oversight

Ninth Semiannual Report to the Congress

Published by the Federal Housing Finance Agency, Office of Inspector General on 2015-03-31.

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

Federal Housing Finance Agency
  Office of Inspector General

  Se m iann ual R ep ort to t he Cong r e ss
           October 1, 2014, through March 31, 2015
Federal Housing Finance Agency
 Office of Inspector General




 Semiannual Report           to the       Congress
       October 1, 2014, through March 31, 2015
ii   Federal Housing Finance Agency Office of Inspector General
Table of Contents	

Our Vision	                                                                                          v
Our Mission and Core Values	                                                                         v
Integrity and Excellence	                                                                            v
Accountability	                                                                                     vi
Transparency	                                                                                       vi
OIG’s Accomplishments from 2010 to Present	                                                        vii
A Message from the Inspector General	                                                               1
Executive Summary	                                                                                  2
	Overview	                                                                                          2
	 Section 1: Oversight Strategy, Organizational Structure, and Accomplishments	                     3
	 Section 2: FHFA and GSE Operations	                                                               3
Section 1: Oversight Strategy, Organizational Structure, and Accomplishments	                       4
	 Risk-Focused Strategy	                                                                            4
	 Audit and Evaluation Plan	                                                                        4
	Leadership	                                                                                        7
	 OIG’s Organizational Structure	                                                                   7
	 OIG’s Organizational Chart	                                                                      10
	 OIG’s Strategic Plan	                                                                            10
	 OIG’s Oversight Activities During the Reporting Period	                                          11
	Recommendations	                                                                                  16
	 Investigations: Criminal, Civil, and Administrative	                                             16
	 Investigation Highlights	                                                                        17
	 Investigations: Civil Cases	                                                                     17
	 Investigations: Criminal Cases	                                                                  17
	 Investigations: Administrative Actions	                                                          25
	 Regulatory Activities	                                                                           26
	 Suspension of Counterparties Referrals	                                                          26
	 Public and Private Partnerships, Outreach, and Communications	                                   27
Section 2: FHFA and GSE Operations	                                                                30
	Overview	                                                                                         30
	 The Enterprises	                                                                                 30
	 FHFA’s Dual Role as Conservator and Regulator of the Enterprises	                                32
	 Enterprises’ Financial Performance	                                                              33
	 Treasury’s Investments in the Enterprises	                                                       36
	 Additional Government Support for the Enterprises	                                               37
	 Future of the Conservatorships	                                                                  38
	 FHLBank System	                                                                                  38
	 Selected FHFA and GSE Activities	                                                                41




                              Semiannual Report to the Congress • October 1, 2014–March 31, 2015   iii
Appendix A: Glossary and Acronyms	                                      48
Appendix B: OIG Recommendations	                                        60
Appendix C: Information Required by the Inspector General Act and 	
             Subpoenas Issued	                                          80
Appendix D: OIG Reports	                                                83
Appendix E: OI Publicly Reportable Investigative Outcomes Involving	
             Condo Conversion and Builder Bailout Schemes	              84
Appendix F: OI Publicly Reportable Investigative Outcomes Involving
             Fraud Committed Against the Enterprises, the FHLBanks,
             or FHLBank Member Institutions	                            90
Appendix G: OI Publicly Reportable Investigative Outcomes Involving
             Loan Origination Schemes	                                 92
Appendix H: OI Publicly Reportable Investigative Outcomes Involving
             Short Sale Schemes	                                       102
Appendix I: OI Publicly Reportable Investigative Outcomes Involving
             Loan Modification and Property Disposition Schemes	       106
Appendix J: OI Publicly Reportable Investigative Outcomes Involving
             Property Management and REO Schemes	                      110
Appendix K: OI Publicly Reportable Investigative Outcomes Involving
             Adverse Possession Schemes	                               112
Appendix L: Figure Sources	                                            115
Appendix M: Endnotes	                                                  116




iv   Federal Housing Finance Agency Office of Inspector General
Our Vision
To be a first-rate independent oversight organization in the federal government by acting as a catalyst for
effective management, accountability, and positive change in the Federal Housing Finance Agency (FHFA or
Agency) and bringing enforcement actions against those, whether inside or outside of the federal government,
who waste, steal, or abuse government funds in connection with the Agency, Fannie Mae, Freddie Mac, or any
of the Federal Home Loan Banks.


Our Mission and Core Values
The Federal Housing Finance Agency Office of Inspector General’s (OIG) mission is to provide independent,
relevant, timely, and transparent oversight of the Federal Housing Finance Agency that promotes accountability,
integrity, economy, and efficiency; advises the Director of the Agency and Congress; informs the public; and
engages in robust enforcement efforts to protect the interests of the American taxpayers.


Integrity and Excellence
We strive to maintain the highest level of integrity, professionalism, and excellence in our work. We follow
the facts—wherever they go, without fear or favor; report findings that are supported by sufficient evidence in
accordance with professional standards; and recommend actions tied to our findings. Our work is risk-based,
credible, and timely. 




                                     Semiannual Report to the Congress • October 1, 2014–March 31, 2015           v
Accountability
We play a vital role in promoting the economy and efficiency in the management of the Agency and view
our oversight role both prospectively (advising the Agency on internal controls and oversight, for example)
and retrospectively (by assessing the Agency’s oversight of Fannie Mae, Freddie Mac, and the Federal Home
Loan Banks and its conservatorship of Fannie Mae and Freddie Mac). The U.S. taxpayers have invested
$187.5 billion into Fannie Mae and Freddie Mac; our oversight role reaches third parties (such as lenders and
servicers) who deal with those entities to ensure that they are satisfying their obligations to these entities and
that taxpayer monies are not wasted or misused.


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

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




vi   Federal Housing Finance Agency Office of Inspector General
OIG’s Accomplishments from 2010 to Present
                          48                  36                     7                   8                  474                      12
                                                                                                                                        Systemic
                                                                         Evaluation                                                    Implication
                               Audits              Evaluations                               White Papers      Investigations
                                                                          Surveys                                                     Reports (SIRs)a



                                                                    Reports by Subject Area
            Work                                                                                                                                        Results

             111                                                                                                                                        $4 billion
            Reports                                                                                                                                     Restitutions

             228                                                                                                                                    $2.8 billion
       Recommendations                  Conservatorship and                  FHLBank System                     FHFA Internal                           Recoveries
                                        Enterprise Oversight                    Oversight                        Operations
             474                                                                                                                                   $32.6 billion
         Investigations                                                                                                                           Financial Settlements
                                             Conservatorship                      Advances                      Conservatorship
                                              10 Evaluations                    2 Evaluations                       1 Audit
             241                           3 Evaluation Surveys              1 Evaluation Survey                                                    $1.6 billion
          Subpoenas                           5 White Papers                                                    Operational Risk                          Otherc
                                                                                 Credit Risk                        18 Audits
                                                                                  2 Audits                        2 Evaluations
             567                               Credit Risk
                                                12 Audits
                                                                                3 Evaluations                  1 Evaluation Survey
                                                                             1 Evaluation Survey
     Indictments/Chargesb                     4 Evaluations                         1 SIR
                                              1 White Paper
             327                                  1 SIR                   Housing Mission and Goals
                                                                                 1 Evaluation
       Convictions/Pleas
                                           Interest Rate Risk
                                              2 Evaluations
              43                           1 Evaluation Survey
      Regulatory Activities                   1 White Paper

               6                             Operational Risk
       Additional Actions                       4 Audits
                                              4 Evaluations
                                                  1 SIR

                                           Real Estate Owned
                                                2 Audits
                                             1 White Paper
                                                 1 SIR

                                        Housing Mission and Goals
                                              2 Evaluations

                                           Mortgage Servicing
                                                9 Audits
                                             6 Evaluations
                                                 1 SIR




a
  12 SIRs have been produced, of which 5 have been published publicly and 7 remain privileged due to their investigative content.
b
  Superseding indictments are included in this total.
c
  Other is comprised of funds put to better use, questioned costs, unsupported costs, and fines.



                                                       Semiannual Report to the Congress • October 1, 2014–March 31, 2015                                                 vii
viii   Federal Housing Finance Agency Office of Inspector General
A Message from the Inspector General
I am pleased to present OIG’s ninth Semiannual Report to the Congress, which
covers our activities and operations from October 1, 2014, to March 31, 2015.

This is my first semiannual report since being confirmed by the Senate
on September 18, 2014, and taking the oath of office shortly thereafter.
During this first reporting period, I focused on assessing OIG’s strengths,
weaknesses, challenges, and opportunities to best position OIG to fulfill its
critical mission to provide in-depth oversight coverage and risk management.
Our goal is clear: to protect the taxpayers’ interests by acting as a catalyst for
effective management and positive change at FHFA and accountability for the
Enterprises in FHFA’s conservatorship.

To maximize OIG’s effectiveness, we engaged in discussions with FHFA, the
Enterprises, and stakeholders and reviewed reports and risk assessments and
identified four areas that present the highest levels of financial, governance, and
reputational risk: conservatorship operations, Enterprise supervision, nonbank        Laura S. Wertheimer
sellers, and information technology security. For each risk area, we developed a      Inspector General of the
work plan to test the effectiveness of current controls, which is now underway.       Federal Housing Finance Agency


Recognizing that the effectiveness of OIG oversight turns on our ability to identify new and emerging areas of risk,
I created an Office of Risk Analysis. That Office, staffed with professionals across OIG, will assist in our efforts to
detect and analyze new and emerging risks and provide sophisticated assessments of such risks, which, in turn, will
guide our work plan and inform our approach. My experience leading internal investigations in the private sector
taught me that remedial recommendations to address deficiencies require meaningful follow-up and oversight. To
that end, I created an Office of Compliance to assess the Agency’s efforts to implement remedial recommendations
and conduct validation testing. I expect that both of these new offices will enhance OIG’s ability to stimulate
positive change in critical areas and promote economy, efficiency, and effectiveness at FHFA.

As part of its mission, OIG engages in robust enforcement efforts. OIG’s Office of Investigations opened 44
cases and had 277 ongoing investigations of individuals and organizations during this reporting period. To
date, 567 defendants have been charged with crimes investigated by OIG, of which 327 were convicted or pled
guilty and 222 were sentenced. OIG continued its active role in the Residential Mortgage-Backed Securities
(RMBS) Working Group, which was established to hold accountable those responsible for misconduct that
contributed to the financial crisis through the pooling and sale of RMBS. Since 2012, OIG’s investigations
with our law enforcement partners have led to civil settlements totaling more than $32.6 billion, a significant
step in corporate accountability and in bringing money back to victims and the U.S. government.

OIG’s efforts to fulfill its duty to maximize the efficiency of FHFA programs and operations is made possible
by its ongoing commitment to integrity, transparency, and accountability. Its accomplishments during this
reporting period are a credit to the dedicated and hardworking professionals I now have the privilege to lead.


Laura S. Wertheimer
Inspector General
April 30, 2015
                                        Semiannual Report to the Congress • October 1, 2014–March 31, 2015             1
Executive Summary

Overview                                                   Enterprises into its conservatorship in an effort to
                                                           stabilize the residential mortgage finance market.
The Federal Housing Finance Agency (FHFA                   Concurrently, the U.S. entered into Senior Preferred
or Agency) was created on July 30, 2008, when              Stock Purchase Agreements (PSPAs) with
the President signed into law the Housing and              each Enterprise to ensure that each maintained
Economic Recovery Act of 2008 (HERA).* HERA                a positive net worth going forward. Under these
charged the newly created FHFA to serve as regulator       PSPAs, U.S. taxpayers, through Treasury, injected
of Fannie Mae and Freddie Mac (the Enterprises)            a total of $187.5 billion over the course of 2008
and of the Federal Home Loan Banks (FHLBanks),             to the present. At that time, conservatorship was
abolished the Office of Federal Housing Enterprise         intended to be a “time out” during a period of
Oversight and the Federal Housing Finance                  extreme stress to stabilize the mortgage markets and
Board, and transferred mission supervision of the          promote financial stability. Now in their seventh year,
Enterprises from the Department of Housing and             FHFA’s conservatorships of the Enterprises are of
Urban Development (HUD) to FHFA, thereby                   unprecedented scope, scale, and complexity.
consolidating all supervision of the Enterprises           HERA also amended the Inspector General Act
and the FHLBanks (collectively, the government-            of 1978 to establish an Office of Inspector General
sponsored enterprises, or the GSEs) within FHFA.           (OIG) for FHFA. OIG began operations on
HERA vested FHFA with supervisory authorities              October 12, 2010, when its first Inspector General
comparable to those of other federal financial safety      was sworn in. OIG is dedicated to promoting the
and soundness regulators and enhanced resolution           economy, efficiency, and effectiveness of the programs
authority. In addition to its supervisory role of safety   and operations of FHFA; preventing and detecting
and soundness, FHFA is tasked under HERA with              fraud, waste, and abuse in FHFA’s programs and
supervision of the Enterprises’ efforts to meet HERA’s     operations; reviewing and commenting on pending
housing goals and to fulfill the obligations of their      legislation and regulations; and bringing civil,
respective charters.                                       criminal, and administrative actions against those,
Among its other provisions, HERA temporarily               whether inside or outside of the government, who
granted the Department of the Treasury (Treasury)          commit fraud, waste, or abuse in connection with
unlimited investment authority in the Enterprises.         the programs and operations of FHFA. We are
Less than two months later, FHFA placed the                dedicated to protecting the American taxpayer by
                                                           conducting audits, evaluations, compliance testing,
                                                           and investigations that promote economy and
    *Terms and phrases in bold are defined in              efficiency in the management of FHFA programs
    Appendix A, Glossary and Acronyms. If you              and operations. We view our oversight role both
    are reading an electronic version of this              prospectively (by advising FHFA on issues relating
    Semiannual Report, then simply move your               to internal controls and fraud prevention) and
    cursor to the term or phrase and click for             retrospectively (by assessing the effectiveness of
    the definition.                                        FHFA activities over time and recommending
                                                           improvements).

2    Federal Housing Finance Agency Office of Inspector General
Because FHFA serves a unique role as both                 Section 1: Oversight Strategy,
conservator and regulator of the Enterprises, OIG’s       Organizational Structure, and
responsibilities necessarily include oversight of FHFA
actions, when it acts as conservator, to determine
                                                          Accomplishments
whether FHFA is fulfilling its statutory duties and
responsibilities and safeguarding taxpayers. Our          This section provides a brief overview of OIG’s risk-
oversight role also reaches the Enterprises, recipients   based strategy, organization, and oversight activities,
of $187.5 billion in taxpayer monies, to ensure           including reports and investigations during this
that they are satisfying their obligations under the      reporting period.
authority delegated to them in the conservatorships,      It also discusses numerous OIG investigations that
and third parties (such as lenders and servicers).        resulted in indictments and convictions of individuals
Through oversight, transparent reporting of results,      responsible for fraud, waste, or abuse in connection
and robust enforcement, OIG seeks to be a voice           with programs and operations of FHFA and the
for, and protect the interest of, those who have          Enterprises, and in fines and restitution orders
funded Treasury’s investment in the Enterprises—the       totaling more than $34.6 million.
American taxpayers.

This Semiannual Report discusses OIG operations           Section 2: FHFA and GSE
and FHFA developments from October 1, 2014,               Operations
to March 31, 2015. During this reporting period,
OIG directed its resources toward those areas of          This section describes the organization and
greatest risk to the Agency. Our revised Audit and        operations of FHFA, the Enterprises, and the
Evaluation Plan identifies the four largest areas         FHLBanks, as well as key developments for each
of risk to the Agency and the work streams that           during the reporting period.
we intend to follow to assess each of those risks.
We continued our vigorous civil, criminal, and            It also details the Enterprises’ financial results. While
administrative enforcement activities against those,      the Enterprises continued to be profitable, net
inside and outside of government, who waste, steal,       income in 2014 was substantially lower than in 2013,
or abuse taxpayer monies involving Agency or              and their future profitability is not assured.
Enterprise operations.




                                      Semiannual Report to the Congress • October 1, 2014–March 31, 2015            3
Section 1: Oversight Strategy, Organizational
Structure, and Accomplishments
OIG began operations on October 12, 2010. It               •	 FHFA’s oversight of the Enterprises’ controls for
was established by HERA, which amended the                    smaller or nondepository financial institution
Inspector General Act. The primary mission of                 mortgage sellers (nonbank sellers); and
the OIG for FHFA is to conduct independent
                                                           •	 FHFA’s oversight of the information technology
audits, evaluations, and investigations to promote
                                                              (IT) security at the Enterprises and the
economy and efficiency and to prevent and detect
                                                              FHLBanks.
fraud, waste, abuse, and mismanagement in the
programs and operations of the Agency, including its       With a shared understanding of the greatest risks, we
conservatorship of the Enterprises.                        took a hard look at the Audit and Evaluation Plan
                                                           and identified numerous issues within each risk area
OIG’s operations are funded by annual assessments
                                                           that should take precedence over projects planned
that FHFA levies on the Enterprises and the
                                                           in OIG’s then-pending work plan. Our audit and
FHLBanks pursuant to 12 U.S.C. § 4516. For fiscal
                                                           evaluation functions developed work plans to assess
year 2015, OIG’s operating budget is $48 million,
                                                           the adequacy of the controls for each of the risks.
with 150 full-time-equivalent staff.


Risk-Focused Strategy                                      Audit and Evaluation Plan

                                                           The results from our strategic planning process led us
OIG’s mandate is broad and comprehensive,
                                                           to revise the Audit and Evaluation Plan to focus on
involving oversight of the full scope of the Agency’s
                                                           risks facing the Agency and the GSEs. This risk-based
programs and operations and of its conservatorship
                                                           approach, detailed in our Audit and Evaluation Plan
of the Enterprises. Our work plan is dynamic
                                                           of February 2015, focuses on four areas that OIG
and will adapt to a changing risk profile. To
                                                           believes present high levels of financial, governance,
best leverage our resources to strengthen OIG’s
                                                           and reputational risk to FHFA and the GSEs:
oversight, we determined to focus our resources
on programs and operations that pose the greatest          •	 Conservatorship Operations. Since
financial, governance, and/or reputational risk to the        September 2008, FHFA has administered two
Agency, the Enterprises, and the FHLBanks. After              conservatorships of unprecedented scope and
discussions with FHFA, the Enterprises, and different         undeterminable duration. As conservator, the
stakeholders to seek input on the largest risks, as well      Agency has expansive authority to make business
as a review of reports prepared by FHFA and third             and policy decisions for two large, complex
parties, and risk assessments performed in key areas          companies that dominate the secondary mortgage
related to FHFA’s mission, and hotline complaints,            market and the mortgage securitization sector
we identified the areas of greatest risk:                     of the U.S. housing finance industry and thus
                                                              influence and affect the entire mortgage finance
•	 FHFA’s ongoing work as conservator;
                                                              industry. Given this environment, OIG’s work
•	 FHFA’s rigor in conducting examinations in its             will include: (1) assessing the conservator’s
   role as regulator of the Enterprises;                      governance practices, internal controls,

4   Federal Housing Finance Agency Office of Inspector General
  decision-making process, and follow-up activities;       of the Enterprises’ controls for nonbanks;
  and (2) evaluating selected conservator-sponsored        and (3) studying the Enterprises’ controls
  initiatives. These efforts have commenced and            for nonbanks. These efforts are intended to
  will assist OIG in assessing whether FHFA is             assess whether FHFA and the Enterprises
  fulfilling its statutory duties and responsibilities     have sufficiently mitigated the increased risk
  as conservator and safeguarding taxpayers.               posed by nonbank sellers. In January 2015,
                                                           OIG commenced the first audit of the series
•	 Enterprise Supervision. FHFA’s Division of
                                                           that will analyze the Enterprises’ exposure to
   Enterprise Regulation (DER) is responsible for
                                                           nonbank sellers and the steps that FHFA and the
   supervision of the Enterprises to ensure their safe
                                                           Enterprises have taken to assess the risk posed by
   and sound operation. DER is responsible for
                                                           nonbank sellers.
   designing a comprehensive, risk-based supervisory
   strategy, conducting ongoing monitoring               •	 IT Security. The Enterprises’ computer systems,
   or targeted examinations of risk areas, and              software, and networks may be vulnerable to
   monitoring Enterprise remediation of deficiencies        cyber attacks, breaches, unauthorized access,
   identified during examinations. Consistent with          misuse, computer viruses or other malicious
   DER’s examination structure, OIG has planned             codes, or other attempts to harm them or misuse
   a series of evaluations: (1) assessing DER’s             or steal confidential information. Among other
   processes for identifying risks; (2) reviewing its       things, a breach of an Enterprise’s security
   targeted examinations and ongoing monitoring;            system could disrupt its business operations or
   and (3) evaluating its verification of the               result in the unauthorized disclosure or misuse
   Enterprises’ remediation activities. These efforts       of confidential and other information. Our
   have commenced and will assist OIG in assessing          work will include assessing whether FHFA has
   whether DER fulfilled its statutory duties and           provided sufficient oversight of: (1) Fannie
   responsibilities and safeguarded taxpayers.              Mae’s implementation of controls to ensure the
                                                            protection of personal information processed
•	 Nonbank Sellers. The Enterprises have been
                                                            and stored on its information systems; and
   acquiring an increasing portion of their single-
                                                            (2) selected FHLBanks’ vulnerability in scanning
   family business volume directly from nonbank
                                                            and patching procedures for business-critical
   sellers, which may not have the same financial
                                                            information systems.
   strength, liquidity, or operational capacity as
   their larger depository institution counterparties.   Our revised Audit and Evaluation Plan explains
   As a result, the Enterprises face increased risk      the risks on which our audit and evaluation teams
   that these counterparties could fail to perform       are focusing and the work that is underway or will
   their obligations. Accordingly, OIG has planned       commence shortly on each of the work streams.
   a series of audits: (1) analyzing the risks posed     The plan is available at www.fhfaoig.gov/Reports/
   by the increased nonbank business volume;             AuditAndEvaluationPlan. The work plan for each
   (2) evaluating the adequacy of FHFA’s oversight       identified risk has been designed to produce reports



                                      Semiannual Report to the Congress • October 1, 2014–March 31, 2015        5
that can be generated promptly both to increase           “Yellow Book,” and reports published by the Office
transparency and to improve the programs and              of Evaluations will continue to adhere to the Quality
operations of the Agency without compromising the         Standards for Inspection and Evaluation, commonly
rigor of the methodology.                                 referred to as the “Blue Book.” We are also requiring
                                                          additional employee training in a number of critical
To set the stage for this risk-based platform, we
                                                          areas.
prepared four white papers, of which three have been
published, to provide a baseline of information. The      Additionally, we established two new offices—the
three published white papers are listed below and         Office of Risk Analysis (ORA) and the Office
relate to one or more of the key risks. Summaries of      of Compliance and Special Projects (OCo)—to
the papers start on page 11.                              strengthen OIG’s oversight. Both will enhance OIG’s
                                                          ability to stimulate positive change and promote
•	 The Continued Profitability of Fannie Mae and
                                                          economy, efficiency, and effectiveness at FHFA.
   Freddie Mac Is Not Assured;
                                                          Our office is charged with rigorous oversight of
•	 FHFA’s Conservatorships of Fannie Mae and
                                                          FHFA’s exercise of its critical conservatorship
   Freddie Mac: A Long and Complicated Journey;
                                                          responsibilities and of its regulatory duties in order
   and
                                                          to protect the taxpayers’ $187.5 billion invested in
•	 Cyber Security: An Overview of FHFA’s Oversight        the Enterprises and safeguard against the potential
   of and Attention to the Enterprises’ Management of     $5 trillion in taxpayer exposure from the mortgages
   Their IT Infrastructures.                              owned or guaranteed by the Enterprises. To exercise
                                                          rigorous oversight of the Agency, we must identify
A fourth white paper, which explains the Enterprises’     emerging risks and be sufficiently nimble to revise
new 97% loan-to-value (LTV) loan purchase                 our work plan as new risks emerge and existing risks
programs, is scheduled to be issued shortly. In that      become well-controlled. The newly established Office
white paper, we review the history of high LTV            of Risk Analysis will use data mining, quantitative
programs offered by both Enterprises, examine             data, and analysis of data and relevant information to
whether the new guidelines further FHFA’s stated          identify and monitor emerging and ongoing areas of
rationale for them, and identify the risks associated     risk. The identification, analysis, and prioritization of
with high LTV loans and the controls put into place       risk areas will allow us to utilize resources strategically
to address those risks.                                   and realign our Audit and Evaluation Plan, in real
As part of our strategic planning process, we             time, to address those risks.
recognized the need for better organizational             The newly created Office of Compliance and Special
alignment with priorities of the office. We have taken    Projects is tasked with two missions. First, this
steps to improve internal efficiencies by encouraging     office will be responsible for assessing the status of
greater collaboration across our offices because          recommendations made to FHFA in all OIG audits,
nothing is more powerful and productive than              evaluations, and systemic implication reports and
when we work collaboratively. Regardless of cross-        reviewing actions taken by FHFA to address such
divisional efforts, reports published by the Office of    recommendations. The Office of Management and
Audits will continue to adhere to the Government          Budget (OMB) provides policies and procedures to
Auditing Standards, commonly referred to as the



6   Federal Housing Finance Agency Office of Inspector General
agencies for resolving audit and evaluation findings    thereafter. Prior to becoming Inspector General,
and taking corrective action on recommendations.        Ms. Wertheimer was a partner at a law firm where
According to OMB’s policies and procedures,             she led numerous independent internal investigations
audit and evaluation recommendation follow-up           on behalf of audit, governance, and special board
is a shared responsibility of Agency management         committees of publicly traded companies. She also
officials and OIG because corrective action taken by    represented public companies, professional service
Agency management on OIG findings and resolved          partnerships, and corporate directors and officers
recommendations is essential for improving the          in regulatory investigations and enforcement
effectiveness and efficiency of Agency operations.      proceedings under the federal securities laws.
Agencies are required to establish systems to
                                                        OIG consists of the Inspector General, senior staff,
ensure the prompt and proper resolution and
                                                        and OIG offices, principally: the Office of Audits,
implementation of monetary and nonmonetary OIG
                                                        Office of Evaluations, Office of Investigations, and
findings and recommendations.
                                                        the Office of Compliance and Special Projects.
To accomplish these objectives from the OIG             Additionally, OIG’s Executive Office, which includes
perspective, this newly created office has identified   the Office of Chief Counsel and the Office of Risk
all recommendations made to FHFA by OIG                 Analysis, provides organization-wide supervision,
and categorized each one by intended outcome,           and the Office of Administration and the Office of
recommended action, and Agency response. It             Internal Controls and Facilities provide organization-
has begun to conduct validation testing to analyze      wide support.
whether the recommendations closed by OIG were
fully implemented with appropriate remedial steps       OIG’s Organizational Structure
as represented by FHFA. It will prepare and submit
reports, to be published on OIG’s website, setting
                                                        OIG pursues its mission through six primary
forth the results of its validation testing. OCo will
                                                        offices—Executive, Risk Analysis, Audits,
also work closely with other offices when they are
                                                        Evaluations, Investigations, and Compliance and
drafting recommendations to ensure that proposed
                                                        Special Projects. The primary offices are supported
recommendations yield concrete deliverables that
                                                        by an Office of Chief Counsel and administration
will be susceptible to future validation testing.
                                                        function.
Additionally, OCo will undertake special projects,
such as congressional requests, to examine emerging
                                                        Executive Office
issues and deliver prompt, actionable reports to the
Congress.                                               The Executive Office (EO) provides leadership
                                                        and programmatic direction for OIG’s offices and
                                                        activities.
Leadership
                                                        EO includes the Office of Chief Counsel (OC),
On May 22, 2014, President Barack Obama                 which serves as the chief legal advisor to the Inspector
nominated Laura S. Wertheimer to the position of        General and provides independent legal advice,
FHFA Inspector General; she was confirmed by the        counseling, and opinions to OIG about its programs
Senate on September 18, 2014, and sworn in shortly      and operations. OC also reviews audit and evaluation




                                     Semiannual Report to the Congress • October 1, 2014–March 31, 2015       7
reports for legal sufficiency and compliance with            requests. For example, the Improper Payments
OIG’s policies and priorities. Additionally, it reviews      Information Act of 2002 (IPIA), as amended by the
drafts of FHFA regulations and policies and prepares         Improper Payments Elimination and Recovery Act of
comments as appropriate. OC also coordinates with            2010 and the Improper Payments Elimination and
FHFA’s Office of General Counsel and manages                 Recovery Improvement Act of 2012, requires OIG to
OIG’s responses to requests and appeals made under           audit FHFA’s compliance with IPIA during fiscal year
the Freedom of Information Act and the Privacy Act.          2014. On or before May 15, 2015, OA will publish
                                                             a report detailing FHFA’s compliance with IPIA
The Office of External Affairs is also within EO, and
                                                             during fiscal year 2014. OA commenced two audits
it responds to inquiries from members of Congress.
                                                             in March 2015 that are also required by statute:
The Office of Communications is also within EO, and          the Federal Information Security Management Act
it responds to inquiries from the press and public.          of 2002 (FISMA) directs OIG to audit whether
                                                             FHFA’s and OIG’s information security programs
OIG’s Equal Employment Opportunity Program                   and practices meet FISMA’s security requirements.
is also within EO, and it oversees equitable                 Additionally, with respect to stakeholder audit
opportunities in the workplace per federal code.             requests, in January 2015, OIG announced a
                                                             congressionally requested audit to assess FHFA’s
Office of Risk Analysis                                      oversight of the Enterprises’ internal controls over
To exercise rigorous oversight, we must identify             contractors’ maintenance of foreclosed properties in
emerging risks and revise our work plan as new risks         the Enterprises’ inventories.
emerge and existing risks are well-controlled. Our
                                                             Under the Inspector General Act, inspectors general
newly established Office of Risk Analysis (ORA)
                                                             are required to comply with the Government
will use data mining, quantitative data, and analysis
                                                             Accountability Office’s (GAO) Yellow Book. OA
of data and relevant information to identify and
                                                             performs its audits and attestation engagements in
monitor emerging and ongoing areas of risk. The
                                                             accordance with the Yellow Book.
identification, analysis, and prioritization of risk areas
will allow us to utilize resources strategically and
                                                             Office of Evaluations
realign our Audit and Evaluation Plan, in real time,
to address those risks.                                      The Office of Evaluations (OE) conducts
                                                             program and management reviews and makes
Office of Audits                                             recommendations for improvement where applicable.
                                                             OE provides independent and objective reviews,
The Office of Audits (OA) is tasked with designing
                                                             studies, survey reports, and analyses of FHFA’s
and conducting independent performance audits
                                                             programs and operations. The Inspector General
with respect to the Agency’s programs and operations.
                                                             Reform Act of 2008 requires that inspectors general
Our revised Audit and Evaluation Plan explains the
                                                             adhere to the Blue Book, issued by the Council of
work streams underway to test whether the existing
                                                             the Inspectors General on Integrity and Efficiency
controls are sufficient to mitigate or reduce the
                                                             (CIGIE). OE performs its evaluations in accordance
identified risks. In addition, OA undertakes projects
                                                             with the Blue Book.
to address statutory requirements and stakeholder




8   Federal Housing Finance Agency Office of Inspector General
Office of Investigations                                  Department of Housing and Urban Development
                                                          Office of Inspector General (HUD-OIG), the Secret
Staffed with special agents, investigators, analysts,
                                                          Service, IRS-Criminal Investigation (IRS-CI), and
prosecutors, and attorney advisors, the Office of
                                                          state and local law enforcement entities nationwide.
Investigations (OI) supervises and conducts criminal
and civil investigations into those, whether inside or
                                                          Office of Compliance and Special Projects
outside of government, who waste, steal, or abuse
government monies in connection with programs             The newly created Office of Compliance and Special
and operations of the Agency and the GSEs.                Projects (OCo) is staffed with lawyers and individuals
                                                          from OA, OE, and OI and is responsible for
While OI also pursues wrongdoers within the Agency        conducting validation testing to determine whether
and within the GSEs, it has focused and will continue     the OIG recommendations agreed to by FHFA, or
to focus on third parties that contract with the          the controls adopted by FHFA to respond to OIG
Enterprises to sell and service loans. Those who make     reports, were fully implemented by the Agency.
misrepresentations to the Enterprises in connection       These seasoned professionals will jointly apply their
with loans that the Enterprises buy or guarantee may      expertise to test whether the Agency’s representations
violate several criminal statutes, and we investigate     regarding remediation have been fulfilled.
these potential crimes vigorously.

OI also takes the lead in responding to referrals made    Office of Administration
to OIG’s hotline through telephone, email, website,       The Office of Administration (OAd) manages and
and in-person complaints, abiding by all applicable       oversees OIG administration, including budget,
whistleblower protections set forth in the Inspector      human resources, financial management, and IT.
General Act. Our hotline is staffed by a third-party      For human resources, OAd develops policies to
vendor to protect the anonymity of the callers            attract, develop, and retain exceptional people,
and provides easy access for individuals to report        with an emphasis on linking performance planning
concerns, allegations, information, and evidence of       and evaluation to organizational and individual
violations of criminal and civil laws in connection       accomplishment of goals and objectives. OAd
with programs and operations of the Agency. During        coordinates budget planning and execution and
this reporting period, our hotline has received and       oversees all of OIG’s procedural guidance for financial
analyzed 1,117 contacts. When OI determines that          management and procurement integrity.
a full investigation is not warranted, it works closely
with OA and OE to determine whether an audit or           Office of Internal Controls and Facilities
evaluation project is advisable.
                                                          The Office of Internal Controls and Facilities
To maximize criminal and civil law enforcement, OI        (OICF) manages and oversees safety, facilities, and
works closely with other law enforcement agencies,        internal controls. OICF administratively supports
including the Department of Justice (DOJ), the Office     the implementation of OIG’s Internal Management
of the Special Inspector General for the Troubled Asset   Assessment Program, which requires the routine
Relief Program (SIGTARP), the Postal Inspection           inspection of each OIG office to ensure that it
Service, the Federal Bureau of Investigation (FBI), the   complies with applicable requirements.




                                      Semiannual Report to the Congress • October 1, 2014–March 31, 2015         9
OIG’s Organizational Chart


                                                                          Inspector General
                                                                         Laura S. Wertheimer


                                               Director of
                         Director of
                                             External Affairs                                               Chief Counsel
                       Communications
                                            and Risk Analysis




                               Principal Deputy                                                                Chief of
                              Inspector General                                                                 Staff




                                                          Deputy
              Deputy               Deputy                                      Deputy               Deputy                Deputy
                                                    Inspector General
         Inspector General    Inspector General                           Inspector General    Inspector General     Inspector General
                                                     Internal Controls
            Compliance             Audits                                   Administration        Evaluations          Investigations
                                                       and Facilities




OIG’s Strategic Plan                                                          Strategic Goal 2—Promote FHFA’s Effective
                                                                              Management and Conservatorship of the
OIG’s Strategic Plan for fiscal years 2015-2017 sets                          Enterprises
out OIG’s goals and objectives to ensure the integrity,       OIG will assess FHFA’s and the Enterprises’
transparency, effectiveness, and soundness of FHFA’s          plans and progress on their strategic goals; assess
operations and the operations of the organizations            FHFA’s effectiveness in controlling the costs of the
that FHFA oversees. OIG will continue to monitor              conservatorships; and detect and deter fraud, waste,
events; make changes to the Strategic Plan as                 and abuse.
                                          OIG Organizational Chart 2015
circumstances warrant; and strive to remain relevant
regarding areas of concern to FHFA, the GSEs,                 Strategic Goal 3—Promote Effective FHFA
Congress, and the American people.                            Internal Operations

Within the Strategic Plan, OIG has established                                OIG will detect and deter fraud, waste, and abuse.
several goals that will be used as a blueprint for OIG’s
oversight of FHFA and independent reporting.                                  Strategic Goal 4—Promote Effective OIG Internal
                                                                              Operations
Strategic Goal 1—Promote FHFA’s Effective                                     OIG will maintain workforce expertise and
Oversight of the GSEs’ Safety and Soundness and                               collaboration to meet goals, maintain access and data
Housing Missions                                                              security protocols with FHFA and the GSEs, and
OIG will promote effective risk oversight by FHFA,                            ensure reporting processes are useful to stakeholders.
assess FHFA’s oversight of the GSEs’ housing mission
and goal responsibilities, and assess the effectiveness
of FHFA’s operations.

10    Federal Housing Finance Agency Office of Inspector General
OIG’s Oversight Activities During                            threat actors have become more adept at gaining the
the Reporting Period                                         technology needed to launch crimes against critical
                                                             U.S. infrastructures in an effort to selectively shut
                                                             down parts of the power grid and other utilities.
OIG actively strives to fulfill its mission through
                                                             A November 2014 report from the international
audit, evaluation, and compliance projects and
                                                             standard-setting Committee on Payments and Market
reports and through investigations. Our Audit and
                                                             Infrastructures warned that stock exchanges, settlement
Evaluation Plan sets forth the audit and evaluation
                                                             systems, and clearing houses around the world have
projects that are either underway or will be launched
                                                             become increasingly vulnerable to cyber attacks,
in the next few months. During this semiannual
                                                             and a sophisticated cyber attack could interrupt or
period, OIG released three white papers and five
                                                             destabilize financial markets. Because of the significant
reports, which are summarized below.
                                                             financial, governance, and reputational risks that could
                                                             flow from a cyber attack on the Enterprises, OIG
White Papers
                                                             determined that cyber security is a significant risk.
Cyber Security: An Overview of FHFA’s Oversight
of and Attention to the Enterprises’ Management              OIG prepared this white paper to summarize
of Their IT Infrastructures (WPR-2015-003,                   the types of known cyber threats in the current
March 31, 2015)                                              environment and assess the possible risks to the
                                                             Enterprises from such threats. We also provided an
The Enterprises are the two largest institutions issuing     overview of the Enterprises’ cyber risk management
mortgage-related securities in the U.S. secondary            practices to prevent and detect cyber attacks. In its
mortgage market. They store, process, and transmit           work plan, OIG intends to review FHFA’s oversight
financial data and personally identifiable information       of the Enterprises’ IT security and study the GSEs’
(PII) in connection with their mission to support            controls for IT security to evaluate whether controls
this market. As events over the past year have shown,        over IT security are sufficiently robust.
other organizations holding similar types of data have
sustained significant cyber attacks. Recent history          FHFA’s Conservatorships of Fannie Mae and
demonstrates the diversity and danger of cyber attacks       Freddie Mac: A Long and Complicated Journey
for institutions worldwide. Cyber criminals appear           (WPR-2015-002, March 25, 2015)
particularly keen on stealing customer information           In 2008, FHFA placed Fannie Mae and Freddie
(like names, addresses, phone numbers, account               Mac in conservatorship. Since that time, the
numbers, passwords, user IDs, dates of birth, or Social      Enterprises have required $187.5 billion in financial
Security numbers), trade secrets, or other confidential      support from Treasury in order to avert insolvency
information and compromising the credentials of              and receivership. These conservatorships are now
a legitimate user to commit financial fraud. Some            in their seventh year. The FHFA Director has
hackers have motivations other than theft; for example,      asserted that conservatorship “cannot and should
cyber attackers skilled in IT as well as with the controls   not be a permanent state” for the Enterprises
systems and production processes of an iron plant in         and, under his stewardship, FHFA will continue
Germany exploited vulnerabilities in the computer            the conservatorships until a new housing finance
system to cause a blast furnace to explode and destroy       system is put into place by Congress. At present,
the plant. National Security Agency Director Rogers          the conservatorships are of unknown duration and
has reported that over the past few years, cyber             the Enterprises, as necessary, will rely on Treasury


                                      Semiannual Report to the Congress • October 1, 2014–March 31, 2015          11
for financial support if they are not able to sustain     profitability and to caution that future profitability
profitability in the future. Given the taxpayers’         was not assured.
enormous investment in the Enterprises and the
                                                          In the white paper, OIG explained that nonrecurring
Enterprises’ critical role in the secondary housing
                                                          events were a significant driver of earnings in 2013
finance market, OIG determined that FHFA’s
                                                          and 2014 and are unlikely to drive future earnings.
administration of the conservatorships constituted a
                                                          Core earnings from the Enterprises’ business
critical risk.
                                                          segments—single-family guarantee, multifamily, and
In this white paper, OIG outlined the history of these    investments—comprised only 40% of net income in
conservatorships and FHFA’s evolving management           2013 and 55% in 2014 (see Figure 1, below).
of them. We then summarized findings of prior OIG
                                                          Going forward, the Enterprises will have to rely on
reports that reviewed conservatorship decisions and
                                                          their guarantee fee business segments and mortgage-
practices. Last, we outlined OIG’s planned work in
                                                          related investment portfolios for earnings, and those
the coming year to assess the conservator’s governance
                                                          sources are subject to uncertainty. The Enterprises
practices, internal controls, decision-making process,
                                                          must reduce the size of their retained investment
and follow-up/compliance activities.
                                                          portfolios over the next few years pursuant to
The Continued Profitability of Fannie Mae and             the terms of their agreements with Treasury and
Freddie Mac Is Not Assured (WPR-2015-001,                 additional limits from FHFA. Declines in the size
March 18, 2015)                                           of these portfolios will reduce portfolio earnings
                                                          over the long term. These portfolios have been the
The Enterprises’ financial conditions have stabilized
                                                          Enterprises’ largest source of earnings in the past.
and market conditions have improved since 2008.
                                                          Additionally, legislation from Congress and directives
They returned to profitability in 2012; however,
                                                          by FHFA, as the Enterprises’ conservator, have raised
the level of earnings they experienced in 2013 and
                                                          the Enterprises’ guarantee fees, the primary source
2014 is not sustainable over the long term. The lack
                                                          of revenue for their single-family guarantee business
of consensus in Congress about what the nation’s
                                                          segments. However, the Enterprises have cautioned
mortgage finance system should look like and what
                                                          that any income growth from guarantee fees may not
role, if any, the Enterprises should play in it means
the Enterprises will continue to operate under            Figure 1. The Enterprises’ Core Earnings and
FHFA’s conservatorship until these issues are resolved.   Nonrecurring Items 2012 to 2014 ($ billions)
The outsized financial results reported by the            $140
Enterprises in 2012 and 2013 led some to conclude
                                                          $120
that the Enterprises would remain profitable for
                                                          $100
the foreseeable future. OIG recognized the many                                             $79

challenges faced by the Enterprises that affect their      $80

profitability and understood that, if these challenges     $60

caused losses that resulted in a negative net worth        $40
                                                                       $1
for an Enterprise, then that Enterprise would be                                            $53                    $10
                                                           $20
obligated to obtain an injection of additional taxpayer               $27
                                                                                                                   $12
                                                            $0
monies. OIG prepared this white paper to explain
                                                                      12




                                                                                            13




                                                                                                                   14




the challenges faced by the Enterprises affecting their
                                                                     20




                                                                                       20




                                                                                                                  20




                                                                            Core Earnings    Nonrecurring Items




12    Federal Housing Finance Agency Office of Inspector General
completely offset the loss in income from the retained     for advances with original maturities greater than
portfolios. Further, as policy perspectives change, the    five years. OIG’s review identified instances in which
Enterprises’ fees could be reduced in the future.          FHFA’s implementation of the community support
                                                           requirement fell short of the Agency’s regulatory
The housing finance system is in the midst of
                                                           requirements. In particular, FHFA’s regulations
a period of significant uncertainty, and those
                                                           require the Agency to review FHLBank members
uncertainties relate to key market drivers such as
                                                           approximately every two years to determine whether
home mortgage rates, home prices, credit standards,
                                                           they meet community support standards to FHFA’s
and other rates (e.g., short-term and long-term
                                                           satisfaction. However, FHFA failed to conduct
swap rates) that impact the Enterprises’ financial
                                                           one biennial review cycle and failed to include all
performance. Future profitability will be determined
                                                           FHLBank members subject to community support
by how these drivers change and to what degree.
                                                           review in its most recent review cycle. Although
For instance, fluctuations in interest rates introduce
                                                           these deficiencies have not been fully remediated,
volatility into the Enterprises’ derivatives portfolios.
                                                           FHFA has represented to us that it is in the process
The Enterprises report changes in the value of their
                                                           of addressing them. OIG intends to monitor
derivatives portfolios as fair value gains or losses,
                                                           developments on these issues and will subsequently
and those changes impact financial performance.
                                                           test whether FHFA has fulfilled its responsibility
For example, Fannie Mae reported fair value gains
                                                           to remediate deficiencies. We also conducted a
on derivatives of $3.3 billion in 2013 and fair value
                                                           limited review of FHFA’s oversight of the residential
derivative losses of $5.8 billion in 2014, a swing of
                                                           housing finance requirement and found no material
more than $9 billion.
                                                           noncompliance.
While OIG cannot predict whether additional
                                                           FHFA’s Oversight of Governance Risks Associated
Treasury investments in either Enterprise are a
                                                           with Fannie Mae’s Selection and Appointment
reasonable possibility in the near future, we recognize
                                                           of a New Chief Audit Executive (EVL-2015-004,
that significant uncertainties concerning the level of
                                                           March 11, 2015)
guarantee fees the Enterprises will be able to charge,
when combined with the winding down of their               FHFA has established a delegated approach to
investment portfolios and loss of interest income and      managing the Enterprises’ operations. For this
possible losses on the derivatives portfolios, mean        governance model to succeed, FHFA must be
that the Enterprises’ future profitability is far from     confident that the Enterprises’ directors and
assured.                                                   board committees are fulfilling their delegated
                                                           responsibilities. This evaluation report reviewed the
Reports                                                    process used by Fannie Mae’s Audit Committee
FHFA’s Oversight of Two Mission-Related                    in September 2013 to select a new Chief Audit
Requirements for Federal Home Loan Bank Long-              Executive (CAE), a duty delegated to it by FHFA
Term Advances (ESR-2015-005, March 31, 2015)               under the conservatorship, and assessed whether the
                                                           process was sufficiently robust to satisfy FHFA that
OIG closed an evaluation of FHFA’s oversight of            the Audit Committee was properly executing its risk
two mission-related requirements for long-term             oversight function.
advances—a community support requirement for
advances with original maturities greater than one         Effective corporate governance is a critical element of
year and a residential housing finance requirement         operational risk management. The Audit Committees


                                     Semiannual Report to the Congress • October 1, 2014–March 31, 2015       13
of the boards of directors of the Enterprises have        align its meetings to address priority issues and risks.
frontline governance responsibilities, which include      FHFA agreed with these recommendations.
oversight of the Internal Audit functions. At
                                                          Women and Minorities in FHFA’s Workforce
Fannie Mae, the CAE directs the Internal Audit
                                                          (EVL-2015-003, January 13, 2015)
Department, which is a critical element of Fannie
Mae’s risk management controls. Pursuant to the           On March 24, 2014, nine members of the House
Sarbanes-Oxley Act of 2002 and as expressly codified      of Representatives asked OIG to conduct a review
in Fannie Mae’s governance documents, its Internal        of diversity and related workplace issues at FHFA.
Audit function is tasked with providing independent,      Similar requests were sent to the Consumer Financial
objective assurance of the Enterprise’s governance,       Protection Bureau, Treasury, the Federal Deposit
risk management, and control processes.                   Insurance Corporation (FDIC), the Federal Reserve,
                                                          the National Credit Union Administration, and the
OIG found that the process used by Fannie Mae’s
                                                          Securities and Exchange Commission (SEC).
Audit Committee to select a candidate to fill the
important and challenging CAE position was                To address the request, OIG analyzed workforce and
haphazard. We found that the numerous governance          diversity data available from FHFA for the period
failures of the Fannie Mae Audit Committee with           of 2011-2013, including performance rating results,
respect to the CAE selection and management               promotions for minority and female employees,
of his conflicts called into question whether that        and employee satisfaction results. In the course of
Committee sufficiently understood its governance          this evaluation, OIG found that the Agency did not
obligations under the law and the conservatorship         have an adequate human resources data collection
and was prepared to responsibly exercise its fiduciary    system with which to provide detailed information
duties. Absent diligence and commitment by all            necessary to conduct certain analyses. Where FHFA’s
members of the Audit Committee to exercise their          human resources data systems provided sufficient
delegated oversight responsibilities, we cautioned that   data, OIG analyzed that data. FHFA is in the process
FHFA’s continued reliance on that Committee was           of transitioning to a new data system that Agency
questionable.                                             officials said will improve the quality of the data.
OIG recommended that FHFA: (1) implement a                OIG also reviewed the operations of the Office of
sufficiently robust internal communications process       Minority and Women Inclusion (OMWI) and its
to ensure that the FHFA Director is informed              role within the Agency. OIG found that OMWI
of significant issues and concerns that require           had carried out statutorily mandated reporting
the Director’s decision; (2) require the Audit            requirements, conducted diversity training, and
Committee to hold meetings related to its oversight       initiated a number of other efforts to increase
responsibilities and fully document, in meeting           diversity. However, FHFA has not acted on some
minutes, its discussions, deliberations, and actions      of OMWI’s proposals concerning diversity and
at each meeting; (3) conduct a comprehensive              workforce issues.
evaluation of the Audit Committee’s effectiveness
and assess the adequacy of the criteria and processes     OIG recommended that FHFA: (1) test the new
Fannie Mae’s Board of Directors uses to populate          human resource system to ensure that it will
each board committee and rotate committee                 provide data sufficient to enable the Agency to
membership; and (4) direct the Audit Committee to         perform comprehensive analyses of workforce issues;
                                                          (2) regularly analyze Agency workforce data and

14    Federal Housing Finance Agency Office of Inspector General
     assess trends in hiring, awards, and promotions;                         Enterprises’ recent financial performance and the
     (3) adopt a diversity and inclusion strategic plan; and                  potential implications for the Enterprises of the
     (4) research opportunities to partner with inner-city                    Federal Reserve’s December 2013 decision to reduce
     and other high schools, where feasible, to ensure                        its mortgage-backed securities (MBS) purchases.
     compliance with applicable law.
                                                                              As part of its effort to respond to the financial crisis
     FHFA agreed with OIG’s recommendations and                               and its aftermath, the Federal Reserve purchased over
     identified specific actions to address them. FHFA                        $2.3 trillion of the Enterprises’ MBS through 2013
     expects implementation of its new Human Resource                         under its three QE programs and related initiatives.
     Information System (HRIS) to be complete by                              The Federal Reserve initiated the QE programs to,
     September 2015. FHFA also represented that OMWI                          among other things, lower interest rates and thereby
     and the Office of Human Resources Management                             stimulate growth in the housing markets and the
     (OHRM) will review FHFA’s workforce data in                              broader economy.
     2015 and expand the analysis after implementation
                                                                              The QE programs likely contributed considerably
     of the new HRIS is complete. FHFA also agreed
                                                                              to lower long-term mortgage rates, resulting in a
     to adopt a diversity and inclusion strategic plan by
                                                                              mortgage refinancing surge from 2009 through mid-
     September 30, 2015. Finally, OMWI and OHRM
                                                                              2013. In 2012 and 2013, the Enterprises benefited
     will meet to explore partnering with inner-city and
                                                                              financially from the combination of the surge in
     other high schools.
                                                                              mortgage refinancings and a sharp increase in their
     Impact of the Federal Reserve’s Quantitative                             MBS guarantee fee rates (see Figure 2, below).
     Easing Programs on Fannie Mae and Freddie Mac
                                                                              From 2011 to 2013, the Enterprises realized a
     (EVL-2015-002, October 23, 2014)
                                                                              $4 billion increase in annual guarantee fee revenue
     OIG assessed the effects of the Federal Reserve’s                        from new single-family MBS issuances, most of
     Quantitative Easing (QE) programs on the

     Figure 2. Volume of Mortgage Origination and Refinancing 2008 to 2014
                                  $600                                                                                        6.5
Origination Volume ($ billions)




                                  $500                                                                                        6.0
                                                                                                                                    Interest Rate (percent)
                                                                                                                              5.5
                                  $400
                                                                                                                              5.0
                                  $300
                                                                                                                              4.5
                                  $200
                                                                                                                              4.0

                                  $100                                                                                        3.5

                                    $0                                                                                        3.0
                                         08




                                                9




                                                            0




                                                                         1




                                                                                      2




                                                                                                     3




                                                                                                                    4
                                                 0




                                                            1




                                                                         1




                                                                                       1




                                                                                                     1




                                                                                                                    1
                                     20




                                              20




                                                         20




                                                                      20




                                                                                    20




                                                                                                  20




                                                                                                                 20




                                                 Home Purchases   Home Refinances    30 Year Mortgage Rates


                                                         Semiannual Report to the Congress • October 1, 2014–March 31, 2015         15
which is attributable to refinanced mortgages. The          Accordingly, OIG recommended that DER adopt
Enterprises should generally expect to benefit from the     a comprehensive examination workpaper index and
increased guarantee fee revenue over the lifetime of the    standardize electronic workpaper folder structures
securities but are subject to certain risks. For example,   and naming conventions between DER teams.
an improving economy and the Federal Reserve’s              FHFA agreed to perform a cost-benefit analysis on
decision in late 2013 appear to have contributed to         implementation of the recommendation.
higher mortgage rates, which, in turn, contributed to
significant reductions in the Enterprises’ guarantee fee    Recommendations
revenues on MBS issued in 2014. The Federal Reserve’s
continued tapering and the eventual reduction of its
                                                            A complete list of OIG’s audit and evaluation
massive MBS portfolio could have an adverse impact
                                                            recommendations is provided in Appendix B.
upon the Enterprises’ financial performance. Under
other scenarios, however, an improving economy
and higher home prices could be of benefit to the           Investigations: Criminal, Civil,
Enterprises’ financial performance. FHFA has a              and Administrative
responsibility to monitor these issues and risks, as well
as their implications for the Enterprises.                  Depending on the type of misconduct uncovered
                                                            during OIG investigations, the investigations may
Evaluation of the Division of Enterprise
                                                            result in criminal indictments, civil complaints, trials
Regulation’s 2013 Examination Records: Successes
                                                            resulting in judgments and decisions, administrative
and Opportunities (EVL-2015-001, October 6,
                                                            sanctions and decisions, and/or negotiated plea or
2014)
                                                            settlement agreements. Criminal charges filed against
This report evaluated FHFA’s policies and practices         individuals or entities may result in plea agreements
for creating and maintaining examination documents          or trials to verdict, incarceration, restitution, fines,
and workpapers in compliance with the Federal               and penalties; civil claims can lead to settlements or
Records Act and FHFA’s records management policy.           verdicts with restitution, fines, penalties, forfeitures,
                                                            assessments, and exclusion of individuals or entities
The report reviewed the documentation of 28
                                                            from participation in federal mortgage programs.
targeted examinations conducted by FHFA’s Division
                                                            During the semiannual period, OIG special
of Enterprise Regulation (DER) in 2013. In each
                                                            agents conducted numerous criminal, civil, and
case, OIG found that DER staff complied with the
                                                            administrative investigations, which resulted in the
Agency’s recordkeeping policies and procedures.
                                                            filing of criminal charges against 72 individuals, the
However, OIG also found that DER’s recordkeeping
                                                            conviction of 72 individuals, and 74 sentencings, as
practices have limitations that impede the efficient
                                                            well as the imposition of fines and restitution awards.
retrieval of workpapers by FHFA examiners, other
                                                            In several investigations, OIG investigative counsels
FHFA personnel, and outside oversight entities such
                                                            were appointed as Special Assistant U.S. Attorneys
as OIG. Specifically, OIG found that DER maintains
                                                            (SAUSAs) and prosecuted the criminal cases. Figure 3
no index or directory for the universe of workpapers,
                                                            (see page 17) summarizes the results obtained during
examination teams within DER use different
                                                            this reporting period from our investigative efforts.
document naming conventions, and electronic folders
do not adhere to a cohesive, common structure.              OIG has developed and intends to further
                                                            strengthen close working relationships with other


16    Federal Housing Finance Agency Office of Inspector General
law enforcement agencies, including DOJ and U.S.          Figure 3. Criminal and Civil Recoveries from
Attorneys’ offices; the Secret Service; the FBI; HUD-     October 1, 2014, Through March 31, 2015
OIG; the Federal Deposit Insurance Corporation                                     Criminal                Civil
Office of Inspector General; IRS-CI; SIGTARP;                                   Investigations        Investigations
the Financial Crimes Enforcement Network; state               Finesa                  $638,581                      $-
attorneys general; mortgage fraud working groups;             Settlements                     $-                    $-
and other federal, state, and local law enforcement           Restitutions        $34,034,537                       $-
agencies nationwide. OI also works closely with               Total               $34,673,118                       $-

Fannie Mae’s Mortgage Fraud Program and with
                                                              Charges                          72
Freddie Mac’s Fraud Investigations Unit.
                                                              Convictions                      72
OIG also develops public-private partnerships                 Sentencings                      74
where appropriate. We delivered 29 fraud awareness        a
                                                           Fines include criminal fines, seizures, forfeiture and special
briefings to different audiences to raise awareness of    assessments, and civil fines imposed by federal court.

OIG’s law enforcement mission and of fraud schemes
targeting FHFA programs.
                                                          members of the Working Group, assisted with witness
                                                          interviews, and provided strategic litigation advice.
Investigation Highlights
                                                          We continue to work closely with U.S. Attorneys’
                                                          offices around the country and with state attorneys
Although much of the investigative work during this
                                                          general to investigate allegations of fraud committed
reporting period remains confidential, there have
                                                          by financial institutions and individuals. Since the
been significant public developments in a number
                                                          inception of the working group, DOJ has negotiated
of OIG investigations. We now discuss some of
                                                          civil settlements worth $32.65 billion (FHFA
these developments, categorized by subject matter.
                                                          also negotiated a settlement with JPMorgan for
For a description of additional recent investigative
                                                          $4 billion). OIG’s investigative efforts in support of
developments, see Appendices E-K.
                                                          the RMBS Working Group are ongoing.

Investigations: Civil Cases
                                                          Investigations: Criminal Cases
During the reporting period, OIG continued to
                                                          OI is staffed by a team of highly trained special
actively participate in the Residential Mortgage-Backed
                                                          agents, prosecutors, and investigative support staff
Securities (RMBS) Working Group established by the
                                                          who conduct investigations related to programs
President in 2012 to investigate those responsible for
                                                          overseen by FHFA. Collectively, they encompass
misconduct contributing to the financial crisis through
                                                          OIG’s statutory law enforcement component, and
the pooling of mortgage loans and sale of RMBS. The
                                                          they investigate criminal allegations throughout
Working Group is a collaborative effort of dozens of
                                                          the United States. In addition to the investigative
federal and state law enforcement agencies. Among
                                                          outcomes described in Figure 3 (see above), OI
other things, we have briefed other law enforcement
                                                          supported six federal and local criminal trials. Six
agencies on the operation of the RMBS market,
                                                          OIG investigative counsels are SAUSAs appointed
reviewed evidence produced by various parties for
                                                          by DOJ and are serving in judicial districts across the


                                    Semiannual Report to the Congress • October 1, 2014–March 31, 2015                17
United States. OIG SAUSAs work closely with U.S.            scheme. Because the scheme needed a constant
Attorneys’ offices to develop cases for trial and try the   inflow of cash from new buyers to keep afloat, its
cases to verdict.                                           operators allegedly lured those new buyers with
                                                            large purchase incentives and allegedly gave buyers
For ease of review, we group our criminal
                                                            leaseback incentives and $35,000 furniture packages
investigations during this period into the categories
                                                            but concealed these incentives from lenders and from
described below. In each category, we describe the
                                                            the Enterprises. The operators also allegedly used
nature of the crime and include a few highlights of
                                                            undisclosed insider sales to fraudulently pump sales
matters investigated in each category. For a summary
                                                            volumes and prices, lure more buyers, and inflate
of all publicly reportable investigative outcomes
                                                            prices.
for each category during this reporting period, see
Appendices E-K.                                             The scheme is estimated to have defrauded more than
                                                            $300 million from 1,400 investors, FDIC-insured
Condo Conversion and Builder Bailout                        banks, and the Enterprises, which lost $7 million.
Schemes                                                     After the scheme collapsed, the owners and principal
In these types of schemes, sellers or developers            executives, Dave Clark and Cristal Coleman, fled the
typically solicit investors with good credit who            country. Criminal charges were filed against Clark
want low-risk investment opportunities by offering          and Coleman, who were subsequently apprehended
deals on properties with no money down and other            and are incarcerated pending trial.
lucrative incentives, such as cash back and guaranteed      Two insiders, Barry Graham, director of sales
and immediate rent collection. The sellers fund these       for Cay Clubs, and Ricky L. Stokes, director of
incentives with inflated sales prices set by complicit      investor relations, were charged with criminally
property appraisers. The fraudsters conceal the             conspiring to fraudulently inflate the prices of Cay
incentives and the true property values from the            Clubs units through insider sales. The complaint
lenders, defrauding them into making loans that are         alleged that Graham and other insiders specifically
much riskier than they appear. When the properties          purchased units from Cay Clubs without disclosing
go into foreclosure, lenders suffer large losses.           their affiliation with Cay Clubs and used the
Below, we provide some highlights of OIG                    insider condominium purchases to “set the bar” for
investigative work during this reporting period in          subsequent artificially inflated appraisals and on
this category. (See Appendix E for a summary of all         marketing materials to make it appear to investors
publicly reportable investigative outcomes in this          that the Cay Clubs units were rapidly increasing in
category.)                                                  price.

Cay Clubs Real Estate Ponzi Scheme, Key West,               During this reporting period, defendants Graham
Florida                                                     and Stokes pled guilty and each was sentenced
                                                            to 5 years in prison followed by a 3-year term of
A joint OIG investigation with IRS-CI, the U.S.             supervised release.
Immigration and Customs Enforcement’s Homeland
Security Investigations, and the SEC found evidence         $20 Million Straw Buyer Fraud in Florida
that Cay Clubs Resorts and Marinas, which operated          A joint OIG and HUD-OIG investigation identified
17 resort-style hotels/condominiums in the United           evidence of a scheme by a number of individuals
States, was allegedly a Ponzi and securities fraud          to identify residential real estate properties in and

18    Federal Housing Finance Agency Office of Inspector General
around Miami-Dade County, which were purchased                      Below, we provide some highlights of OIG
using straw buyers and fraudulent mortgages.                        investigative work during this reporting period in
                                                                    this category. (See Appendix F for a summary of all
The principal operators allegedly recruited mortgage
                                                                    publicly reportable investigative outcomes in this
brokers, straw buyers, and others to create fraudulent
                                                                    category.)
mortgage applications and false supporting
documents. They used some of the mortgage                           Identity Theft by a Fannie Mae Insider, Dallas,
proceeds to cover the straw buyers’ closing costs, pay              Texas
kickbacks to scheme participants, and make initial
                                                                    A joint OIG investigation with the Secret Service
mortgage payments, and pocketed the remainder of
                                                                    and the U.S. Attorney’s Office for the Northern
the funds. When many of these properties went into
                                                                    District of Texas, based on a whistleblower tip, found
foreclosure, the scheme collapsed, defrauding lenders
                                                                    evidence that a Fannie Mae employee used her lawful
of almost $20 million. The Enterprises together lost
                                                                    access to Fannie Mae records to steal PII of more
more than $10.8 million.
                                                                    than 1,000 Fannie Mae customers and others, which
During this reporting period, eight of the                          she provided to two individuals, Anthony Minor and
conspirators pled guilty and were sentenced to prison               Tilisha Morrison. These individuals, in turn, recruited
terms ranging from 51 months to home confinement                    co-conspirators to walk into banks and withdraw cash
and to pay restitution. Three conspirators, who                     from the accounts of Fannie Mae customers whose
declined to plead, were found guilty on all counts                  PII had been stolen.
after a jury trial.
                                                                    Minor was arrested in a Dallas hotel room, which he
                                                                    had paid for with a fake credit card manufactured
Fraud Committed Against the Enterprises,
                                                                    using the stolen PII. A search of his hotel room
the FHLBanks, or FHLBank Member
                                                                    found fake identity documents, counterfeit checks, a
Institutions
                                                                    computer containing templates for fake government
Investigations in this category involve a variety of                documents, and a $900 bottle of Dom Pérignon. In
schemes that target Fannie Mae, Freddie Mac, the                    September 2014, a jury convicted him of conspiracy,
FHLBanks, or members of FHLBanks.                                   bank fraud, and several other crimes. He was




Morrison, with Minor over her left shoulder,   $900 bottle of Dom Pérignon          Equipment seized at the hotel during the
withdrawing cash from an ATM.                  purchased with stolen credit card.   arrest of Minor.



                                         Semiannual Report to the Congress • October 1, 2014–March 31, 2015                    19
sentenced during this reporting period to 16 years in      Below, we provide some highlights of OIG
prison and ordered to pay $88,131 in restitution.          investigative work during this reporting period in
                                                           this category. (See Appendix G for a summary of all
Five other individuals involved in this scheme were
                                                           publicly reportable investigative outcomes in this
also sentenced to prison terms ranging from time
                                                           category.)
served to 4 years.
                                                           Falsified Loan Application Scheme in San Diego,
Computer Intrusion by Former Fannie Mae
                                                           California
Employee, Virginia
                                                           A joint OIG investigation with the FBI, IRS-CI, and
A joint investigation with SIGTARP, with significant
                                                           the U.S. Attorney’s Office for the Southern District
assistance from Fannie Mae’s Investigations Division,
                                                           of California found that a mortgage loan officer, who
found evidence that an IT term employee of Fannie
                                                           acted as a broker, was part of a conspiracy to defraud
Mae, Sathish Kumar Chandhun Rajendran, who
                                                           mortgage lenders by creating and submitting false
had been terminated by Fannie Mae, subsequently
                                                           loan applications. This conspiracy involved solicitation
used administrator credentials in his possession to
                                                           of borrowers through ads on television and other
repeatedly interfere with Fannie Mae servers and
                                                           media, efforts to persuade borrowers to sign blank
partially disable the CheckMyNPV.com website.
                                                           loan applications, completion of loan applications
That website allowed individuals to check on their
                                                           with false information and documentation to make
eligibility to participate in the Home Affordable
                                                           the applications successful, and submission of the
Modification Program. His actions caused
                                                           false applications to federally chartered financial
damage and loss to Fannie Mae in the amount of
                                                           institutions, including FHLBank members. As a result
approximately $69,000. Rajendran pled guilty to
                                                           of this conspiracy’s efforts, the loan officer obtained
criminal charges and, during this reporting period,
                                                           at least $2.2 million in mortgage loans through
was sentenced to 3 years of supervised probation, 50
                                                           fraud, many of which subsequently defaulted and
hours of community service, forfeiture of his laptop
                                                           inflicted losses on the mortgage lenders and secondary
computer, ordered to pay $69,638 in restitution, and
                                                           purchasers, including the Enterprises.
agreed to write and publish an online article detailing
his offense, its seriousness, the effect on himself and    The loan officer, Donald V. Totten, and three
his family, and why others should not engage in            members of the conspiracy had previously pled
similar behavior.                                          guilty. Defendant Totten was sentenced to 30 months
                                                           in prison, 3 years of supervised release, and was
Loan Origination Schemes                                   ordered to pay $717,496 in restitution. His three
Loan or mortgage origination schemes are the most          co-conspirators, sentenced in February 2015, received
common type of mortgage fraud. These schemes               prison terms ranging from 4-10 months and terms
typically involve falsifying buyers’ income, assets,       of supervised release ranging from 3-5 years, and one
employment, and credit profile to make them more           was ordered to pay restitution of $25,746.
attractive to lenders. These schemes often use bogus       Bogus Home Improvement Schemes in Maryland
Social Security numbers and fake or altered documents
such as W-2 forms and bank statements to defraud           A joint OIG investigation with HUD-OIG, the
lenders into making loans they would not otherwise         Department of Homeland Security Immigration
make. Typically, perpetrators pocket origination fees or   and Customs Enforcement, Treasury Office of the
inflate home prices and divert proceeds.                   Inspector General, and the Secret Service found that

20    Federal Housing Finance Agency Office of Inspector General
two Maryland real estate agents operated fraudulent                      and the Federal Housing Administration (FHA) and
schemes in which they and others added the cost of                       conventional lenders lost $3.5 million.
bogus home improvements to mortgages obtained
                                                                         During the reporting period, the principal defendant,
with stolen identities and falsified application
                                                                         real estate agent Edgar Tibakweitira, was sentenced
documents, diverted the improvement fees garnered
                                                                         to 57 months in prison, and real estate agent
to puppet construction companies at settlement, and
                                                                         Phanuel “Peter” Ligate was sentenced to 5 months in
pocketed the proceeds. One agent used an accomplice
                                                                         prison. (Both had previously pled guilty.) Five other
to create false credit histories for the stolen identities,
                                                                         participants in the scheme received sentences ranging
and the accomplice falsely reported to credit rating
                                                                         from 33 months in prison to a period of home
agencies that the false identities received lines of credit.
                                                                         confinement. All seven were ordered to pay various
The defendants diverted $1.3 million in funds from                       amounts of restitution. In addition, the accomplice
more than $8.2 million in fraudulently obtained                          who reported false lines of credit, Carmen Johnson,
loans. The Enterprises lost more than $1.2 million,                      was convicted by a jury.




A letter sent to the lender in fraudulent sale of a property, using stolen identity.




Copy of a false invoice submitted to a settlement company claiming home improvements on a property prior to settlement.


                                            Semiannual Report to the Congress • October 1, 2014–March 31, 2015            21
Overall, this investigation resulted in the convictions            including false statements that the transaction was
of 12 people. An OIG SAUSA assisted in prosecuting                 “arm’s length” and false statements concerning the
the defendants.                                                    parties’ hidden agreement that the seller would
                                                                   provide the straw buyer with purchase money for
Short Sale Schemes                                                 the short sale and ultimately regain ownership
Short sales occur when a lender allows a borrower                  of his home following the short sale. Simon was
who is “underwater” on his/her loan—that is, the                   sentenced to 15 months’ incarceration, 60 months
borrower owes more than the property is worth—                     of supervised release, and was ordered to pay
to sell his/her property for less than the debt                    $421,372 in restitution joint and severally. Sanchez
owed. Short sale fraud usually involves a borrower                 was sentenced to 21 months in prison, 36 months of
intentionally misrepresenting or not disclosing                    supervised release, and was ordered to pay $421,372
material facts to induce a lender to agree to a short              in restitution joint and severally. In addition, a
sale to which it would not otherwise agree.                        final order of forfeiture was issued for the property
                                                                   involved in the transaction.
Below, we provide some highlights of OIG
investigative work during this reporting period in                 Sale Scheme in Northern Illinois
this category. (See Appendix H for a summary of all                An OIG joint investigation with the FBI found evidence
publicly reportable investigative outcomes in this                 that a licensed attorney allegedly worked with a real
category.)                                                         estate agent and a straw buyer to obtain bank approval
Short Sale Scheme in California                                    for a fraudulent short sale using a falsified HUD-1
                                                                   Settlement Statement and a false non-arm’s length
An OIG joint investigation with IRS-CI found                       transaction affidavit. After the short sale transaction
evidence that Minerva Sanchez, a licensed real estate              closed, the lawyer directed the straw buyer to deed the
agent, persuaded Agustin Simon, a tax preparer and                 property into a trust controlled by the lawyer. Both
bookkeeper she represented, that he sell his home                  the lawyer and the real estate agent allegedly made
in a short sale using her son as the straw buyer.                  material false statements to a Freddie Mac investigator in
Sanchez, along with Simon and the straw buyer,                     connection with this short sale transaction.
made misrepresentations to financial institutions,




The Simon property put into short sale, which was ultimately forfeited.


22    Federal Housing Finance Agency Office of Inspector General
During this reporting period, the lawyer pled guilty to     Six Indicted in Utah Loan Modification Case
wire fraud affecting a financial institution and the real
                                                            A joint OIG investigation with SIGTARP, IRS-CI,
estate agent was charged via a superseding information
                                                            the FBI, and the Office of Inspector General Board of
with wire fraud affecting a financial institution.
                                                            Governors of the Federal Reserve System Consumer
Short Sale Scheme in New Jersey                             Financial Protection Bureau found evidence that
                                                            more than 10,000 struggling homeowners were
An OIG joint investigation with the New Jersey
                                                            approached by a Utah telemarketing operation
Office of the Attorney General Division of Criminal
                                                            to use the services of lawyers who allegedly had a
Justice found evidence of a conspiracy by three
                                                            90% success rate in obtaining loan modifications
individuals and an entity controlled by one of
                                                            and purportedly offered a money-back guarantee.
the individuals to defraud lenders of more than
                                                            Victim homeowners were led to believe that the
$1.2 million in a short sale flipping scheme involving
                                                            lawyers would complete the applications for loan
four properties. Among other things, individuals
                                                            modifications. In some instances, customers lost their
allegedly made fraudulent misrepresentations on
                                                            homes to foreclosure when the loan modifications
uniform residential loan applications and settlement
                                                            were not obtained.
forms and omitted material facts, including the
existence of straw buyers and an undisclosed financial      On February 25, 2015, six individuals were named
interest in the transactions.                               as defendants in a 40-count indictment alleging
                                                            conspiracy, mail fraud, wire fraud, telemarketing
During this reporting period, two of the individuals
                                                            fraud, conspiracy to commit money laundering, and
were sentenced to probation terms and one was
                                                            money laundering.
ordered to pay restitution of $20,000. A third pled
guilty to first degree money laundering, and an entity      California Foreclosure Delay Scheme
he controlled and used to facilitate the fraud pled
                                                            A joint OIG investigation with the FBI found
guilty to second degree theft by deception.
                                                            evidence of a foreclosure-delay/eviction-delay scheme
                                                            involving at least 237 bankruptcies, including
Loan Modification and Property
                                                            homeowners whose mortgages were owned by
Disposition Schemes
                                                            Fannie Mae. The scheme allegedly targeted distressed
These schemes prey on desperate homeowners.                 homeowners by promising to delay foreclosures
Businesses advertise that they can secure loan              and evictions for up to 36 months in exchange for
modifications, provided that the homeowners pay             an initial cash payment and subsequent monthly
significant upfront fees. Typically, these businesses       payments. As part of this scheme, the conspirators
take little or no action, leaving homeowners in a           allegedly caused a series of fraudulent bankruptcies to
worse position.                                             be filed to delay the foreclosures and evictions, and
Below, we provide some highlights of OIG investigative      false deeds of trust to be recorded.
work during this reporting period in this category. (See    In December 2014, one conspirator was sentenced
Appendix I for a summary of all publicly reportable         to 120 days’ incarceration or electronic monitoring,
investigative outcomes in this category.)                   5 years of supervised release, and ordered to pay a




                                     Semiannual Report to the Congress • October 1, 2014–March 31, 2015        23
Copy of a forged signature and notary stamp used by conspirators to record false deeds.



small fine. In January 2015, another conspirator pled               were low-risk and would earn short-term returns
guilty to conspiracy and was sentenced to 30 days’                  as high as double the amount invested and he
imprisonment and 3 years of supervised release.                     allegedly fabricated documents on Freddie Mac
                                                                    letterhead claiming to have access to Freddie
Property Management and REO Schemes                                 Mac’s REO properties through a “10 Block”
The wave of foreclosures following the housing crisis               program. Goldstein, however, was not authorized
left the Enterprises with a large inventory of real                 to sell Freddie Mac’s REO properties and neither
estate owned (REO) properties. This large REO                       Enterprise has a “10 Block” program.
inventory has sparked a number of different schemes                 In December 2014, Goldstein was indicted for wire
to either defraud the Enterprises, who use contractors              fraud and mail fraud in Illinois.
to secure, maintain and repair, price, and ultimately
sell their properties, or defraud individuals seeking to            False REO Escrow Scheme, California
purchase REO properties from the Enterprises.                       A joint OIG investigation with the Stanislaus
Below, we provide some highlights of OIG investigative              County District Attorney’s Office found evidence
work during this reporting period in this category. (See            that two escrow companies falsely claimed to have
Appendix J for a summary of all publicly reportable                 the right and authority to sell REO properties
investigative outcomes in this category.)                           owned by the Enterprises at significant discounts.
                                                                    These companies referred potential purchasers to
Fraudulent REO Scheme Charged in Chicago                            legitimate Fannie Mae and Freddie Mac websites
An OIG investigation found evidence that Scott                      to select REO properties and then allegedly
Goldstein, who claimed to be the CEO of a                           directed these purchasers to deposit funds with the
venture capital firm, marketed his services to                      escrow companies and misrepresented that these
sell Enterprise REO properties at significantly                     funds would be used to purchase REO properties
reduced prices. Goldstein allegedly advised                         at a discount.
investors that their investments in REO properties


24     Federal Housing Finance Agency Office of Inspector General
In December 2014, an owner of one of the escrow            Recidivist Squatter and “Sovereign Citizen”
companies was charged in a criminal complaint with         Imprisoned in Tennessee
grand theft and commercial burglary.
                                                           A joint OIG investigation with the Shelby County
                                                           Sheriff’s Office found evidence that a self-proclaimed
Adverse Possession Schemes
                                                           “sovereign citizen,” with prior convictions for
Adverse possession schemes use illegal adverse             squatting on and claiming ownership of HUD and
possession (also known as “home squatting”) or             Fannie Mae-owned properties, was occupying a
fraudulent documentation to control distressed             Fannie Mae property in Memphis, Tennessee for
homes, foreclosed homes, and REO properties.               which he had submitted a fake quit claim deed.
Below, we provide some highlights of OIG                   This “sovereign citizen” pled guilty to theft of
investigative work during this reporting period in         property in October 2014 and was sentenced to 8
this category. (See Appendix K for a summary of all        years in prison.
publicly reportable investigative outcomes in this
category.)
                                                           Investigations: Administrative
Deed Theft Scheme in California                            Actions
An OIG investigation found evidence that 12
California properties, of which 10 were owned by           Many OIG investigations result in administrative
the Enterprises, were stolen by individuals who            referrals to other entities for action based upon the
recorded phony deeds. Three individuals allegedly          results of OI’s investigative work. For example, a
identified properties that were owned free and             guilty plea of participation in a bank fraud scheme
clear without mortgages or other encumbrances,             by a licensed real estate agent or attorney or certified
recorded fake deeds, and sold the properties using the     public accountant may result in a referral to a state
internet and other means of remote communication           licensing body for disciplinary actions. By the same
to conceal their identities and the fraud. During          token, participation by a real estate professional in
the investigation, OIG alerted the four largest title      mortgage fraud may result in a referral to HUD for
insurance companies about the scheme to prevent            possible suspension or debarment from participation
further recording of false deeds.                          in federal mortgage programs. A summary of OIG’s
                                                           referrals during the reporting period is captured in
During this reporting period, two individuals,             Figure 4 (see below).
Mazen Alzoubi and Daniel Deaibes, were arrested
and charged with mail fraud. A third individual,           OI also investigates allegations of administrative
Mohamad Daoud, was arrested in December 2014               misconduct by FHFA employees and contractors.
while attempting to flee the country. Deaibes has          The results of such allegations are reported to FHFA
since pled guilty in March 2015.                           or other agencies with jurisdiction for further action.

As a result of this investigation, OIG recommended         Figure 4. Administrative Actions from October 1,
to FHFA that the GSEs strengthen the requirement           2014, Through March 31, 2015
they impose on their property servicers to give notice                      Administrative Actions
at the first indication of any attempt to obtain control    Suspension/Debarment Referrals                     150
of GSE-owned property.                                      Referral to FHFA Suspended Counterparty             59
                                                            Program


                                    Semiannual Report to the Congress • October 1, 2014–March 31, 2015          25
Regulatory Activities                                      provided FHFA with its assessment. FHFA
                                                           responded that it disagreed with OIG’s assessment
Pursuant to the Inspector General Act, OIG is              that the government-wide suspension and debarment
authorized to assess whether proposed legislation,         program applied to it and declined to follow FHFA’s
regulations, and policies related to FHFA are efficient,   recommendation to implement it. FHFA continued
economical, legal, and susceptible to fraud and abuse.     to refrain from implementing that program during
During the semiannual period, FHFA sought OIG              this period.
review on three final rules it published, two proposed     OIG previously reviewed the applicability of
rules, a draft policy, and an advisory bulletin, and OIG   the Program Fraud Civil Remedies Act of 1986
provided substantive comments on two:                      (PFCRA) to FHFA and opined to FHFA that it
•	 Proposed Rules. FHFA sought OIG review of               was subject to PFCRA. At the beginning of the last
   a preliminary draft proposed rule concerning            reporting period, FHFA responded that it planned to
   indemnification payments, for which it had not          implement PFCRA and/or issue draft regulations; no
   sought public notice and comment. Because this          implementation or draft regulations occurred during
   preliminary draft has not been published in the         this reporting period or the prior reporting period.
   Federal Register and FHFA continues to consider
   OIG’s comments as it revises its draft rule, this       Suspension of Counterparties
   comment process is ongoing and disclosure could         Referrals
   adversely affect internal Agency deliberations. OIG
   will report on the substance of its comments once
                                                           FHFA has adopted a Suspended Counterparty
   the Agency publishes the draft proposed rule.
                                                           Program under which it issues “suspension orders
•	 Advisory Bulletin. FHFA promulgated an                  directing the regulated entities to cease or refrain”
   advisory bulletin (AB 2015-01) on FHLBank               from doing business with counterparties (and
   Fraud Reporting (published on FHFA’s website on         their affiliates) who were previously found to have
   February 12, 2015). On review of that bulletin,         “engaged in covered misconduct.” Suspension of such
   OIG noted that it contained no mechanism                counterparties is warranted to protect the safety and
   to notify OIG simultaneously with FHFA                  soundness of the regulated entities. For purposes of
   upon the suspicion or discovery of fraudulent           the program, covered misconduct means:
   activity and alerted FHFA of that omission.
                                                             Any conviction or administrative sanction
   FHFA acknowledged the value of simultaneous
                                                             within the past three (3) years if the basis of
   reporting and notified the FHLBanks that FHFA
                                                             such action involved fraud, embezzlement,
   would “automatically notify FHFA-OIG by
                                                             theft, conversion, forgery, bribery, perjury,
   email when an FHLBank posts a document to
                                                             making false statements or claims, tax evasion,
   the immediate notifications or SAR [suspicious
                                                             obstruction of justice, or any similar offense,
   activity report] filing notifications folder.”
                                                             in each case in connection with a mortgage,
During the last reporting period, OIG reported that          mortgage business, mortgage securities or other
it considered the applicability of the government-           lending product.
wide suspension and debarment program and




26    Federal Housing Finance Agency Office of Inspector General
During this reporting period, OIG made 59 referrals        Anonymous Hotline
of counterparties to FHFA for consideration
                                                           OIG actively promotes its anonymous hotline in
of potential suspension under its Suspended
                                                           multiple ways, including its website, posters, emails
Counterparty Program.
                                                           targeted to FHFA and GSE employees, and public
                                                           reports. During this reporting period, the hotline
Public and Private Partnerships,                           received 1,117 contacts, which included: reports
Outreach, and Communications                               of alleged misconduct that were referred to OI
                                                           for potential civil and/or criminal investigation;
The Enterprises and the FHLBanks play a critical role      reports of alleged wrongdoing in connection with
in the U.S. housing finance system and recent history      other agencies that were referred to the appropriate
has shown that financial distress at the Enterprises and   resource; requests for assistance on housing-related
deteriorating conditions in U.S. housing and financial     issues; and complaints on OIG-related issues.
markets threatened the U.S. economy. American
taxpayers put their money and confidence in the            Close Coordination with Other Oversight
hands of regulators and lawmakers to restore stability     Organizations
to the economy and decisions were made to invest           OIG shares oversight of federal housing program
$187.5 billion in the Enterprises. The continuing          administration with other federal agencies, including
outsized role of the Enterprises and FHLBanks in           HUD, the Department of Veterans Affairs, the
housing finance demands constant supervision and           Department of Agriculture, and Treasury’s Office
monitoring. A fundamental part of OIG’s mission in         of Financial Stability (which manages the Troubled
protecting taxpayers is independent and transparent        Asset Relief Program); their inspectors general; and
oversight of Agency programs and operations, which         other law enforcement organizations. To further
both acts to hold responsible individuals accountable      the oversight mission, we coordinate with these
and identifies lessons to be learned for the future.       entities to exchange best practices, case information,
                                                           and professional expertise. During the reporting
Our focus on risk-based oversight demands that we
                                                           period, OIG made numerous presentations to law
are sufficiently nimble to evaluate the sufficiency
                                                           enforcement agencies, mortgage fraud working
of existing controls to mitigate known risks and to
                                                           groups across the country, and individual federal
identify new and emerging risks and the systems
                                                           agencies responsible for investigating mortgage fraud,
in place to control those risks. We have created an
                                                           such as HUD-OIG, the FBI, the Secret Service, and
internal resource, ORA (discussed above), to assist
                                                           the DOJ Antitrust Division.
in those efforts, and we actively cultivate different
constituencies, including potential whistleblowers,        We continued our active participation in the
Agency officials, members of Congress, and the wider       coordinated oversight activities during this reporting
oversight community, and forge public and private          period:
partnerships to further our understanding of critical
                                                           •	 RMBS Working Group. OIG continued its
risks.
                                                              significant role in the RMBS Working Group.
Highlights of our efforts during this reporting period        (See discussion at “Investigations: Civil Cases,”
include:                                                      page 17).




                                     Semiannual Report to the Congress • October 1, 2014–March 31, 2015       27
•	 CIGIE. OIG actively participates in several             OIG is a permanent member of CIGFO, along
   CIGIE committees and working groups.                    with the inspectors general of Treasury, the
                                                           FDIC, the SEC, and others. By statute, CIGFO
     The Inspection and Evaluation Committee
                                                           audits FSOC each year. This year, OIG is
     continued its work on a pilot “peer review”
                                                           leading the CIGFO audit of FSOC’s monitoring
     program for inspection and evaluation units
                                                           of interest rate risk to the financial system.
     in the inspector general community. The peer
     review is designed to assess organizations’ work    Private-Public Partnerships
     under CIGIE’s Blue Book (January 2012)
     and to promote credibility of such work by          Housing finance professionals are on the frontlines
     validating the organizations’ work processes        and often have a real-time understanding of emerging
     and evaluating their objectivity, independence,     threats and misconduct. We speak regularly with
     and rigorous adherence to applicable standards.     officials at the FHLBanks and the Enterprises to
                                                         benefit from their insights; made presentations
     The Investigation Committee advises the             to industry groups, including the International
     inspector general community on issues               Association of Financial Crimes Investigators and the
     involving criminal investigations, criminal         Real Estate Alliance of Livermore, California; and
     investigations personnel, and establishing          focused on fraud trends and emerging schemes in the
     criminal investigative guidelines. During           mortgage industry. We also speak with homeowners’
     this semiannual period, the committee               groups and associations.
     continued coordination with DOJ regarding
     implementation of the electronic recording          Congress
     policy. Additionally, OIG hosted the
                                                         To fulfill its mission, OIG works in close partnership
     Investigations Information Technology
                                                         with Congress and is committed to keeping it fully
     Subcommittee, which is comprised of criminal
                                                         apprised of our oversight of FHFA. OIG provided
     investigators from across the inspector general
                                                         information and briefings to key congressional
     community. The Inspector General provided
                                                         committees and offices. Briefing topics included
     opening remarks for the meeting, which focused
                                                         recommendations from OIG reports and FHFA’s
     on the unique aspects of standardizing processes
                                                         progress in implementing them, themes emerging in
     for investigating computer-related crime.
                                                         OIG’s body of work, OIG’s organization and strategy,
•	 Council of Inspectors General on Financial            and areas of ongoing work.
   Oversight. The Council of Inspectors General
                                                         Additionally, we endeavor to inform Congress
   on Financial Oversight (CIGFO) was created
                                                         through responses to numerous technical assistance
   by the Dodd-Frank Wall Street Reform and
                                                         and information requests, as well as replies to formal
  Consumer Protection Act of 2010 (Dodd-
                                                         written inquiries from members of Congress on
  Frank) to oversee the Financial Stability
                                                         various topics.
  Oversight Council (FSOC), which is charged
  with strengthening the nation’s financial system.




28   Federal Housing Finance Agency Office of Inspector General
Semiannual Report to the Congress • October 1, 2014–March 31, 2015   29
Section 2: FHFA and GSE Operations

Overview                                                   responsibility for the effective supervision, regulation,
                                                           and housing mission oversight of Fannie Mae,
In this section, we summarize the role of the GSEs         Freddie Mac, the FHLBanks, and the FHLBanks’
in housing finance, FHFA and its relationship with         Office of Finance.
these GSEs, the 2014 financial results of the GSEs,        Less than two months later, on September 6, 2008,
and selected FHFA and GSE activities.                      FHFA placed Fannie Mae and Freddie Mac into
                                                           conservatorships, taking control of the Enterprises
The Enterprises                                            to conserve their value, maintain their operations,
                                                           provide assurances to holders of their debt and
The Enterprises are publicly held financial institutions   mortgage-backed securities (MBS), and lower and
that were created by Congress with dual purposes:          stabilize the cost of mortgage finance. Simultaneously,
to enhance the liquidity and stability of the U.S.         Treasury exercised its authority under HERA “to
secondary mortgage market and to affirmatively             purchase any obligations and other securities” issued
“facilitate the financing of affordable housing for low-   by the Enterprises and began to purchase preferred
and moderate-income families in a manner consistent        stock pursuant to the Senior Preferred Stock
with their overall public purposes.”1 Their charters,      Purchase Agreements (PSPAs) in order to allow the
drafted by Congress, provide important competitive         Enterprises to continue their key role in the housing
advantages that, taken together, were viewed by many       market. Under the PSPAs, Treasury committed to
as implying U.S. taxpayer commitment to prevent            provide funds to the Enterprises as necessary to
default on their financial obligations. Consequently,      prevent their liabilities from exceeding their assets,
the Enterprises could issue debt to fund their             subject to a cap.3 To date, U.S. taxpayers have
operations near Treasury rates and thereby assumed         invested $187.5 billion into the Enterprises under
dominant positions in the residential housing finance      these agreements.
market.2 Although a number of commentators
warned about structural problems within the                The Enterprises’ Roles in Housing Finance
Enterprises, those concerns went unheeded.                 Fannie Mae and Freddie Mac are limited by their
                                                           charters to operate in the secondary “conforming”
In 2007 and 2008, as the housing crisis intensified,
                                                           mortgage market. That means that neither Enterprise
Fannie Mae and Freddie Mac became financially
                                                           can lend money to households directly in the primary
distressed. Their concentrated exposure to U.S.
                                                           market, nor deal in mortgages with balances above
residential mortgages combined with high leverage
                                                           “conforming loan limits.” Conforming loan limits
proved unsustainable in the face of a large nationwide
                                                           have been adjusted over time, and for 2015, the
decline in home prices and the associated spike in
                                                           national limit for single-family properties is $417,000
mortgage defaults. The federal government passed
                                                           but can be as high as $625,500 in high-housing-cost
HERA, signed into law on July 30, 2008, which,
                                                           areas. The charters for both Enterprises authorize
among many other provisions, temporarily gave
                                                           them to purchase mortgages with loan-to-value (LTV)
Treasury unlimited investment authority in the two
                                                           ratios that exceed 80% (i.e., the unpaid principal
Enterprises, created FHFA, and charged it with

30    Federal Housing Finance Agency Office of Inspector General
balance of the mortgage exceeds 80% of the value of           The second category—the portfolio investment
the property). If that occurs, the loan must include          business—involves holding and financing assets on
mortgage insurance or another credit enhancement.             their balance sheets, including whole mortgages,
                                                              their own MBS, MBS purchased from others, and
The Enterprises’ activities can be grouped into
                                                              fixed-income securities. Both GSEs use financial
two broad categories. One category—the credit
                                                              derivatives, such as interest rate swaps, to help
guarantee business—involves the creation of MBS
                                                              manage the market risk associated with their
by purchasing a pool of single-family conforming
                                                              investment portfolios.
mortgages from originators—typically banks, credit
unions, mortgage companies, and other financial
                                                              Enterprises’ Market Share of the
institutions—and packaging them into securities               Secondary Mortgage Market
that receive cash flows from the mortgage pools.
Residential loans purchased by the GSEs from                  Since entering conservatorships in September
loan originators create liquidity for loan originators        2008, the Enterprises have bought and guaranteed
who can then make additional loans. Fannie Mae                approximately three out of every four mortgages
or Freddie Mac guarantees the investors in these              originated in the United States. After losing market
MBS the timely payment of principal and interest              share to nonagency competitors from 2004 through
regardless of defaults and losses on the underlying           2007, the Enterprises have regained dominant
loans in the pool. In return for this guarantee, the          positions in the residential housing finance market
Enterprises receive a monthly “guarantee fee” out of          (see Figure 5, below).4 Consequently, taxpayers face
the borrower’s interest payment.                              considerable financial risks and exposure from their

Figure 5. Primary Sources of MBS Issuances from 2000 to 2014 ($ trillions)
     $3.0

     $2.5

     $2.0

     $1.5

     $1.0

     $0.5

     $0.0
              00

                    01

                           02

                                 03

                                       04

                                             05

                                                   06

                                                          07

                                                                 08

                                                                        09

                                                                              10

                                                                                    11

                                                                                          12

                                                                                                13

                                                                                                      14
            20

                   20

                         20

                                20

                                      20

                                            20

                                                  20

                                                         20

                                                                20

                                                                      20

                                                                             20

                                                                                   20

                                                                                         20

                                                                                               20

                                                                                                     20




                                 Ginnie Mae MBS        Enterprise MBS      Nonagency MBS



                                      Semiannual Report to the Congress • October 1, 2014–March 31, 2015       31
Figure 6. Overview of FHFA’s and the Enterprises’ Roles


          Primary
          Mortgage Market                                                                             Applies for
                                                                                                       Mortgage
          Market in which financial                                                                                      BORROWER
          institutions provide
                                                           LENDER
          mortgage loans to
          home buyers                                                                                   Provides
                                                                                                          Loan
                                                  Sells Loans that
                                                 Meet Underwriting
                                                      and Product
                                                        Standards


                                                                                     Lenders
          Secondary                                                                  Receive
                                                                                     Cash or MBS
          Mortgage Market
          Market in which                                     FANNIE MAE and                             Conservator
          existing mortgages and                              FREDDIE MAC
          MBS are traded

                                                             Credit
                                                                               Portfolio
                                                           Guarantee
                                                                               Activities
                                                           Business                                  Ensures Financial
                                                                                                        Safety and
                                                                                                        Soundness

                                                  Issues                    Issues
                                                    MBS                       Debt

                                    Sells MBS
                                Received from   Lenders
                                Fannie Mae or   Receive
                                  Freddie Mac   Cash                 Buys                     Buys
                                                                     MBS                      Debt

                                                                                                        Sells
                                                                                                      MBS & Debt           INVESTORS
                                                            WALL
                                                           STREET                                                           • Individual
                                                                                                                            • Institutional
                                                                                                        Buys                • Foreign
                                                                                                      MBS & Debt




activities, given that Treasury effectively guarantees                          As conservator, FHFA possesses all rights and
their financial obligations.                                                    powers of any stockholder, officer, or director of the
                                                                                Enterprises. FHFA may operate the Enterprises,
FHFA’s Dual Role as Conservator                                                 conduct all of the Enterprises’ business activities, take
                                                                                actions necessary to preserve and conserve their assets
and Regulator of the Enterprises                                                and property, put the Enterprises in a sound and
                                                                                solvent condition, and carry on their business. These
On September 6, 2008, FHFA used its authorities                                 powers position FHFA to potentially control every
granted under HERA to place the Enterprises into                                aspect of the Enterprises’ conservatorships.
conservatorships. Since then it has served a dual
                   Overview of the Enterprises and FHFA’s Role - UPDATED 3-3-15
role as both conservator and regulator (see Figure    FHFA administers the conservatorships through
6, above). When FHFA acts in either role, it must     a combination of: communications with the
balance the inherent tensions between managing the    Enterprises’ respective boards of directors and
Enterprises as conservator and supervising them as    management; a multiyear strategic plan for the
safety and soundness regulator.                       conservatorships that defines general goals and



32    Federal Housing Finance Agency Office of Inspector General
initiatives; annual conservatorship Scorecards that       Enterprises’ Financial
focus on the Enterprises’ short-term objectives           Performance
to further the conservator’s strategic goals; and
governance practices and organizational infrastructure
                                                          For the years ended December 31, 2008, through
that support these activities. According to FHFA,
                                                          December 31, 2011, the Enterprises posted total
the Director meets regularly with the Enterprises’
                                                          combined losses of $258 billion. The Enterprises
respective CEOs to discuss business activities and
                                                          returned to profitability in 2012 and have remained
emerging issues and meets with the boards of directors
                                                          profitable in 2013 and 2014. However, while their
to review the state of the conservatorships and key
                                                          profits for the past three years reached historic levels,
business matters. The FHFA Director recently testified
                                                          they are still less than the Enterprises’ combined
that FHFA is involved in “virtually every decision”
                                                          losses between 2007 and 2011 (see Figure 7, below).
that Fannie Mae and Freddie Mac make.
                                                          In 2013, the Enterprises reported record profits of
As regulator, the Agency’s mission is to ensure that
                                                          $132.6 billion in net income; this was followed by
the Enterprises operate in a safe and sound manner
                                                          lesser profits of $21.9 billion in 2014 (see Figure
and that their operations and activities contribute
                                                          8, below). To be sure, the Enterprises benefitted
to a liquid, efficient, competitive, and resilient
                                                          from improvements in the housing market and
housing finance market.5 FHFA accomplishes its
                                                          declines in their delinquent loans. However,
regulatory mission by performing on-site supervisory
                                                          more importantly, the Enterprises’ profitability
examinations and off-site monitoring of the
                                                          during these two years was significantly driven by
Enterprises, issuing regulations and policy guidance,
                                                          nonrecurring sources, events that they do not expect
and providing oversight of the Enterprises’ housing
                                                          to occur again in the future—specifically, the release
mission and goals.6
                                                          of valuation allowances against deferred tax
                                                          assets and settlements of disputed representation
                                                          and warranty claims, and of legal claims relating to
                                                          nonagency MBS.


Figure 7. Enterprises’ Combined Losses from               Figure 8. Enterprises’ Annual Net Income (Loss)
2007 to 2011 and Combined Profits from 2012               2006 to 2014 ($ billions)
to 2014 ($ billions)

 $300                                                      $140
                                                           $120
 $250                                                      $100
                                                             $80
 $200                                                        $60
                                                             $40
                                                             $20
 $150
                 $258
                 $300                                         $0
                                                            ($20)
 $100                                                       ($40)
                                           $183
                                                            ($60)
  $50                                                       ($80)
                                                          ($100)
   $0                                                     ($120)
                                                                         06        07        08          09        10          11        12        13        14
                                                                    20        20        20          20        20          20        20        20        20


                        Losses   Profits                                                          Fannie Mae            Freddie Mac




                                     Semiannual Report to the Congress • October 1, 2014–March 31, 2015                                                  33
                                      $140
                                      $120
Profits reported by the Enterprises for the year ended         was driven in significant part by income from the
December 31, 2014, were significantly lower than               business segments in the Enterprises, primarily from
in 2013 and slightly lower than in 2012, when they             net interest income from the retained portfolios and
first returned to profitability (see Figure 8, page 33).       guarantee fees.
Fannie Mae reported net income of $14.2 billion
for the year ended December 31, 2014, compared                 Net Interest Income
with net income of $84 billion for the same period             Historically, net interest income from the Enterprises’
in 2013.7 Freddie Mac reported net income of                   retained portfolios has been the most significant
$7.7 billion for the year ended December 31, 2014,             driver of revenue. Net interest income is the
compared with net income of $48.7 billion for the              difference, or spread, between the interest income
same period in 2013.8                                          earned on the assets in the retained portfolio
The significant differences between 2013 and                   and the interest expense associated with the debt
2014 reported net income are explained largely                 that funds those assets. The Enterprises’ retained
by nonrecurring events. In 2013, nonrecurring                  portfolios grew over 700% between 1992 and 2008,
events accounted for $79 billion—60%—of the                    and net interest income became the largest source
$132.6 billion in net income. Results for 2014                 of earnings. The Enterprises’ combined retained
reflected that nonrecurring sources comprised 45%              portfolios were $192 billion as of the end of 1992
of net income, for a total of $10 billion, which is            and grew to $1.6 trillion as of 2008. The PSPAs,
a significant decline from the $79 billion in 2013.            however, require the Enterprises to reduce the size
Figure 9 (see below) illustrates that nonrecurring             of their retained portfolios by 15% per year until
sources contributed significantly to the Enterprises’          they reach $250 billion by 2018. Fannie Mae’s net
financial performance in 2013 and 2014.                        interest income for the year ended December 31,
                                                               2014, was $20 billion, compared with $22.4 billion
Earnings from Business Segments                                for the same period in 2013—an 11% decrease;
                                                               Freddie Mac’s net interest income for the year ended
After nonrecurring events are backed out of the
                                                               December 31, 2014, was $14.3 billion, compared
2013 and 2014 results, profitability in both years
                                                               with $16.5 billion for the same period in 2013—a
                                                               13% decrease. The decreases in the Enterprises’ net
Figure 9. The Enterprises’ Core Earnings and                   interest income mirror the continued downsizing of
Nonrecurring Items 2012 to 2014 ($ billions)
                                                               their retained mortgage portfolios.
$140

$120                                                           Guarantee Fees
$100
                                  $79
                                                               As the Enterprises’ net interest income has diminished,
 $80                                                           guarantee fee income has assumed a larger role as
 $60                                                           the primary driver of the Enterprises’ net income.
                                                               The Enterprises charge and receive guarantee fees
 $40
             $1
                                  $53                    $10
                                                               in exchange for their agreement to guarantee the
 $20
            $27                                                timely payment of principal and interest to investors
                                                         $12
  $0                                                           that purchase their MBS. The guarantee fee (called
            12




                                  13




                                                         14




                                                               “management and guarantee fee” by Freddie Mac)
           20




                             20




                                                        20




                  Core Earnings    Nonrecurring Items



34     Federal Housing Finance Agency Office of Inspector General
Figure 10. Fannie Mae’s Average Annual Guarantee Fees 2000 to 2014
                     65


                     55
      Basis Points




                     45


                     35


                     25


                     15
                           00

                                 01

                                       02

                                             03

                                                   04

                                                         05

                                                               06

                                                                     07

                                                                           08

                                                                                 09

                                                                                       10

                                                                                             11

                                                                                                   12

                                                                                                         13

                                                                                                               14
                          20

                                20

                                      20

                                            20

                                                  20

                                                        20

                                                              20

                                                                    20

                                                                          20

                                                                                20

                                                                                      20

                                                                                            20

                                                                                                  20

                                                                                                        20

                                                                                                              20
                                                  Effective Guarantee Fee Rate
                                                  Guarantee Fee Rate on New Acquisitions



covers projected credit losses from borrower defaults       However, on January 8, 2014, FHFA’s new Director
over the life of the loans, administrative costs, and a     suspended planned guarantee fee increases, which
return on capital. To calculate the guarantee fee, the      were scheduled to take effect in March and April
Enterprises use proprietary costing models to estimate      2014, pending further evaluation.11 In June 2014,
expected credit losses based on selected loan attributes    FHFA sought public comment on the optimum level
(such as borrower credit score and LTV) and estimate        of guarantee fees required to protect taxpayers from
required capital based on a desired rate of return. As we   credit losses on Enterprise MBS and implications
explained in our 2013 report, the fees set and collected    for mortgage credit availability.12 The comment
by the Enterprises for their single-family MBS business     period ended on September 8, 2014.13 As of the end
had not been sufficient to cover the losses from            of the semiannual period, FHFA had not lifted its
defaulted loans. From 2008 to 2011, the Enterprises
                  9
                                                            suspension on guarantee fee increases.14
                                  Figure_10_FannieMaesAverageAnnualGuaranteeFees2000-2014
posted total combined losses of $258 billion, the
                                                            Due to recent guarantee fee increases, Fannie Mae’s
biggest element of which was roughly $215 billion in
                                                            combined single-family and multifamily guarantee
losses from single-family credit guarantees.10
                                                            fee income for the year ended December 31, 2014,
In 2012, in response to a 2011 legislative mandate          was $13 billion, compared with $11.7 billion for
and an FHFA directive, the Enterprises nearly               the same period in 2013—an 11.2% increase.
doubled their combined average guarantee fees to 50         Freddie Mac’s combined single-family and
basis points. The intent of the then-FHFA Acting            multifamily guarantee fee income for the year ended
Director in requiring the Enterprises to raise their fees   December 31, 2014, was $5.4 billion, compared with
was to reduce their dominance in housing finance            $5.1 billion for the same period in 2013—a 5.6%
(by increasing private sector investment) and limit         increase.15 These increases can be explained by the
taxpayer risks associated with their activities.            large volume of loans acquired by the Enterprises
                                                            in 2008-2013 with higher guarantee fees, which are


                                                 Semiannual Report to the Congress • October 1, 2014–March 31, 2015   35
gradually replacing the inventory of loans acquired        Treasury’s Investments in the
prior to 2008 with lower guarantee fee income.             Enterprises
As the Enterprises continue to reduce the size of
their retained investment portfolios over the next few     Since the conservatorships began in 2008 through
years and the net interest income correspondingly          March 31, 2015, the Enterprises have received a total
decreases, guarantee fees will become an even more         of $187.5 billion from Treasury as an investment in
significant driver of earnings. Yet, the Enterprises       their preferred stock. As we explain in our white paper,
have cautioned that any income growth from                 the PSPAs, as amended, commit Treasury to invest
guarantee fees may not completely offset the loss in       as much as the Enterprises needed to cover quarterly
net interest income from the retained portfolios.          net worth deficits from 2010 to 2012, and then for
                                                           future years, subject to a cap.20 Each quarter, FHFA
Changes in Rates and Other Factors                         determines whether the liabilities of each Enterprise
Resulted in Changes to the Fair Value of                   on its financial statement exceed its assets and, upon
the Derivatives Portfolios                                 making such a determination, requests on behalf of
                                                           that Enterprise a “draw” from Treasury under the
The Enterprises, like many financial institutions,
                                                           applicable PSPA. Fannie Mae last requested a draw
use derivatives to hedge against various risks, such
                                                           from Treasury in 2011, and Freddie Mac last requested
as fluctuating interest rates and prepayment risks
                                                           a draw in 2012. As of December 31, 2014, Fannie
associated with their investments in mortgage loans
                                                           Mae had $117.6 billion in commitment available (i.e.,
and mortgage-related securities.16 They use a variety
                                                           potential future investments by Treasury), and Freddie
of derivative instruments, including interest rate
                                                           Mac had $140.5 billion in commitment available.
swap guarantees, options, and short-term default
guarantee commitments as an integral part of their         The PSPAs initially required the Enterprises to pay
risk management strategies.17 Derivative instruments       dividends on Treasury’s investments at an annual
are recorded at fair value and marked-to-market in         rate of 10%, totaling about $19 billion per year by
the Enterprises’ financial statements to reflect changes   2012, an amount greater than the highest combined
in the value of these instruments due to changes in,       annual profit that the Enterprises ever earned prior
for example, short- and long-term swap rates, interest     to 2012. That fixed percentage dividend payment
rates, yield curves, implied volatility, and mortgage      frequently required the Enterprises to draw additional
spreads. The Enterprises report changes in the value       funds from Treasury in order to pay the quarterly
of their derivatives portfolios as fair value gains        dividend back to Treasury, further increasing
or losses, and the impact of those changes affects         Treasury’s investment. As of December 31, 2012, the
financial performance. For example, Fannie Mae             Enterprises had paid $55 billion in dividends.
reported fair value gains on derivatives of $3.3 billion
in 2013 and fair value losses of $5.8 billion in 2014, a   In August 2012, FHFA and Treasury agreed to
swing of more than $9 billion. Freddie Mac reported        a third amendment to the PSPAs that, among
fair value gains on derivatives of $2.6 billion in 2013    other things, replaced the fixed dividend rate the
and fair value losses of $8.3 billion in 2014, a swing     Enterprises were required to pay with a quarterly
of roughly $10.9 billion.18 Derivative losses in 2014      sweep of every dollar of net worth above an
were caused primarily by long-term interest rate           applicable capital reserve amount.21 The third
decreases during the year.19                               amendment also reduces the Enterprises’ capital



36    Federal Housing Finance Agency Office of Inspector General
reserve until it is eventually eliminated in 2018.22               economic recovery beginning in 2007, including QE
According to Treasury, the amendments would                        programs.25 Through its QE programs, the Federal
“make sure that every dollar of earnings” the                      Reserve purchased Treasury securities and MBS in
Enterprises generate would be “used to benefit                     order to lower interest rates and ease credit conditions.
taxpayers,” “support the continued flow of mortgage
                                                                   Pursuant to the first QE program, which began
credit,” and “help expedite the[ir] wind down.”23
                                                                   in November 2008 and ended in March 2010,
As of March 31, 2015, the cumulative Treasury
                                                                   the Federal Reserve purchased approximately
dividend payments on the senior preferred stock by
                                                                   $1.1 trillion of Enterprise MBS and $135 billion
the Enterprises have exceeded their draws: Fannie
                                                                   of their debt. The second QE program from the
Mae has paid Treasury a total of $136.4 billion and
                                                                   Federal Reserve focused on the purchase of longer-
Freddie Mac has paid $91.8 billion, for a total of
                                                                   term Treasury securities. Beginning in 2011, the
$228.2 billion (see Figure 11, below).24
                                                                   Federal Reserve reinvested the proceeds from sales
Several pending lawsuits by Enterprise shareholders                of mature Enterprise MBS and prepaid MBS into
challenge the legality of the third amendment sweep                new purchases of Enterprise MBS, which it called
of all profits to Treasury and are being litigated in              “reinvestment purchases.” In September 2012, the
federal courts.                                                    Federal Reserve began another QE program in which,
                                                                   among other things, it committed to purchasing new
Additional Government Support                                      MBS at a pace of $40 billion per month. Between
                                                                   October 2011 and September 2014, the Federal
for the Enterprises                                                Reserve purchased $1.3 trillion in Fannie Mae and
                                                                   Freddie Mac MBS.26 Through the time period of
As we explained in our 2014 evaluation report,                     these different programs, the Federal Reserve became
the Federal Reserve took a number of steps to spur                 the predominant purchaser of Enterprise MBS.27

Figure 11. Enterprises’ Treasury Draws and Dividend Payments Due Under PSPAs ($ billions)
         $140

         $120                         Dividends Paid: $228.2 billion
                                 Draws from Treasury: $187.5 billion
         $100

           $80
                                                                                      130.1
           $60

           $40
                 59.8         66.1

           $20                                                                                      40.2
                                           28.0          33.6
                                                  13.5          16.1         18.8
                        0.2          6.6                                                                        2.7
            $0
                    08



                                09




                                              10



                                                            11



                                                                         12




                                                                                     13



                                                                                                14



                                                                                                            15
                  20



                              20




                                            20



                                                          20



                                                                        20




                                                                                    20



                                                                                              20



                                                                                                           20




                                      Total Enterprise Draws           Total Enterprise Dividends


                                       Semiannual Report to the Congress • October 1, 2014–March 31, 2015               37
Among other things, the Federal Reserve’s demand          In spite of their record profits in 2013 and 2014,
for MBS issuances likely contributed considerably         the financial risks that the Enterprises represent
to the significant decline in long-term mortgage          under the PSPAs have not been ameliorated. The
interest rates in 2008 through mid-2013, which            third amendment to the PSPAs, which requires the
spurred a dramatic increase in mortgage refinancings.     Enterprises to sweep all profits to Treasury, prevents
The Enterprises’ increased purchases of refinanced        them from building up positive capital (save for a
mortgages coupled with their higher guarantee fees        small net worth “buffer” that diminishes to zero in
contributed to their improved financial performance       2018). As we explained in detail in our recent white
in 2012 and 2013 (the refinanced mortgages subject        paper, the lack of a capital cushion to buffer losses,
to increased guarantee fees replaced older mortgages      combined with decreasing net interest income,
subject to lower fees).28 In late 2013, however, the      uncertain guarantee fee income, and challenges
Federal Reserve decided to taper its MBS purchases,       posed by home mortgage rates, homes prices, credit
contributing to an uptick in interest rates and a         standards, and other rates (e.g., short- and long-
decline in mortgage refinance volume. Due to the          term swap rates), means that the Enterprises’ future
resulting decrease in mortgage refinance purchases        financial performance is uncertain.31
and MBS issuances, the Enterprises expected to earn
lower guarantee fee revenue on MBS issuances in           FHLBank System
2014 compared to 2013.
                                                          The FHLBanks are GSEs, federally chartered but
Future of the Conservatorships                            privately capitalized and independently managed
                                                          by boards of directors. The 12 regional FHLBanks
When then-Secretary of Treasury Paulson announced         together with the Office of Finance, the fiscal agent of
the conservatorships in September 2008, he                the FHLBanks, comprise the FHLBank System. All
explained that the following period of time was           FHLBanks and the Office of Finance operate under
meant to be a “‘time out’ where we have stabilized the    the supervisory and regulatory framework of FHFA.32
GSEs,” during which the “new Congress and the next        FHFA’s stated mission with respect to the FHLBanks
Administration must decide what role government in        is to provide effective supervision, regulation, and
general, and these entities in particular, should play    housing mission oversight to promote the FHLBanks’
in the housing market.”29 The FHFA Director has           safety and soundness, support housing finance and
echoed that view in recognizing that conservatorship      affordable housing, and facilitate a stable and liquid
“cannot and should not be a permanent state” for          mortgage market.33 Figure 12 (see page 39) provides
the Enterprises. However, putting the Enterprises         a map of the districts of the 12 FHLBanks. As
into conservatorships has proven to be far easier         discussed in the GSE Activities section (see page 46),
than ending them, and the “time out” period for the       FHFA recently approved the merger of the Seattle
conservatorships is now in its seventh year. As we        and Des Moines FHLBanks, which will result in 11
discussed in our recent white paper, FHFA’s current       FHLBanks.
strategy is to keep the Enterprises in conservatorship
                                                          The FHLBank System was created in 1932 to improve
until Congress passes housing reform legislation.
                                                          the availability of funds for home ownership, and its
Absent congressional action or a change in FHFA’s
                                                          mission is to support residential mortgage lending and
strategy, the conservatorships will continue.30



38    Federal Housing Finance Agency Office of Inspector General
Figure 12. Regional FHLBanks




related community investment through its member            The primary business of the FHLBanks is to provide
financial institutions.34 The 12 FHLBanks fulfill          their members with advances, which they do through
this mission primarily by providing secured loans          raising funds in the capital markets by issuing debt,
known as advances to their members, resulting in           known as consolidated obligations, through the
increased credit availability for residential mortgages,   Office of Finance.38 In the event of a default on a
community investments, and other housing and               consolidated obligation, each FHLBank is jointly
community development services.35                          and severally liable for losses, which means that
                                                           each individual FHLBank is responsible for the
The FHLBanks are cooperatives that are owned
                                                           principal and interest on all consolidated obligations
privately and wholly by their members. Each
                                                           issued by the FHLBanks.39 Like the Enterprises, the
FHLBank operates as a separate entity within a
                                                           FHLBank System has historically enjoyed benefits
defined geographic region of the country, known
                                                           (e.g., debt costs akin to those associated with Treasury
as its district, with its own board of directors,
                                                           bonds) stemming from an implicit government
management, and employees. Each member of
                                                           guarantee of its consolidated obligations.40
an FHLBank must purchase and maintain capital
stock as a condition of its membership.36 FHLBank          FHLBanks’ Combined Financial
members include financial institutions such as             Performance
commercial banks, thrifts, insurance companies,
and credit unions.37                                       The regional housing markets affect the FHLBanks’
                                                           demands for advances from member institutions


                                     Semiannual Report to the Congress • October 1, 2014–March 31, 2015        39
to fund residential mortgage loans. During 2014,               in 2014, as shown in Figure 13 (see below).44
FHLBank members’ borrowing increased, due in                   The following summarizes trends in key financial
part to growth in economic activity, which resulted            indicators for the FHLBanks.45
in a stable environment for debt issuance. Further,
during this period, the demand for advances                    Decrease in Interest Income
continued to increase due to high member borrowing,            Returns on interest-earning assets are largely derived
particularly by large-asset members. However, as               from interest income on advances, investments,
the average balances of advances and investments               prepayment fees, and mortgage loans. For the year
increased, the yields on interest-earning assets and the       ended December 31, 2014, interest income decreased
average balances of mortgage loans decreased, which            from $8.4 billion to $8 billion—a 4.4% decline
contributed to the overall decline in interest income.41       compared with the same period in 2013.46
The primary source of each FHLBank’s earnings is
net interest income, which is the interest earned on           Interest Expense
advances, investments, and mortgage loans, less the            During the year ended December 31, 2014, interest
interest paid on consolidated obligations, deposits,           expense declined from $5 billion to $4.5 billion—or
and other borrowings.42 Fluctuations in short-term             9.8%—compared with the same period in 2013.
interest rates affect the FHLBanks’ interest income            The decrease was driven by lower yields on new
and expense because a considerable portion of the              consolidated obligations and the cumulative effect
FHLBanks’ assets and liabilities are either directly or        of redemptions and refinancings of higher-yield
indirectly tied to short-term interest rates.43                consolidated obligations in the low interest rate
                                                               environment.47
The FHLBanks’ combined net interest income
increased from $3.4 billion in 2013 to $3.5 billion
                                                               Derivative and Hedging Activity
Figure 13. FHLBanks’ Net Income for the                        The FHLBanks are exposed to interest rate risk
Years Ended December 31, 2014, and 2013
                                                               primarily from the effect of interest rate changes on
($ millions)
                                                               their interest-earning assets, as well as the funding
                                       2014       2013         sources for these assets. The goal of the FHLBanks
    Interest Income                  $8,032      $8,398        is not to eliminate interest rate risk entirely but to
    Interest Expense                  (4,510)     (4,998)      manage it within appropriate limits. To achieve this
    Net Interest Income                3,522       3,400       goal, the FHLBanks use derivatives (e.g., interest
    Reversal of (Provision for)
                                          21            19     rate swaps, options, and swaptions), which help
      Credit Losses
    Other-than-Temporary                                       reduce funding costs, maintain favorable interest rate
                                          (15)          (15)
      Impairment Lossesa                                       spreads, and manage overall assets and liabilities.48
    Derivative and Hedging Gains
                                        (148)           416    Net losses from derivative and hedging activities
      (Losses)
    Other Income (Loss)                  180        (72)       were $148 million for the year ended December 31,
    Total Non-interest Expense        (1,046)      (943)       2014, compared with net gains of $416 million for
    Total Assessments                   (269)      (293)       the same period in 2013—a substantial change.49
    Net Income                       $2,245      $2,512        The net losses from derivatives and hedging
a
 Private-label MBS accounted for the FHLBanks’ other-          activities for the year ended December 31, 2014,
than-temporary impairment losses for the years ended           were due primarily to changes in the fair value of
December 31, 2014, and 2013.


40       Federal Housing Finance Agency Office of Inspector General
Figure 14. FHLBanks’ Retained Year-End                           to absorb FHLBank losses, provide protection on
Earnings 2007 Through 2014 ($ billions)                          members’ capital investments, and provide additional
                                                                 assurance that the FHLBanks will meet their
$14
                                                                 consolidated obligations.53
$12

$10                                                              Selected FHFA and GSE Activities
$8
                                                         13.24
$6                                               12.18           Over this semiannual period, there were several
                                         10.52
$4                                8.57                           significant FHFA and GSE developments related to:
                           7.54
                    6.02                                         FHFA and GSE performance; lending guidelines
$2    3.69
             2.94                                                on down payments; housing trust funds; changes in
$0                                                               nonperforming loan sale requirements; minimum
       07


              08


                     09


                            10


                                   11


                                          12


                                                  13


                                                          14     financial eligibility requirements for the Enterprises’
      20


             20


                    20


                           20


                                  20


                                         20


                                                 20


                                                         20

                                                                 seller/servicers; super priority liens; REO property
derivatives not designated as hedging instruments                sales; conforming loan limits; guarantee fees; the
(e.g., economic hedges). Changes in the fair value               adopted risk retention rule; the merger of the
of derivatives not designated as hedging instruments             FHLBanks of Des Moines and Seattle; and FHFA’s
are recognized in current period earnings. Changes               proposed revisions to FHLBank membership
in the fair value of derivatives that qualify as                 eligibility requirements. Highlights of these
hedging instruments (i.e., fair value hedges and                 developments are summarized below.
cash flow hedges) and the assets and liabilities they
hedge are recognized in current period earnings or               FHFA and GSE Planning and
accumulated     other comprehensive income.50
      Figure_14_FHLBanksRetainedEarnings2007-2014
                                                                 Accountability

                                                                 FHFA Strategic Plan for FY 2015-2019 and
Retained Earnings
                                                                 Performance and Accountability Report
As shown in Figure 14 (see above), the FHLBanks’
                                                                 In November 2014, FHFA released its FHFA
combined year-end retained earnings, which are
                                                                 Strategic Plan: Fiscal Years 2015-2019, which sets the
profits not distributed to members via dividends,
                                                                 Agency’s priorities as regulator and conservator of
have increased every year for the last seven years and
                                                                 the Enterprises and regulator of the FHLBanks. The
now exceed $13 billion as of December 31, 2014.51
                                                                 Strategic Plan contains three strategic goals, each with
In the near-term and with existing dividend practices,
                                                                 three performance goals. They include:
retained earnings should continue to increase as long
as the FHLBanks are profitable and subject to the                •	 Ensure safe and sound regulated entities. The
Joint Capital Enhancement Agreement provisions                      performance goals for this objective are to
adopted by the FHLBanks in 2011. The agreement                      assess the safety and soundness of regulated
calls for the FHLBanks to set aside 20% of their net                entity operations, identify risks to the regulated
income into a separate, restricted retained earnings                entities and set expectations for strong risk
account.52 The joint capital enhancements help to                   management, and require timely remediation of
provide members with access to liquidity during                     risk management weaknesses.
times of economic stress, create an additional buffer



                                         Semiannual Report to the Congress • October 1, 2014–March 31, 2015          41
•	 Ensure liquidity, stability, and access in housing     the 2015 Scorecard were: (1) maintaining credit
   finance. The performance goals are to ensure           availability and foreclosure prevention activities in
   liquidity in mortgage markets, promote stability       a safe and sound manner for new and refinanced
   in the nation’s housing finance markets, and           mortgages to foster what it termed liquid, efficient,
   expand access to housing finance for qualified         competitive, and resilient national housing finance
   financial institutions of all sizes and in all         markets; (2) reducing taxpayer risk by increasing
   geographic locations and for qualified buyers.         the role of private capital in the mortgage market;
                                                          and (3) building a new single-family securitization
•	 Manage the Enterprises’ ongoing
                                                          infrastructure for use by the Enterprises and
   conservatorships. The performance goals are to
                                                          adaptable for use by other participants in the
   preserve and conserve assets, reduce taxpayer
                                                          secondary market in the future.57
   risk from Enterprise operations, and build a new
   single-family securitization infrastructure.54         FHFA’s Progress Report on the Implementation of
FHFA reported that its Strategic Plan reflects the        Its Strategic Plan for Enterprise Conservatorships
priorities outlined for the Enterprises in the 2014       In March 2015, FHFA issued a Progress Report
Strategic Plan for the Conservatorships of Fannie Mae     on initiatives outlined in its 2014 Strategic Plan for
and Freddie Mac, which the Agency released in May         the Conservatorships of Fannie Mae and Freddie Mac
2014. Prior to its release, FHFA requested input on       and the 2014 Scorecard for Fannie Mae, Freddie Mac
the draft Strategic Plan from members of Congress,        and Common Securitization Solutions. The Progress
the public, and interested stakeholders.55                Report summarizes major Enterprise activities
                                                          undertaken in 2014 toward achieving FHFA’s
FHFA also released its Fiscal Year 2014 Performance
                                                          conservatorship expectations under the Scorecard.
and Accountability Report assessing its activities as
                                                          Enterprise initiatives in support of each of FHFA’s
regulator of the GSEs in 2014. FHFA said it received
                                                          three strategic goals for the conservatorships are
an unmodified or “clean” audit opinion on its fiscal
                                                          also described. Additionally, the report details
year 2014 financial statements from GAO. The Fiscal
                                                          progress in advancing access to credit; continuing
Year 2014 Performance and Accountability Report
                                                          and enhancing loss mitigation and foreclosure
contained 26 measures designed to evaluate FHFA’s
                                                          prevention efforts; reducing risk to taxpayers by
progress. It said 14 performance goals had been met
in 2014, 5 had been partially met, 6 had not been         increasing the role of private capital in the mortgage
                                                          market; and furthering the development of the
met, and 1 had no baseline for comparison.56
                                                          Common Securitization Platform (CSP) and a
2015 Scorecard for the Enterprises and Common             single security structure.58
Securitization Solutions
                                                          Mortgage Industry Standards
In January 2015, FHFA released its 2015 Scorecard
                                                          During the first few years of the conservatorships,
for Fannie Mae, Freddie Mac and Common
                                                          FHFA sought to “preserve and conserve assets,
Securitization Solutions, which outlined how the
                                                          ensure market stability and liquidity, and prepare the
Agency will assess progress in the forthcoming year.
                                                          Enterprises for an uncertain future.”59 Some argue
The Agency said the 2015 Scorecard is designed to
                                                          that FHFA’s narrow focus on financial performance
further the goals outlined in FHFA’s 2014 Strategic
                                                          of the Enterprises thwarted, to some degree, the
Plan for the Conservatorships of Fannie Mae and
                                                          GSEs’ ability to satisfy the affirmative obligations
Freddie Mac. The three major goals highlighted in

42    Federal Housing Finance Agency Office of Inspector General
under their charters to support affordable housing.60       discrepancies in closing cost calculations from
In 2014, FHFA launched two initiatives to address           origination to closing;
the affordable housing mandate.
                                                          •	 Permit a borrower to finance up to a total
                                                             LTV of 105%, including closing costs, when
97% LTV Option
                                                             the borrower receives assistance through an
One of the priorities and goals in FHFA’s 2014               acceptable affordable housing program;
Scorecard was to “work to increase access to mortgage
credit for creditworthy borrowers, consistent with the    •	 Allow down payments to be gifted;
full extent of applicable credit requirements and risk-   •	 Do not require a borrower to maintain a cash
management practices.” In internal guidance to the           or liquid assets reserve after down payment and
Enterprises on how to execute the Scorecard goals,           closing costs; and
FHFA directed the Enterprises to develop guidelines
setting forth the terms on which they would purchase      •	 Require borrowers to be owner-occupants.63
loans with LTVs as high as 97%, with the objective
                                                          Program differences include:
of increasing liquidity in the mortgage market,
consistent with safety and soundness. In October          •	 Underwriting: Fannie Mae will only accept loans
2014, the FHFA Director announced that the                   underwritten through its automated system;
Enterprises were working with FHFA to develop                Freddie Mac will accept loans that are manually
guidelines to lower barriers and restrictions on             underwritten;
borrowers who lacked access to home loans.61
                                                          •	 First-time home buyers: For new loans (not
In December 2014, the Enterprises and FHFA                   refinancings), Fannie Mae requires one borrower
announced that the Enterprises would begin offering          to be a first-time home buyer; Freddie Mac does
97% LTV products in the near future.62 Fannie Mae            not; and
subsequently launched its program in December
                                                          •	 FICO score: Fannie Mae requires a minimum
2014, and Freddie Mac launched its program in
                                                             FICO score of 620; Freddie Mac requires
March 2015. The 97% programs offered by each
                                                             a minimum score of 660 for manually
Enterprise, which target—but are not limited to—
                                                             underwritten loans and a minimum score of 680
borrowers with incomes at or below the area median
                                                             for refinancings.64
income, have many significant similarities and some
differences. Program similarities include:                The FHFA Director recently testified that the
                                                          Enterprise guidelines “enable creditworthy borrowers
•	 Limited to fixed-rate mortgages and cannot
                                                          who meet stringent criteria and can afford a
   include 40-year or interest-only terms;
                                                          mortgage, but lack the resources to pay a substantial
•	 Require loans to be full documentation;                down payment plus closing costs, to get a mortgage
                                                          with a three percent down payment.”65
•	 Require credit enhancement, such as private
   mortgage insurance;
                                                          Housing Trust Funds
•	 Can be used for purchase loans or for refinancing      On December 11, 2014, FHFA directed the
   existing loans with a limited cash-out of the lesser   Enterprises to begin setting aside for, and allocating
   of 2% or $2,000 to cover potential changes or          funds to, the Housing Trust Fund (HTF) and the


                                    Semiannual Report to the Congress • October 1, 2014–March 31, 2015        43
Capital Magnet Fund (CMF), which were established          neighborhood outcomes by providing alternatives
by HERA. FHFA determined that the Enterprises’             to foreclosure whenever possible. The requirements
financial condition no longer warranted the                draw upon Freddie Mac’s experience with two pilot
suspension of their set asides and allocations because     sales of NPLs in 2014 and early 2015; these sales
their financial conditions had stabilized sufficiently     had an aggregate value of approximately $1 billion
and “reasonable projections indicate” that they will       in unpaid principal balance. The loans included in
remain profitable for the foreseeable future.66            NPL sales will generally be severely delinquent—
                                                           typically more than one year past due. The enhanced
HTF is administered by HUD; it is intended to
                                                           NPL sale requirements cover: bidder qualifications;
provide grants to states to increase and preserve
                                                           modification requirements for servicers; loss
the supply of rental housing and to increase
                                                           mitigation waterfall requirements that include
homeownership for low-income families. Similarly,
                                                           foreclosure as the last option in the waterfall; REO
CMF is administered by Treasury and is designed
                                                           sale requirements that encourage sales to individuals
to facilitate a competitive grant program to increase
                                                           who will occupy the property as their primary
investment in the development, preservation,
                                                           residence or to nonprofits; subsequent servicer
rehabilitation, and purchase of affordable housing.67
                                                           requirements; and bidding transparency. In addition,
Pursuant to HERA, HTF and CMF are funded                   reporting by NPL buyers and servicers on borrower
by set asides of 4.2 basis points for each dollar of       outcomes will be required after the transactions close,
unpaid principal balance of new single-family and          which should allow the Enterprises to document
multifamily business that the Enterprises generate         whether the desired outcomes are being achieved.70
each year. However, in recognition of FHFA’s
regulatory supervision of the Enterprises, HERA            Minimum Financial Eligibility Requirements for
authorizes FHFA to temporarily suspend the annual          the Enterprises’ Seller/Servicers
set asides upon a determination that they would            In January 2015, FHFA proposed minimum
contribute to the Enterprises’ financial instability,      financial eligibility requirements that all sellers and
cause them to be classified as undercapitalized, or        servicers will be required to comply with in order to
prevent them from completing a capital restoration         do business with the Enterprises. They will include
plan. FHFA temporarily suspended the set asides on         such things as net worth, capital ratio, and liquidity
November 13, 2008.68                                       requirements. The new criteria were designed to
                                                           provide consistent application of the criteria for
HERA also requires FHFA to issue regulations
                                                           mortgage seller/servicers doing business with the
prohibiting the Enterprises from passing the cost of
                                                           Enterprises. Fannie Mae and Freddie Mac have
the set asides on to lenders. Thus, the Enterprises must
                                                           had somewhat similar net worth requirements for
absorb this new expense in their existing earnings.69
                                                           seller/servicers in the past that were based on loans
Nonperforming Loan Sale Requirements                       guaranteed by the respective agency only. Fannie
                                                           Mae also had a capital ratio requirement. The new
In March 2015, FHFA announced enhanced                     rules expand the net worth requirement to cover all
requirements for sales of nonperforming loans              agency-guaranteed (Fannie Mae/Freddie Mac/Ginnie
(NPLs) by the Enterprises. The enhanced NPL                Mae) loans, include a capital ratio requirement for
sale requirements are intended to reduce risk to           Freddie Mac, and introduce a liquidity requirement
taxpayers by transferring it to the private sector,        for both Enterprises. FHFA said it expected to finalize
reduce Enterprise losses, and improve borrower and

44    Federal Housing Finance Agency Office of Inspector General
the requirements in the second quarter of 2015 after    property rights. The Agency asserted that federal law
reviewing industry and stakeholder feedback, and        precludes involuntary extinguishment of liens held
that the requirements would be effective six months     by the Enterprises.74
after they are finalized. Seller/servicer compliance
with the minimum financial requirements will be         REO Property Sales
monitored on a quarterly basis.71                       In November 2014, FHFA directed the Enterprises
                                                        to change requirements relating to sales of existing
Super Priority Liens
                                                        REO. The change allows the Enterprises to sell
In December 2014, FHFA continued to express             existing properties they own to any qualified
concerns about actions taken at the state level         purchaser at the property’s fair-market value; this
that threaten the first-lien status of single-family    changes the way homeowners who have been through
loans owned or guaranteed by the Enterprises. The       foreclosure can repurchase their homes. In the past,
concerns involved energy retrofit financing programs    the Enterprises had required homeowners who had
structured as tax assessments and the granting          been through foreclosure and wanted to buy back
of priority rights in foreclosure proceedings for       their homes to pay the full amount owed on the
homeowner associations.72                               mortgage instead of the fair-market value, which
                                                        was often lower. The change also applies to a third
The Agency continued to single out retrofit efforts
                                                        party buying the property on behalf of the previous
such as the Property Assessed Clean Energy (PACE)
                                                        owner. However, the policy change is limited to REO
program, which often provides loans as first liens
                                                        inventory of single-family homes as of November 25,
and is available in California and a number of
                                                        2014, and certain exclusions may apply and will be
other states. FHFA said that while it supported
                                                        handled by the Enterprises on a case-by-case basis.
energy retrofit programs in principle, PACE loans
                                                        FHFA described the adjustment as a policy change
move existing Enterprise mortgages to a second-
                                                        that should help reduce property vacancies and
lien position and thus could increase the risk of
                                                        stabilize home values.75
loss to the Enterprises and to taxpayers. It warned
homeowners with a first-lien PACE loan that they        Conforming Loan Limits
cannot refinance their existing mortgage with a
Fannie Mae or Freddie Mac mortgage. It also said        In November 2014, FHFA announced that the
that anyone wanting to buy a home that already has      maximum conforming loan limits for mortgages
a first-lien PACE loan cannot use an Enterprise loan    acquired by the Enterprises in 2015 would remain
for the purchase, which it cautioned could reduce       at $417,000 for single-family homes in most of the
the marketability of the house.73                       United States. Under a formula stipulated in HERA,
                                                        FHFA can increase the conforming loan limit in
FHFA also said that in some jurisdictions, liens        certain high-cost areas where local median home
for unpaid homeowner association dues had been          values exceed the baseline national limit, with a
deemed to be senior to preexisting mortgage liens       maximum possible limit of $625,500. FHFA raised
on a homeowner’s property. As a result, FHFA            the limits in 2015 in 46 counties where increases
intervened in two lawsuits in Nevada, in November       in home values had taken place. These counties are
and December 2014, in an effort to obtain a ruling      located in California, Colorado, Massachusetts,
that homeowner associations’ foreclosure sales          Maryland, Tennessee, and Washington.76
are invalid because they try to reduce Enterprise


                                   Semiannual Report to the Congress • October 1, 2014–March 31, 2015    45
Guarantee Fees                                            rule adopted by the six agencies calls for securitizers
In November 2014, FHFA released an analysis that          of asset-backed securities (ABS) to retain no less than
showed that guarantee fees increased in 2013 at           5% of the credit risk of the assets collateralizing the
a higher rate than in the previous four years. The        ABS being issued and it also contains prohibitions
Agency is required by law to provide an annual            against hedging or selling the retained risk. As
assessment of guarantee fees, which are paid to the       mandated by Dodd-Frank, the rule exempts
Enterprises in return for guaranteeing payment of         securitizations of qualified residential mortgages, as
principal and interest on investor-held MBS. The          defined by section 129C of the Truth in Lending
2014 report said guarantee fees increased to an           Act, from the risk retention requirement. The final
average of 51 basis points in 2013—as loans acquired      rule will be effective one year after publication in
by the Enterprises in 2008-2013, with higher              the Federal Register for residential mortgage-backed
guarantee fees, gradually replaced loans acquired prior   securitizations and two years after publication for all
to 2008 with lower guarantee fees—compared to an          other securitization types. The rule was issued jointly
average of 36 basis points in 2012 and 22 basis points    by the Board of Governors of the Federal Reserve
in 2009. Among the other findings of the assessment,      System, HUD, the FDIC, FHFA, the Office of the
fee increases in 2012 led to reduced differences in       Comptroller of the Currency, and the SEC.79
pricing between small and large lenders, as measured
                                                          FHFA Approval of Merger of FHLBanks of
by the dollar volume of loans sold to the Enterprises
                                                          Des Moines and Seattle
in 2013, and reduced pricing differences between
30-year and 15-year fixed-rate loans. The analysis        On October 31, 2014, in order to remain financially
also said that the percentage of loans sold by extra-     sound and better positioned in the marketplace,
large lenders decreased from 60% in 2010 to 49%           the FHLBanks of Des Moines and Seattle filed an
in 2013, while the percentage of loans sold by extra-     application with FHFA to merge.80 On December 19,
small lenders increased from 8% to 19%.77                 2014, FHFA approved the merger application with
                                                          conditions, and beginning on January 15, 2015,
The FHFA Director suspended increases in the
                                                          each eligible member of the two FHLBanks voted to
guarantee fees that had been announced in December
                                                          ratify the decision to merge. This was a majority vote
2013 pending a review. FHFA then asked for input
                                                          that ended on February 23, 2015.81 On February 27,
from the public about guarantee fee policy and
                                                          2015, the FHLBanks of Des Moines and Seattle
implementation.78
                                                          announced that members ratified the merger
                                                          agreement.82 The merger is expected to close once the
Risk Retention Rule
                                                          FHLBanks have satisfied the conditions of FHFA’s
In October 2014, six federal agencies approved a          December 2014 approval of the merger application
final rule requiring sponsors of securitizations to       and FHFA has accepted the continuing FHLBank’s
retain part of the credit risk in the transactions.       organization certificate.83 Pending this final FHFA
Securitization takes place when financial institutions    approval, the combined FHLBank will be based out
bundle loans such as mortgages into bonds and             of Des Moines, while a regional office will remain in
sell the bonds to investors. Dodd-Frank requires          Seattle.84 The FHLBanks anticipate that the merger
securitizers of loans to retain a portion of the risk     will be finalized in mid-2015.85
should the underlying loans not be repaid. The final




46    Federal Housing Finance Agency Office of Inspector General
FHFA’s Proposed Revisions to FHLBank
Membership Eligibility Requirements

In October 2014, FHFA extended for 60 days the
comment period on a proposed rule concerning
membership in an FHLBank. The new deadline for
comment was January 12, 2015. The proposed rule
requires each applicant and member to hold 1% of
its assets in home mortgage loans on an ongoing basis
rather than on a one-time basis, defines “insurance
company” to exclude captive insurers from FHLBank
membership, sets requirements for reviewing an
insurance company’s audited financial statements,
and clarifies the standards by which an insurance
company’s place of business is identified.86




                                  Semiannual Report to the Congress • October 1, 2014–March 31, 2015   47
Appendices

Appendix A:                                               Commercial Banks: Commercial banks are
                                                          establishments primarily engaged in accepting
Glossary and Acronyms                                     demand and other deposits and making commercial,
                                                          industrial, and consumer loans. Commercial banks
                                                          provide significant services in originating, servicing,
Glossary of Terms                                         and enhancing the liquidity and quality of credit that
                                                          is ultimately funded elsewhere.
Back Office Systems: Back office systems are
                                                          Conforming Loan Limit: A conforming loan is a
those related to the inner workings of a business or
institution.                                              conventional loan with an origination balance that
                                                          does not exceed a specified amount (i.e., conforming
Bankruptcy: A legal procedure for resolving debt          loan limit). The Enterprises are restricted by law to
problems of individuals and businesses; specifically, a   purchasing conforming loans, with the loan limits
case filed under one of the chapters of Title 11 of the   varying by unit size and region, e.g., high-cost areas.
U.S. Code.                                                The loan limits for 2015 remain unchanged from
                                                          2014. For 2015, the maximum general loan limit for
Basis Points: A hundredth of 1 percentage point.
                                                          a single-family one-unit dwelling is $417,000, while
For example, 1 basis point is equivalent to 1/100 of 1
                                                          the maximum high-cost area loan limit for a single-
percentage point.
                                                          family one-unit dwelling is $625,500.
Bonds: Obligations by a borrower to eventually
                                                          Conservatorship: Conservatorship is a legal
repay money obtained from a lender. The buyer of
                                                          procedure for the management of financial institutions
the bond (or “bondholder”) is entitled to receive
                                                          for an interim period during which the institution’s
payments from the borrower.
                                                          conservator assumes responsibility for operating
Capitalization: In the context of bank supervision,       the institution and conserving its assets. Under the
capitalization refers to the funds a bank holds           Housing and Economic Recovery Act of 2008, the
as a buffer against unexpected losses. It includes        Enterprises entered into conservatorships overseen
shareholders’ equity, loss reserves, and retained         by FHFA. As conservator, FHFA has undertaken to
earnings. Bank capitalization plays a critical role in    preserve and conserve the assets of the Enterprises and
the safety and soundness of individual banks and the      restore them to safety and soundness. FHFA also has
banking system. In most cases, federal regulators set     assumed the powers of the boards of directors, officers,
requirements for adequate bank capitalization.            and shareholders; however, the day-to-day operational
                                                          decision making of each company is delegated by
Carryforwards: A provision of tax law that allows
                                                          FHFA to the Enterprises’ existing management.
current losses or certain tax credits to be utilized in
future tax returns.                                       Credit Unions: Member-owned, not-for-profit
                                                          financial cooperatives that provide savings, credit,
Collateral: Assets used as security for a loan that can
                                                          and other financial services to their members. Credit
be seized by the lender if the borrower fails to repay
                                                          unions pool their members’ savings deposits and
the loan.

48    Federal Housing Finance Agency Office of Inspector General
shares to finance their own loan portfolios rather than      American taxpayer by ending bailouts, and protecting
rely on outside capital. Members benefit from higher         consumers from abusive financial services practices.
returns on savings, lower rates on loans, and fewer
                                                             Emergency Economic Stabilization Act of 2008:
fees on average.
                                                             Legislation that authorizes Treasury to undertake
Default: Occurs when a mortgagor misses one or               specific measures to provide stability and prevent
more payments.                                               disruption in the financial system and the economy.
                                                             It also provides funds to preserve homeownership.
Deferred Tax Assets: Deferred tax assets are
recognized for temporary differences that will result        Fannie Mae: A federally chartered corporation that
in deductible amounts and for carryforwards. For             purchases residential mortgages and pools them into
example, a temporary difference is created between           securities that are sold to investors. By purchasing
the reported amount and the tax basis of a liability for     mortgages, Fannie Mae supplies funds to lenders so
estimated expenses if, for tax purposes, those estimated     they may make loans to home buyers.
expenses are not deductible until a future year.
                                                             Federal Home Loan Banks: The FHLBanks are
Derivative Gains (Losses): The Enterprises acquire           12 regional cooperative banks that U.S. lending
and guarantee primarily longer-term mortgages and            institutions use to finance housing and economic
securities that are funded with debt instruments. The        development in their communities. Created by
companies manage the interest rate risk associated           Congress, the FHLBanks have been the largest
with these investments and funding activities with           source of funding for community lending for
derivative agreements. The gains (losses) on derivative      eight decades. The FHLBanks provide loans (or
agreements are caused by changes in interest rates           “advances”) to their member banks but do not lend
that, in turn, cause a net increase (decrease) in the fair   directly to individual borrowers.
value of these agreements.
                                                             Federal Housing Administration: Part of HUD,
Derivatives: A financial contract whose value                FHA insures residential mortgages made by approved
depends on that of another asset, such as a stock or         lenders against payment losses. It is the largest insurer
bond. A derivative contract is, essentially, an agreement    of mortgages in the world, insuring over 34 million
providing parties to the agreement with the obligation       properties since its inception in 1934.
or the choice to buy, sell, or exchange something at a
                                                             Foreclosure: A legal process used by a lender to
future date. They may be used to hedge interest rate or
                                                             obtain possession of a mortgaged property in order to
other risks related to holding a mortgage.
                                                             repay part or all of the debt.
Dodd-Frank Wall Street Reform and Consumer
                                                             Freddie Mac: A federally chartered corporation that
Protection Act of 2010: Legislation that intends to
                                                             purchases residential mortgages, pools them into
promote the financial stability of the United States
                                                             securities, and sells them to investors. By purchasing
by improving accountability and transparency in the
                                                             mortgages, Freddie Mac supplies funds to lenders so
financial system, ending “too big to fail,” protecting the
                                                             they may make loans to home buyers.


                                      Semiannual Report to the Congress • October 1, 2014–March 31, 2015          49
Ginnie Mae: A government-owned corporation                  enhance the independence of inspectors general and
within HUD. Ginnie Mae guarantees investors the             to create the Council of the Inspectors General on
timely payment of principal and interest on privately       Integrity and Efficiency.
issued MBS backed by pools of government-insured
                                                            Insurance Company: A company whose primary
and -guaranteed mortgages.
                                                            and predominant business activity is the writing
Government-Sponsored Enterprises: Business                  of insurance and issuing or underwriting “covered
organizations chartered and sponsored by the federal        products.”
government.
                                                            Interest Rate Swap: An interest rate swap is
Guarantee: A pledge to investors that the guarantor         an agreement in which two parties make interest
will bear the default risk on a pool of loans or other      payments to each other for a set period based upon
collateral.                                                 a notional principal. The notional principal is only
                                                            used to calculate the interest payments; no risk is
Hedging: The practice of taking an additional step,
                                                            attached to it. Interest rate swaps commonly involve
such as buying or selling a derivative, to offset certain
                                                            exchanging payments based on a fixed interest rate
risks associated with holding a particular investment,
                                                            for payments based on a floating rate (e.g., London
such as MBS.
                                                            Interbank Offered Rate). The fixed rate is known as
Housing and Economic Recovery Act of 2008:                  the swap rate.
Legislation that establishes OIG and FHFA, which
                                                            Internal Controls: Internal controls are an integral
oversee the GSEs’ operations. HERA also expanded
                                                            component of an organization’s management that
Treasury’s authority to provide financial support to
                                                            provide reasonable assurance that the following
the GSEs.
                                                            objectives are achieved: (1) effectiveness and
Inspector General Act of 1978: Legislation that             efficiency of operations, (2) reliability of financial
authorizes establishment of offices of inspectors           reports, and (3) compliance with applicable laws and
general, “independent and objective units” within           regulations. Internal controls relate to management’s
federal agencies, that: (1) conduct and supervise           plans, methods, and procedures used to meet its
audits and investigations relating to the programs and      mission, goals, and objectives and include the
operations of their agencies; (2) provide leadership        processes and procedures for planning, organizing,
and coordination and recommend policies for                 directing, and controlling program operations as
activities designed to promote economy, efficiency,         well as the systems for measuring, reporting, and
and effectiveness in the administration of agency           monitoring program performance.
programs and to prevent and detect fraud, waste,
                                                            Joint and Several Liability: The concept of joint
or abuse in such programs and operations; and
                                                            and several liability provides that each member in
(3) provide a means for keeping the head of the
                                                            a group is responsible for the debts of all in that
agency and Congress fully and currently informed
                                                            group. In the case of the FHLBanks, if any individual
about problems and deficiencies relating to the
                                                            FHLBank were unable to pay a creditor, the other
administration of such programs and operations and
                                                            11—or any 1 or more of them—would be required
the necessity for and progress of corrective action.
                                                            to step in and cover that debt.
Inspector General Reform Act of 2008:
                                                            Loan-to-Value: A percentage calculated by dividing
Legislation that amends the Inspector General Act to
                                                            the amount borrowed by the price or appraised value

50    Federal Housing Finance Agency Office of Inspector General
of the home to be purchased; the higher the loan-to-       Securitization Platform: A mechanism that connects
value (also known as LTV), the less cash a borrower is     capital market investors to borrowers by bundling
required to pay as down payment.                           mortgages into securities and tracking loan payments.

Mortgage-Backed Securities: MBS are debt                   Senior Preferred Stock Purchase Agreements:
securities that represent interests in the cash flows—     Entered into at the time the conservatorships were
anticipated principal and interest payments—from           created, the PSPAs authorize the Enterprises to request
pools of mortgage loans, most commonly on                  and obtain funds from Treasury, among other matters.
residential property.                                      Under the PSPAs, the Enterprises agreed to consult
                                                           with Treasury concerning a variety of significant
Nonagency: A private company that issues MBS that
                                                           business activities, capital stock issuance, dividend
are not guaranteed by a government agency such as
                                                           payments, ending the conservatorships, transferring
Ginnie Mae or the Enterprises.
                                                           assets, and awarding executive compensation.
Options: Contracts that give the buyer the right, but
                                                           Servicers: Servicers act as intermediaries between
not the obligation, to buy or sell a specified quantity
                                                           mortgage borrowers and owners of the loans, such
of a commodity or other instrument at a specific
                                                           as the Enterprises or MBS investors. They collect the
price within a specified period of time, regardless of
                                                           homeowners’ mortgage payments, remit them to the
the market price of that instrument.
                                                           owners of the loans, maintain appropriate records,
Preferred Stock: A security that usually pays a fixed      and address delinquencies or defaults on behalf of the
dividend and gives the holder a claim on corporate         owners of the loans. For their services, they typically
earnings and assets superior to that of holders of         receive a percentage of the unpaid principal balance of
common stock but inferior to that of investors in the      the mortgage loans they service. The recent financial
corporation’s debt securities.                             crisis has put more emphasis on servicers’ handling of
                                                           defaults, modifications, short sales, and foreclosures,
Private-Label Mortgage-Backed Securities: MBS              in addition to their more traditional duty of collecting
issued or guaranteed by entities other than GSEs or        and distributing monthly mortgage payments.
federal government agencies. They do not carry an
explicit or implicit government guarantee, and the         Short Sale: The sale of a mortgaged property for less
private-label MBS investor bears the risk of losses on     than what is owed on the mortgage.
its investment.
                                                           Straw Buyer: A straw buyer is a person whose credit
Real Estate Owned: Foreclosed homes owned by               profile is used to serve as a cover in a loan transaction.
government agencies or financial institutions, such as     Straw buyers are chosen for their ability to qualify for a
the Enterprises or real estate investors. REO homes        mortgage loan, causing loans that would ordinarily be
represent collateral seized to satisfy unpaid mortgage     declined to be approved. Straw buyers may be paid a
loans. The investor or its representative then must sell   fee for their involvement in purchasing a property and
the property on its own.                                   usually never intend to own or occupy the property.

Securitization: A process whereby a financial              Swap: Refers to an exchange of one financial
institution assembles pools of income-producing assets     instrument for another between two parties. This
(such as loans) and then sells securities representing     exchange takes place at a predetermined time, as
an interest in the assets’ cash flows to investors.        specified in the contract. Swaps can be used to hedge



                                     Semiannual Report to the Congress • October 1, 2014–March 31, 2015          51
risk of various kinds, including interest rate risk and     Upfront Fees: One-time payments made by lenders
currency risk.                                              when a loan is acquired by an Enterprise. Fannie
                                                            Mae refers to upfront fees as “loan level pricing
Swaption: An option on a swap that gives the
                                                            adjustments” and Freddie Mac refers to them as
holder the right, but not the obligation, to enter, for
                                                            “delivery fees.”
example, into an interest rate swap as either the payer
or the receiver of the fixed side of the swap.              Valuation Allowance: Method of lowering or raising
                                                            an object’s current value by adjusting its acquisition
Thrift: A financial institution that ordinarily possesses
                                                            cost to reflect its market value by offsetting another
the same depository, credit, financial intermediary,
                                                            account. A valuation allowance is recognized if, based
and account transactional functions as a bank but
                                                            on the weight of available evidence, it is more likely
that is chiefly organized and primarily operates to
                                                            than not that some portion or all of a deferred tax
promote savings and home mortgage lending rather
                                                            asset will not be realized.
than commercial lending.

Underwater: Term used to describe situations in
which the homeowner’s equity is below zero (i.e.,
the home is worth less than the balance of the
loan(s) it secures).

Underwriting: The process of analyzing a loan
application to determine the amount of risk
involved in making the loan; it includes a review of
the potential borrower’s credit worthiness and an
assessment of the property value.




52    Federal Housing Finance Agency Office of Inspector General
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                                     Semiannual Report to the Congress • October 1, 2014–March 31, 2015      53
Financial Accounting Standards Board, Summary            Freddie Mac, “Who Issues Mortgage Securities?,”
of Statement No. 109. Accessed: March 12, 2015, at       “How Safe are Mortgage Securities?,” An Investor’s
www.fasb.org/summary/stsum109.shtml.                     Guide to Pass~Through and Collateralized Mortgage
                                                         Securities: Long-term income paid monthly, quarterly or
Freddie Mac, “Derivative Gains (Losses),” Form 10-K
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for the Fiscal Year Ended December 31, 2011, at 90,
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91. Accessed: March 12, 2015, at www.freddiemac.
com/investors/er/pdf/10k_030912.pdf.                     W. Scott Frame and Lawrence J. White, Regulating
                                                         Housing GSEs: Thoughts on Institutional Structure
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                                                         and Authorities, Federal Reserve Bank of Atlanta:
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Federal Housing Finance Agency Office of Inspector       research/publications/economic-review/2004/q2/
General, “Introduction,” FHFA’s Oversight of             vol89no2_regulating-housing-gses.aspx (click on pdf
Derivative Counterparty Risk, ESR-2014-001, at 3, 4      “Download the full text of this article”).
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Protection Act of 2010, Pub. L. No. 111-203.
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Emergency Economic Stabilization Act of 2008, Pub.       March 12, 2015, at www.nasdaq.com/investing/
L. No. 110-343.                                          glossary/h/hedging.

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org/portal/glossary/glossary_g.html#gse.                 Internal Controls and Accounting Procedures, GAO-
                                                         10-587R, at 1 (June 3, 2010). Accessed: March 12,
Federal Housing Finance Agency, “Introduction,”          2015, at www.gao.gov/assets/100/96782.pdf.
Federal Home Loan Bank Membership, at 1 (March
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54   Federal Housing Finance Agency Office of Inspector General
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                                      Semiannual Report to the Congress • October 1, 2014–March 31, 2015         55
Reuters, “Swaption,” Financial Glossary. Accessed:       Indiana Secretary of State Securities Division,
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January2011_Quarterly_Report_to_Congress.pdf.




56   Federal Housing Finance Agency Office of Inspector General
Acronyms and Abbreviations                             GAO	         Government Accountability Office

                                                       GSEs	        Government-Sponsored Enterprises
ABS	         Asset-Backed Securities
                                                       HERA	        Housing and Economic Recovery Act
Agency	      Federal Housing Finance Agency                         of 2008
Blue Book	 Quality Standards for Inspection and 	      HRIS	        Human Resource Information System
             Evaluation
                                                       HTF	         Housing Trust Fund
CAE	         Chief Audit Executive
                                                       HUD	         Department of Housing and Urban
CIGFO	       Council of Inspectors General on 		                    Development
             Financial Oversight
                                                       HUD-OIG	     Department of Housing and Urban
CIGIE	       Council of the Inspectors General on                   Development Office of Inspector
             Integrity and Efficiency                               General
CMF	         Capital Magnet Fund                       IPIA	        Improper Payments Information Act of
CSP	         Common Securitization Platform                         2002

DER	         Division of Enterprise Regulation         IRS-CI	      IRS-Criminal Investigation

DHMG	        Division of Housing Mission and Goals     IT	          Information Technology

Dodd-Frank	 Dodd-Frank Wall Street Reform and          LPI	         Lender-Placed Insurance
             Consumer Protection Act of 2010           LTV	Loan-to-Value
DOJ	         Department of Justice                     MBS	         Mortgage-Backed Securities
Enterprises	 Fannie Mae and Freddie Mac                NPL	         Nonperforming Loan
EO	          Executive Office                          OA	          Office of Audits
FBI	         Federal Bureau of Investigation           OAd	         Office of Administration
FDIC	        Federal Deposit Insurance Corporation     OC	          Office of Chief Counsel
FHA	         Federal Housing Administration            OCo	         Office of Compliance and Special
FHFA	        Federal Housing Finance Agency                         Projects

FHLBank 	    Federal Home Loan Bank System             OE	          Office of Evaluations
System	                                                OHRM	        Office of Human Resources
FHLBanks	 Federal Home Loan Banks                                   Management

FISMA	       Federal Information Security              OI	          Office of Investigations
             Management Act of 2002                    OICF	        Office of Internal Controls and
FSOC	        Financial Stability Oversight Council                  Facilities

                                  Semiannual Report to the Congress • October 1, 2014–March 31, 2015   57
OIG	          Federal Housing Finance Agency Office        REO	        Real Estate Owned
              of Inspector General
                                                           RMBS	       Residential Mortgage-Backed Securities
OMB	          Office of Management and Budget
                                                           SAI	        Servicing Alignment Initiative
OMWI	         Office of Minority and Women
                                                           SAUSA	      Special Assistant U.S. Attorney
              Inclusion
                                                           SEC	        Securities and Exchange Commission
ORA	          Office of Risk Analysis
                                                           SIGTARP	    Office of the Special Inspector General
PACE	         Property Assessed Clean Energy
                                                                       for the Troubled Asset Relief Program
PFCRA	        Program Fraud Civil Remedies Act of
                                                           SIR	        Systemic Implication Report
              1986
                                                           Treasury	   Department of the Treasury
PII	          Personally Identifiable Information
                                                           Yellow 	    Government Auditing Standards
PSPAs	        Senior Preferred Stock Purchase
                                                           Book	
              Agreements

QE	           Quantitative Easing




58     Federal Housing Finance Agency Office of Inspector General
Semiannual Report to the Congress • October 1, 2014–March 31, 2015   59
Appendix B:                                               Agency’s operations and aid in the prevention and
                                                          detection of fraud, waste, or abuse. Figure 15 (see
OIG Recommendations                                       page 61) summarizes OIG’s formal recommendations
                                                          that were made, pending, or closed during the
In accordance with the provisions of the Inspector        reporting period. Figure 16 (see page 77) lists OIG’s
General Act, one of the key duties of OIG is to           audit and evaluation reports for which all of the
provide to FHFA recommendations that promote              recommendations were closed in prior semiannual
the transparency, efficiency, and effectiveness of the    periods.




60    Federal Housing Finance Agency Office of Inspector General
Figure 15. Summary of OIG Recommendations
       No.                     Recommendation                       Report             Status

  AUD-2014-017-1    FHFA should conduct a comprehensive       FHFA Oversight     Recommendation
                    examination to determine whether          of Freddie Mac’s   partially agreed
                    Freddie Mac has implemented and           Information        to by FHFA;
                    enforces an effective IT investment       Technology         implementation of
                    management process.                       Investments        recommendation
                                                                                 pending.

  AUD-2014-017-2    FHFA should develop and issue             FHFA Oversight     Recommendation
                    Enterprise IT investment management       of Freddie Mac’s   agreed to by FHFA;
                    guidance.                                 Information        implementation of
                                                              Technology         recommendation
                                                              Investments        pending.

  AUD-2014-017-3    FHFA should evaluate whether Freddie      FHFA Oversight     Recommendation
                    Mac reports currently used by FHFA        of Freddie Mac’s   agreed to by FHFA;
                    examiners provide the information         Information        implementation of
                    necessary to conduct effective            Technology         recommendation
                    supervisory monitoring of Freddie Mac’s   Investments        pending.
                    portfolio of IT investments.


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




                              Semiannual Report to the Congress • October 1, 2014–March 31, 2015   61
        No.                       Recommendation                        Report                Status

 AUD-2014-016-2        FHFA should perform a comprehensive        FHFA’s                Closed – FHFA
                       analysis to assess whether financial       Representation        Audit Follow-
                       risks associated with the new              and Warranty          up Official
                       representation and warranty framework,     Framework             Management
                       including with regard to sunset periods,                         Decision – see
                       are appropriately balanced between                               Appendix C.
                       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.


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

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

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




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

AUD-2014-014-1   FHFA should issue guidance to the         FHFA Actions to       Closed—Final
                 Enterprises on the risk management        Manage Enterprise     action taken by
                 process that should be employed to        Risks from            FHFA.
                 identify and mitigate risks related to    Nonbank Servicers
                 nonperformance under Enterprise           Specializing in
                 contracts with nonbank special            Troubled Mortgages
                 servicers.


AUD-2014-014-2   FHFA should develop a comprehensive,      FHFA Actions to       Recommendation
                 formal framework to mitigate the risks    Manage Enterprise     partially agreed
                 nonbank special servicers pose to the     Risks from            to by FHFA;
                 Enterprises that includes routine FHFA    Nonbank Servicers     implementation of
                 examinations, Enterprise reviews, and     Specializing in       recommendation
                 capacity testing before acquisition       Troubled Mortgages    pending.
                 of servicing rights to ensure these
                 servicers can continue to fulfill their
                 servicing requirements.


AUD-2014-013-1   FHFA should establish policies,           CohnReznick LLP’s     Recommendation
                 procedures, and processes to execute      Independent Audit     partially agreed
                 FHFA’s oversight of the Enterprises’      of FHFA’s Oversight   to by FHFA;
                 monitoring of business conducted with     of Enterprise         implementation of
                 mortgage insurers. These policies         Monitoring of the     recommendation
                 should provide for the coordinated        Financial Condition   pending.
                 involvement of necessary FHFA             of Mortgage
                 divisions and define their roles and      Insurers
                 responsibilities in matters pertaining
                 to managing risks to the Enterprises
                 associated with mortgage insurers.


AUD-2014-013-2   FHFA should develop specific criteria,    CohnReznick LLP’s     Closed—Final
                 and update the letter of instruction      Independent Audit     action taken by
                 accordingly, that classifies new          of FHFA’s Oversight   FHFA.
                 mortgage insurers as non-delegated        of Enterprise
                 activities that require FHFA approval.    Monitoring of the
                                                           Financial Condition
                                                           of Mortgage
                                                           Insurers


AUD-2014-013-3   FHFA should develop a methodology for     CohnReznick LLP’s     Closed—Final
                 FHFA’s review of new mortgage insurers    Independent Audit     action taken by
                 and ensure procedures performed are       of FHFA’s Oversight   FHFA.
                 adequately documented and support         of Enterprise
                 the conclusions reached during the        Monitoring of the
                 review.                                   Financial Condition
                                                           of Mortgage
                                                           Insurers




                            Semiannual Report to the Congress • October 1, 2014–March 31, 2015     63
        No.                       Recommendation                         Report                Status

 AUD-2014-012-1        FHFA should direct the Enterprises to       FHFA Oversight        Closed—Final
                       jointly assess the effectiveness of their   of Enterprise         action taken by
                       pre-foreclosure property inspection         Controls Over         FHFA.
                       processes. OIG identified several           Pre-Foreclosure
                       specific areas to review as part of the     Property
                       assessment, including: (1) identifying      Inspections
                       pre-foreclosure property inspection
                       risk and objectives, (2) identifying
                       cost-effective control alternatives
                       for achieving the objective(s), and
                       (3) recommending inspection standards
                       and quality controls with regard to the
                       content and frequency of inspections.


 AUD-2014-012-2        Based on the results of the                 FHFA Oversight        Recommendation
                       Enterprises’ assessment of their            of Enterprise         not accepted by
                       pre-foreclosure property inspection         Controls Over         FHFA; however,
                       processes, FHFA should direct the           Pre-Foreclosure       OIG considers
                       Enterprises to establish uniform pre-       Property              FHFA’s response to
                       foreclosure inspection quality standards    Inspections           recommendation
                       and quality control processes for                                 2 to be potentially
                       inspectors.                                                       responsive to
                                                                                         resolve the
                                                                                         recommendation.
                                                                                         Recommendation
                                                                                         remains open and
                                                                                         will continue to be
                                                                                         monitored.

 AUD-2014-009-1        FHFA should promptly quantify the           FHFA Oversight of     Recommendation
                       potential benefit of implementing a         Enterprise Handling   agreed to by FHFA;
                       repurchase late fee program at Fannie       of Aged Repurchase    implementation of
                       Mae, and then determine whether             Demands               recommendation
                       the potential cost of from $500,000                               pending.
                       to $5.4 million still outweighs the
                       potential benefit.




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

AUD-2014-009-2   FHFA should direct Freddie Mac to          FHFA Oversight of     Closed—Final
                 develop a repurchase late fee report to    Enterprise Handling   action taken by
                 be given routinely to FHFA that expands    of Aged Repurchase    FHFA.
                 on information already provided by         Demands
                 adding summary information by seller
                 on outstanding repurchases, aging
                 of repurchases, late fees assessed
                 and collected, discretionary late fee
                 waivers, and global late fee exclusions.
                 Such a report would provide Freddie
                 Mac and FHFA management with
                 needed information to manage and
                 assess Freddie Mac’s repurchase late
                 fee program more effectively.


AUD-2014-009-3   FHFA should direct Freddie Mac to          FHFA Oversight of     Closed—Final
                 provide FHFA with information on any       Enterprise Handling   action taken by
                 assessed but uncollected late fees         of Aged Repurchase    FHFA.
                 associated with the repurchase claims      Demands
                 that are included in the 2013 bulk
                 settlements so that these fees can
                 be considered in the negotiations and
                 documented in accordance with the
                 Office of Conservatorship Operations’
                 Settlement Policy.


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


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




                            Semiannual Report to the Congress • October 1, 2014–March 31, 2015      65
        No.                       Recommendation                         Report                Status

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


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


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


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


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




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

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


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


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


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


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


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




                             Semiannual Report to the Congress • October 1, 2014–March 31, 2015       67
        No.                       Recommendation                        Report                Status

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


 AUD-2012-008-1        FHFA should reassess the non-              FHFA’s Conservator    Closed—Final
                       delegated authorities to ensure            Approval Process      action taken by
                       sufficient FHFA involvement with major     for Fannie Mae        FHFA.
                       business decisions.                        and Freddie Mac
                                                                  Business Decisions


 AUD-2012-008-2        FHFA should evaluate the internal          FHFA’s Conservator    Recommendation
                       controls established by the Enterprises,   Approval Process      agreed to by FHFA;
                       including policies and procedures, to      for Fannie Mae        implementation of
                       ensure they communicate all major          and Freddie Mac       recommendation
                       business decisions requiring approval      Business Decisions    pending.
                       to the Agency.


 AUD-2012-008-3A       FHFA should evaluate Fannie Mae’s          FHFA’s Conservator    Closed—Final
                       mortgage pool policy commutations          Approval Process      action taken by
                       to determine whether these                 for Fannie Mae        FHFA.
                       transactions were appropriate and          and Freddie Mac
                       in the best interest of the Enterprise     Business Decisions
                       and taxpayers. This evaluation should
                       include an assessment of Fannie
                       Mae’s methodology used to determine
                       the economic value of the seven
                       mortgage pool policy commutations.
                       This assessment should include a
                       documented review of Fannie Mae’s
                       analysis, the adequacy of the model(s)
                       and assumptions used by Fannie Mae
                       to determine the amount of insurance
                       in force, fair value of the mortgage
                       pool policies, premiums forgone, any
                       other factors incorporated into Fannie
                       Mae’s analysis, and the accuracy of the
                       information supplied to FHFA.




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

AUD-2012-008-3B   FHFA should evaluate Fannie Mae’s          FHFA’s Conservator   Closed—Final
                  mortgage pool policy commutations          Approval Process     action taken by
                  to determine whether these                 for Fannie Mae       FHFA.
                  transactions were appropriate and          and Freddie Mac
                  in the best interest of the Enterprise     Business Decisions
                  and taxpayers. This evaluation should
                  include a full accounting and validation
                  of all of the cost components that
                  comprise each settlement discount
                  (risk in force minus fee charged), such
                  as insurance premiums and time value
                  of money applicable to each listed cost
                  component.


AUD-2012-008-4    FHFA should develop a methodology          FHFA’s Conservator   Closed—Final
                  and process for conservator review         Approval Process     action taken by
                  of proposed mortgage pool policy           for Fannie Mae       FHFA.
                  commutations to ensure that there is a     and Freddie Mac
                  documented, sound basis for any pool       Business Decisions
                  policy commutations executed in the
                  future.


AUD-2012-008-5    FHFA should complete actions to            FHFA’s Conservator   Closed—Final
                  establish a governance structure at        Approval Process     action taken by
                  Fannie Mae for obtaining conservator       for Fannie Mae       FHFA.
                  approval of counterparty risk limit        and Freddie Mac
                  increases.                                 Business Decisions


AUD-2012-008-6    FHFA should establish a clear              FHFA’s Conservator   Closed—Final
                  timetable and deadlines for Enterprise     Approval Process     action taken by
                  submission of transactions to FHFA for     for Fannie Mae       FHFA.
                  conservatorship approval.                  and Freddie Mac
                                                             Business Decisions


AUD-2012-008-7    FHFA should develop criteria for           FHFA’s Conservator   Closed—Final
                  conducting business case analyses and      Approval Process     action taken by
                  substantiating conservator decisions.      for Fannie Mae       FHFA.
                                                             and Freddie Mac
                                                             Business Decisions


AUD-2012-008-8    FHFA should issue a directive to           FHFA’s Conservator   Closed—Final
                  the Enterprises requiring them to          Approval Process     action taken by
                  notify FHFA of any deviation from any      for Fannie Mae       FHFA.
                  previously reviewed action so that FHFA    and Freddie Mac
                  may consider the change and revisit its    Business Decisions
                  conservatorship decision.




                             Semiannual Report to the Congress • October 1, 2014–March 31, 2015     69
        No.                       Recommendation                        Report               Status

 AUD-2012-008-9        FHFA should implement a risk-              FHFA’s Conservator   Closed—Final
                       based examination plan to review           Approval Process     action taken by
                       the Enterprises’ execution of and          for Fannie Mae       FHFA.
                       adherence to conservatorship               and Freddie Mac
                       decisions.                                 Business Decisions


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


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




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

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


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


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




                            Semiannual Report to the Congress • October 1, 2014–March 31, 2015    71
        No.                       Recommendation                        Report                 Status

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


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


 EVL-2015-003-3        FHFA should adopt a diversity and          Women and              Recommendation
                       inclusion strategic plan.                  Minorities in FHFA’s   agreed to by FHFA;
                                                                  Workforce              implementation of
                                                                                         recommendation
                                                                                         pending.


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


 EVL-2015-001-1        FHFA and DER should (1) adopt a            Evaluation of          Recommendation
                       comprehensive examination workpaper        the Division           partially agreed
                       index; and (2) standardize electronic      of Enterprise          to by FHFA;
                       workpaper folder structures and            Regulation’s 2013      implementation of
                       naming conventions between the two         Examination            recommendation
                       core teams. In addition, FHFA and          Records: Successes     pending.
                       DER should upgrade recordkeeping           and Opportunities
                       practices as necessary to enhance the
                       identification and retrieval of critical
                       workpapers.


 EVL-2014-011-1        FHFA should require Freddie Mac to         Freddie Mac Could      Closed—Final
                       determine, by means of a cost-benefit      Further Reduce         action taken by
                       analysis, whether to increase the size     Reimbursement          FHFA.
                       of the sample of reimbursement claims      Errors by Reviewing
                       that it subjects to the prepayment         More Servicer
                       review.                                    Claims


 EVL-2014-011-2        FHFA should require Freddie Mac to,        Freddie Mac Could      Recommendation
                       if warranted by the result of the cost-    Further Reduce         agreed to by FHFA;
                       benefit analysis, increase the size of     Reimbursement          implementation of
                       the sample of reimbursement claims         Errors by Reviewing    recommendation
                       that it subjects to prepayment review.     More Servicer          pending.
                                                                  Claims




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

EVL-2014-009-1   FHFA should assess the merits of           FHFA’s Oversight       Recommendation
                 litigation by the Enterprises against      of the Enterprises’    agreed to by FHFA;
                 their servicers and lender-placed          Lender-Placed          implementation of
                 insurance (LPI) providers to remedy        Insurance Costs        recommendation
                 potential damages caused by past                                  pending.
                 abuses in the LPI market and, then,
                 take appropriate action in this regard.


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


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


EVL-2014-006-1   As FHFA collects and analyzes              Recent Trends in       Recommendation
                 information on FHLBank advances to         Federal Home Loan      agreed to by FHFA;
                 large and other members in calendar        Bank Advances to       implementation of
                 year 2014, FHFA should report publicly     JPMorgan Chase         recommendation
                 on such items as advance trends,           and Other Large        pending.
                 the reasons for such advances,             Banks
                 the effectiveness of FHLBank risk
                 management practices, the consistency
                 of such advances with the FHLBank
                 System’s housing mission, and other
                 topics as deemed appropriate.


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


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




                            Semiannual Report to the Congress • October 1, 2014–March 31, 2015       73
        No.                       Recommendation                         Report                 Status

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


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


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


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


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


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




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

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


EVL-2013-005-1   FHFA should, preferably in consultation      FHFA’s Initiative   Recommendation
                 with FHA, develop definitions and            to Reduce the       agreed to by FHFA;
                 performance measures that would              Enterprises’        implementation of
                 permit Congress, financial market            Dominant Position   recommendation
                 participants, and the public to assess       in the Housing      pending.
                 the progress and the effectiveness of        Finance System by
                 its initiative.                              Raising Gradually
                                                              Their Guarantee
                                                              Fees


EVL-2013-005-2   FHFA should assess the feasibility           FHFA’s Initiative   Recommendation
                 of establishing a formal working             to Reduce the       agreed to by FHFA;
                 arrangement with FHA to assess such          Enterprises’        implementation of
                 critical issues as:                          Dominant Position   recommendation
                 •	 (1) the implementation of their          in the Housing      pending.
                     pricing initiatives and prospects for    Finance System by
                     success in achieving their objectives,   Raising Gradually
                     and (2) the potential for shifts         Their Guarantee
                     of mortgage business and risks           Fees
                     between government-supported or
                     -guaranteed markets;
                 •	 briefing the Federal Housing Finance
                     Oversight Board and/or Financial
                     Stability Oversight Council (FSOC) on
                     the findings of the assessment; and
                 •	 disclosing the assessment publicly
                     in an appropriate format.




                            Semiannual Report to the Congress • October 1, 2014–March 31, 2015      75
        No.                       Recommendation                        Report              Status

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


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




76   Federal Housing Finance Agency Office of Inspector General
Figure 16. Summary of OIG Reports Where All Recommendations Are Closed

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

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

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

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

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

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

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

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

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

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

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

 FHFA Should Develop and Implement a Risk-Based Plan to Monitor the                         1
 Enterprises’ Oversight of Their Counterparties’ Compliance with Contractual
 Requirements Including Consumer Protection Laws (AUD-2013-008)

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

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

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

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




                                    Semiannual Report to the Congress • October 1, 2014–March 31, 2015     77
                                     Report                                        No. of Recommendations
 FHFA’s Oversight of the Enterprises’ Efforts to Recover Losses from Foreclosure             3
 Sales (AUD-2013-001)

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

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

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

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

 FHFA’s Oversight of Fannie Mae’s Single-Family Underwriting Standards                       2
 (AUD-2012-003)

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

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

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

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

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

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

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

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

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

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

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




78   Federal Housing Finance Agency Office of Inspector General
                                     Report                                     No. of Recommendations
FHFA’s Oversight of the Enterprises’ Compensation of Their Executives and                  1
Senior Professionals (EVL-2013-001)

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

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

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

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

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

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

Evaluation of FHFA’s Management of Legal Fees for Indemnified Executives                   2
(EVL-2012-002)

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

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

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

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

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

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

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




                                    Semiannual Report to the Congress • October 1, 2014–March 31, 2015   79
Appendix C:                                                 dozen categories of information that we must include
                                                            in our semiannual reports.
Information Required                                        Below, OIG presents a table that directs the reader
by the Inspector General                                    to the pages of this report where the information
Act and Subpoenas Issued                                    required by the Inspector General Act may be found.

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

                                           Source/Requirement                                              Pages
Section 5(a)(1)- A description of significant problems, abuses, and deficiencies relating to the           11-16
administration of programs and operations of FHFA.
Section 5(a)(2)- A description of the recommendations for corrective action made by OIG with respect       11-16
to significant problems, abuses, or deficiencies.                                                          61-76
Section 5(a)(3)- An identification of each significant recommendation described in previous                61-66
semiannual reports on which corrective action has not been completed.                                       68
                                                                                                           72-76
Section 5(a)(4)- A summary of matters referred to prosecutive authorities and the prosecutions and         16-25
convictions that have resulted.                                                                           84-113
Section 5(a)(5)- A summary of each report made to the Director of FHFA.                                    11-16

Section 5(a)(6)- A listing, subdivided according to subject matter, of each audit and evaluation report    11-16
issued by OIG during the reporting period and for each report, where applicable, the total dollar value     81
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.                                        11-16

Section 5(a)(8)- Statistical tables showing the total number of audit and evaluation reports and the       11-16
total dollar value of questioned and unsupported costs.                                                     81
Section 5(a)(9)- Statistical tables showing the total number of audit and evaluation reports and the       11-16
dollar value of recommendations that funds be put to better use by management.                              81
Section 5(a)(10)- A summary of each audit and evaluation report issued before the commencement              81
of the reporting period for which no management decision has been made by the end of the reporting
period.
Section 5(a)(11)- A description and explanation of the reasons for any significant revised management       81
decision made during the reporting period.
Section 5(a)(12)- Information concerning any significant management decision with which the                 82
Inspector General is in disagreement.
Section 5(a)(13)- The information described under section 05(b) of the Federal Financial Management         82
Improvement Act of 1996.


80    Federal Housing Finance Agency Office of Inspector General
Audit and Evaluation Reports                                the report, Freddie Mac reviewed loans and sought
with Recommendations of                                     appropriate action on 90 identified loans. Of the 90
                                                            loans, Freddie Mac received repurchases for 27 loans
Questioned Costs, Unsupported                               totaling $3.3 million.
Costs, and Funds to Be Put to
                                                            Figure 17 (see below) discloses OIG’s questioned and
Better Use by Management
                                                            unsupported cost findings, and recommendations
                                                            that funds be put to better use.
Section 5(a)(6) of the Inspector General Act, as
amended, requires that OIG list its reports during
the semiannual period that include questioned costs,        Audit and Evaluation Reports
unsupported costs, and funds to be put to better            with No Management Decision
use. Section 5(a)(8) and section 5(a)(9), respectively,
require OIG to publish statistical tables showing           Section 5(a)(10) of the Inspector General Act, as
the dollar value of questioned and unsupported              amended, requires that OIG report on each audit and
costs, and of recommendations that funds be put to          evaluation report issued before the commencement
better use by management. The reports that OIG              of the reporting period for which no management
issued during the reporting period did not include          decision has been made by the end of the reporting
recommendations with dollar values of questioned            period. There were no audit or evaluation reports
costs, unsupported costs, or funds put to better use        issued before October 1, 2014, that await a
by management.                                              management decision.
However, during a previous reporting period OIG
released an audit report, FHFA’s Oversight of the           Significantly Revised
Enterprises’ Use of Appraisal Data Before They Buy          Management Decisions
Single-Family Mortgages (AUD-2014-008), that
made multiple recommendations, which have since             Section 5(a)(11) of the Inspector General Act, as
resulted in funds put to better use; the results were       amended, requires that OIG report information
reported to OIG during this reporting period. At            concerning the reasons for any significant revised
the recommendation of OIG, Fannie Mae and                   management decision made during the reporting
Freddie Mac sought remedy for 23 loans delivered            period. During the six-month reporting period
to the Enterprises by two suspended appraisers in           ended March 31, 2015, there were no significant
violation of underwriting requirements; 12 loans            revised management decisions on OIG’s audits and
were repurchased by the sellers for $1.8 million.           evaluations.
And, to address recommendations 10 and 11 of

Figure 17. Funds to Be Put to Better Use by Management, Questioned Costs, and Unsupported Costs
for the Period October 1, 2014, Through March 31, 2015

                                                                          Potential Monetary Benefits
   Report Issued       Recommendation No.            Date         Questioned      Unsupported    Funds Put to
                                                                    Costs            Costs        Better Use
AUD-2014-008                     8                2/6/2014                   $-              $-    $1,800,000
AUD-2014-008                   10, 11             2/6/2014                   $-              $-    $3,300,000
Total                                                                        $-              $-    $5,100,000


                                    Semiannual Report to the Congress • October 1, 2014–March 31, 2015       81
Significant Management Decision                          In its Financial Audit: Federal Housing Finance
with Which the Inspector General                         Agency’s Fiscal Years 2014 and 2013 Financial
                                                         Statements report, GAO did not identify any
Disagrees                                                deficiencies in FHFA’s internal controls over financial
                                                         reporting that it considered to be a material weakness
Section 5(a)(12) of the Inspector General Act, as        or significant deficiency. Further, GAO issued FHFA’s
amended, requires that OIG report information            prior and current financial statements audit reports
concerning any significant management decision           as follows: fiscal year 2014 on November 17, 2014;
with which the Inspector General is in disagreement.     fiscal year 2013 on December 16, 2013; fiscal year
During the current reporting period, there was one       2012 on November 15, 2012; and fiscal year 2011 on
management decision with which the Inspector             November 15, 2011. For all four audits, GAO found:
General disagreed.                                       (1) FHFA’s financial statements were presented
Regarding the audit entitled FHFA’s Representation       fairly, in all material respects, in accordance with
and Warranty Framework (AUD-2014-016), OIG               generally accepted accounting principles; (2) FHFA
disagrees with the management decision, which            maintained, in all material respects, effective
rejected our recommendation to “perform a                internal controls over financial reporting as of the
comprehensive analysis to assess whether financial       last day of the audit period; and (3) no reportable
risks associated with the new representation and         noncompliance for the fiscal year tested with
warranty framework, including with regard to sunset      provisions of applicable laws, regulations, contracts,
periods, are appropriately balanced between the          and grant agreements it tested. HERA requires GAO
Enterprises and sellers.” Among other things, the        to conduct this audit.
recommendation flowed from information indicating        Several OIG reports published during the semiannual
that FHFA did not conduct a cost-benefit analysis        period identified specific opportunities to strengthen
before it directed the Enterprises to implement          FHFA’s internal controls. These reports are
significant changes to their representations and         summarized on pages 11 through 16.
warranties framework in 2012 and 2014. As a
consequence of the disagreed management decision,
OIG commenced a survey “to identify (i) the costs        Subpoenas Issued
and benefits of the Framework changes; (ii) changes
to the Enterprises’ quality control policies and         During the reporting period, OIG issued 32
procedures; and (iii) the Framework’s performance        subpoenas as summarized in Figure 18 (see below).
results, post-implementation.”
                                                         Figure 18. Subpoenas Issued for the Period
Federal Financial Management                             October 1, 2014, Through March 31, 2015

Improvement Act of 1996                                           Issuing Office       Number of Subpoenas
                                                          OA                                    0
The provisions of HERA require FHFA to implement          OE                                    0
and maintain financial management systems                 OI                                   32
that comply substantially with federal financial          Total                                32
management systems requirements, applicable federal
accounting standards, and the U.S. Government
Standard General Ledger at the transaction level.

82   Federal Housing Finance Agency Office of Inspector General
Appendix D:                                               Evaluation of the Division of Enterprise Regulation’s
                                                          2013 Examination Records: Successes and Opportunities
OIG Reports                                               (EVL-2015-001, October 6, 2014).

See www.fhfaoig.gov for OIG’s reports.                    White Paper Reports

Evaluation Reports                                        Cyber Security: An Overview of FHFA’s Oversight of
                                                          and Attention to the Enterprises’ Management of Their
FHFA’s Oversight of Two Mission-Related Requirements      IT Infrastructures (WPR-2015-003, March 31, 2015).
for Federal Home Loan Bank Long-Term Advances
                                                          FHFA’s Conservatorships of Fannie Mae and Freddie
(ESR-2015-005, March 31, 2015).
                                                          Mac: A Long and Complicated Journey
FHFA’s Oversight of Governance Risks Associated with      (WPR-2015-002, March 25, 2015).
Fannie Mae’s Selection and Appointment of a New
                                                          The Continued Profitability of Fannie Mae and Freddie
Chief Audit Executive (EVL-2015-004, March 11,
                                                          Mac Is Not Assured (WPR-2015-001, March 18,
2015).
                                                          2015).
Women and Minorities in FHFA’s Workforce
(EVL-2015-003, January 13, 2015).                         Other Reports
Impact of the Federal Reserve’s Quantitative Easing
Programs on Fannie Mae and Freddie Mac                    Audit and Evaluation Plan (February 2015).
(EVL-2015-002, October 23, 2014).




                                     Semiannual Report to the Congress • October 1, 2014–March 31, 2015    83
Appendix E:                                                In these types of schemes, sellers or developers
                                                           typically solicit investors with good credit who want
OI Publicly Reportable                                     low-risk investment opportunities by offering deals on
Investigative Outcomes                                     properties with no money down and other lucrative
                                                           incentives, such as cash back and guaranteed and
Involving Condo                                            immediate rent collection. The sellers fund these
Conversion and Builder                                     incentives with inflated sales prices set by complicit
                                                           property appraisers. The fraudsters conceal the
Bailout Schemes                                            incentives and the true property values from the
                                                           lenders, defrauding them into making loans that are
                                                           much riskier than they appear. When the properties
                                                           go into foreclosure, lenders suffer large losses.




     DEFENDANT                  ROLE                  MOST RECENT ACTION                           DATE

A Condo Developer Ponzi Scheme Involving Enterprise Properties
The Cay Clubs Resorts, which operated resort-style hotels/condominiums throughout the U.S., allegedly operated
as a massive Ponzi and securities fraud scheme. It allegedly defrauded 1,400 investors, FDIC-insured banks,
and the Enterprises out of over $300 million. The scheme caused a loss to Freddie Mac of $4,920,699 and to
Fannie Mae of $2,197,935.
                        Director of sales for    Sentenced to 5 years in prison and 3
Barry J. Graham                                                                             March 30, 2015
                        Cay Clubs                years of supervised release.
                        Director of investor     Sentenced to 5 years in prison and 3
Ricky L. Stokes                                                                             March 24, 2015
                        relations/sales agent years of supervised release.
Fred Davis Clark Jr.
                        Cay Clubs owner/         Arrested and charged with bank fraud
(also known as Dave                                                                       September 16, 2014
                        scheme leader            conspiracy.
Clark)
Cristal Clark (also
                        Cay Clubs owner/         Arrested and charged with bank fraud
known as Cristal                                                                          September 16, 2014
                        executive                conspiracy.
Coleman)

Multistate Condo Conversion Scheme
Burchell and others allegedly negotiated with the builders of new housing developments in California, Florida,
and Arizona to sell the units in exchange for large commissions not disclosed to the lenders. The defendants
recruited straw buyers and submitted false loan applications to sell more than 100 units, resulting in a loss to
the Enterprises of at least $2.37 million.
                         Prepared false            Convicted by jury trial of a conspiracy
Mohamed Salah                                                                                 March 27, 2015
                         documents                 charge.
                                                   Convicted by jury trial of conspiracy
Maher Obagi              Office manager                                                       March 27, 2015
                                                   and three wire fraud charges.
                         Transmitted false
Mohamed El Tahir                                   Pled guilty to wire fraud.                November 5, 2013
                         documents to lender




84   Federal Housing Finance Agency Office of Inspector General
   DEFENDANT                     ROLE                  MOST RECENT ACTION                           DATE
                                                  Pled guilty to conspiracy to commit
Jacqueline Burchell      Escrow officer                                                         June 13, 2013
                                                  bank and wire fraud.
                         Obtained straw
                                                  Charged with wire fraud, conspiracy
                         buyers and negotiated
Momoud Abaji                                      to commit bank and wire fraud, and           January 4, 2013
                         kickbacks with
                                                  aiding and abetting.
                         builders
                         Obtained straw buyers
                                                  Charged with wire fraud, conspiracy
                         and taught others
Wajieh Tbakhi                                     to commit bank and wire fraud, and           January 4, 2013
                         how to fabricate false
                                                  aiding and abetting.
                         documents
Ali Khatib               Owner of company         Pled guilty to bank fraud.                    August 2, 2012

A Loan Origination Scheme Involving Kickbacks to Straw Buyers and Others
Conspirators allegedly owned or controlled various real estate properties and enlisted other individuals to recruit
straw buyers to fraudulently purchase condominiums in the properties. The defendants prepared and caused to
be prepared loan documents containing false statements, which induced the lenders to make loans to finance
the condominiums. Conspirators allegedly used the loan proceeds to pay kickbacks to the brokers, recruiters,
and straw buyers, as well as to pay the mortgages to conceal the conspiracy. The loss exposure to Fannie
Mae and Freddie Mac is $5,216,873 and $5,646,264, respectively. In total, the scheme caused losses to the
Enterprises and other financial institutions of over $20 million.
                                                   Sentenced to 30 months in prison,
                                                   36 months of supervised release,
Enrique Angulo           Straw buyer recruiter                                                 March 24, 2015
                                                   and ordered to pay $2,212,167 in
                                                   restitution, jointly and severally.
                                                   Sentenced to 12 months in prison,
Frank Ibarzabal          Straw buyer recruiter     60 months of supervised release, and         March 5, 2015
                                                   ordered to pay $745,782 in restitution.
                                                   Sentenced to 6 months of home
                                                   confinement, 2 years of supervised
Dorian A. Magarino       Straw buyer recruiter     release, 100 hours of community            February 10, 2015
                                                   service, and ordered to pay $200,782
                                                   in restitution.
                                                   Sentenced to 33 months in prison,
                         Loan officer/broker/
                                                   5 years of supervised release,
Leidy Masvidal           owner of mortgage                                                   December 4, 2014
                                                   and ordered to pay $5,779,859 in
                         company
                                                   restitution.
                                                   Sentenced to 15 months in prison,
                                                   5 years of supervised release,
Douglas Ponce            Straw buyer recruiter                                               December 3, 2014
                                                   and ordered to pay $1,655,479 in
                                                   restitution.
                                                   Sentenced to 35 months in prison,
                                                   5 years of supervised release,
Tania Masvidal           Loan officer                                                        December 3, 2014
                                                   and ordered to pay $5,657,803 in
                                                   restitution.
                                                   Sentenced to 36 months in prison,
                         Mortgage broker/
                                                   3 years of supervised release,
Wilkie Perez             owner of mortgage                                                   December 2, 2014
                                                   and ordered to pay $4,921,660 in
                         company
                                                   restitution.




                                    Semiannual Report to the Congress • October 1, 2014–March 31, 2015           85
     DEFENDANT                  ROLE                 MOST RECENT ACTION                          DATE
                                                Sentenced to 51 months in prison,
                                                3 years of supervised release,
Luis Michael Mendez     Owner/seller                                                       December 2, 2014
                                                and ordered to pay $2,865,729 in
                                                restitution.
                                                Convicted of one count of conspiracy
                        Owner/developer/        to commit bank and wire fraud, 10
Stavroula Mendez                                                                           November 21, 2014
                        seller                  counts of bank fraud, and three counts
                                                of wire fraud.
                                                Convicted of one count of conspiracy
                                                to commit bank and wire fraud, 10
Lazaro Mendez           Owner/seller                                                       November 21, 2014
                                                counts of bank fraud, and one count of
                                                wire fraud.
                                                Convicted of one count of conspiracy
                                                to commit bank and wire fraud, three
Marie Mendez            Straw buyer                                                        November 21, 2014
                                                counts of bank fraud, and one count of
                                                wire fraud.
                                                Sentenced to 31 months in prison,
                                                36 months of supervised release,
Alfredo Chacon          Straw buyer recruiter                                              September 26, 2014
                                                and ordered to pay restitution in the
                                                amount of $1,531,438.
                                                Sentenced to 30 months in prison,
                                                36 months of supervised release,
Francisco Martos        Loan officer                                                       September 26, 2014
                                                and ordered to pay restitution in the
                                                amount of $779,533.
                                                Sentenced to 24 months in prison,
                                                36 months of supervised release,
Dorian W. Magarino      Straw buyer                                                        September 26, 2014
                                                and ordered to pay restitution in the
                                                amount of $1,175,048.
                                                Indicted for bank fraud, wire fraud, and
                        Owner/developer/
Luis Mendez Sr.                                 conspiracy to commit bank and wire           March 13, 2014
                        seller
                                                fraud.

Bank Fraud Schemes in West Palm Beach and Tampa
Individuals were allegedly involved in marketing and selling condominiums at developments in both Palm Beach
County and in the Tampa area. The schemes were similar and involved seller-provided incentive packages that
included cash to close, cash rebates, and guaranteed rent, which were not disclosed to the lenders that funded
the mortgages.
                                                  Pled guilty in two cases: one count of
                                                  the superseding indictment charging
                                                  her with conspiracy to commit bank
                                                  fraud (in the U.S. District Court for the
                                                  Southern District of Florida); and a one-
                                                  count information (in the U.S. District
                         Real estate broker/
Jordana Ende-Tobel                                Court for the Middle District of Florida,  March 19, 2015
                         straw buyer recruiter
                                                  Tampa) charging her with conspiracy
                                                  to commit bank fraud in a similar
                                                  scheme, which was transferred to and
                                                  combined with the U.S. District Court
                                                  for the Southern District of Florida
                                                  case.



86   Federal Housing Finance Agency Office of Inspector General
   DEFENDANT                     ROLE                  MOST RECENT ACTION                          DATE
                                                  Charged with one count of conspiracy
                         Real estate broker/
Joseph L. Pasquale                                to commit bank fraud and two counts          March 17, 2015
                         straw buyer recruiter
                                                  of bank fraud.
                         Former loan officer at   Sentenced to 18 months in prison and
Florencio Luis Tezanos                                                                        February 18, 2015
                         Wells Fargo Bank         3 years of supervised release.
                         Contract coordinator     Charged with making a false
Mike Zaric               manager for Broadmor     declaration before a grand jury              February 3, 2015
                         Development, LLC         proceeding.
                                                  Pled guilty in two separate cases: one
                                                  count of conspiracy to commit bank
                                                  fraud (in the U.S. District Court for the
                                                  Southern District of Florida); and a one-
                                                  count information (in the U.S. District
                         Attorney and former      Court for the Middle District of Florida,
Rashmi Airan-Pace                                                                             December 17, 2014
                         escrow agent             Tampa) charging her with conspiracy
                                                  to commit bank fraud in a similar
                                                  scheme, which was transferred to and
                                                  combined with the U.S. District Court
                                                  for the Southern District of Florida
                                                  case.
                                                  Sentenced to 12 months in prison and
Jose Aller               Recruiter                                                             August 29, 2014
                                                  24 months of supervised release.
                                                  Pled guilty to one count of conspiracy
Joaquin Cossio           Real estate broker                                                    August 29, 2014
                                                  to commit bank fraud.
                                                  Sentenced to 12 months in prison and
Ernesto Rodriguez        Recruiter                                                             August 29, 2014
                                                  24 months of supervised release.
                         Straw buyer/recruiter/   Pled guilty to conspiracy to commit
Brenden Bolger                                                                                 August 20, 2014
                         developer/salesman       mail, wire, and bank fraud.
                         Developer’s              Charged with conspiracy to commit
Eli Riesel                                                                                     August 7, 2014
                         representative           bank fraud and bank fraud.

$39 Million Builder Bailout Fraud
Juan Carlos Sanchez was the leader of a conspiracy involving numerous mortgage brokers, real estate agents,
and settlement agents across southern and central Florida who were involved in the sale of multiple condo
conversion properties. The investigation has documented 165 transactions involving Sanchez and his co-
conspirators and over $39 million in mortgage loans. Of the 165 transactions, 131 have been foreclosed,
resulting in a $34 million loss to the various lenders, and another 26 are in the foreclosure process. Freddie
Mac’s exposure is 36 units totaling $8.5 million in loans.
                                                   Sentenced to 14 years in prison and 5
Jaime Sanchez             Scheme leader                                                         January 9, 2015
                                                   years of supervised release.
                                                   Sentenced to 366 days in prison,
Marina Superlano          Co-conspirator           3 years of supervised release, and            June 25, 2014
                                                   ordered to pay $278,878 in restitution.
                                                   Sentenced to 16 years and 8 months
Quelyory Rigal            Scheme leader            in prison and 3 years of supervised         October 16, 2013
                                                   release.
                                                   Sentenced to 9 months’ home
                                                   confinement, 4 years of supervised
Marisa Perez              Co-conspirator                                                          July 11, 2013
                                                   release, and 300 hours of community
                                                   service.


                                     Semiannual Report to the Congress • October 1, 2014–March 31, 2015          87
     DEFENDANT                 ROLE                 MOST RECENT ACTION                          DATE
                                                Sentenced to 2 years and 1 month
Osbelia Lazardi        Co-conspirator           in prison and 3 years of supervised          May 3, 2013
                                                release.
                                                Sentenced to 5 years and 10 months
Sandra Campo           Co-conspirator           in prison and 5 years of supervised         April 29, 2013
                                                release.
                                                Sentenced to 1 year and 10 months
Dayanara Montero       Co-conspirator           in prison and 3 years of supervised          April 9, 2013
                                                release.
                                                Sentenced to 4 years and 6 months in
Edward Mena            Straw buyer              prison and 60 months of supervised         January 11, 2013
                                                release.
                                                Sentenced to 15 years in prison and 3
Juan Carlos Sanchez    Scheme leader                                                       January 3, 2013
                                                years of supervised release.
                                                Sentenced to 3 months in prison and
David Arboleda         Co-conspirator                                                     December 12, 2012
                                                ordered to pay $390,000 in restitution.
Celeste Mota           Co-conspirator           Sentenced to 4 years of probation.        November 28, 2012

Escrow Officer Sentenced
Gumaer, an escrow officer at Regency Title Company, provided money from herself and others to borrowers for
property down payments. On at least 10 homes, she disguised the source of the down payments to lenders
by showing that the funds were either from the buyers or gifts to them. Seven of the homes were purchased or
secured by Freddie Mac, which suffered a loss of $425,716, and one of the homes was purchased or secured by
Fannie Mae, which was exposed to a loss of $58,964.
                                                 Sentenced to 33 months’
                                                 incarceration, 3 years of supervised
Yvonne Gumaer           Escrow officer                                                     December 17, 2014
                                                 release, and ordered to pay $791,782
                                                 in restitution.
                                                 Sentenced to 42 months’
                                                 incarceration, 3 years of supervised
Larry Reisman           Builder                                                            December 16, 2013
                                                 release, and ordered to pay
                                                 $1.5 million in restitution.




88   Federal Housing Finance Agency Office of Inspector General
Semiannual Report to the Congress • October 1, 2014–March 31, 2015   89
Appendix F:                                              Investigations in this category involve a variety of
                                                         schemes that target Fannie Mae, Freddie Mac, the
OI Publicly Reportable                                   FHLBanks, or members of FHLBanks.
Investigative Outcomes
Involving Fraud
Committed Against
the Enterprises, the
FHLBanks, or FHLBank
Member Institutions


     DEFENDANT                 ROLE                 MOST RECENT ACTION                           DATE

Identity Theft Involving Fannie Mae Insider
Thomas and others allegedly conspired to steal the PII of over 1,000 Fannie Mae customers, which also caused
monetary damages to involved financial institutions, including JPMorgan Chase and Bank of America.
                                                 Sentenced to 16 years in prison and
                                                 ordered to pay $88,131 in restitution.
Anthony Minor          Purchased and sold PII Previously convicted by a federal             March 18, 2015
                                                 jury of bank fraud and aggravated
                                                 identification theft.
                       Former Fannie Mae         Sentenced to 4 years in prison and a
Katrina Thomas                                                                            November 17, 2014
                       employee—stole PII        2-year term of supervised release.
                                                 Sentenced to 4 years in prison and a
Tilisha Morrison       Purchased and sold PII                                             November 12, 2014
                                                 2-year term of supervised release.
                                                 Sentenced to 2 years of supervised
Kario Butler                                                                              November 3, 2014
                                                 release.
                                                 Sentenced to 2 years of supervised
Jamilah Karriem                                                                           November 3, 2014
                                                 release.
                                                 Sentenced to time served and 2 years
Cyrus Pritchett                                                                            October 21, 2014
                                                 of supervised release.
                                                 Charged with conspiracy to commit
Karen Mendoza                                                                              February 7, 2014
                                                 bank fraud and bank fraud.

REO Broker for Fannie Mae Charged
Simons, owner of Re/Max County Line and approved Fannie Mae REO broker in Illinois, allegedly stole escrow
money provided by potential real estate buyers.
                                                Charged via criminal complaint with
Harry G. Simons                                                                           March 18, 2015
                                                theft of over $100,000.




90   Federal Housing Finance Agency Office of Inspector General
   DEFENDANT                     ROLE                  MOST RECENT ACTION                           DATE
Unlicensed Appraiser/Identity Theft Scheme
Subjects allegedly fraudulently obtained and used the identity of a licensed appraiser to prepare real estate
appraisals, which were subsequently used to support mortgage loans sold to the Enterprises. White submitted
over 400 appraisals for use in mortgage loans using the stolen identity.
                         President/loan          Charged via superseding information
Diana Merritt            officer at Merit Home   alleging 54 counts of identity theft and     February 20, 2015
                         Finance, Inc.           mortgage fraud.
                                                 Charged via superseding information
Douglas White            Unlicensed appraiser    alleging 54 counts of identity theft and     February 20, 2015
                                                 mortgage fraud.

Multifamily Scheme
Yaney, Bray, and Russell allegedly conspired to devise a scheme to defraud Washington Mutual Bank and
Greystone Bank. Conspirators inflated the sale prices of a multifamily property and used false rent rolls to obtain
an $8.4 million loan. Conspirators further used false rent roles, leases, information, and financials to obtain an
$8.1 million refinance loan. The scheme caused over $6.8 million in losses to Fannie Mae.
                                                  Pled guilty to extortion. Previously
                                                  indicted on one count of conspiracy
                         Submitted false
James Russell                                     to commit bank fraud and wire fraud,         February 11, 2015
                         documents
                                                  bank fraud, wire fraud, and a forfeiture
                                                  allegation on October 7, 2014.
                                                  Indicted on one count of conspiracy
                         Submitted false          to commit bank fraud and wire fraud,
Maximus Yaney                                                                                   October 7, 2014
                         documents                bank fraud, wire fraud, and a forfeiture
                                                  allegation.
                                                  Indicted on one count of conspiracy
                         Submitted false          to commit bank fraud and wire fraud,
Jamie Bray                                                                                      October 7, 2014
                         documents                bank fraud, wire fraud, and a forfeiture
                                                  allegation.

Bank CEO Committed Bank Fraud Involving FHLBank Member
Owens allegedly abused his position with Voyager Bank to circumvent the bank’s lending procedures to obtain
letters of credit, which included a $7.5 million irrevocable confirming letter of credit from the FHLBank of
Des Moines. The loss to Voyager is estimated at $9.7 million.
                           Former CEO and            Indicted for false bank entries, reports,
Timothy Owens              chairman of the board and transactions and obstructing an             December 15, 2014
                           at Voyager Bank           examination of a financial institution.

Computer Intrusion at Fannie Mae
Rajendran worked at Fannie Mae as an IT term employee from August 2010 to August 2013. Upon his
termination he made unauthorized changes to the CheckMyNPV.com website and disabled the website’s tool for
checking Home Affordable Modification Program eligibility.
                                               Sentenced to 3 years of supervised
Sathish Kumar                                  probation, 50 hours of community
                       Sole conspirator                                                October 3, 2014
Chandhun Rajendran                             service, forfeiture of his laptop, and
                                               $69,638 in restitution.




                                    Semiannual Report to the Congress • October 1, 2014–March 31, 2015          91
Appendix G:                                                 Loan or mortgage origination schemes are the
                                                            most common type of mortgage fraud. These
OI Publicly Reportable                                      schemes typically involve falsifying buyers’ income,
Investigative Outcomes                                      assets, employment, and credit profile to make
                                                            them more attractive to lenders. These schemes
Involving Loan                                              often use bogus Social Security numbers and fake
Origination Schemes                                         or altered documents such as W-2 forms and
                                                            bank statements to defraud lenders into making
                                                            loans they would not otherwise make. Typically,
                                                            perpetrators pocket origination fees or inflate
                                                            home prices and divert proceeds.




     DEFENDANT                   ROLE                  MOST RECENT ACTION                            DATE

$3.5 Million Loan Origination Fraud
The defendants diverted $1.3 million in funds from over $8.2 million in fraudulently obtained loans, which resulted
in losses of over $1.2 million to the Enterprises and losses of $3.5 million to FHA and conventional lenders.
                                                    Sentenced to 5 months in prison,
                                                    3 years of supervised release, and
Peter Ligate             Realtor                                                                 March 31, 2015
                                                    ordered to pay $352,091 in restitution,
                                                    jointly and severally.
                                                    Sentenced to 57 months in prison,
                                                    5 years of supervised release,
                                                    and ordered to pay $2,482,856
Edgar Tibakweitira       Realtor                    in restitution, jointly and severally.       March 31, 2015
                                                    Tibakweitira must surrender to U.S.
                                                    Immigration officials upon conclusion
                                                    of incarceration.
                                                    Sentenced to 6 months of home
                                                    detention, 5 years of supervised
                                                    release, and ordered to pay $352,091
Cane Mwihava             Straw buyer                in restitution, jointly and severally.       March 23, 2015
                                                    Mwihava must surrender to U.S.
                                                    Immigration officials upon conclusion
                                                    of his home detention.
                                                    Convicted by a jury on 24 counts
                         Facilitated false credit of conspiracy to commit wire fraud
Carmen Johnson                                                                                  February 20, 2015
                         history                    affecting a financial institution, wire
                                                    fraud, and loan application fraud.
                                                    Sentenced to 27 months in prison,
                                                    5 years of supervised release, and
                                                    ordered to pay $511,147 in restitution,
Annika Boas              Straw buyer                                                             January 7, 2015
                                                    jointly and severally. Boas must
                                                    surrender to U.S. Immigration officials
                                                    upon conclusion of her incarceration.


92   Federal Housing Finance Agency Office of Inspector General
   DEFENDANT                      ROLE                MOST RECENT ACTION                           DATE
                                                 Sentenced to 15 months in prison,
                                                 5 years of supervised release, and
Abdallah Kitwara        Straw buyer                                                          December 2, 2014
                                                 ordered to pay a $50,000 fine and
                                                 $290,954 in restitution.
                                                 Sentenced to 21 months in prison,
                                                 2 years of supervised release, and
                                                 ordered to pay $999,726 in restitution,
Ayoub Luziga            Straw buyer                                                         November 24, 2014
                                                 jointly and severally. Luziga must
                                                 surrender to U.S. Immigration officials
                                                 upon conclusion of his incarceration.
                                                 Sentenced to 33 months in prison,
                                                 5 years of supervised release, and
                        Facilitated straw        ordered to pay $999,726 in restitution,
Raymond Abraham                                                                              October 27, 2014
                        buyers with false IDs    jointly and severally. Abraham must
                                                 surrender to U.S. Immigration officials
                                                 upon conclusion of his incarceration.
                                                 Due to be sentenced but fled back
                                                 to Tanzania and is now a fugitive.
Mrisho Mzese            Seller                                                                August 7, 2014
                                                 Previously found guilty by a jury on 11
                                                 felony counts.
                                                 Sentenced to 3 years of probation and
Gladyness Silaa         Realtor                  ordered to pay $378,602 in restitution        June 16, 2014
                                                 joint and several.
                                                 Sentenced to 60 months’
                                                 incarceration, 5 years of supervised
Mokorya Wambura         Straw buyer              release, and a special assessment             June 16, 2014
                                                 of $300. Wambura faces deportation
                                                 upon release.
                                                 Sentenced to time served, 24 months
Flavia Makundi          Straw buyer              of supervised release, and $100 in            June 2, 2014
                                                 special assessments.
                                                 Sentenced to 56 months’
                        Facilitated a straw
Larry Johnson                                    incarceration, forfeiture of $252,091,      February 24, 2014
                        buyer
                                                 and $100 in special assessments.

Multidefendant Origination Scheme
Subjects allegedly conspired to commit various types of financial fraud including mortgage fraud, federal student
loan fraud, and small business loan fraud. The scheme involved submitting false documents and straw buyers.
The loss exposure to the Enterprises is approximately $800,000.
Derrek L. Campbell II   Straw buyer              Pled guilty to one count of wire fraud.      March 27, 2015
                                                 Charged in a 12-count superseding
Anthony Trice                                    indictment alleging mail, wire, and           March 5, 2015
                                                 other fraud charges.
                                                 Charged in a 12-count superseding
Jerrod Weathersby                                indictment alleging mail, wire, and           March 5, 2015
                                                 other fraud charges.
                                                 Charged in a 12-count superseding
Noreen Mian             Loan officer             indictment alleging mail, wire, and           March 5, 2015
                                                 other fraud charges.




                                   Semiannual Report to the Congress • October 1, 2014–March 31, 2015          93
     DEFENDANT                  ROLE                 MOST RECENT ACTION                          DATE
                                                Charged in a 12-count superseding
Warren Taylor                                   indictment alleging mail, wire, and          March 5, 2015
                                                other fraud charges.
                                                Charged in a 12-count superseding
David Edwards                                   indictment alleging mail, wire, and          March 5, 2015
                                                other fraud charges.
                                                Charged in a 12-count superseding
Sirarthur McClelland                            indictment alleging mail, wire, and          March 5, 2015
                                                other fraud charges.

CPA Plea in Multimillion Dollar Mortgage Fraud Scheme
Austin and others allegedly defrauded banks, mortgage lenders, the Enterprises, and FHA by assisting others to
obtain mortgage loans on residential real estate properties through false loan applications and documents and
fraudulent settlements.
                        Settlement agent and Convicted by jury trial of 10 counts of
Edward Dacy                                                                                   March 25, 2015
                        lawyer                   conspiracy, bank fraud, and mail fraud.
                                                 Pled guilty to one count of conspiracy
                                                 to commit bank fraud. Ordered to
A. Conrad Austin        CPA                      pay $5,001 in restitution, $5,001           February 18, 2015
                                                 in recovery/forfeiture, and $100 in
                                                 special assessments.
                                                 Pled guilty. Ordered to pay $341,070
Pauline Pilate          Real estate agent                                                       July 3, 2014
                                                 in recovery/forfeiture.
                                                 Pled guilty. Ordered to pay $606,414
Howard Tutman III       Loan officer             in recovery/forfeiture and $100 in             July 2, 2014
                                                 special assessments.
                                                 Pled guilty. Ordered to pay $2,296,463
Frank Dams              Ringleader               in recovery/forfeiture and $100 in            April 30, 2014
                                                 special assessments.
                                                 Pled guilty to conspiracy and bank
Frank Davis Jr.         Co-conspirator                                                         April 30, 2014
                                                 fraud.
                                                 Pled guilty. Ordered to pay $971,900
Frederick Robinson Sr. Second ringleader         in recovery/forfeiture and $100 in            April 23, 2014
                                                 special assessments.
                                                 Pled guilty. Ordered to pay $341,070
Cheryl Morrison         Settlement processor                                                   July 25, 2013
                                                 in recovery/forfeiture.
                                                 Pled guilty to conspiracy to commit
Lonnie Johnson          Bank employee                                                           May 2, 2013
                                                 bank fraud.
                                                 Pled guilty to conspiracy and bank
Anthony Young           Recruiter/straw buyer                                                January 30, 2013
                                                 fraud.
                                                 Sentenced to 15 months in prison and
Derrick Cannon          Recruiter/straw buyer ordered to pay $173,165 in restitution          August 31, 2012
                                                 and $12,574 in recovery/forfeiture.




94   Federal Housing Finance Agency Office of Inspector General
   DEFENDANT                    ROLE                  MOST RECENT ACTION                           DATE
A Loan Origination with Undisclosed Incentives and Misrepresentations
King, Hearns, and others allegedly conspired to launder proceeds by means of committing wire fraud. King and
Hearns had allegedly formed an agreement with others to assist in providing buyers of homes with the funds
to close on real estate transactions, which they would falsely represent to lenders were provided by the buyers.
The scheme caused a loss exposure of approximately $866,000 to the Enterprises, which bought or secured
mortgages on 10 properties.
                                                  Sentenced to 33 months in prison,
Stephen King              Real estate agent       3 years of supervised release, and           March 18, 2015
                                                  ordered to pay $685,704 in restitution.
                                                  Indicted on one count of conspiracy
                                                  to commit money laundering and one
Euneisha Hearns           Loan officer                                                          April 9, 2014
                                                  count of conspiracy to commit bank
                                                  fraud.

Property Flipping Scheme
Paul and others allegedly conspired to provide home buyers with incentives not disclosed to the mortgage
lenders. Allegedly, homes were purchased out of foreclosure and “flipped” to buyers for a much higher price,
after which the buyers were given “kickbacks.” This scheme caused monetary damages to financial institutions
and the Enterprises in excess of $2 million.
                                                 Pled guilty to a one-count information
Charles Paul             Loan officer/recruiter  alleging mail, wire, and other fraud        March 17, 2015
                                                 charges.

Straw Buyer Scheme
The defendant, owner of Joon Asset Management Corp., orchestrated a straw-buying scheme on a Fannie Mae
property.
                        Owner of Joon Asset
                                             Pled guilty to a one-count information
Patrick Mullings        Management/scheme                                                March 9, 2015
                                             charging bank fraud.
                        leader

Large Origination Scheme
Several individuals, including a branch manager, loan officers, loan processors, real estate agents, and a
settlement attorney, originated numerous fraudulent mortgages at Madison Funding, Inc., located in Allentown,
Pennsylvania. Over 60 loans originated during the fraud scheme were sold to Fannie Mae and Freddie Mac.
Defaults on those mortgages caused losses of over $1 million to the Enterprises.
                                                  Sentenced to 4 years of probation,
Edward Redding            Settlement attorney     50 hours of community service, and            March 4, 2015
                                                  ordered to pay $244,554 in restitution.
                                                  Sentenced to 36 months of probation,
Jose Antigua              Real estate agent       50 hours of community service, and          December 8, 2014
                                                  ordered to pay $671,955 in restitution.




                                   Semiannual Report to the Congress • October 1, 2014–March 31, 2015          95
     DEFENDANT                  ROLE                 MOST RECENT ACTION                          DATE
                                                 Sentenced to 36 months of probation,
Melquisidec Caraballo   Real estate agent        50 hours of community service, and        November 21, 2014
                                                 ordered to pay $671,955 in restitution.
                                                 Sentenced to 5 years of probation,
Princess Rosario        Bank representative      30 hours of community service, and          April 24, 2014
                                                 ordered to pay $456,172 in restitution.
                                                 Sentenced to 12 months of home
Claribel Gonzalez       Loan officer             confinement, 4 years of probation, and       April 4, 2014
                                                 ordered to pay $731,226 in restitution.
                                                 Sentenced to 3 months in prison,
Florentina Peralta      Loan processor           1 year of supervised release, and          March 27, 2014
                                                 ordered to pay $586,705 in restitution.
                                                 Sentenced to 16 months in prison,
                        Branch manager/loan
Jason Boggs                                      3 years of supervised release, and         January 31, 2014
                        officer
                                                 ordered to pay $383,384 in restitution.
                                                 Sentenced to 7 days in prison, 3 years
Ghovanna Gonzalez       Loan processor           of supervised release, and ordered to     December 20, 2013
                                                 pay $762,616 in restitution.
                                                 Sentenced to 5 years of probation,
Angela Diaz             Loan processor           60 hours of community service, and        November 21, 2013
                                                 ordered to pay $227,000 in restitution.
                                                 Sentenced to 4 years of probation,
Denise Peralta          Loan officer             60 hours of community service, and         August 16, 2013
                                                 ordered to pay a $500 fine.
                                                 Sentenced to 4 years in prison, 3
Joel Tillett            General manager          years of supervised release, and           August 14, 2013
                                                 ordered to pay $979,562 in restitution.
                                                 Sentenced to 2 years in prison, 3
Seemon George           Loan officer             years of supervised release, and            July 23, 2013
                                                 ordered to pay $379,232 in restitution.




96    Federal Housing Finance Agency Office of Inspector General
   DEFENDANT                    ROLE                  MOST RECENT ACTION                           DATE
Loan Manager Indicted in Short Sale Scheme
Lyles and others allegedly conspired to defraud lenders of more than $1.2 million in a short sale flipping scheme
by facilitating fraudulent short sales and subsequent fraudulent loan originations on four properties. Freddie Mac
suffered a loss of $334,328 in one of the transactions.
                           Former bank
                                                  Sentenced to 2 years of probation and
Cristian Rampello          employee/provided                                                  February 27, 2015
                                                  ordered to pay $10,000 in restitution.
                           false verifications
                           Former bank
Pedro Espada Jr.           employee/provided      Sentenced to 3 years of probation.          February 27, 2015
                           false verifications
                                                  Pled guilty to first degree money
Brian Lyles                Lead conspirator                                                   February 11, 2015
                                                  laundering.
                           Entity controlled/
BKL Property                                      Pled guilty to second degree theft by
                           utilized by Lyles to                                               February 11, 2015
Management, LLC                                   deception.
                           facilitate the fraud
                           Title company
                                                  Pled guilty to second degree theft by
Sasha Cortes               principal/                                                         October 29, 2013
                                                  deception.
                           co-conspirator

Wire Fraud and Bank Fraud Scheme
From 2002 to 2007, Totten, a mortgage loan officer, conspired with others to defraud mortgage lenders by
inducing them to fund loans based on loan applications that contained false information.
                                                Sentenced to 5 months in prison, 3
Jason Kent              Investor/straw buyer    months’ community confinement, and         February 26, 2015
                                                5 years of supervised release.
                                                Sentenced to 10 months in prison,
Grant McCollough        Investor/straw buyer    3 years of supervised release, and          February 9, 2015
                                                ordered to pay $25,746 in restitution.
                                                Sentenced to 4 months in prison and 3
Marisa McCollough       Investor/straw buyer                                                February 9, 2015
                                                years of supervised release.
                                                Sentenced to 30 months in prison,
                        Mortgage loan officer/
Donald Totten                                   3 years of supervised release, and         October 24, 2014
                        scheme leader
                                                ordered to pay $717,496 in restitution.
                                                Sentenced to 3 years of supervised
Shellie Lockard         Underwriter             release and ordered to pay $11,075 in September 15, 2014
                                                restitution.




                                   Semiannual Report to the Congress • October 1, 2014–March 31, 2015          97
     DEFENDANT                  ROLE                  MOST RECENT ACTION                          DATE
A Loan Origination Fraud Involving Kickbacks to Straw Buyers, Buyers, and
Other Participants
Conspirators allegedly participated in a mortgage fraud scheme in which they entered into agreements to
purchase properties for amounts in excess of the original asking price. The loss exposure to the Enterprises is
$1,192,125.
                                                 Pled guilty to one count of conspiracy
                                                 to commit mail fraud affecting a
                         Loan officer/straw      financial institution and bank fraud.
Enrique Hernandez                                                                           February 23, 2015
                         buyer recruiter         Hernandez agreed to pay restitution in
                                                 the amount of $899,700 and forfeit
                                                 $108,724.
                                                 Pled guilty to one count of conspiracy
Guillermo Rincon         Straw buyer             to commit mail fraud affecting a            January 27, 2015
                                                 financial institution and bank fraud.

Loan Officers Involved in Mortgage Fraud
Wallis and Brogan allegedly conspired with others to supply down payments for customers of USA Mortgage
and use false gift letters to disguise the origin of the down payments. In order to be reimbursed for the down
payments and to obtain additional proceeds, false invoices were submitted to title companies purporting to be
expenses for repair work completed on the properties.
                                                     Sentenced to 14 months in prison,
                          Created false
Michael Wallis                                       3 years of supervised release, and       February 19, 2015
                          documents
                                                     ordered to pay $904,923 in restitution.
                                                     Pled guilty to one count of conspiracy
                          Created false
Joseph Brogan                                        to commit bank fraud, two counts of       January 30, 2015
                          documents
                                                     bank fraud, and one forfeiture count.

$3.8 Million Origination Scheme
Agodio and others allegedly participated in a mortgage fraud scheme where the false financial information of
unsuspecting immigrants was used to secure $3.8 million in home mortgage loans to purchase approximately
three dozen row houses. All of these properties are now in default or foreclosure.
                                                 Indicted for conspiracy to commit wire
                                                 fraud affecting a financial institution,
                                                 wire fraud affecting a financial
Alberic Okou Agodio                                                                        February 18, 2015
                                                 institution, money laundering, mail
                                                 fraud, aggravated identity theft, and
                                                 aiding and abetting.




98   Federal Housing Finance Agency Office of Inspector General
   DEFENDANT                    ROLE                 MOST RECENT ACTION                           DATE
$10 Million Scheme
Several conspirators agreed to defraud mortgage lenders and financial institutions by obtaining over $10 million
in fraudulent mortgages for the purchase of 20 multifamily properties in New Haven, Connecticut.
                                                Sentenced to 28 months in prison,
                        Property investor/
                                                3 years of supervised release,
Ronald Hutchison Jr.    former New York                                                       February 9, 2015
                                                and ordered to pay $2,605,036 in
                        correctional officer
                                                restitution.
                                                Sentenced to 22 months in prison,
                                                5 years of supervised release,
                                                and ordered to pay $2,605,036
Menachem Yosef          Real estate company     in restitution. As part of his plea,
Levitin (also known as owner/property           Levitin agreed to forfeit approximately      January 16, 2015
Joseph Levitin)         manager                 $163,000, as well as his ownership
                                                interests in 19 properties in
                                                New Haven, which resulted in over
                                                $1.4 million in net proceeds.
                                                Sentenced to 60 months in prison,
                                                5 years of supervised release,
                        Former GMAC and
                                                and ordered to pay $2,105,277 in
Andrew Constantinou     Countrywide loan                                                    December 16, 2014
                                                restitution. In addition, Constantinou
                        officer
                                                was ordered not to engage in the
                                                business of mortgage lending.
                                                Sentenced to 15 months’
                        Property investor/      incarceration, 5 years’ supervised
Jacques Kelly           former New York         release, and ordered to pay $179,769            July 23, 2014
                        correctional officer    in restitution and $300 in special
                                                assessments.
                                                Restitution ordered in the amount
                                                of $1,262,889. On June 3, 2014,
                                                Salvatore was ordered suspended
                                                as of June 24, 2014, for a period
                                                of 6 years to practice law in the
Genevieve Salvatore     Closing attorney                                                        June 2, 2014
                                                state of Connecticut. She was
                                                previously sentenced to 24 months’
                                                incarceration, 3 years of supervised
                                                release, and ordered to forfeit
                                                $19,000.
                                                Sentenced to 20 months’
                                                incarceration, 3 years of supervised
                                                release, and ordered to pay restitution
Lawrence Dressler       Closing attorney                                                      March 20, 2014
                                                of $403,450, a forfeiture order
                                                of $5,100, and $100 in special
                                                assessments.
                                                Sentenced to 48 months’
Kwame Nkrumah           Owner of real estate
                                                incarceration, 5 years of supervised
(also known as Roger company/property                                                      September 12, 2013
                                                release, and ordered to pay $2,939
Woodson)                manager
                                                restitution and forfeiture of $113,080.




                                   Semiannual Report to the Congress • October 1, 2014–March 31, 2015        99
   DEFENDANT                     ROLE                   MOST RECENT ACTION                            DATE
                                                   Sentenced to 24 months’
                         Owner of mortgage         incarceration, 5 years of supervised
Charmaine Davis                                                                                September 6, 2013
                         brokerage firm            release, and ordered to pay a $6,000
                                                   fine and forfeiture of $39,434.
                                                   Restitution ordered in the amount of
                                                   $743,016. Previously sentenced to
Bradford J. Rieger       Closing attorney          24 months’ incarceration, 5 years of         January 16, 2013
                                                   supervised release, and a $10,000
                                                   fine on November 16, 2012.
                                                   Pled guilty to one count of conspiracy
Jeffrey Weisman          Closing attorney          to commit mail fraud, wire fraud, and          July 10, 2012
                                                   bank fraud.

Mortgage Broker Committed Mortgage Fraud Involving Freddie Mac Loans
Poynter orchestrated a fraud in which he diverted $38,000 in loan proceeds to be used as a false down payment
by the borrower for the same transaction.
                         Created false            Sentenced to 1 year confinement and
Robert Poynter                                                                             January 26, 2015
                         documents                ordered to pay $123,158 in restitution.

A Builder Bailout Scheme Involving Misrepresentations and Kickbacks
Ford allegedly conspired with others to defraud lending institutions by inducing them to fund mortgage loans by
using material misrepresentations and omissions of material fact in the HUD-1 forms.
                                                  Sentenced to 37 months in prison,
                                                  3 years of supervised release,
Richard Calvin Ford III Home builder                                                          January 20, 2015
                                                  and ordered to pay restitution of
                                                  $433,849.

Plea in Short Sale Scheme
Several individuals were allegedly involved in a pattern of short sale schemes, which involved straw buyers and,
in certain transactions, the co-conspirators alternately stepping in to carry out the eventual sale at inflated
prices. The co-conspirators collectively caused the financial lending institutions to loan out over $5.5 million, of
which over $2.7 million was their profit from the scheme.
                          Co-conspirator/straw     Pled guilty to conspiracy to commit
Samuel Terrell Bell                                                                              January 8, 2015
                          buyer                    bank fraud and wire fraud.
                          Co-conspirator/
                          mortgage loan officer    Pled guilty to conspiracy to commit
Alexander Barrett                                                                               December 17, 2014
                          at Link One Mortgage bank fraud and wire fraud.
                          Bank LLC
                                                   Indicted and charged with one count
                          Lead defendant/real      of conspiracy to commit bank fraud
Dirk Ameen Hall                                                                                   June 20, 2014
                          estate buyer/flipper     and wire fraud and five counts of bank
                                                   fraud.
                                                   Indicted and charged with one count
                                                   of conspiracy to commit bank fraud
Michelle Baker            Title agent                                                             June 20, 2014
                                                   and wire fraud and five counts of bank
                                                   fraud.
                                                   Indicted and charged with one count
Barthelemy “Bart”                                  of conspiracy to commit bank fraud
                          Straw buyer                                                             June 20, 2014
Adjavehoude                                        and wire fraud and five counts of bank
                                                   fraud.


100    Federal Housing Finance Agency Office of Inspector General
   DEFENDANT                    ROLE                  MOST RECENT ACTION                           DATE
                                                 Indicted and charged with one count
                        Foreclosure/straw        of conspiracy to commit bank fraud
James Bayfield                                                                                 June 20, 2014
                        buyer recruiter          and wire fraud and five counts of bank
                                                 fraud.

Husband and Wife Defraud Elderly Victim
Kistler allegedly defrauded an elderly victim of more than $200,000 in funds during a real estate transaction on
a Fannie Mae loan.
Mark Kistler              Created scheme           Indicted on one count of bank fraud.     December 17, 2014

Sentencing in Origination Scheme
Several individuals conspired to defraud lending institutions by inducing them to fund mortgage loans by using
material misrepresentations and omissions of material fact in HUD-1 forms, Settlement Statements, loan
applications, and other loan documents. The scheme caused estimated losses of $967,989 to Fannie Mae and
$130,265 to Freddie Mac.
                                                  Sentenced to 20 months in prison,
                                                  1 year of supervised release, and
Scott Sherman            Builder                                                            November 13, 2014
                                                  ordered to pay $493,500 in restitution
                                                  and a $7,500 fine.
                                                  Sentenced to 21 months’
                                                  incarceration, 3 years of supervised
Donna Cobb               Escrow officer                                                        May 28, 2014
                                                  release, and ordered to pay
                                                  $2,151,376 in restitution.
                                                  Sentenced to 10 months and 14 days’
                         Home builder/straw       incarceration, 2 years of supervised
Donald Mattox                                                                                  May 15, 2014
                         buyer                    release, and ordered to pay $964,244
                                                  in restitution.
                                                  Sentenced to 51 months’
                                                  incarceration, 1 year of supervised
Michael Edwards          Loan officer                                                          April 22, 2014
                                                  release, and ordered to pay
                                                  $1,300,402 in restitution.
                                                  Pled guilty to one count of conspiracy
Lawrence Day             Recruiter                to commit mail and wire fraud affecting     March 25, 2014
                                                  a financial institution.

Identity Theft Used to Obtain Fraudulent Mortgages
Sanchez allegedly used a stolen identity to apply for two loans, including a Freddie Mac loan for $233,600 and a
Fannie Mae loan for $222,400.
                                                  Charged with violation of grand theft
Ernesto Sanchez         Scheme leader                                                         October 15, 2014
                                                  and organized scheme to defraud.

Real Estate Agent Involved in Origination Fraud
Subject allegedly completed false loan applications for straw buyers of residential properties. The scheme
resulted in a loss to the GSEs of approximately $2.5 million.
                                                 Charged with conspiracy, bank fraud,
                                                 false statements to a financial
David Ho                                         institution, subscribing to a false            October 1, 2014
                                                 income tax return, and aiding and
                                                 abetting.



                                 Semiannual Report to the Congress • October 1, 2014–March 31, 2015          101
Appendix H:                                                 Short sales occur when a lender allows a borrower
                                                            who is “underwater” on his/her loan—that is, the
OI Publicly Reportable                                      borrower owes more than the property is worth—
Investigative Outcomes                                      to sell his/her property for less than the debt
                                                            owed. Short sale fraud usually involves a borrower
Involving Short Sale                                        intentionally misrepresenting or not disclosing
Schemes                                                     material facts to induce a lender to agree to a short
                                                            sale to which it would not otherwise agree.




   DEFENDANT                     ROLE                  MOST RECENT ACTION                            DATE

Two Sentenced in Non-Arm’s Length Short Sale
Sanchez, a licensed real estate agent, recommended that Simon, her client, undertake a short sale of his home
using her son as a straw buyer.
                                                Sentenced to 15 months in prison, 60
                                                months of supervised released, and
Agustin Simon            Homeowner                                                            March 2, 2015
                                                ordered to pay $421,372 in restitution,
                                                jointly and severally.
                                                Sentenced to 21 months in prison,
                                                3 years of supervised release, and
Minerva Sanchez          Real estate agent                                                  February 17, 2015
                                                ordered to pay $421,372 in restitution,
                                                jointly and severally.

Three Pleas in Short Sale Scheme
Conspirators allegedly engaged in several schemes to fraudulently obtain money, including: a “flopping” scheme
where banks were convinced to accept short sale prices that were lower than a legitimate buyer would be willing
to pay; recording false second and third liens; tricking distressed homeowners into signing their properties over
to criminal actors; and renting distressed properties while simultaneously stalling foreclosure through the use of
fraudulent documents.
                          Generated false/           Pled guilty to grand theft and
Lindsay Petty                                                                                    January 29, 2015
                          forged documents           conspiracy to commit mortgage fraud.
                          Assisted with shell
                          companies and
Delia Wolfe                                          Pled guilty to forgery.                     January 29, 2015
                          opened bank accounts
                          used in the scheme
                          Generated and
                                                     Pled guilty to grand theft and mortgage
James Styring             filed false/forged                                                      October 1, 2014
                                                     fraud.
                          documents
                          Property manager for       Charged with conspiracy, grand theft,
Deanna Bashara                                                                                     June 25, 2014
                          rent scheme                and mortgage fraud.
                                                     Charged with conspiracy, grand theft,
                          Scheme leader and
                                                     mortgage fraud, forgery, burglary,
Jackalyn Bashara          licensed real estate                                                     June 25, 2014
                                                     receiving stolen property, and filing a
                          salesperson
                                                     false tax return.




102    Federal Housing Finance Agency Office of Inspector General
   DEFENDANT                    ROLE                   MOST RECENT ACTION                         DATE
                        Straw buyer and           Charged with conspiracy, grand theft,
Billie Bryant           opened bank accounts      mortgage fraud, forgery, and receiving      June 25, 2014
                        used in the scheme        stolen property.
                        Straw buyer and           Charged with conspiracy, grand theft,
Gerald Bryant           opened bank accounts      mortgage fraud, and receiving stolen        June 25, 2014
                        used in the scheme        property.
                        Intimidated victims
                        and collected rent        Charged with conspiracy, grand theft,
Jered Bryant                                                                                  June 25, 2014
                        generated by the          mortgage fraud, forgery, and burglary.
                        scheme
                        Notary/licensed real      Charged with conspiracy, grand theft,
Brian Deden                                                                                   June 25, 2014
                        estate broker             mortgage fraud, and forgery.
                        Licensed real estate
                                                  Charged with conspiracy, grand theft,
                        salesperson/facilitated
                                                  mortgage fraud, forgery, perjury, bribery
Joseph Jaime            short sales, filed                                                    June 25, 2014
                                                  of a witness, and intimidation of a
                        false documents, and
                                                  witness.
                        threatened victims
                                                  Charged with conspiracy, grand theft,
                        Scheme leader/            mortgage fraud, forgery, preparing
Eric Wolfe              licensed real estate      false documentary evidence, criminal        June 25, 2014
                        broker                    threats, filing false tax returns, and
                                                  failure to file tax returns.

Attorney and Others Involved in Short Sale Mortgage Fraud
Foley allegedly submitted false documents and recruited a straw buyer to support a short sale transaction where
the property was deeded back to Foley. This scheme caused a loss to Freddie Mac of approximately $148,000.
                         Organized scheme/
Gary Foley                                       Pled guilty to wire fraud.                    January 23, 2015
                         attorney

Short Sale Fraud
Wendy Thomas and co-conspirators allegedly engaged in a “flopping” short sale scheme where they profited from
fraud against distressed homeowners, banks, third-party home buyers, and the Enterprises.
                                                 Pled guilty to money laundering and
                         Created false           theft. Sentenced to 4 years’ probation
Wendy Thomas                                                                              January 13, 2015
                         documents               and ordered to pay $31,007 in
                                                 restitution.
                                                 Pled guilty to felony theft. Sentenced
Duane Thomas             Co-conspirator          to 4 years’ “deferred sentence” and      January 13, 2015
                                                 ordered to pay $11,727 in restitution.
                                                 Pled guilty to felony criminal mischief.
                                                 Sentenced to 4 years’ “deferred
Kurt Smith               Co-conspirator                                                   January 13, 2015
                                                 sentence” and ordered to pay $31,007
                                                 in restitution.




                                 Semiannual Report to the Congress • October 1, 2014–March 31, 2015         103
   DEFENDANT                   ROLE                 MOST RECENT ACTION                         DATE
                                                Pled guilty to felony theft and
                                                conspiracy to commit theft. Sentenced
Cristina Smith          Co-conspirator                                                    January 13, 2015
                                                to 4 years of probation and ordered to
                                                pay $31,007 in restitution.
                                                Pled guilty to felony money laundering
                                                and misdemeanor theft. Sentenced
Christopher Consol      Co-conspirator                                                    January 13, 2015
                                                to 4 years’ “deferred sentence” and
                                                ordered to pay $31,007 in restitution.
                                                Sentenced to 2 years of supervised
Sheila Giberti          Co-conspirator          release and ordered to pay $3,286 in     September 11, 2014
                                                restitution.
                                                Pled guilty to felony conspiracy to
                                                commit theft. Sentenced to 2 years of
Sheila Gaston           Co-conspirator                                                     June 12, 2014
                                                supervised release and ordered to pay
                                                $7,264 in restitution.

Former Loan Officer Charged
Defendants allegedly conspired to cause lenders to release liens on encumbered properties via fraudulently
arranged short sale transactions. To complete the transactions, they submitted false loan applications
and documents and recruited straw buyers. The losses to financial institutions/lenders total approximately
$2 million. Fannie Mae purchased or secured over 100 loans from the mortgage lenders.
                                                 Indicted for conspiracy to commit wire
Joseph DiValli          Loan officer                                                       December 18, 2014
                                                 fraud and six counts of wire fraud.
                                                 Pled guilty to a one-count information
                                                 with conspiracy to commit wire fraud
Paul Chemidlin          Unlicensed appraiser     and one count of distribution and             July 22, 2014
                                                 possession with intent to distribute
                                                 Methylone.
                                                 Pled guilty to a one-count information
Delio Coutinho          Loan officer                                                          April 22, 2014
                                                 with conspiracy to commit wire fraud.




104    Federal Housing Finance Agency Office of Inspector General
Semiannual Report to the Congress • October 1, 2014–March 31, 2015   105
Appendix I:                                              These schemes prey on desperate homeowners.
                                                         Businesses advertise that they can secure loan
OI Publicly Reportable                                   modifications, provided that the homeowners pay
Investigative                                            significant upfront fees. Typically, these businesses
                                                         take little or no action, leaving homeowners in a
Outcomes Involving                                       worse position.
Loan Modification and
Property Disposition
Schemes


   DEFENDANT                    ROLE                 MOST RECENT ACTION                           DATE

Loan Origination Fraud
Ellis and co-conspirators were allegedly involved in a flipping scheme where they purchased homes and then
flipped them using straw buyers and bogus appraisals reflecting much higher than the actual value of the homes.
They also allegedly falsified documents. Approximately 26 properties were involved in this scheme, all of which
were foreclosed or sold by short sale.
                                                   Sentenced to 8 months’ incarceration,
Briggette Ellis            Loan officer            1 year of supervised release, and          March 30, 2015
                                                   ordered to pay $455,202 in restitution.
                                                   Indicted on one count of conspiracy to
Hoa Perkins                Real estate agent                                                  October 9, 2013
                                                   commit money laundering.

Home Loan Modification Scheme Involving GSEs
Starting in 2009, the defendants allegedly conspired to defraud distressed homeowners and the GSEs with a
loan modification scam that impacted more than 10,000 victims nationwide.
                                                 Charged in a 40-count indictment
                                                 alleging conspiracy, mail fraud, wire
                         Co-conspirator/
Chad Gettel                                      fraud, telemarketing fraud, conspiracy  February 25, 2015
                         recruiter
                                                 to commit money laundering, and
                                                 money laundering.
                                                 Charged in a 40-count indictment
                                                 alleging conspiracy, mail fraud, wire
                         Co-conspirator/
John McCall                                      fraud, telemarketing fraud, conspiracy  February 25, 2015
                         recruiter
                                                 to commit money laundering, and
                                                 money laundering.
                                                 Charged in a 40-count indictment
Noemi Lozano (also                               alleging conspiracy, mail fraud, wire
                         Co-conspirator/
known as Noemi                                   fraud, telemarketing fraud, conspiracy  February 25, 2015
                         recruiter
Sayama)                                          to commit money laundering, and
                                                 money laundering.




106    Federal Housing Finance Agency Office of Inspector General
   DEFENDANT                    ROLE                  MOST RECENT ACTION                           DATE
                                                 Charged in a 40-count indictment
                                                 alleging conspiracy, mail fraud, wire
                        Co-conspirator/
Sheridan Black                                   fraud, telemarketing fraud, conspiracy      February 25, 2015
                        recruiter
                                                 to commit money laundering, and
                                                 money laundering.
                                                 Charged in a 40-count indictment
                                                 alleging conspiracy, mail fraud, wire
                        Co-conspirator/
James Scott Creasey                              fraud, telemarketing fraud, conspiracy      February 25, 2015
                        recruiter
                                                 to commit money laundering, and
                                                 money laundering.
                                                 Charged in a 40-count indictment
                                                 alleging conspiracy, mail fraud, wire
                        Co-conspirator/
Jeremiah Barrett                                 fraud, telemarketing fraud, conspiracy      February 25, 2015
                        recruiter
                                                 to commit money laundering, and
                                                 money laundering.

Plea and Multiple Charges in Loan Modification Scheme
Pelayo and others allegedly conspired to operate a loan modification scheme. Co-conspirators allegedly made false
promises and guarantees to financially distressed homeowners regarding their company’s ability to negotiate loan
modifications from the homeowner’s mortgage lenders, as well as false guarantees of specific interest rates and
mortgage payments.
                                                  Pled guilty to conspiracy to commit
Iris Pelayo              Appointment setter                                                   January 28, 2015
                                                  mail fraud.
                                                  Charged with mail and wire fraud
                                                  affecting a financial institution and
Michael Bates            Sales employee                                                     December 10, 2014
                                                  conspiracy to commit mail and wire
                                                  fraud.
                                                  Charged with mail and wire fraud
                                                  affecting a financial institution and
Crystal Buck             Sales employee                                                     December 10, 2014
                                                  conspiracy to commit mail and wire
                                                  fraud.
                                                  Charged with mail and wire fraud
                                                  affecting a financial institution and
Andrea Ramirez           Scheme leader                                                      December 10, 2014
                                                  conspiracy to commit mail and wire
                                                  fraud.
                                                  Charged with mail and wire fraud
                                                  affecting a financial institution and
Albert DiRoberto         Sales employee                                                     December 10, 2014
                                                  conspiracy to commit mail and wire
                                                  fraud.
                                                  Charged with mail and wire fraud
                                                  affecting a financial institution and
Christopher George       Co-owner of company                                                December 10, 2014
                                                  conspiracy to commit mail and wire
                                                  fraud.
                         Received customer
                                                  Charged with mail and wire fraud and
                         complaints and
Catalina Deleon                                   conspiracy to commit mail and wire         September 5, 2012
                         managed processing
                                                  fraud.
                         department
                                                  Charged with mail and wire fraud and
                         Supervised processing
Mindy Holt                                        conspiracy to commit mail and wire         September 5, 2012
                         department
                                                  fraud.



                                 Semiannual Report to the Congress • October 1, 2014–March 31, 2015          107
   DEFENDANT                   ROLE                 MOST RECENT ACTION                          DATE
                        Handled customer        Charged with mail and wire fraud and
Yadira Padilla          complaints and refund   conspiracy to commit mail and wire       September 5, 2012
                        requests                fraud.
                                                Charged with mail and wire fraud and
Michael Parker          Sales employee          conspiracy to commit mail and wire       September 5, 2012
                                                fraud.
                        Directed distressed
                        homeowners to sign
                        their properties over  Charged with mail and wire fraud and
Hamid Shalviri          to him and then to pay conspiracy to commit mail and wire        September 5, 2012
                        him “rent” while the   fraud.
                        loan modification was
                        in process

Foreclosure Rescue and Loan Modification Scheme
Caballero engaged in a foreclosure rescue/loan modification scheme where he solicited and accepted payments
from homeowners to modify their loans, submitted false loan documentation in homeowners’ names to lenders,
and fraudulently accepted rents and mortgage payments while not forwarding these payments to lenders.
                                                Pled guilty to one count of making a
Jose Antonio Caballero Owner/operator                                                     January 28, 2015
                                                false transaction to HUD and FHA.

Foreclosure Delay Scheme
Co-conspirators collected approximately $5.9 million in proceeds from a foreclosure/eviction delay scheme
involving at least 237 fraudulent bankruptcies.
                          Filed foreclosure delay
                                                  Sentenced to 30 days’ confinement
Jahi Kokayi               deeds with county                                                  January 21, 2015
                                                  and 3 years of supervised release.
                          recorder’s office
                          Business partner
                                                  Sentenced to 120 days’ confinement
Thomas Powell             with Elasadi and                                                  December 9, 2014
                                                  and 5 years of supervised release.
                          Bachmeier
                                                  Sentenced to 180 days’ confinement
Karl Robinson             Scheme leader           (72 suspended) and 5 years of             September 3, 2014
                                                  supervised release.
                          Business partner with Sentenced to 120 days’ confinement
Yamen Elasadi                                                                                  July 22, 2014
                          Bachmeier and Powell and 5 years of supervised release.
                          Initially a Robinson
                          client; subsequently
                          started his own         Sentenced to 30 days’ confinement
Michael Bachmeier                                                                             June 11, 2014
                          foreclosure delay       and 3 years of supervised release.
                          scheme with Powell
                          and Elasadi

Loan Modification Scheme
Baker, working with another individual, formed Wayne County Loan Modification in late 2009. Using deceptive
business practices, the company defrauded homeowners who were desperate to modify their mortgages.
                                                 Sentenced to 6 months’ incarceration
Jeffrey Baker                                    (time served) and 3 years of             December 12, 2014
                                                 supervised release.




108    Federal Housing Finance Agency Office of Inspector General
   DEFENDANT                    ROLE                  MOST RECENT ACTION                           DATE
Foreclosure Rescue Scheme
Co-conspirators collected in excess of $4.9 million in proceeds from a foreclosure/eviction delay scheme
involving at least 1,000 homeowners, mostly in northern California. To prevent foreclosure, the defendants filed
fraudulent deeds and also filed fraudulent petitions in bankruptcy court. All were previously sentenced; below are
the details of restitution payments ordered during this reporting period.
                                                  Found to be jointly and severally liable
Jewel Hinkles (also
                                                  with Medearis, Corn, and Wheeler
known as Cydney            Scheme leader                                                      November 18, 2014
                                                  for restitution in the amount of
Sanchez)
                                                  $5,105,599.
                           Promoted Sanchez’s
                           program to
                                                  Found to be jointly and severally liable
                           homeowners; assisted
Jesse Wheeler                                     with Hinkles for restitution in the         November 14, 2014
                           in production and
                                                  amount of $2,212,809.
                           filing of deeds and
                           bankruptcies
                           Promoted Sanchez’s
                           program to
                                                  Found to be jointly and severally liable
                           homeowners; assisted
Brent Medearis                                    with Hinkles and Corn for restitution in    November 13, 2014
                           in production and
                                                  the amount of $193,500.
                           filing of deeds and
                           bankruptcies
                           Promoted Sanchez’s     Found to be jointly and severally
                           program to             liable with Hinkles and Medearis
                           homeowners; assisted for restitution in the amount of
Cynthia Corn                                                                                  November 13, 2014
                           in production and      $2,130,348 (Hinkles for the entire
                           filing of deeds and    $2,130,348, and Medearis for
                           bankruptcies           $193,500).

Loan Modification Scheme
Jalan allegedly operated a scheme to defraud distressed homeowners by representing that she was an attorney
offering loan modification services. Jalan is alleged to have failed to disclose that the Consumer Financial
Protection Bureau had obtained a preliminary injunction that prohibited her from offering loan modification
services.
                                                    Charged with mail and wire fraud,
                                                    aggravated identity theft, false
Najia Jalan               Scheme leader                                                        October 29, 2014
                                                    statements in a bankruptcy, bankruptcy
                                                    fraud, and perjury.




                                 Semiannual Report to the Congress • October 1, 2014–March 31, 2015          109
Appendix J:                                                The wave of foreclosures following the housing crisis
                                                           left the Enterprises with a large inventory of REO
OI Publicly Reportable                                     properties. This large REO inventory has sparked a
Investigative Outcomes                                     number of different schemes to either defraud the
                                                           Enterprises, who use contractors to secure, maintain
Involving Property                                         and repair, price, and ultimately sell their properties,
Management and                                             or defraud individuals seeking to purchase REO
                                                           properties from the Enterprises.
REO Schemes



   DEFENDANT                     ROLE                  MOST RECENT ACTION                           DATE

False REO Escrow Scheme
In 2011, Leyva allegedly created a fictitious escrow company and falsely claimed to have the right and authority
to sell foreclosed properties owned by the Enterprises at a significant discount. The scheme resulted in victim
losses of at least $500,000.
                                                   Charged with grand theft and
Ralph Leyva                                                                                 December 23, 2014
                                                   commercial burglary.

Enterprise REO Fraud Scheme
Goldstein allegedly claimed he was able to sell Enterprise properties at significantly reduced prices. He allegedly
fabricated documents claiming to have access to REO properties through a program he referred to as the Freddie
Mac and Fannie Mae “10 Block” program.
                                                 Indicted for wire fraud and mail fraud;
Scott Goldstein          Sole conspirator                                                     December 10, 2014
                                                 charges included a forfeiture count.




110    Federal Housing Finance Agency Office of Inspector General
Semiannual Report to the Congress • October 1, 2014–March 31, 2015   111
Appendix K:                                                Adverse possession schemes use illegal adverse
                                                           possession (also known as “home squatting”) or
OI Publicly Reportable                                     fraudulent documentation to control distressed
Investigative Outcomes                                     homes, foreclosed homes, and REO properties.

Involving Adverse
Possession Schemes



   DEFENDANT                     ROLE                  MOST RECENT ACTION                           DATE

Deed Theft Scheme
Subjects allegedly operated a scheme to steal Fannie Mae and Freddie Mac properties by filing forged grant
deeds and then selling the stolen properties to unwitting investors. At least 10 Enterprise properties were stolen,
which caused a loss of over $2.5 million.
                        Interacted with
                        escrow companies
Daniel Deaibes                                   Pled guilty to mail fraud.                    March 18, 2015
                        during sales of stolen
                        properties
                        Allowed his company
                                                 Charged with conspiracy to commit
Mohamad Daoud           to be used to obscure                                                 December 9, 2014
                                                 mail fraud and wire fraud.
                        chain of title
Mazen Alzoubi           Scheme leader            Charged with mail fraud.                    November 19, 2014

Deed Theft Suspect Convicted/Sentenced
The defendant operated a scheme whereby he falsely deeded multiple properties into his name, the name of a
business, or an alias and then advertised the properties for rent online.
                                                 Sentenced to 20 years in prison with
Robert Kosch             Sole conspirator        a 6-year stipulation after being found  December 12, 2014
                                                 guilty at trial.

Two Charged with Squatting
Smith allegedly filed false documents with the King County Recorder’s Office in an attempt to fraudulently
acquire title to the home in which he was living. Smith also allegedly filed false documents to acquire three other
properties along with co-defendant Gaines.
                          Co-conspirator/          Charged with false representation
Helen Gaines                                                                                   October 27, 2014
                          squatter                 concerning a title.
                          Co-conspirator/          Charged with residential burglary and
Crystopher Smith                                                                               October 23, 2014
                          squatter                 false representation concerning a title.




112    Federal Housing Finance Agency Office of Inspector General
   DEFENDANT                     ROLE                  MOST RECENT ACTION                           DATE
Adverse Possession; Sovereign Citizen Sentenced
Farmer, a self-proclaimed sovereign citizen living in Memphis, Tennessee, submitted a fictitious quit claim deed to
the Shelby County Clerk of Courts, thereby falsely claiming ownership of a Fannie Mae REO property.

Devitoe Farmer           Sole conspirator         Sentenced to 8 years in prison.              October 3, 2014




                                  Semiannual Report to the Congress • October 1, 2014–March 31, 2015          113
114   Federal Housing Finance Agency Office of Inspector General
Appendix L: Figure Sources
Figure 1.   Federal Housing Finance Agency Office of Inspector General, “Earnings from Non-Recurring Events,” The Continued
            Profitability of Fannie Mae and Freddie Mac Is Not Assured, WPR-2015-001, at 8 (March 18, 2015). Accessed: April
            23, 2015, at www.fhfaoig.gov/Content/Files/WPR-2015-001.pdf.
Figure 2.   Federal Housing Finance Agency Office of Inspector General, “Lower Mortgage Rates Contributed to Substantial
            Refinancing Activity,” Impact of the Federal Reserve’s Quantitative Easing Programs on Fannie Mae and Freddie Mac,
            EVL-2015-002, at 17 (October 23, 2014). Accessed: April 23, 2015, at www.fhfaoig.gov/Content/Files/EVL-2015-
            002_1.pdf.
Figure 5.   Inside Mortgage Finance, “Mortgage & Asset Securities Issuance,” Mortgage Market Statistical Annual 2015
            Yearbook, at 142 (2015).
Figure 6.   Federal Housing Finance Agency, “The Enterprises,” Fiscal Year 2014 Performance and Accountability Report, at 6.
            Accessed: April 23, 2015, at www.fhfa.gov/AboutUs/Reports/ReportDocuments/FHFA-2014-PAR.pdf.
Figure 7.   Federal Housing Finance Agency, “Table 3. Fannie Mae Earnings,” “Table 12. Freddie Mac Earnings,” 2013
            Report to Congress, at 73, 90 (June 13, 2014). Accessed: April 23, 2015, at www.fhfa.gov/AboutUs/Reports/
            ReportDocuments/FHFA_2013_Report_to_Congress.pdf. Fannie Mae, “Table 7: Summary of Consolidated Results
            of Operations,” Form 10-K for the Fiscal Year Ended December 31, 2014, at 74. Accessed: April 23, 2015, at www.
            fanniemae.com/resources/file/ir/pdf/quarterly-annual-results/2014/10k_2014.pdf. Freddie Mac, “Table 8 —
            Summary Consolidated Statements of Comprehensive Income,” Form 10-K for the Fiscal Year Ended December 31,
            2014, at 54. Accessed: April 23, 2015, at www.freddiemac.com/investors/er/pdf/10k_021915.pdf.
Figure 8.   Federal Housing Finance Agency, “Table 3. Fannie Mae Earnings,” “Table 12. Freddie Mac Earnings,” 2013
            Report to Congress, at 73, 90 (June 13, 2014). Accessed: April 23, 2015, at www.fhfa.gov/AboutUs/Reports/
            ReportDocuments/FHFA_2013_Report_to_Congress.pdf. Fannie Mae, “Table 7: Summary of Consolidated Results
            of Operations,” Form 10-K for the Fiscal Year Ended December 31, 2014, at 74. Accessed: April 23, 2015, at www.
            fanniemae.com/resources/file/ir/pdf/quarterly-annual-results/2014/10k_2014.pdf. Freddie Mac, “Table 8 —
            Summary Consolidated Statements of Comprehensive Income,” Form 10-K for the Fiscal Year Ended December 31,
            2014, at 54. Accessed: April 23, 2015, at www.freddiemac.com/investors/er/pdf/10k_021915.pdf.
Figure 9.   Federal Housing Finance Agency Office of Inspector General, “Earnings from Non-Recurring Events,” The Continued
            Profitability of Fannie Mae and Freddie Mac Is Not Assured, WPR-2015-001, at 8 (March 18, 2015). Accessed: April
            23, 2015, at www.fhfaoig.gov/Content/Files/WPR-2015-001.pdf.
Figure 10. Federal Housing Finance Agency Office of Inspector General, “Earnings from Business Segments,” The Continued
           Profitability of Fannie Mae and Freddie Mac Is Not Assured, WPR-2015-001, at 10 (March 18, 2015). Accessed: April
           23, 2015, at www.fhfaoig.gov/Content/Files/WPR-2015-001.pdf.
Figure 11. Federal Housing Finance Agency, “Table 1: Quarterly Draws on Treasury Commitments to Fannie Mae and Freddie
           Mac per the Senior Preferred Stock Purchase Agreements,” “Table 2: Dividends on Enterprise Draws from Treasury,”
           Treasury and Federal Reserve Purchase Programs for GSE and Mortgage-Related Securities Data as of March 31,
           2015, at 2, 3. Accessed: April 23, 2015, at www.fhfa.gov/DataTools/Downloads/Documents/Market-Data/
           Dividends_3312015.pdf.
Figure 12. Federal Home Loan Bank of Boston, The FHLBanks. Accessed: April 23, 2015, at www.fhlbboston.com/aboutus/
           thebank/06_01_04_fhlb_system.jsp.
Figure 13. Federal Home Loan Banks Office of Finance, “Combined Statement of Income,” “Table 46 - Credit Ratings of
           Private-Label Mortgage-Backed Securities at December 31, 2014,” Combined Financial Report for the Year
           Ended December 31, 2014, at F-4, 90-92. Accessed: April 23, 2015, at www.fhlb-of.com/ofweb_userWeb/
           resources/2014Q4Document-web.pdf.
Figure 14. Federal Home Loan Banks Office of Finance, “Selected Financial Data,” Combined Financial Report for the
           Year Ended December 31, 2011, at 34. Accessed: April 23, 2015, at www.fhlb-of.com/ofweb_userWeb/
           resources/11yrend.pdf. Federal Home Loan Banks Office of Finance, “Selected Financial Data,” Combined Financial
           Report for the Year Ended December 31, 2012, at 35. Accessed: April 23, 2015, at www.fhlb-of.com/ofweb_
           userWeb/resources/12yrend.pdf. Federal Home Loan Banks Office of Finance, “Selected Financial Data,” Combined
           Financial Report for the Year Ended December 31, 2013, at 35. Accessed: April 23, 2015, at www.fhlb-of.com/
           ofweb_userWeb/resources/13yrend.pdf. Federal Home Loan Banks Office of Finance, “Selected Financial Data,”
           Combined Financial Report for the Year Ended December 31, 2014, at 36. Accessed: April 23, 2015, at www.fhlb-of.
           com/ofweb_userWeb/resources/2014Q4Document-web.pdf.




                                      Semiannual Report to the Congress • October 1, 2014–March 31, 2015                 115
Appendix M: Endnotes                                              Conservator for Fannie Mae and Freddie Mac
                                                                  (September 23, 2008, corrected September
                                                                  26, 2008). Accessed: April 17, 2015, at
1	   12 U.S.C. §4501(7). Signing statement: “Section             www.fhfa.gov/Media/PublicAffairs/Pages/
      911 of the bill requires the Secretary of Housing           Statement-of-James-B-Lockhart-III-Director-
      and Urban Development to establish guidelines               FHFA-Before-The-US-Senate-Committee-
      for housing credit agencies to “implement”                  on-Banking-Housing-and-Urban-Affairs.aspx.
      section 102(d) of the Department of Housing                 Housing and Economic Recovery Act of 2008,
      and Urban Development Reform Act of 1989                    Pub. L. No. 110-289, § 1117. Federal Housing
      (42 U.S.C. §3545(d)). That provision requires               Finance Agency, “Fannie Mae and Freddie
      the Secretary to certify that HUD assistance to             Mac (the Enterprises),” 2013 Performance and
      housing projects is not more than necessary to              Accountability Report, at 22, 23. Accessed: April
      provide affordable housing, after taking other              17, 2015, at www.fhfa.gov/AboutUs/Reports/
      Federal and State assistance into account, and              ReportDocuments/2013_PAR_N508.pdf.
      to adjust the amount of HUD assistance to                   Amended and Restated Senior Preferred Stock
      compensate for changes in assistance amounts                Purchase Agreement § 2.1, 2.2 (September 26,
      from other sources.” George Bush, “Statement                2008). Accessed: March 21, 2015, at www.
      on Signing the Housing and Community                        fhfa.gov/Conservatorship/Documents/Senior-
      Development Act of 1992,” Public Papers of the              Preferred-Stock-Agree/2008-9-26_SPSPA_
      Presidents of the United States: George H. W. Bush,         FannieMae_RestatedAgreement_N508.pdf.
      at 2,061 (1993). Accessed: April 23, 2015, at               Amended and Restated Senior Preferred Stock
      www.gpo.gov/fdsys/pkg/PPP-1992-book2/pdf/                   Purchase Agreement § 2.1, 2.2 (September
      PPP-1992-book2-doc-pg2060.pdf.                              26, 2008). Accessed: April 17, 2015, at www.
                                                                  fhfa.gov/Conservatorship/Documents/Senior-
2	   Department of the Treasury, Written Testimony by            Preferred-Stock-Agree/2008-9-26_SPSPA_
      Secretary of the Treasury Timothy F. Geithner before        FreddieMac_RestatedAgreement_508.pdf.
      the Senate Committee on Banking, Housing &                  Department of the Treasury, Statement by Secretary
      Urban Affairs (March 15, 2011). Accessed: April             Henry M. Paulson, Jr. on Treasury and Federal
      23, 2015, at www.treasury.gov/press-center/press-           Housing Finance Agency Action to Protect Financial
      releases/Pages/tg1103.aspx.                                 Markets and Taxpayers (September 7, 2008).
                                                                  Accessed: April 17, 2015, at www.treasury.gov/
                                                                  press-center/press-releases/Pages/hp1129.aspx.
3	   Federal Housing Finance Agency, “Enterprises
      in Conservatorship,” Strategic Plan 2009-2014,
      at 30. Accessed: April 17, 2015, at www.fhfa.          4	   I nside Mortgage Finance, “Mortgage & Asset
      gov/AboutUs/Reports/ReportDocuments/                         Securities Issuance,” Mortgage Market Statistical
      FHFA_StrategicPlan_2009-2014_508.pdf.                        Annual 2015 Yearbook, at 142 (2015).
      Federal Housing Finance Agency, Statement of
      The Honorable James B. Lockhart III, Director          5	    ederal Housing Finance Agency, “FHFA’s
                                                                  F
      Federal Housing Finance Agency Before the                   Regulatory Oversight of the Federal Home Loan
      Senate Committee on Banking, Housing, and                   Banks, Fannie Mae and Freddie Mac,” Fiscal Year
      Urban Affairs On the Appointment of FHFA as                 2014 Performance and Accountability Report, at


116      Federal Housing Finance Agency Office of Inspector General
      5. Accessed: April 23, 2015, at www.fhfa.gov/                Losses and the Return to Profitability,” The Rescue
      AboutUs/Reports/ReportDocuments/FHFA-                        of Fannie Mae and Freddie Mac (Federal Reserve
      2014-PAR.pdf.                                                Bank of New York, Staff Report No. 719), at 25
                                                                   (March 2015). Accessed: April 23, 2015, at www.
6	    Id., “Organization,” “What FHFA Provides,”                  newyorkfed.org/research/staff_reports/sr719.pdf.
       at 8-10. Federal Housing Finance Agency,
       “Regulations and Guidance,” 2013 Report               11	    ederal Housing Finance Agency, FHFA Directs
                                                                   F
       to Congress, at 49-55. Accessed: April 23,                  Fannie Mae and Freddie Mac To Delay Guarantee
       2015, at www.fhfa.gov/AboutUs/Reports/                      Fee Changes (January 8, 2014). Accessed: April
       ReportDocuments/FHFA_2013_Report_to_                        23, 2015, at www.fhfa.gov/Media/PublicAffairs/
       Congress.pdf.                                               Pages/FHFA-Directs-Fannie-Mae-and-Freddie-
                                                                   Mac-To-Delay-Guarantee-Fee-Changes.aspx.
7	    Fannie Mae, “Table 7: Summary of Consolidated
       Results of Operations,” Form 10-K for the             12	    ederal Housing Finance Agency, FHFA Seeks
                                                                   F
       Fiscal Year Ended December 31, 2014, at 74.                 Input on Fannie Mae and Freddie Mac Guarantee
       Accessed: April 23, 2015, at www.fanniemae.                 Fees (June 5, 2014). Accessed: April 23, 2015, at
       com/resources/file/ir/pdf/quarterly-annual-                 www.fhfa.gov/Media/PublicAffairs/Pages/FHFA-
       results/2014/10k_2014.pdf.                                  Seeks-Input-on-Fannie-Mae-and-Freddie-Mac-
                                                                   Guarantee-Fees.aspx.
8	    F
       reddie Mac, “Table 8 — Summary Consolidated
      Statements of Comprehensive Income,” Form 10-K         13	    ederal Housing Finance Agency, FHFA Extends
                                                                   F
      for the Fiscal Year Ended December 31, 2014, at 54.          Deadline for G-Fee Input to September 8 (July 29,
      Accessed: April 23, 2015, at www.freddiemac.com/             2014). Accessed: April 23, 2015, at www.fhfa.
      investors/er/pdf/10k_021915.pdf.                             gov/Media/PublicAffairs/Pages/FHFA-Extends-
                                                                   Deadline-for-G-Fee-Input-to-September-8.aspx.
9	     ederal Housing Finance Agency Office of
      F
      Inspector General, FHFA’s Initiative to Reduce         14	    ederal Housing Finance Agency, FHFA Annual
                                                                   F
      the Enterprises’ Dominant Position in the Housing            Guarantee Fee Report Tracks Adjustments from
      Finance System by Raising Gradually Their                    2009 through 2013 (November 20, 2014).
      Guarantee Fees, EVL-2013-005 (July 16, 2013).                Accessed: April 23, 2015, at www.fhfa.gov/
      Accessed: April 23, 2015, at www.fhfaoig.gov/                Media/PublicAffairs/Pages/FHFA-Annual-
      Content/Files/EVL-2013-005_4.pdf.                            Guarantee-Fee-Report-Tracks-Adjustments-from-
                                                                   2009-to-2013.aspx.
10	   “Single-family credit guarantees reflect both
       guarantees of the [GSEs’] agency mortgage-            15	   Fannie Mae, “Table 16: Single-Family Business
       backed securities and whole loans retained on                Results,” “Table 17: Multifamily Business
       their balance sheets. While losses on the former             Results,” Form 10-K for the Fiscal Year Ended
       exceeded the latter, exactly quantifying the two             December 31, 2014, at 87, 89. Accessed: April 23,
       is difficult due to a change in accounting rules in          2015, at www.fanniemae.com/resources/file/ir/
       2010.” W. Scott Frame, Andreas Fuster, Joseph                pdf/quarterly-annual-results/2014/10k_2014.pdf.
       Tracy, and James Vickery, “The Composition of                Freddie Mac, “Table 22 — Segment Earnings and


                                     Semiannual Report to the Congress • October 1, 2014–March 31, 2015         117
      Key Metrics — Single-Family Guarantee,” “Table        19	    annie Mae, “Risk Management Derivatives
                                                                  F
      24 — Segment Earnings and Key Metrics —                     Fair Value (Losses) Gains, Net,” “Mortgage
      Multifamily,” Form 10-K for the Fiscal Year Ended           Commitment Derivatives Fair Value (Losses)
      December 31, 2014, at 69, 75. Accessed: April               Gains, Net,” Form 10-K for the Fiscal Year Ended
      23, 2015, at www.freddiemac.com/investors/er/               December 31, 2014, at 79, 80. Accessed: April
      pdf/10k_021915.pdf.                                         23, 2015, at www.fanniemae.com/resources/file/
                                                                  ir/pdf/quarterly-annual-results/2014/10k_2014.
      Percent changes based on actual versus rounded              pdf. Freddie Mac, “Derivative Gains (Losses),”
      values.                                                     Form 10-K for the Fiscal Year Ended December 31,
                                                                  2014, at 63. Accessed: April 23, 2015, at www.
16	    reddie Mac, “Interest-Rate Risk and Other
      F                                                           freddiemac.com/investors/er/pdf/10k_021915.pdf.
      Market Risks,” Form 10-K for the Fiscal Year
      Ended December 31, 2013, at 163. Accessed: April      20	    ederal Housing Finance Agency Office of
                                                                  F
      23, 2015, at www.freddiemac.com/investors/er/               Inspector General, “Terms of the PSPAs,” Analysis
      pdf/10k_022714.pdf. Fannie Mae, “Interest Rate              of the 2012 Amendments to the Senior Preferred Stock
      Risk Management Strategy,” Form 10-K for the                Purchase Agreements, WPR-2013-002, at 6 (March
      Fiscal Year Ended December 31, 2013, at 152, 153.           20, 2013). Accessed: April 23, 2015, at www.
      Accessed: April 23, 2015, at www.fanniemae.                 fhfaoig.gov/Content/Files/WPR-2013-002_2.pdf.
      com/resources/file/ir/pdf/quarterly-annual-
      results/2013/10k_2013.pdf.                            21	   Third Amendment To Amended And Restated
                                                                   Senior Preferred Stock Purchase Agreement
17	   Freddie Mac, “Derivative Instruments,” Form                 (August 17, 2012). Accessed: April 23, 2015,
       10-K for the Fiscal Year Ended December 31,                 at www.fhfa.gov/Conservatorship/Documents/
       2013, at 239. Accessed: April 23, 2015, at www.             Senior-Preferred-Stock-Agree/2012-8-17_
       freddiemac.com/investors/er/pdf/10k_022714.                 SPSPA_FannieMae_Amendment3_508.pdf.
       pdf. Fannie Mae, “Derivative Instruments,”                  Third Amendment To Amended And Restated
       Form 10-K for the Fiscal Year Ended December 31,            Senior Preferred Stock Purchase Agreement
       2013, at 153. Accessed: April 23, 2015, at www.             (August 17, 2012). Accessed: April 23, 2015,
       fanniemae.com/resources/file/ir/pdf/quarterly-              at www.fhfa.gov/Conservatorship/Documents/
       annual-results/2013/10k_2013.pdf.                           Senior-Preferred-Stock-Agree/2012-8-17_
                                                                   SPSPA_FreddieMac_Amendment3_N508.pdf.
18	   Fannie Mae, “Table 10: Fair Value (Losses)
       Gains, Net,” Form 10-K for the Fiscal Year Ended     22	   Department of the Treasury, Treasury Department
       December 31, 2014, at 78. Accessed: April 23,               Announces Further Steps to Expedite Wind Down of
       2015, at www.fanniemae.com/resources/file/ir/               Fannie Mae and Freddie Mac (August 17, 2012).
       pdf/quarterly-annual-results/2014/10k_2014.pdf.             Accessed: April 23, 2015, at www.treasury.gov/
       Freddie Mac, “Table 8 — Summary Consolidated                press-center/press-releases/Pages/tg1684.aspx.
       Statements of Comprehensive Income,” Form
       10-K for the Fiscal Year Ended December 31,          23	   Id.
       2014, at 54. Accessed: April 23, 2015, at www.
       freddiemac.com/investors/er/pdf/10k_021915.          24	   Federal Housing Finance Agency, “Table 1:
       pdf.

118       Federal Housing Finance Agency Office of Inspector General
      Quarterly Draws on Treasury Commitments                       Accessed: April 23, 2015, at www.fhfaoig.gov/
      to Fannie Mae and Freddie Mac per the Senior                  Content/Files/EVL-2015-002_1.pdf.
      Preferred Stock Purchase Agreements,” “Table 2:
      Dividends on Enterprise Draws from Treasury,”           29	    epartment of the Treasury, Statement by Secretary
                                                                    D
      Treasury and Federal Reserve Purchase Programs for            Henry M. Paulson, Jr. on Treasury and Federal
      GSE and Mortgage-Related Securities Data as of                Housing Finance Agency Action to Protect Financial
      March 31, 2015, at 2, 3. Accessed: April 23, 2015, at         Markets and Taxpayers (September 7, 2008).
      www.fhfa.gov/DataTools/Downloads/Documents/                   Accessed: April 23, 2015, at www.treasury.gov/
      Market-Data/Dividends_3312015.pdf.                            press-center/press-releases/Pages/hp1129.aspx.

25	    ederal Housing Finance Agency Office of Inspector
      F                                                       30	    ederal Housing Finance Agency Office of
                                                                    F
      General, “The Federal Reserve Initiated the QE                Inspector General, “Unprecedented Length of
      Programs to Augment Its Efforts to Combat the                 the Conservatorships,” FHFA’s Conservatorships
      Financial Crisis,” Impact of the Federal Reserve’s            of Fannie Mae and Freddie Mac: A Long and
      Quantitative Easing Programs on Fannie Mae and                Complicated Journey, WPR-2015-002, at 6
      Freddie Mac, EVL-2015-002, at 9 (October 23,                  (March 25, 2015). Accessed: April 23, 2015,
      2014). Accessed: April 23, 2015, at www.fhfaoig.              at www.fhfaoig.gov/Content/Files/WPR-2015-
      gov/Content/Files/EVL-2015-002_1.pdf.                         002_0.pdf.

26	   Federal Housing Finance Agency, “Table 4b:             31	    ederal Housing Finance Agency Office
                                                                    F
       Federal Reserve Purchases of Agency MBS,                     of Inspector General, “Market Factors and
       October 2011 – Present,” Treasury and Federal                Conditions that can Impact the Sustainability
       Reserve Purchase Programs for GSE and Mortgage-              of Future Earnings,” The Continued Profitability
       Related Securities Data as of March 31, 2015, at             of Fannie Mae and Freddie Mac Is Not Assured,
       7. Accessed: April 23, 2015, at www.fhfa.gov/                WPR-2015-001, at 12 (March 18, 2015).
       DataTools/Downloads/Documents/Market-Data/                   Accessed: April 23, 2015, at www.fhfaoig.gov/
       Dividends_3312015.pdf.                                       Content/Files/WPR-2015-001.pdf.

27	   Diana Hancock and Wayne Passmore, Board                32	    ederal Home Loan Banks Office of Finance,
                                                                    F
       of Governors of the Federal Reserve System,                  “Overview,” Combined Financial Report for the
       “The Structure of the U.S. Secondary Mortgage                Year Ended December 31, 2014, at 38. Accessed:
       Market: Late-2008 through Early 2010,” Did                   April 23, 2015, at www.fhlb-of.com/ofweb_
       the Federal Reserve’s MBS Purchase Program Lower             userWeb/resources/2014Q4Document-web.pdf.
       Mortgage Rates? Accessed: April 23, 2015, at www.
       federalreserve.gov/pubs/feds/2011/201101/index.        33	   Id., “Background Information,” at F-10.
       html.
                                                              34	    ederal Home Loan Banks Office of Finance,
                                                                    F
28	   Federal Housing Finance Agency Office of                     History of Service. Accessed: April 23, 2015, at
       Inspector General, Impact of the Federal Reserve’s           www.fhlb-of.com/ofweb_userWeb/pageBuilder/
       Quantitative Easing Programs on Fannie Mae and               mission--history-29.
       Freddie Mac, EVL 2015-002 (October 23, 2014).


                                     Semiannual Report to the Congress • October 1, 2014–March 31, 2015          119
35	   Federal Home Loan Banks Office of Finance,                   Income after Provision (Reversal) for Credit
       “Advances,” Combined Financial Report for the                Losses,” Combined Financial Report for the Year
       Year Ended December 31, 2014, at 42. Accessed:               Ended December 31, 2014, at 39, 40, 58, 56.
       April 23, 2015, at www.fhlb-of.com/ofweb_                    Accessed: April 23, 2015, at www.fhlb-of.com/
       userWeb/resources/2014Q4Document-web.pdf.                    ofweb_userWeb/resources/2014Q4Document-
                                                                    web.pdf.
36	    ederal Home Loan Banks Office of Finance,
      F
      “General Information,” Combined Financial               42	   I d., “Net Interest Income after Provision
      Report for the Year Ended December 31, 2013, at                (Reversal) for Credit Losses,” at 56.
      3. Accessed: April 23, 2015, at www.fhlb-of.com/
      ofweb_userWeb/resources/13yrend.pdf.                    43	   I d., “Interest Rate Levels and Volatility,”
                                                                     “Investments,” at 40, 49.
37	   Federal Home Loan Banks Office of Finance,
       “Table 6 - Membership by Type of Member,”              44	   Id., “Combined Statement of Income,” at F-4.
       Combined Financial Report for the Year Ended
       December 31, 2014, at 32. Accessed: April 23,                Percent changes based on actual versus rounded
       2015, at www.fhlb-of.com/ofweb_userWeb/                      values.
       resources/2014Q4Document-web.pdf.
                                                              45	   Id.
38	   Id., “Overview,” at 38.
                                                                    Percent changes based on actual versus rounded
39	   Id., at cover page.                                          values.

40	   Th
       e FHLBank System can borrow at favorable              46	   Id.
      rates due to the perception in financial markets that
      the federal government will guarantee repayment of            Percent changes based on actual versus rounded
      its debt even though such a guarantee has not been            values.
      made explicitly. This phenomenon is known as
      the “implicit guarantee.” Federal Housing Finance       47	   I d., “Combined Results of Operations,”
      Agency Office of Inspector General, “Preface,”                 “Combined Statement of Income,” at 56, F-4.
      FHFA’s Oversight of Troubled Federal Home Loan
      Banks, EVL-2012-001, at 6 (January 11, 2012).                 Percent changes based on actual versus rounded
      Accessed: April 23, 2015, at www.fhfaoig.gov/                 values.
      Content/Files/Troubled%20Banks%20EVL-
      2012-001.pdf.                                           48	   I d., “Note 11 - Derivatives and Hedging
                                                                     Activities,” at F-43, F-44, F-45.
41	   Federal Home Loan Banks Office of Finance,
       “Economy and Financial Markets,” “Interest             49	   I d., “Table 11.2 - Net Gains (Losses) on
       Rate Levels and Volatility,” “Factors Affecting               Derivatives and Hedging Activities,” at F-48.
       Net Interest Income,” “Table 29 – Net Interest



120       Federal Housing Finance Agency Office of Inspector General
50	   Id. Federal Home Loan Banks Office of Finance,           Capital Enhancement Agreement Questions and
       “How do the FHLBanks account for their                   Answers, at 1 (March 1, 2011). Accessed: April
       derivatives?,” “How do the accounting guidelines         23, 2015, at www.fhlbboston.com/downloads/
       for derivatives affect the financial statements          members/Q&A_jointagreement.pdf.
       of the FHLBanks?,” Derivatives Q&A, at 3
       (March 27, 2015). Accessed: April 23, 2015, at     54	    ederal Housing Finance Agency, FHFA
                                                                F
       www.fhlb-of.com/ofweb_userWeb/resources/                 Releases FHFA Strategic Plan for FY 2015-2019
       derivativesqanda.pdf.                                    and Performance and Accountability Report
                                                                (November 21, 2014). Accessed: April 17, 2015,
51	   Federal Home Loan Banks Office of Finance,               at www.fhfa.gov/Media/PublicAffairs/Pages/
       “Selected Financial Data,” Combined Financial            FHFA-Releases-FHFA-Strategic-Plan-for-FY-
       Report for the Year Ended December 31, 2011, at          2015-2019-and-PAR.aspx. Federal Housing
       34. Accessed: April 23, 2015, at www.fhlb-of.            Finance Agency, “Strategic Goal 1: Ensure Safe
       com/ofweb_userWeb/resources/11yrend.pdf.                 and Sound Regulated Entities,” “Strategic Goal
       Federal Home Loan Banks Office of Finance,               2: Ensure Liquidity, Stability, and Access in
       “Selected Financial Data,” Combined Financial            Housing Finance,” “Strategic Goal 3: Manage the
       Report for the Year Ended December 31, 2012, at          Enterprises’ Ongoing Conservatorships,” FHFA
       35. Accessed: April 23, 2015, at www.fhlb-of.            Strategic Plan: Fiscal Years 2015-2019, at 6, 7,
       com/ofweb_userWeb/resources/12yrend.pdf.                 9, 10, 14, 15 (November 21, 2014). Accessed:
       Federal Home Loan Banks Office of Finance,               April 17, 2015, at www.fhfa.gov/AboutUs/
       “Selected Financial Data,” Combined Financial            Reports/ReportDocuments/FHFA-Strategic-Plan-
       Report for the Year Ended December 31, 2013,             FY-2015-2019.pdf.
       at 35. Accessed: April 23, 2015, at www.fhlb-
       of.com/ofweb_userWeb/resources/13yrend.            55	    ederal Housing Finance Agency, FHFA
                                                                F
       pdf. Federal Home Loan Banks Office of                   Releases FHFA Strategic Plan for FY 2015-2019
       Finance, “Selected Financial Data,” Combined             and Performance and Accountability Report
       Financial Report for the Year Ended December             (November 21, 2014). Accessed: April 17, 2015,
       31, 2014, at 36. Accessed: April 23, 2015,               at www.fhfa.gov/Media/PublicAffairs/Pages/
       at www.fhlb-of.com/ofweb_userWeb/                        FHFA-Releases-FHFA-Strategic-Plan-for-FY-
       resources/2014Q4Document-web.pdf.                        2015-2019-and-PAR.aspx.

52	   Federal Home Loan Banks Office of Finance,         56	   I d. Federal Housing Finance Agency, “Summary
       FHLBanks Satisfy REFCORP Obligations;                     of Performance Measures,” Fiscal Year 2014
       Launch Joint Capital Enhancement Agreement, at            Performance and Accountability Report, at 22,
       1 (August 8, 2011). Accessed: April 23, 2015,             23 (November 17, 2014). Accessed: April 17,
       at www.fhlb-of.com/ofweb_userWeb/resources/               2015, at www.fhfa.gov/AboutUs/Reports/
       PR_20110808_FHLBank_System_Capital_                       ReportDocuments/FHFA-2014-PAR.pdf.
       Initiative_Launch.pdf.
                                                          57	   F
                                                                 ederal Housing Finance Agency, FHFA Releases
53	   Federal Home Loan Bank of Boston, “What are              2015 Scorecard for Fannie Mae, Freddie Mac and
       the potential benefits of the Agreement?,” Joint         Common Securitization Solutions (January 14,


                                    Semiannual Report to the Congress • October 1, 2014–March 31, 2015     121
      2015). Accessed: April 17, 2015, at www.fhfa.gov/           PublicAffairsDocuments/20090603_Testimony_
      Media/PublicAffairs/Pages/FHFA-Releases-2015-               PresentConditionFutureStatusFannieFreddie_
      Scorecard-for-Fannie-Freddie-and-CSS.aspx.                  N508.pdf (“As the conservator, FHFA’s most
                                                                  important goal is to preserve the assets of Fannie
58	    ederal Housing Finance Agency, FHFA Report
      F                                                           Mae and Freddie Mac over the conservatorship
      Details Progress on the 2014 Strategic Plan for             period. That is our statutory responsibility.”).
      Fannie Mae and Freddie Mac Conservatorships
      (March 16, 2015). Accessed: April 17, 2015,           60	    . Scott Frame, Andreas Fuster, Joseph Tracy,
                                                                  W
      at www.fhfa.gov/Media/PublicAffairs/Pages/                  and James Vickery, “The Composition of Losses
      FHFA-Report-Details-Progress-on-the-                        and the Return to Profitability,” The Rescue of
      2014-Strategic-Plan-for-Fannie-and-Freddie-                 Fannie Mae and Freddie Mac (Federal Reserve
      Conservatorships.aspx. Federal Housing                      Bank of New York, Staff Report No. 719), at 27-29
      Finance Agency, FHFA Progress Report on                     (March 2015). Accessed: April 17, 2015, at www.
      the Implementation of FHFA’s Strategic Plan                 newyorkfed.org/research/staff_reports/sr719.pdf.
      for the Conservatorships of Fannie Mae and
      Freddie Mac, at 2, 3 (March 16, 2015).                61	    ederal Housing Finance Agency, 2014
                                                                  F
      Accessed: April 17, 2015, at www.fhfa.                      Scorecard For Fannie Mae, Freddie Mac and
      gov/AboutUs/Reports/ReportDocuments/                        Common Securitization Solutions, at 3 (May
      SPEC2014ProgressReport3162015.pdf.                          2014). Accessed: April 17, 2015, at www.fhfa.
                                                                  gov/AboutUs/Reports/ReportDocuments/
59	    ederal Housing Finance Agency, Statement
      F                                                           2014Scorecard051314FINAL.pdf.
      of Edward J. DeMarco, Acting Director, Federal
      Housing Finance Agency Before the U.S. House          62	    annie Mae began offering its program for
                                                                  F
      of Representatives Subcommittee on Capital                  mortgages settling on or after December 13, 2014,
      Markets, Insurance, and Government-Sponsored                and Freddie Mac began offering its program for
      Enterprises: Legislative Proposals: Overhaul                mortgages settling on or after March 23, 2015.
      of Housing-Related Government Sponsored                     Freddie Mac, Single-Family Seller/Servicer Guide
      Enterprises (March 31, 2011). Accessed: April               Bulletin No. 2014-22 (December 8, 2014).
      17, 2015, at www.fhfa.gov/Media/PublicAffairs/              Accessed: April 17, 2015, at www.freddiemac.
      Pages/Statement-of-Edward-J-DeMarco-Acting-                 com/singlefamily/guide/bulletins/pdf/bll1422.
      Director-FHFA-Before-the-US-House-of-                       pdf. Fannie Mae, Selling Guide Announcement
      Representatives-Subcommittee-on-Capital-M.                  SEL-2014-15 (December 8, 2014). Accessed:
      aspx. Federal Housing Finance Agency,                       April 17, 2015, at www.fanniemae.com/content/
      Statement of James B. Lockhart III, Director                announcement/sel1415.pdf.
      Federal Housing Finance Agency Before the House
      Financial Services Committee Subcommittee on          63	    reddie Mac, Single-Family Seller/Servicer Guide
                                                                  F
      Capital Markets, Insurance and Government                   Bulletin No. 2014-22 (December 8, 2014).
      Sponsored Enterprises: The Present Condition                Accessed: April 17, 2015, at www.freddiemac.
      and Future Status of Fannie Mae and Freddie                 com/singlefamily/guide/bulletins/pdf/bll1422.
      Mac (June 3, 2009). Accessed: April 17,                     pdf. Fannie Mae, Selling Guide Announcement
      2015, at www.fhfa.gov/Media/PublicAffairs/                  SEL-2014-15 (December 8, 2014). Accessed:


122       Federal Housing Finance Agency Office of Inspector General
      April 17, 2015, at www.fanniemae.com/content/            Accessed: April 23, 2015, at www.gpo.gov/fdsys/
      announcement/sel1415.pdf.                                pkg/FR-2014-12-16/pdf/2014-29345.pdf.

64	   Id.                                               70	    ederal Housing Finance Agency, FHFA Enhances
                                                               F
                                                               Requirements for Freddie Mac and Fannie Mae
65	    ederal Housing Finance Agency, Statement of
      F                                                        Sales of Non-Performing Loans (March 2, 2015).
      Melvin L. Watt Director, FHFA Before the U.S.            Accessed: April 17, 2015, at www.fhfa.gov/
      House of Representatives Committee on Financial          Media/PublicAffairs/Pages/FHFA-Enhances-
      Services (January 27, 2015). Accessed: April 17,         Requirements-for-Freddie-Mac-and-Fannie-Mae-
      2015, at www.fhfa.gov/Media/PublicAffairs/               Sales-of-Non-Performing-Loans.aspx. Federal
      Pages/Statement-of-Melvin-L-Watt-Director-               Housing Finance Agency, Non-Performing Loan
      FHFA-Before-the-US-House-of-Representatives-             (NPL) Sale Requirements (March 2, 2015).
      Committee-on-Financial-Services-1272015.aspx.            Accessed: April 17, 2015, at www.fhfa.gov/
                                                               Media/PublicAffairs/Pages/Non-Performing-
66	    ederal Housing Finance Agency, FHFA
      F                                                        Loan-%28NPL%29-Sale-Requirements.aspx.
      Statement on the Housing Trust Fund and Capital
      Magnet Fund (December 11, 2014). Accessed:         71	    ederal Housing Finance Agency, FHFA Proposes
                                                               F
      April 23, 2015, at www.fhfa.gov/Media/                   Minimum Financial Eligibility Requirements for
      PublicAffairs/Pages/FHFA-Statement-on-the-               Fannie Mae and Freddie Mac Seller/Servicers (January
      Housing-Trust-Fund-and-Capital-Magnet-Fund.              30, 2015). Accessed: April 17, 2015, at www.fhfa.
      aspx. Letter from Melvin L. Watt, Director,              gov/Media/PublicAffairs/Pages/FHFA-Proposes-
      FHFA, to Timothy J. Mayopoulos, Chief                    Minimum-Financial-Eligibility-Requirements-
      Executive Officer, Fannie Mae (December 11,              for-Fannie-and-Freddie-Seller-Servicers.aspx.
      2014). Accessed: April 23, 2015, at www.fhfa.            Federal Housing Finance Agency, Frequently Asked
      gov/Media/PublicAffairs/Documents/FNM_                   Questions. Accessed: April 17, 2015, at www.
      HTFCMF12112014.pdf.                                      fhfa.gov/PolicyProgramsResearch/Policy/Pages/
                                                               Proposed-Minimum-Financial-Requirements-for-
67	   7 9 Fed. Reg. 74,595 (proposed December 16,             Enterprise-Seller-Servicers.aspx/#FAQs. Fannie
       2014) (to be codified at 12 C.F.R. pt. 1251).           Mae, Selling Guide (March 31, 2015). Accessed:
       Accessed: April 23, 2015, at www.gpo.gov/fdsys/         April 17, 2015, at www.fanniemae.com/content/
       pkg/FR-2014-12-16/pdf/2014-29345.pdf.                   guide/selling/a1/1/01.html. Freddie Mac, Single-
                                                               Family Seller/Servicer Guide Bulletin No. 2010-23
                                                               (October 15, 2010). Accessed: April 17, 2015, at
68	    etter from Melvin L. Watt, Director, FHFA,
      L
                                                               www.freddiemac.com/singlefamily/guide/bulletins/
      to Timothy J. Mayopoulos, Chief Executive
                                                               pdf/bll1023.pdf. National Council of State Housing
      Officer, Fannie Mae (December 11, 2014).
                                                               Agencies, FHFA Proposes New Capital Reserve
      Accessed: April 23, 2015, at www.fhfa.gov/
                                                               Requirements for Fannie Mae and Freddie Mac
      Media/PublicAffairs/Documents/FNM_
                                                               Seller/Servicers (February 5, 2015). Accessed: April
      HTFCMF12112014.pdf.
                                                               17, 2015, at www.ncsha.org/blog/fhfa-proposes-
                                                               new-capital-reserve-requirements-fannie-mae-and-
69	   7 9 Fed. Reg. 74,595 (proposed December 16,
                                                               freddie-mac-sellerservicers.
       2014) (to be codified at 12 C.F.R. pt. 1251).

                                   Semiannual Report to the Congress • October 1, 2014–March 31, 2015        123
72	    ederal Housing Finance Agency, Statement of the
      F                                                              Conforming-Loan-Limits/CLLAddendum_
      Federal Housing Finance Agency on Certain Super                CY2015.pdf.
      Priority Liens (December 22, 2014). Accessed:
      April 17, 2015, at www.fhfa.gov/Media/                   77	    ederal Housing Finance Agency, FHFA Annual
                                                                     F
      PublicAffairs/Pages/Statement-of-the-Federal-                  Guarantee Fee Report Tracks Adjustments from
      Housing-Finance-Agency-on-Certain-Super-                       2009 through 2013 (November 20, 2014).
      Priority-Liens.aspx.                                           Accessed: April 17, 2015, at www.fhfa.gov/
                                                                     Media/PublicAffairs/Pages/FHFA-Annual-
73	   Id.                                                           Guarantee-Fee-Report-Tracks-Adjustments-from-
                                                                     2009-to-2013.aspx. Federal Housing Finance
74	   I d. Saticoy Bay, LLC v. Federal National                     Agency, “Timeline of Key Guarantee Fee Changes
       Mortgage Assoc., No. 2:2014 Civ. 01975 (D.                    Since 2008,” “Changes in Guarantee Fees by
       Nev. Feb. 20, 2015).                                          Product and Lender Types,” Fannie Mae and
                                                                     Freddie Mac Single-Family Guarantee Fees in 2013,
75	    ederal Housing Finance Agency, FHFA
      F                                                              at 4, 10 (November 20, 2014). Accessed: April
      Directs Fannie Mae and Freddie Mac to Change                   24, 2015, at www.fhfa.gov/AboutUs/Reports/
      Requirement Relating to Sales of Existing REO                  ReportDocuments/GFeeReport1120914.pdf.
      (November 25, 2014). Accessed: April 17, 2015,
      at www.fhfa.gov/Media/PublicAffairs/Pages/               78	    ederal Housing Finance Agency, “Timeline
                                                                     F
      FHFA-Directs-Fannie-Mae-and-Freddie-Mac-                       of Key Guarantee Fee Changes Since 2008,”
      to-Change-Requirements-Relating-to-Sales-of-                   Fannie Mae and Freddie Mac Single-Family
      Existing-REO.aspx.                                             Guarantee Fees in 2013, at 4, 5 (November
                                                                     20, 2014). Accessed: April 17, 2015, at www.
76	    ederal Housing Finance Agency, FHFA
      F                                                              fhfa.gov/AboutUs/Reports/ReportDocuments/
      Announces 2015 Conforming Loan Limits:                         GFeeReport1120914.pdf.
      Unchanged in Most of the U.S. (November
      24, 2014). Accessed: April 17, 2015, at www.             79	    ederal Housing Finance Agency, Six Federal
                                                                     F
      fhfa.gov/Media/PublicAffairs/Pages/FHFA-                       Agencies Jointly Approve Final Risk Retention Rule
      Announces-2015-Conforming-Loan-Limits-                         (October 22, 2014). Accessed: April 17, 2015,
      Unchanged-in-Most-of-the-U-S.aspx. Federal                     at www.fhfa.gov/Media/PublicAffairs/Pages/
      Housing Finance Agency, Counties with Increases                Six-Federal-Agencies-Jointly-Approve-Final-
      in Maximum Conforming Loan Limits for Fannie                   Risk-Retention-Rule.aspx. 79 Fed. Reg. 77,602
      Mae and Freddie Mac: Loan Limit Increases: 2014-               (proposed December 24, 2014) (to be codified
      2015. Accessed: April 17, 2015, at www.fhfa.gov/               at 12 C.F.R. pt. 1234). Accessed: April 17, 2015,
      DataTools/Downloads/Documents/Conforming-                      at www.gpo.gov/fdsys/pkg/FR-2014-12-24/
      Loan-Limits/Counties_with_increases_cy2015.                    pdf/2014-29256.pdf.
      pdf. Federal Housing Finance Agency, Addendum:
      Calculation of 2015 Maximum Loan Limits                  80	   S ecurities and Exchange Commission, Federal
      under HERA. Accessed: April 17, 2015, at www.                   Home Loan Bank of Des Moines: Announcement
      fhfa.gov/DataTools/Downloads/Documents/                         (December 22, 2014). Accessed: April



124          Federal Housing Finance Agency Office of Inspector General
      17, 2015, at www.sec.gov/Archives/edgar/          84	    ederal Home Loan Bank of Des Moines, Federal
                                                              F
      data/1325814/000132581414000252/                        Housing Finance Agency Approves FHLB Des
      exhibit991fhfaapprovalmemb.htm. Federal Home            Moines and FHLB Seattle Merger Application
      Loan Bank of Des Moines, Federal Housing                (December 22, 2014). Accessed: April 17, 2015,
      Finance Agency Approves FHLB Des Moines and             at www.fhlbdm.com/homepage-news-feed/
      FHLB Seattle Merger Application (December 22,           federal-housing-finance-agency-approves-fhlb-
      2014). Accessed: April 17, 2015, at www.fhlbdm.         des-moines-and-fhlb-seattle-merger-application/.
      com/homepage-news-feed/federal-housing-
      finance-agency-approves-fhlb-des-moines-and-      85	    ederal Home Loan Bank of Seattle, FHLB Des
                                                              F
      fhlb-seattle-merger-application/.                       Moines and FHLB Seattle Members Ratify Merger
                                                              Agreement (February 27, 2015). Accessed: April
81	   S ecurities and Exchange Commission, Federal           17, 2015, at www.fhlbsea.com/OurCompany/
       Home Loan Bank of Des Moines: Announcement             News/NewsReleases/2015/20150227.aspx.
       (December 22, 2014). Accessed: April
       17, 2015, at www.sec.gov/Archives/edgar/         86	    ederal Housing Finance Agency, FHFA Extends
                                                              F
       data/1325814/000132581414000252/                       Comment Period for Proposed FHLB Rule (October
       exhibit991fhfaapprovalmemb.htm.                        6, 2014). Accessed: April 17, 2015, at www.fhfa.
                                                              gov/Media/PublicAffairs/Pages/FHFA-Extends-
82	    ederal Home Loan Bank of Seattle, FHLB Des
      F                                                       Comment-Period-for-Proposed-FHLB-Rule.
      Moines and FHLB Seattle Members Ratify Merger           aspx. 79 Fed. Reg. 54,848 (proposed September
      Agreement (February 27, 2015). Accessed: April          12, 2014) (to be codified at 12 C.F.R. pt. 1263).
      17, 2015, at www.fhlbsea.com/OurCompany/                Accessed: April 17, 2015, at www.gpo.gov/fdsys/
      News/NewsReleases/2015/20150227.aspx.                   pkg/FR-2014-09-12/pdf/2014-21114.pdf.

83	    ederal Home Loan Banks Office of Finance,
      F
      FHLBanks of Des Moines and Seattle Enter into
      Merger Agreement (March 2, 2015). Accessed:
      April 17, 2015, at www.fhlb-of.com/ofweb_
      userWeb/resources/PR2015-0302DesMoines-Seat
      tleMemberMergerVoteAnnouncement.pdf.




                                  Semiannual Report to the Congress • October 1, 2014–March 31, 2015     125
Federal Housing Finance Agency
Office of Inspector General

Se m iann ual R e p ort
to t h e Cong r e ss
October 1, 2014, through March 31, 2015




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