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. 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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). 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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
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)