s 2014
                                                                         and 2015 High-Priority
                                                                         Planned Targeted
                                                                         Examinations Did
                                                                         Not Trace to Risk
                                                                         Assessments and Most
                                                                         High-Priority Planned
                                                                         Examinations Were Not
                                                                         Completed (AUD-2016-
                                                                         005, September 30,
                                                                         2016)




90    Federal Housing Finance Agency Office of Inspector General
Specific Risk to                                                Expected           Report Name
 be Mitigated                 Recommendation                     Impact              and Date
Oversight of       FHFA should review FHFA’s                Improved          FHFA’s Examiners
Enterprise         existing requirements, guidance, and     remediation of    Did Not Meet
Remediation of     processes regarding MRAs against         deficiencies      Requirements and
Deficiencies       the requirements, guidance, and                            Guidance for Oversight
                   processes adopted by the Office of                         of an Enterprise’s
                   the Comptroller of the Currency, the                       Remediation of Serious
                   Board of Governors of the Federal                          Deficiencies (EVL-
                   Reserve System, and other federal                          2016-004), March 29,
                   financial regulators including, but                        2016)
                   not limited to, content of an MRA;
                   standards for 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.
                   Based on the results of the review       Improved          FHFA’s Examiners
                   in recommendation 1, FHFA should         remediation of    Did Not Meet
                   assess whether any of the existing       deficiencies      Requirements and
                   requirements, guidance, and processes                      Guidance for Oversight
                   adopted by FHFA should be enhanced,                        of an Enterprise’s
                   and make such enhancements.                                Remediation of Serious
                                                                              Deficiencies (EVL-
                                                                              2016-004, March 29,
                                                                              2016)
Communication      FHFA should revise its supervision       Improved Board    FHFA’s Supervisory
of Deficiencies    guidance to require DER to provide       oversight         Standards for
to Enterprise      the Chair of the Audit Committee of                        Communication of
Boards             an Enterprise Board with each plan                         Serious Deficiencies to
                   submitted by Enterprise management                         Enterprise Boards and
                   to remediate an MRA with associated                        for Board Oversight
                   timetables and the response by DER.                        of Management’s
                                                                              Remediation Efforts are
                                                                              Inadequate (EVL-2016-
                                                                              005, March 31, 2016)




                             Semiannual Report to the Congress • October 1, 2017­–March 31, 2018   91
Specific Risk to                                                Expected           Report Name
 be Mitigated                 Recommendation                      Impact              and Date
                   FHFA should direct DER to develop         Improved Board   FHFA Failed to
                   detailed guidance and promulgate that     oversight        Consistently Deliver
                   guidance to each Enterprise’s board of                     Timely Reports of
                   directors that explains:                                   Examination to the
                                                                              Enterprise Boards
                    •	 The purpose for DER’s annual                           and Obtain Written
                       presentation to each Enterprise                        Responses from the
                       board of directors on the                              Boards Regarding
                       ROE results, conclusions, and                          Remediation of
                       supervisory concerns and the                           Supervisory Concerns
                       opportunity for directors to ask                       Identified in those
                       questions and discuss ROE                              Reports (EVL-2016-
                       examination conclusions and                            009, July 14, 2016)
                       supervisory concerns at that
                       presentation; and
                    •	 The requirement that each
                        Enterprise board of directors
                        submit a written response to the
                        annual ROE to DER and the
                        expected level of detail regarding
                        ongoing and contemplated
                        remediation in that written
                        response.
                   FHFA should direct the Enterprises’     Improved Board     FHFA Failed to
                   boards to amend their charters to       oversight          Consistently Deliver
                   require review by each director of each                    Timely Reports of
                   annual ROE and review and approval                         Examination to the
                   of the written response to DER in                          Enterprise Boards
                   response to each annual ROE.                               and Obtain Written
                                                                              Responses from the
                                                                              Boards Regarding
                                                                              Remediation of
                                                                              Supervisory Concerns
                                                                              Identified in those
                                                                              Reports (EVL-2016-
                                                                              009, July 14, 2016)
Assessing          FHFA should ensure that the               Improved         FHFA’s Inconsistent
Remediation of     underlying remediation documents,         remediation of   Practices in Assessing
Deficiencies       including the Procedures Document,        deficiencies     Enterprise Remediation
                   are readily available by direct link or                    of Serious Deficiencies
                   other means, through DER’s MRA                             and Weaknesses in its
                   tracking system(s).                                        Tracking Systems Limit
                                                                              the Effectiveness of
                                                                              FHFA’s Supervision of
                                                                              the Enterprises (EVL-
                                                                              2016-007, July 14,
                                                                              2016)




92   Federal Housing Finance Agency Office of Inspector General
Specific Risk to                                                Expected           Report Name
 be Mitigated                 Recommendation                     Impact               and Date
                   FHFA should require DER to               Improved          FHFA’s Inconsistent
                   track interim milestones and to          remediation of    Practices in Assessing
                   independently assess and document        deficiencies      Enterprise Remediation
                   the timeliness and adequacy of                             of Serious Deficiencies
                   Enterprise remediation of MRAs on a                        and Weaknesses in its
                   regular basis.                                             Tracking Systems Limit
                                                                              the Effectiveness of
                                                                              FHFA’s Supervision of
                                                                              the Enterprises (EVL-
                                                                              2016-007, July 14,
                                                                              2016)
Identification     FHFA should direct DER to revise         Improved Board    FHFA’s Failure to
of Deficiencies    its guidance to require ROEs to          oversight         Consistently Identify
and Their Root     focus the boards’ attention of the                         Specific Deficiencies
Causes             most critical and time-sensitive                           and Their Root
                   supervisory concerns through (1) the                       Causes in Its Reports
                   prioritization of examination findings                     of Examination
                   and conclusions and (2) identification                     Constrains the Ability
                   of deficiencies and MRAs in the ROE                        of the Enterprise
                   and discussion of their root causes.                       Boards to Exercise
                                                                              Effective Oversight
                                                                              of Management’s
                                                                              Remediation of
                                                                              Supervisory Concerns
                                                                              (EVL-2016-008, July
                                                                              14, 2016)
Oversight of       FHFA should ensure that it has        Improved             Management Alert:
Fannie Mae         adequate internal staff, outside      oversight            Need for Increased
Headquarters       contractors, or both, who have                             Oversight by FHFA,
Consolidation      the professional expertise and                             as Conservator of
and Relocation     experience in commercial construction                      Fannie Mae, of the
                   to oversee the buildout plans and                          Projected Costs
                   associated budget(s), as Fannie Mae                        Associated with Fannie
                   continues to revise and refine them.                       Mae’s Headquarters
                                                                              Consolidation and
                                                                              Relocation Project
                                                                              (COM-2016-004, June
                                                                              16, 2016)




                             Semiannual Report to the Congress • October 1, 2017­–March 31, 2018   93
 Specific Risk to                                            Expected        Report Name
  be Mitigated                Recommendation                   Impact           and Date
                    FHFA should direct Fannie Mae         Improved      Management Alert:
                    to provide regular updates and formal oversight     Need for Increased
                    budgetary reports to DOC for its                    Oversight by FHFA,
                    review and for FHFA approval through                as Conservator of
                    the design and construction of Fannie               Fannie Mae, of the
                    Mae’s leased space in Midtown                       Projected Costs
                    Center.                                             Associated with Fannie
                                                                        Mae’s Headquarters
                                                                        Consolidation and
                                                                        Relocation Project
                                                                        (COM-2016-004, June
                                                                        16, 2016)
Conflicts of        Take appropriate action to address    Improved      Administrative
Interest            conflicts of interest issue involving oversight     Investigation into
                    an entity within FHFA’s oversight                   Anonymous Hotline
                    authority. Public release by OIG of                 Complaints Concerning
                    certain information in the Management               Timeliness and
                    Alert and accompanying expert report                Completeness of
                    is prohibited by the Privacy Act of                 Disclosures Regarding
                    1974 (Pub.L. 93–579, 88 Stat. 1896,                 a Potential Conflict of
                    enacted December 31, 1974, 5 U.S.C.                 Interest by a Senior
                    § 552a).                                            Executive Officer of an
                                                                        Enterprise (OIG-2017-
                                                                        004, March 23, 2017)
                    Take appropriate action to address    Improved      Administrative
                    conflicts of interest issue involving oversight     Investigation into
                    an entity within FHFA’s oversight                   Anonymous Hotline
                    authority. Public release by OIG of                 Complaints Concerning
                    certain information in the Management               Timeliness and
                    Alert and accompanying expert report                Completeness of
                    is prohibited by the Privacy Act of                 Disclosures Regarding
                    1974 (Pub.L. 93–579, 88 Stat. 1896,                 a Potential Conflict of
                    enacted December 31, 1974, 5 U.S.C.                 Interest by a Senior
                    § 552a).                                            Executive Officer of an
                                                                        Enterprise (OIG-2017-
                                                                        004, March 23, 2017)




94    Federal Housing Finance Agency Office of Inspector General
Appendix C: OI                                     In these types of schemes, the sellers
                                                   or developers wrongfully conceal from
Publicly Reportable                                prospective lenders the incentives they have
                                                   offered to investors and the true value of
Investigative                                      the properties. The lenders, acting on this
Outcomes Involving                                 misinformation, make loans that are far riskier
                                                   than they have been led to believe. Such loans
Condo Conversion                                   often default and go into foreclosure, causing

and Builder Bailout                                the lenders to suffer large losses. Below are
                                                   the names of the defendants, their roles, the
Schemes                                            most recent actions in the cases and the date
                                                   of those actions.

Guilty Pleas of Loan Officer and Straw Buyers, Indictment of Mortgage Broker, and Ordered
Forfeiture, Florida
   Defendant             Role                    Most Recent Action                    Date
Daniel Cardenas   Loan Officer         Pled guilty to conspiracy to commit      March 28, 2018
                                       wire fraud.
Abdelghani        Straw Buyer          Pled guilty to conspiracy to commit wire March 6, 2018
Mellouki                               fraud affecting a financial institution.
Carlos Escarria   Real Estate Sales    Ordered to pay $83,512 in forfeiture.     January 26, 2018
                  Associate
Joaquin Cadavid   Straw Buyer          Pled guilty to conspiracy to commit       November 30, 2017
                                       bank and wire fraud and ordered to
                                       pay $77,680 in forfeiture.
Jonathan Marmol   Mortgage Broker      Charged by indictment with                November 16, 2017
                                       conspiracy to commit bank fraud and
                                       bank fraud.
Attorney Charged and Guilty Pleas of Real Estate Developer, Accountant, and Straw Buyer in
Condominium Scheme, Florida
    Defendant            Role                    Most Recent Action                     Date
Stephen           Straw Buyer          Pled guilty to conspiracy to commit       March 20, 2018
McKenzie                               false statements.
Eric Granitur     Attorney/            Charged by superseding indictment         March 8, 2018
                  Escrow Agent         with conspiracy to commit false
                                       statements on a loan and credit
                                       application and false statements on a
                                       loan and credit application.
George Heaton     Real Estate          Pled guilty to conspiracy to commit       January 18, 2018
                  Developer            false statements to a federally insured
                                       institution.
Deborah Dentry    Accountant           Pled guilty to conspiracy to commit       January 11, 2018
Baggett                                false statements to a federally insured
                                       institution.


                           Semiannual Report to the Congress • October 1, 2017­–March 31, 2018      95
Guilty Pleas, Sentencings, and Ordered Restitution in Condominium Fraud Scheme, Florida

  Defendant                Role                   Most Recent Action                      Date
Maria Rosa Diaz    President of          Sentenced to 24 months in prison and      March 16, 2018
                   Mortgage Brokerage    5 years of supervised release.
                   Business/Recruiter
Jenny Nillo        Marketing Company     Sentenced to 36 months in prison and      February 27, 2018
                   Operator/Recruiter    3 years of supervised release.
Barbara Zas        Recruiter             Sentenced to 5 years of supervised        February 16, 2018
                                         release.
Carlos Mesa, Jr.   Straw Buyer           Ordered to pay $240,249 in restitution, January 24, 2018
                                         joint and several.
Yanet Huet         Straw Buyer        Sentenced to 5 years of supervised           October 30, 2017
                                      release; later ordered to pay $152,206       & January 24, 2018
                                      in restitution, joint and several.
Hector Santana     Director of Sales/ Pled guilty to conspiracy to commit          January 24, 2018
                   Recruiter          bank fraud and wire fraud affecting a
                                      financial institution.
Barbara Camayd     President of Title Pled guilty to conspiracy to commit          January 18, 2018
                   Company            bank and wire fraud affecting a
                                      financial institution.
Yipsy Rabelo       Straw Buyer        Pled guilty to conspiracy to commit          January 18, 2018
Clavejo                               bank and wire fraud affecting a
                                      financial institution.
Miguel Faraldo     Marketing Company Sentenced to 18 months in prison and          November 30, 2017
                   Operator/Recruiter 5 years of supervised release.
Miguel Soto, Jr.   Acting Manager/       Pled guilty to conspiracy to commit       November 9, 2017
                   Recruiter             bank and wire fraud affecting a
                                         financial institution.

Sentencing and Two Acquitted at Trial in Bank Fraud Scheme, Texas

   Defendant              Role                    Most Recent Action                      Date
Daniel Bomar       Escrow Officer        Sentenced to 3 years of probation and     January 3, 2018
                                         ordered to pay $613,193 in restitution.
Brett Immel        Partner at Hanover    Acquitted at trial.                       December 22, 2017
                   Companies
James Wright       Title Attorney        Acquitted at trial.                       December 22, 2017




96    Federal Housing Finance Agency Office of Inspector General
Sentencings of Attorney and Licensed Real Estate Professional in Condominium Fraud Scheme,
Florida
   Defendant               Role                    Most Recent Action                    Date
Angel Garcia-      Former Attorney        Sentenced to 30 months in prison and     December 12, 2017
Oliver             and Principal of       3 years of supervised release.
                   Garcia-Oliver &
                   Mainieri, P.A.
David Cevallos     Real Estate            Sentenced to time served, 3 years of     November 29, 2017
                   Professional           supervised release, and ordered to pay
                                          $142,386 in restitution.

Sentencing of Recruiter in Builder Bailout Scheme, Illinois

   Defendant             Role                       Most Recent Action                  Date
Leonardo Sanders Recruiter                Sentenced to 28 months in prison,        November 30, 2017
                                          2 years of supervised release,
                                          and ordered to pay $1,006,035 in
                                          restitution, joint and several.

Sentencing of Owner/Developer in Condominium Fraud Scheme, Florida

   Defendant             Role                      Most Recent Action                   Date
Brian Allard       Owner/Developer        Sentenced to 3 years of probation and    November 13, 2017
                                          ordered forfeiture of assets valued
                                          at $103,818 and ordered to pay
                                          $1,417,982 in restitution, joint and
                                          several.

Three Found Guilty at Trial in Builder Bailout Scheme, Illinois

    Defendant             Role                     Most Recent Action                     Date
Theodore Wojtas,   Real Estate            Found guilty at trial on charges of wire October 16, 2017
Jr.                Developer              fraud and mail fraud.
Karin Ganser       Real Estate            Found guilty at trial on charges of wire October 16, 2017
                   Salesperson            fraud and mail fraud.
David Belconis     Attorney               Found guilty at trial on charges of wire October 16, 2017
                                          fraud, mail fraud, and false statements.




                              Semiannual Report to the Congress • October 1, 2017­–March 31, 2018     97
Appendix D: OI                                     Loan or mortgage origination schemes are the
                                                   most common type of mortgage fraud. They
Publicly Reportable                                typically involve falsifying borrowers’ income,
                                                   assets, employment histories, and credit profiles
Investigative Outcomes                             to make them more attractive to lenders.
Involving Loan                                     Perpetrators often employ bogus Social Security
                                                   numbers and fake or altered documents, such as
Origination Schemes                                W-2s and bank statements, to cause lenders to
                                                   make loans they would not otherwise make.


Trial Conviction of Buyer/Seller in Origination Fraud Scheme, Texas

   Defendant             Role                    Most Recent Action                      Date
Chukwuma          Buyer/Seller          Convicted at trial on charges of bank     March 15, 2018
Osuagwu                                 fraud and conspiracy to commit bank
                                        fraud.

Trial Conviction of Attorney and Guilty Plea of Loan Officer in Mortgage Fraud Scheme, Illinois

    Defendant            Role                     Most Recent Action                     Date
Jessica Arong     Attorney/             Convicted at trial on charges of bank     February 15, 2018
O’Brien           Loan Officer/         fraud and mail fraud affecting a
                  Real Estate Agent     financial institution.
Maria Bartko      Loan Officer          Pled guilty to mail fraud affecting a     January 26, 2018
                                        financial institution.

Sentencings of Loan Officer and Recruiter in Origination Fraud Scheme, Florida

   Defendant             Role                    Most Recent Action                      Date
Lazaro Rojas      Loan Officer/         Sentenced to 20 months in prison,         February 7, 2018
                  Recruiter             5 years of supervised release, and
                                        ordered to pay $811,643 in restitution,
                                        joint and several.
Adrian Diaz De    Recruiter             Sentenced to 14 months in prison,         January 17, 2018
Villegas                                5 years of supervised release, and
                                        ordered to pay $811,643 in restitution,
                                        joint and several.

Two Charged in Loan Modification Fraud Scheme, New York

   Defendant              Role                    Most Recent Action                   Date
Anthony           Participant           Charged by state felony complaint        December 19, 2017
Calascione                              with residential mortgage fraud, grand
                                        larceny, offering a false instrument for
                                        filing, and criminal tax fraud.
Catherine         Participant           Charged by state felony complaint        December 19, 2017
McKeon                                  with residential mortgage fraud, grand
                                        larceny, offering a false instrument for
                                        filing, and criminal tax fraud.


98   Federal Housing Finance Agency Office of Inspector General
Real Estate Brokers Plead Guilty in HELOC “Shotgun” Fraud Scheme, New Jersey

   Defendant             Role                      Most Recent Action                Date
Simon Curanaj     Real Estate Broker     Pled guilty to conspiracy to commit    November 3, 2017
                                         bank fraud and ordered to pay
                                         $1,206,160 in forfeiture.
Michael Arroyo    Real Estate Broker     Pled guilty to conspiracy to commit    November 3, 2017
                                         bank fraud and ordered to pay $5,500
                                         in forfeiture.

Sentencing of Title Agency Owner, Ohio

   Defendant              Role                 Most Recent Action                      Date
Kimberli Himmel   Title Agency Owner Sentenced to 60 months in prison,          October 31, 2017
                                     3 years of supervised release,
                                     and ordered to pay $2,479,248 in
                                     restitution.

Attorney/Title Company Owner Sentenced in Bank Fraud Scheme, Massachusetts

   Defendant             Role                     Most Recent Action                    Date
Margaret          Attorney/Title         Sentenced to 2 years in prison, 3 years October 24, 2017
Connolly          Company Owner          of supervised release, and ordered
                                         to pay $1,267,000 in restitution and
                                         $1,377,000 in forfeiture.

Sentencing in Loan Origination Fraud Scheme, New Jersey

   Defendant              Role                   Most Recent Action                    Date
Melissa Phillip   Participant            Sentenced to 2 years of probation.     October 18, 2017




                           Semiannual Report to the Congress • October 1, 2017­–March 31, 2018      99
Appendix E: OI                                       Short sales occur when a lender allows a
                                                     borrower who is “underwater” on his/her
Publicly Reportable                                  loan—that is, the borrower owes more than
                                                     the property is worth—to sell his/her property
Investigative Outcomes                               for less than the debt owed. Short sale fraud
Involving Short Sale                                 usually involves a borrower who intentionally
                                                     misrepresents or fails to disclose material facts
Schemes                                              to induce a lender to agree to a short sale.


Guilty Pleas in Short Sale Fraud Scheme, Florida

   Defendant             Role                   Most Recent Action                   Date
Louis Virzi        Scheme Participant  Pled guilty to conspiracy to commit    March 2, 2018
                                       bank fraud.
Christopher        Scheme Participant Pled guilty to conspiracy to commit     March 2, 2018
Campbell                               bank fraud.
Sentencing of Real Estate Buyer/Flipper in Multi-Million Dollar Mortgage Fraud Scheme, New
York
   Defendant               Role                 Most Recent Action                   Date
Dirk Hall          Real Estate Buyer/  Sentenced to 41 months in prison,      January 26, 2018
                   Flipper             5 years of supervised release, and
                                       ordered to pay $550,000 in forfeiture.

Sentencing of Title Company Owner, Maryland

   Defendant               Role                   Most Recent Action                    Date
Marla Messenger    Owner                 Sentenced to 24 months in prison and    December 19, 2017
                                         3 years of supervised release; later    & January 2, 2018
                                         ordered to pay $40,000 in forfeiture.

Attorney Convicted at Trial in Short Sale Fraud Scheme, California

   Defendant              Role                   Most Recent Action                   Date
Robert Farrace     Attorney              Convicted at trial on charges of wire   November 14, 2017
                                         fraud.




100    Federal Housing Finance Agency Office of Inspector General
Appendix F: OI                                       These schemes prey on homeowners.
                                                     Businesses typically advertise that they can
Publicly Reportable                                  secure loan modifications if the homeowners
                                                     pay significant upfront fees or take other
Investigative Outcomes                               action that enriches the defendant. Typically,
Involving Loan                                       these businesses take little or no action,
                                                     leaving homeowners in a worse position.
Modification and
Property Disposition
Schemes
Charges Filed on Former Couple and Family Member for Operating a Nationwide Loan
Modification Scheme, California
   Defendant              Role                Most Recent Action                Date
Kevin Suleiman    Participant        Charged by amended felony complaint March 9, 2018
                                     with conspiracy, grand theft, money
                                     laundering, and unlawful loan
                                     modification advance fees.
Assad Suleiman    Participant        Charged by information with         December 7, 2017
                                     conspiracy, grand theft, money
                                     laundering, and burglary.
Rosa Barraza      Participant        Charged by information with         December 7, 2017
                                     conspiracy, grand theft, money
                                     laundering, and burglary.

Sentencing in Loan Modification Scheme with over 4,000 Victims, California

  Defendant                Role                 Most Recent Action                    Date
Damian Kutzner     Participant         Sentenced to 70 months in prison,       February 23, 2018
                                       3 years of supervised release, and
                                       ordered to pay $587,864 in restitution.
Guilty Plea of Business Owner in Multi-State Loan Modification Scheme with over 550 Victims,
Kansas
   Defendant              Role                  Most Recent Action                    Date
Tyler Korn         Business Owner      Pled guilty to conspiracy to commit     January 22, 2018
                                       mail and wire fraud.

Loan Modification Fraud Scheme Operator Charged, Michigan

   Defendant               Role                   Most Recent Action                    Date
Robert Ready       Owner                 Charged by state misdemeanor            January 16, 2018
                                         complaint with credit service act
                                         violations.




                           Semiannual Report to the Congress • October 1, 2017­–March 31, 2018   101
Sentencings in Foreclosure Rescue Fraud Scheme, Maryland

   Defendant               Role                   Most Recent Action                     Date
Rene de Jesus de   Participant           Sentenced to 30 months in prison,         December 14, 2017
Leon                                     3 years of supervised release, and
                                         ordered to pay $649,855 in restitution,
                                         joint and several.
Pedrina            Participant           Sentenced to time served, 3 years of      December 13, 2017
Rodriguez                                supervised release, and ordered to
Bonilla (also                            pay $463,685 in restitution, joint and
known as Pedrina                         several.
Rodriguez)
Ana Gomez          Participant           Sentenced to 30 months in prison,         October 12, 2017
                                         3 years of supervised release, and
                                         ordered to pay $205,280 in restitution.

Sentencings in Nationwide Loan Modification Scheme with More Than 10,000 Victims, Utah

   Defendant             Role                     Most Recent Action                    Date
John McCall        Co-Owner              Sentenced to 12 months in prison,         November 16, 2017
                                         36 months of supervised release, and
                                         ordered to pay $415,940 in restitution,
                                         joint and several.
Jeremiah Barrett   Recruiter             Sentenced to 5 years of probation, and    November 6, 2017
                                         ordered to pay $108,989 in restitution
                                         and $232,400 in forfeiture.
James Creasey      Recruiter             Sentenced to 5 years of probation, and    November 6, 2017
                                         ordered to pay $121,711 in restitution
                                         and $259,528 in forfeiture.

Indictment in Foreclosure Rescue Fraud Scheme, Maryland

   Defendant               Role                    Most Recent Action                   Date
Paul Randall       Participant           Charged by indictment with theft,         November 2, 2017
                                         failure to provide a contract, receive
                                         payments in advance, failure to
                                         exercise duty of care, and practicing
                                         law without admission to the Bar.




102    Federal Housing Finance Agency Office of Inspector General
Appendix G: OI                                   Numerous foreclosures left the Enterprises
                                                 with an inventory of REO properties. The REO
Publicly Reportable                              inventory has sparked a number of different
                                                 schemes to either defraud the Enterprises,
Investigative Outcomes                           which use contractors to secure, maintain
Involving Property                               and repair, price, and ultimately sell their
                                                 properties, or defraud individuals seeking to
Management and REO                               purchase REO properties from the Enterprises.

Schemes
Indictment of Fannie Mae Employee for REO Fraud Scheme, California

   Defendant            Role                    Most Recent Action                   Date
Shirene          Former Fannie Mae    Charged by indictment with wire         January 24, 2018
Hernandez        Employee             fraud involving deprivation of honest
                                      services.

Sentencing of CEO in Property Investment Scheme, Michigan

   Defendant            Role                    Most Recent Action                   Date
Sameer Beydoun   Founder and CEO      Sentenced to 24 months in prison,       October 10, 2017 &
                 of company           3 years of supervised release;          November 6, 2017
                                      later ordered to pay $1,124,354 in
                                      restitution.




                        Semiannual Report to the Congress • October 1, 2017­–March 31, 2018   103
Appendix H: OI                                       Adverse possession schemes use illegal
                                                     adverse possession (also known as “home
Publicly Reportable                                  squatting”) or fraudulent documentation to
                                                     control distressed homes, foreclosed homes,
Investigative Outcomes                               and REO properties. In distressed property
Involving Adverse                                    schemes, perpetrators falsely purport to assist
                                                     struggling homeowners seeking to delay or
Possession and                                       avoid foreclosure.They use fraudulent tactics,

Distressed Property                                  such as filing false bankruptcy petitions,
                                                     while collecting significant fees from the
Schemes                                              homeowners.


Sentencing of Scheme Participant in Bank Fraud Conspiracy, Texas

   Defendant               Role                   Most Recent Action                    Date
Aviyah Webb        Participant           Sentenced to 21 months in prison and March 29, 2018
                                         3 years of supervised release.
5 Indicted 2 Plead Guilty in $17 Million Real Estate Fraud Scheme Targeting Distressed
Homeowners, California
    Defendant              Role                   Most Recent Action                    Date
Michael Henschel Business Owner          Charged by superseding indictment       March 8, 2018
                                         with conspiracy, mail fraud affecting
                                         a financial institution, and bankruptcy
                                         fraud.
Camerino Islas     Participant           Charged by superseding indictment       March 8, 2018
                                         with conspiracy and mail fraud
                                         affecting a financial institution.
Claudia Islas      Participant           Charged by superseding indictment       March 8, 2018
                                         with conspiracy and mail fraud
                                         affecting a financial institution.
Juan Velasquez     Participant           Charged by superseding indictment       March 8, 2018
                                         with conspiracy and mail fraud
                                         affecting a financial institution.
Eugene Fulmer      Participant           Charged by superseding indictment       March 8, 2018
                                         with conspiracy and mail fraud
                                         affecting a financial institution.
Lidia Alvarez      Bankruptcy Petition Pled guilty to conspiracy to commit       December 19, 2017
                   Preparer              bankruptcy fraud.
Shara Surabi       Salesperson           Pled guilty to conspiracy to commit     December 6, 2017
                                         bankruptcy fraud.




104    Federal Housing Finance Agency Office of Inspector General
Indictments in Multi-State Deed Fraud Scheme, Texas

   Defendant              Role                   Most Recent Action                      Date
Arlando Jacobs    Participant           Charged by superseding indictment         February 14, 2018
                                        with conspiracy to commit wire fraud
                                        affecting a financial institution, bank
                                        fraud, and aggravated identity theft.
Clarence Roland   Participant           Charged by superseding indictment         February 14, 2018
                                        with conspiracy to commit wire fraud
                                        affecting a financial institution and
                                        aggravated identity theft.

Indictment of Real Estate Sales Associate in Bankruptcy Fraud Scheme, Florida

   Defendant             Role                    Most Recent Action                      Date
David Morgan      Real Estate Sales     Charged by indictment with                February 8, 2018
                  Associate             bankruptcy fraud and falsification of
                                        records in a bankruptcy proceeding.

Guilty Plea of Property Management President, Florida

   Defendant              Role                   Most Recent Action                      Date
Michael Rubino    President of          Pled guilty to equity skimming and        January 31, 2018
                  Company               bankruptcy fraud.

4 Indicted in $2 Million Mortgage Fraud Scheme, California

   Defendant              Role                     Most Recent Action                    Date
Andrew Valles     Participant           Charged by indictment with grand          January 25, 2018
                                        theft, filing false or forged documents
                                        in a public office, conspiracy, and
                                        identity theft.
Jemel Lilly       Participant           Charged by indictment with grand          January 25, 2018
                                        theft, filing false or forged documents
                                        in a public office, conspiracy, and
                                        identity theft.
Mark Bellinger    Participant           Charged by indictment with grand          January 25, 2018
                                        theft, filing false or forged documents
                                        in a public office, conspiracy, and
                                        identity theft.
Arnold Millman    Participant           Charged by indictment with grand          January 25, 2018
                                        theft, filing false or forged documents
                                        in a public office, conspiracy, and
                                        identity theft.




                          Semiannual Report to the Congress • October 1, 2017­–March 31, 2018    105
Sentencing in Deed Fraud Scheme Using Forged Fannie Mae Exec’s Signature, Texas

    Defendant           Role                   Most Recent Action                   Date
Arnoldo Antonio Participant           Sentenced to 10 years in prison.       January 11, 2018
Ortiz
Family Members Found Guilty at Trial and Plead Guilty in $30 Million Mortgage Relief Scheme,
California
    Defendant           Role                   Most Recent Action                   Date
Jamie Matsuba   Participant           Found guilty at trial on charges of    December 13, 2017
                                      conspiracy to commit wire fraud,
                                      making false statements to federally
                                      insured banks, and identity theft.
Thomas Matsuba Participant            Found guilty at trial on charges of    December 13, 2017
                                      conspiracy to commit wire fraud,
                                      making false statements to federally
                                      insured banks, and identity theft.
Dorothy Matsuba Participant           Pled guilty to conspiracy to commit    December 4, 2017
                                      wire fraud, wire fraud, making false
                                      statements to federally insured banks,
                                      and aggravated identity theft.




106    Federal Housing Finance Agency Office of Inspector General
Appendix I: OI                                     Investigations in this category involve a
                                                   variety of fraud schemes that relate to loans
Publicly Reportable                                purchased by the Enterprises to finance
                                                   multifamily properties. Multifamily properties
Investigative Outcomes                             have five or more units and are primarily
Involving Multifamily                              rental apartment communities.

Schemes
Sentencing of Co-Conspirator in Multifamily Fraud Scheme, New York

    Defendant              Role                   Most Recent Action                    Date
Christopher Scott, Participant          Sentenced to 5 years of supervised       February 14, 2018
Sr.                                     release; later ordered to pay $766,689   & March 2, 2018
                                        in restitution.




                          Semiannual Report to the Congress • October 1, 2017­–March 31, 2018   107
Appendix J: OI                                       Investigations in this category include a
                                                     variety of schemes involving Fannie Mae,
Publicly Reportable                                  Freddie Mac, the FHLBanks, or members of
                                                     FHLBanks.
Investigative
Outcomes Involving
Fraud Affecting
the Enterprises,
the FHLBanks, or
FHLBank Member
Institutions
Sentencings of Non-Profit Owner and Employee in AHP Fraud Scheme, South Carolina

   Defendant             Role                  Most Recent Action                 Date
Augustina         Nonprofit Employee Sentenced to 3 years of probation and March 19, 2018
Cabral-Rice                          ordered to pay $316,547 in restitution,
                                     joint and several, and $141,244 in
                                     forfeiture.
Erick Bradshaw,   Nonprofit Owner    Sentenced to 5 years of probation and December 6, 2017
Sr.                                  ordered to pay $316,547 in restitution,
                                     joint and several.

2 Indicted on Bank Fraud Charges for Loan Scheme, North Carolina

   Defendant              Role                     Most Recent Action                  Date
Stanley Barron    Participant            Charged by indictment with             March 13, 2018
                                         conspiracy to commit wire fraud
                                         and bank fraud, wire fraud affecting
                                         financial institutions, financial
                                         institution fraud, and money
                                         laundering conspiracy.
Kimberlie         Participant            Charged by indictment with             March 13, 2018
Flemings                                 conspiracy to commit wire fraud
                                         and bank fraud, wire fraud affecting
                                         financial institutions, financial
                                         institution fraud, and money
                                         laundering conspiracy.
Brian Lyles       Participant            Charged by information with            February 23, 2018
                                         conspiracy to commit wire fraud and
                                         bank fraud and bank fraud.




108    Federal Housing Finance Agency Office of Inspector General
Former Settlement Agent Sentenced to 12 Years in Prison, New Jersey

  Defendant              Role                      Most Recent Action                  Date
Mark Andreotti    Former Settlement      Sentenced to 144 months in prison,     March 12, 2018
                  Agent                  5 years of supervised release,
                                         and ordered to pay $2,123,351 in
                                         restitution.

Mortgage Company Operator Charged in Mortgage Refinance Ponzi Scheme, Ohio

   Defendant             Role                    Most Recent Action                    Date
Erick Parker      Business Operator      Charged by information with wire       February 28, 2018
                                         fraud.

Indictment in Counterfeit HELOC Check Fraud Scheme, Florida

   Defendant            Role                     Most Recent Action                    Date
Virginia Nelson   Scheme Participant     Charged by indictment with             January 30, 2018
                                         conspiracy to commit bank fraud.

Guilty Plea of Mortgage and Title Company Owner in Lien Fraud Scheme, Virginia

   Defendant             Role                     Most Recent Action                   Date
Roberto Jaramillo Mortgage and Title     Pled guilty to wire fraud.             January 30, 2018
                  Company Owner

Sentencing of Settlement Agent for Wire Fraud, Maryland

  Defendant               Role                    Most Recent Action                    Date
Margie Franz      Settlement Agent/      Sentenced to 21 months in prison,       January 26, 2018
                  Office Manager         3 years of supervised release, and
                                         ordered to pay $970,964 in restitution.

Guilty Pleas of Bank Executives and Real Estate Investor, Missouri

   Defendant              Role                     Most Recent Action                  Date
Michael Litz      Real Estate Investor   Pled guilty to theft, embezzlement,    January 16, 2018
                                         or misapplication of funds by a bank
                                         officer.
Timothy Murphy    Loan Officer/          Charged by information and pled        January 11, 2018
                  Executive Vice-        guilty to bank fraud.
                  President
Shaun Hayes       Bank Owner             Pled guilty to bank fraud and theft,   January 3, 2018
                                         embezzlement, or misapplication of
                                         funds by a bank officer.




                          Semiannual Report to the Congress • October 1, 2017­–March 31, 2018     109
Trial Convictions of Attorney, Former CEO, and Former Chief Loan Officer of Failed Bank,
California
   Defendant               Role                  Most Recent Action                Date
Sean Cutting       Former CEO          Convicted at trial on charges of      December 18, 2017
                                       conspiracy to commit bank fraud,
                                       bank fraud, false bank entries and
                                       reports, conspiracy to make false
                                       statements, misapplication of bank
                                       funds, false statements to the FDIC,
                                       conspiracy to commit wire fraud, wire
                                       fraud, and money laundering.
Brian Melland      Former Chief Loan Convicted at trial on charges of        December 18, 2017
                   Officer             conspiracy to commit bank fraud,
                                       bank fraud, false bank entries and
                                       reports, conspiracy to make false
                                       statements, misapplication of bank
                                       funds, false statements to the FDIC,
                                       receipt of gifts for procuring loans,
                                       conspiracy to commit wire fraud, wire
                                       fraud, and money laundering.
David Lonich       Attorney            Convicted at trial on charges of      December 18, 2017
                                       conspiracy to commit bank fraud,
                                       bank fraud, false bank entries and
                                       reports, conspiracy to commit wire
                                       fraud, wire fraud, money laundering,
                                       and attempted obstruction of justice.

Sentencing of Former Freddie Mac Intern, Virginia

   Defendant               Role                    Most Recent Action                 Date
Allan Richardson   Participant/Former    Sentenced to 3 months home             December 15, 2017
                   Freddie Mac Intern    confinement, 2 years of probation, and
                                         ordered to pay a fine of $4,000 and
                                         forfeiture of $4,000.

Indictment in $50 Million Bank Fraud Scheme, Maryland

  Defendant               Role                    Most Recent Action                Date
Mark Gaver         Business Owner        Charged by indictment with bank      December 5, 2017
                                         fraud and money laundering.

Former Bank Executive Indicted for Role in $15 Million Bank Loan Scheme, Kansas

   Defendant              Role                    Most Recent Action               Date
Troy Gregory       Former Bank           Charged by indictment with           November 30, 2017
                   Executive/            conspiracy to commit bank fraud,
                   Loan Officer          bank fraud, and false statements.




110    Federal Housing Finance Agency Office of Inspector General
Sentencing in False Title Insurance Scheme, Missouri

   Defendant              Role                   Most Recent Action                  Date
Nancy Porter      Title Company        Sentenced to 12 months and 1 day in      November 8, 2017
                  Owner                prison, 3 years of supervised release,
                                       and ordered to pay $420,611 in
                                       restitution.




                          Semiannual Report to the Congress • October 1, 2017­–March 31, 2018   111
Appendix K: Glossary                                  Fannie Mae: A federally chartered
                                                      corporation that purchases residential
and Acronyms                                          mortgages and pools them into securities
                                                      that are sold to investors. By purchasing
Glossary of Terms                                     mortgages, Fannie Mae supplies funds to
                                                      lenders so they may make loans to home
Bankruptcy: A legal procedure for resolving           buyers.
debt problems of individuals and businesses;
specifically, a case filed under one of the           Federal Home Loan Bank System: The
chapters of Title 11 of the U.S. Code.                FHLBanks are 11 regional cooperative
                                                      banks that U.S. lending institutions use to
Conservatorship: A legal procedure for the            finance housing and economic development
management of financial institutions for an           in their communities. Created by Congress,
interim period during which the institution’s         the FHLBanks have been the largest source
conservator assumes responsibility for                of funding for community lending for eight
operating the institution and conserving its          decades. The FHLBanks provide loans (or
assets. Under the Housing and Economic                “advances”) to their member banks but do not
Recovery Act of 2008, the Enterprises were            lend directly to individual borrowers.
placed into conservatorships overseen by
FHFA. As conservator, FHFA has undertaken             Fiscal Year 2018: OIG’s FY 2018 covers
to preserve and conserve the assets of the            October 1, 2017, through September 30,
Enterprises and restore them to safety and            2018.
soundness. FHFA also has assumed the
                                                      Foreclosure: A legal process used by a lender
powers of the boards of directors, officers,
                                                      to obtain possession of a mortgaged property
and shareholders; however, the day-to-day
                                                      in order to repay part or all of the debt.
operational decision-making of each company
is delegated by FHFA to the Enterprises’              Freddie Mac: A federally chartered
existing management.                                  corporation that purchases residential
                                                      mortgages and pools them into securities
Default: Occurs when a mortgagor misses
                                                      that are sold to investors. By purchasing
one or more payments.
                                                      mortgages, Freddie Mac supplies funds to
Dodd-Frank Wall Street Reform and                     lenders so they may make loans to home
Consumer Protection Act of 2010:                      buyers.
Legislation that intends to promote the
                                                      Government-Sponsored Enterprises:
financial stability of the United States by
                                                      Business organizations chartered and
improving accountability and transparency in
                                                      sponsored by the federal government. The
the financial system, to end “too big to fail,”
                                                      GSEs regulated by FHFA also are referred to
to protect the American taxpayer by ending
                                                      as regulated entities.
bailouts, and to protect consumers from
abusive financial services practices.



112     Federal Housing Finance Agency Office of Inspector General
Guarantee: A pledge to investors that the            assurance that the objectives of an entity will
guarantor will bear the default risk on a pool       be achieved. These objectives and related
of loans or other collateral.                        risks can be broadly classified into one or
                                                     more of the following three categories:
Housing and Economic Recovery Act of                 (1) operations—effectiveness and efficiency
2008: Legislation that established FHFA              of operations; (2) reporting—reliability of
and OIG. HERA also expanded Treasury’s               reporting for internal and external use; and
authority to provide financial support to            (3) compliance—compliance with applicable
the regulated entities and enhanced FHFA’s           laws and regulations. Internal control
authority to act as conservator or receiver.         comprises the plans, methods, policies,
                                                     and procedures used to fulfill the mission,
Inspector General Act of 1978: Legislation
                                                     strategic plan, goals, and objectives of the
that authorizes establishment of offices
                                                     entity. Internal control serves as the first line
of inspectors general, “independent and
                                                     of defense in safeguarding assets. In short,
objective units” within federal agencies,
                                                     internal control helps managers achieve
that: (1) conduct and supervise audits and
                                                     desired results through effective stewardship
investigations relating to the programs and
                                                     of resources.
operations of their agencies; (2) provide
leadership and coordination and recommend            Mortgage-Backed Securities: Debt
policies for activities designed to promote          securities that represent interests in the cash
economy, efficiency, and effectiveness in            flows—anticipated principal and interest
the administration of agency programs                payments—from pools of mortgage loans,
and to prevent and detect fraud, waste, or           most commonly on residential property.
abuse in such programs and operations; and
(3) provide a means for keeping the head of          Real Estate Owned: Foreclosed homes
the agency and Congress fully and currently          owned by government agencies or financial
informed about problems and deficiencies             institutions, such as the Enterprises or real
relating to the administration of such               estate investors. REO homes represent
programs and operations and the necessity for        collateral seized to satisfy unpaid mortgage
and progress of corrective action.                   loans. The investor or its representative must
                                                     then sell the property on its own.
Inspector General Reform Act of 2008:
Legislation that amends the Inspector                Securitization: A process whereby a financial
General Act to enhance the independence of           institution assembles pools of income-
inspectors general and to create the Council         producing assets (such as loans) and then
of the Inspectors General on Integrity and           sells securities representing an interest in the
Efficiency.                                          assets’ cash flows to investors.

Internal Controls: Processes effected by             Senior Preferred Stock Purchase
an entity’s oversight body, management,              Agreements: Entered into at the time the
and other personnel that provide reasonable          conservatorships were created, the PSPAs




                            Semiannual Report to the Congress • October 1, 2017­–March 31, 2018   113
authorize the Enterprises to request and obtain       below zero (i.e., the home is worth less than
funds from Treasury, among other matters.             the balance of the loan[s] it secures).
Under the PSPAs, the Enterprises agreed to
consult with Treasury concerning a variety            Underwriting: The process of analyzing a
of significant business activities, capital           loan application to determine the amount of
stock issuance, dividend payments, ending             risk involved in making the loan. It includes
the conservatorships, transferring assets, and        a review of the potential borrower’s credit
awarding executive compensation.                      worthiness and an assessment of the property
                                                      value.
Servicers: Intermediaries between mortgage
borrowers and owners of the loans, such as            Upfront Fees: One-time payments made
the Enterprises or mortgage-backed securities         by lenders when a loan is acquired by an
investors. Servicers collect the borrowers’           Enterprise. Fannie Mae refers to upfront
mortgage payments, remit them to the owners           fees as “loan level pricing adjustments” and
of the loans, maintain appropriate records,           Freddie Mac refers to them as “delivery fees.”
and address delinquencies or defaults on
behalf of the owners of the loans. For their
services, they typically receive a percentage
of the unpaid principal balance of the
mortgage loans they service. The recent
financial crisis has put more emphasis on
servicers’ handling of defaults, modifications,
short sales, and foreclosures, in addition to
their more traditional duty of collecting and
distributing monthly mortgage payments.

Short Sale: The sale of a mortgaged property
for less than what is owed on the mortgage.

Straw Buyer: A person whose credit
profile is used to serve as a cover in a loan
transaction. Straw buyers are chosen for their
ability to qualify for a mortgage loan, causing
loans that would ordinarily be declined to be
approved. Straw buyers are often paid a fee
for their involvement in purchasing a property
and usually never intend to own or occupy the
property.

Underwater: Term used to describe
situations in which the homeowner’s equity is




114     Federal Housing Finance Agency Office of Inspector General
Acronyms and Abbreviations                      FHLBank	            Federal Home Loan Bank

Agency	        Federal Housing Finance          FSOC	               Financial Stability
               Agency                                               Oversight Council

ARM	           Adjustable-Rate Mortgage         FY 2018	            Fiscal Year 2018

Blue Book	     Quality Standards for            GAO	Government
               Inspection and Evaluation            Accountability Office

CEO	           Chief Executive Officer          GAGAS	              Generally Accepted
                                                                    Government Auditing
CIGFO	         Council of Inspectors                                Standards
               General on Financial
               Oversight                        GSE	                Government-Sponsored
                                                                    Enterprise
CIGIE	         Council of the Inspectors
               General on Integrity and         HELOC	              Home Equity Line of
               Efficiency                                           Credit

DER	           Division of Enterprise           HERA	               Housing and Economic
               Regulation                                           Recovery Act of 2008

DHMG	          Division of Housing              HUD-OIG	            Department of Housing
               Mission and Goals                                    and Urban Development
                                                                    Office of Inspector General
DOC	           Division of
               Conservatorship                  IG	                 Inspector General

DOJ	           Department of Justice            IRS-CI	             Internal Revenue Service-
                                                                    Criminal Investigation
EIC	           Examiner-in-Charge
                                                IT	                 Information Technology
Enterprises	   Fannie Mae and Freddie
               Mac                              LTV	                Loan-to-Value

FBI	           Federal Bureau of                MBS	Mortgage-Backed
               Investigation                        Securities

FDIC	          Federal Deposit Insurance        MRA	                Matter Requiring Attention
               Corporation
                                                MSR	                Mortgage Servicing Right
FHFA	          Federal Housing Finance
               Agency



                       Semiannual Report to the Congress • October 1, 2017­–March 31, 2018   115
NGC	               Nominating and Corporate           TCRs	          Tips, Complaints, or
                   Governance Committee of                           Referrals
                   the Fannie Mae Board of
                   Directors                          Treasury	      Department of the Treasury

NIST	              National Institute of
                   Standards and Technology

OA	                Office of Audits

OCom	              Office of Compliance and
                   Special Projects

OE	                Office of Evaluations

OHRP	              Office of Housing and
                   Regulatory Policy

OI	                Office of Investigations

OIG	               Federal Housing Finance
                   Agency Office of Inspector
                   General

ORA	               Office of Risk Analysis

PII	               Personally Identifiable
                   Information

PSPA	              Senior Preferred Stock
                   Purchase Agreement

REO	               Real Estate Owned

RMBS	              Residential Mortgage-
                   Backed Securities

ROE	               Report of Examination

SA	                Special Agent

SEO	               Senior Executive Officer

SVB	               Sonoma Valley Bank




116     Federal Housing Finance Agency Office of Inspector General
Appendix L: Endnotes

1
    12 U.S.C. § 4617(b)(2)(A), (B), (D) (2016).
    Accessed: March 16, 2018, at Title 12,
    Chapter 46, Subchapter II, Section 4617

2
     HFA Suspended Counterparty Program, 12
    F
    C.F.R. pt. 1227 (2018). Accessed: March 16,
    2018, at Title 12, Volume 10, Part 1227




                             Semiannual Report to the Congress • October 1, 2017­–March 31, 2018   117
F e d er a l H ou s i n g F i n a n c e A gen c y 
O ff i c e of I n s pec tor G en er a l
S emi a n n u a l R eport
to t he C on gr es s
October 1, 2017, through March 31, 2018




Federal Housing Finance Agency
Office of Inspector General
400 Seventh Street, SW
Washington, DC 20219
Main (202) 730-0880
Hotline (800) 793-7724
www.fhfaoig.gov