oversight

Twelfth Semiannual Report to the Congress

Published by the Federal Housing Finance Agency, Office of Inspector General on 2016-09-30.

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

Federal Housing Finance Agency
  Office of Inspector General

  Se m iann ual R ep ort to t he Cong r e ss
           April 1, 2016, through September 30, 2016
Federal Housing Finance Agency
 Office of Inspector General




 Semiannual Report            to the       Congress
       April 1, 2016, through September 30, 2016
Table of Contents

Our Vision.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                             1
Our Mission. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                                1
Core Values. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                                2
Snapshot of OIG Accomplishments April 1, 2016–September 30, 2016.  .  .  .  .  .  .                                                                                                              4
Monetary Results April 1, 2016–September 30, 2016. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                                                                                       5
A Message from the Inspector General. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                                                                   6
Executive Summary.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                                           8
    Overview .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 8
    This Report .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 9
OIG’s Oversight Strategy .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 10
    Risk-Focused Strategy. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 10
OIG’s Organizational Structure.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 12
    Leadership. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
OIG’s Audit, Evaluation, and Compliance Activities .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 16
    Conservatorship Operations .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                          16
    Supervision of the Regulated Entities. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                                   18
    Information Technology Security. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                             29
    Agency Operations .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .              30
    Recommendations.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                 31
OIG’s Investigations. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 32
    Investigations: Civil Cases .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                      33
    Investigations: Criminal Cases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                                                                        33
    Outreach.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .   41
    Investigations: Administrative Actions .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                                   42
    Suspended Counterparty Referrals .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                                   42
OIG’s Regulatory Activities and Outreach.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 43
    Regulatory Activities.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 43
    Public and Private Partnerships, Outreach, and Communications.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 43
Appendix A: Glossary and Acronyms. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                                                                   46
Appendix B: OIG Recommendations.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                                                                    54
Appendix C: Information Required by the Inspector General Act and
            Subpoenas Issued. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                                                                                                83
Appendix D: OIG Reports.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                                                    87




            Federal Housing Finance Agency Office of Inspector General
Appendix E: O I Publicly Reportable Investigative Outcomes Involving
             Condo Conversion and Builder Bailout Schemes.  .  .  .  .  .  .  .  .  .  .  .  .  . 88
Appendix F: OI Publicly Reportable Investigative Outcomes Involving
             Loan Origination Schemes.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 93
Appendix G: OI Publicly Reportable Investigative Outcomes Involving
             Short Sale Schemes.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 99
Appendix H: OI Publicly Reportable Investigative Outcomes Involving
             Loan Modification and Property Disposition Schemes .  .  .  .  .  .  .  . 101
Appendix I: O
             I Publicly Reportable Investigative Outcomes Involving
            Property Management and REO Schemes.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 105
Appendix J: OI Publicly Reportable Investigative Outcomes Involving
            Adverse Possession Schemes .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 107
Appendix K: OI Publicly Reportable Investigative Outcomes Involving
             Fraud Committed Against the Enterprises, the FHLBanks,
             or FHLBank Member Institutions.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 109
Appendix L: Endnotes .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 112




                                          Semiannual Report to the Congress • April 1, 2016–September 30, 2016
Federal Housing Finance Agency Office of Inspector General
Our Vision
Our vision is to be an organization that promotes excellence and trust through exceptional service to the
Federal Housing Finance Agency (FHFA or Agency), Congress, stakeholders, and the American people. The
FHFA Office of Inspector General (OIG) achieves this vision by being a first-rate independent oversight
organization in the federal government that acts as a catalyst for effective management, accountability, and
positive change in FHFA and holds accountable those, whether inside or outside of the federal government,
who waste, steal, or abuse government funds in connection with the Agency, Fannie Mae and Freddie Mac (the
Enterprises), or any of the Federal Home Loan Banks (FHLBanks).


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




                                Semiannual Report to the Congress • April 1, 2016–September 30, 2016              1
Core Values
OIG’s core values are integrity, respect, professionalism, and results. Accordingly, we strive to maintain the
highest level of integrity, professionalism, accountability, and transparency in our work. We follow the facts—
wherever they go, without fear or favor; report findings that are supported by sufficient evidence in accordance
with professional standards; and recommend actions tied to our findings. Our work is risk-based, credible, and
timely. We play a vital role in promoting the economy and efficiency in the management of the Agency and
view our oversight role both prospectively (advising the Agency on internal controls and oversight, for example)
and retrospectively (by assessing the Agency’s oversight of Fannie Mae, Freddie Mac, and the Federal Home
Loan Banks in its role as regulator, and its operation of Fannie Mae and Freddie Mac in its role as conservator).

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

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

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




2       Federal Housing Finance Agency Office of Inspector General
Semiannual Report to the Congress • April 1, 2016–September 30, 2016   3
              Snapshot of OIG Accomplishments
                          April 1, 2016–September 30, 2016



     OIG Investigations Monetary Results

          Restitution	$34,139,854

          Fines/Special Assessments/Seizures	                      $4,500,908

          Settlements	$5,060,000,000

          TOTAL	$5,098,640,762

     Judicial Actions

          Indictments/Charges	75

          Arrests	59

          Convictions/Pleas	45

          Sentencings	46

          Suspensions/Debarment Referrals 	                               31

     Hotline Contacts	                                                 1,118


     Reports Issued	13

          Audit Reports	                                                   5

          Evaluation Reports	                                              3

          Compliance Reviews	                                              2

          Management Alerts	                                               1

          Special Project Reports	                                         1

          White Papers	                                                    1

     Recommendations	23


     Responses to Requests Under the Freedom of Information Act	          45



4   Federal Housing Finance Agency Office of Inspector General
                                    Monetary Results
                            April 1, 2016–September 30, 2016


OIG’s fiscal year 2016 (FY16) budget is $49.9 million. During this reporting period the monetary results
as an outcome of OIG criminal and civil investigations are 102 times greater than the fiscal year budget, as
demonstrated in Figure 1 (see below).


Figure 1. OIG Monetary Results April 1, 2016, to September 30, 2016, vs. FY16 OIG Budget



    $6,000,000,000


    $5,000,000,000




                                       Criminal Results
                                        $38,640,762
                                               +
                                         Civil Results
                                       $5,060,000,000




                                    OIG Investigations                       FY16 OIG Budget
                                    Monetary Results                  Oct 1, 2015, to Sept 30, 2016
                                 April 1 to Sept 30, 2016
                                     $5,098,640,762




                                Semiannual Report to the Congress • April 1, 2016–September 30, 2016           5
A Message from the Inspector General
I am pleased to present OIG’s twelfth Semiannual Report to the Congress,
which covers the period from April 1, 2016, to September 30, 2016.

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

Created by statute in July 2008, FHFA is charged with serving as regulator of
the Enterprises and the FHLBanks. Seeking to reorganize, rehabilitate, and
wind up the affairs of the Enterprises to prepare for fundamental housing
reform legislation, FHFA placed them in conservatorship in September 2008,
and undertook the extraordinary dual role of supervisor and conservator.
                                                                                       Laura S. Wertheimer
Now in their ninth year, FHFA’s conservatorships of the Enterprises are                Inspector General of the
of unprecedented scope, scale, and complexity. FHFA continues to serve                 Federal Housing Finance Agency

in a unique role: it is both conservator and regulator of the Enterprises and
regulator of the FHLBanks. The scope, complexity, and duration of the Agency’s dual roles present unique and
novel challenges. Consequently, OIG must structure its oversight program to examine FHFA’s exercise of its
dual responsibilities, which differ significantly from the typical federal financial regulator.

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

In this Semiannual Report, we provide a snapshot of the 13 reports—including audits, evaluations,
management alerts, white papers, and special project reports—published during this reporting period. Our
work during this reporting period centered on three of the greatest financial, governance, and/or reputational
risks to FHFA, the Enterprises in its conservatorship, and the entities it regulates: we issued two reports
involving different aspects of FHFA’s management of the conservatorships; nine reports addressing elements
of FHFA’s annual supervisory cycle for its examinations of the regulated entities; and one report assessing the
adequacy of FHFA’s privacy controls for its electronic data. One report was a mandated review of FHFA’s
compliance with the Improper Payments Information Act of 2002 as amended by the Improper Payments
Elimination and Recovery Act of 2010 and the Improper Payments Elimination and Recovery Improvement
Act of 2012.




6       Federal Housing Finance Agency Office of Inspector General
With regard to criminal investigations, OIG recognizes that the best deterrent against mortgage and financial
institutional fraud is a proactive and visible criminal law enforcement effort. Our Office of Investigations
conducts investigations into a wide variety of potential fraud schemes. Working closely with prosecutors, we
follow the evidence wherever it leads to develop sufficient evidence to prove the elements of a crime, and hold
those persons accountable who seek to prey on innocent victims and defraud the regulated entities. Where
we do not find evidence sufficient to refer the matter to prosecutors to consider bringing criminal charges, we
examine whether the evidence supports civil claims.

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

•	 75 indictments;

•	 45 convictions;

•	 46 sentencings;

•	 More than $38 million in criminal fines, restitutions, forfeitures, and settlements; and

•	 Over $5 billion in civil settlements.

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

Our achievements reflected in this Semiannual Report to the Congress would not be possible without the
dedication and hard work of the professionals at OIG and I thank them for their service.



Laura S. Wertheimer
Inspector General
October 28, 2016




                                Semiannual Report to the Congress • April 1, 2016–September 30, 2016              7
Executive Summary

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

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


8       Federal Housing Finance Agency Office of Inspector General
This Report

This Semiannual Report discusses OIG operations
from April 1, 2016, to September 30, 2016. Among
other things, it:

•	 Explains our risk-based oversight strategy;

•	 Describes our organizational structure;

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

•	 Provides highlights of some of the numerous
   OIG investigations that resulted in 75
   indictments/charges, 45 convictions, and 46
   sentencings against individuals responsible
   for fraud, waste, or abuse in connection with
   programs and operations of FHFA and the
   Enterprises; more than $38 million in criminal
   fines, restitutions, forfeitures, and settlements;
   and over $5 billion in civil settlements;

•	 Summarizes our outreach during the period; and

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




                                 Semiannual Report to the Congress • April 1, 2016–September 30, 2016   9
OIG’s Oversight Strategy
OIG began operations on October 12, 2010. It             and performance challenges the Agency faced in the
was established by HERA, which amended the               previous year. They included:
Inspector General Act. The primary mission of OIG
                                                         •	 Conservatorship operations: oversight of
is to conduct independent audits, evaluations, and
                                                            delegated and non-delegated matters
investigations to promote economy and efficiency
and to prevent and detect fraud, waste, abuse, and       •	 Supervision
mismanagement in the programs and operations
of FHFA, including its conservatorships of the           •	 Non-bank sellers
Enterprises.                                             •	 Information technology security
OIG’s operations are funded by annual assessments        Our current Audit and Evaluation plan, adopted
that FHFA levies on the Enterprises and the              in February 2016, builds on the four areas
FHLBanks pursuant to 12 U.S.C. § 4516. For fiscal        of significant risk facing FHFA identified in
year 2016, OIG’s operating budget is $49.9 million.      our management and performance challenges
                                                         memorandum. The four areas of significant risk
Risk-Focused Strategy                                    identified in that plan are:

                                                         •	 Conservatorship Operations. Since
OIG’s broad oversight mission encompasses the               September 2008, FHFA has administered
full scope of the Agency’s programs and operations,         two conservatorships of unprecedented scope
including its conservatorship of the Enterprises.           and undeterminable duration. Under HERA,
In February 2014, OIG issued a Strategic Plan for           the Agency’s actions as conservator are not
fiscal years 2015–2017 with four high-level goals           subject to judicial review or intervention,
that serve as a blueprint for OIG’s oversight of            nor are they subject to procedural safeguards
FHFA and independent reporting. To best leverage            that are ordinarily applicable to regulatory
our resources to strengthen OIG’s oversight, we             activities such as rulemaking. As conservator
determined to focus our resources on programs               of the Enterprises, FHFA exercises control
and operations that pose the greatest financial,            over trillions of dollars in assets and billions
governance, and/or reputational risk to the Agency,         of dollars in revenue, and makes business and
the Enterprises, and the FHLBanks. Because our              policy decisions that influence and impact the
work plan is dynamic, it adjusts to a changing risk         entire mortgage finance industry. For reasons of
profile.                                                    efficiency, concordant goals with the Enterprises,
An integral part of OIG’s oversight is to identify          and operational savings, FHFA has determined
and assess FHFA’s management and performance                to delegate revocable authority for general
challenges and to align its work with these                 corporate governance and day-to-day matters to
challenges. In September 2015, the Inspector                the Enterprises’ boards of directors and executive
General identified the most serious management              management.




10     Federal Housing Finance Agency Office of Inspector General
•	 Supervision of the Regulated Entities. As               loans that did not comply with the Enterprise’s
   discussed earlier, FHFA plays a unique role as          lending requirements, would not have sufficient
   both conservator and regulator for the Enterprises      capital or liquidity to honor repurchase demands
   and as regulator for the FHLBank System.                by the Enterprises for noncompliant loans.
   Effective supervision by FHFA is fundamental to
                                                         •	 Information Technology Security. With over
   ensuring the safety and soundness of its regulated
                                                            67,000 cyber incidents reported to the United
   entities. Within FHFA, the Division of Federal
                                                            States Computer Emergency Readiness Team
   Home Loan Bank Regulation is responsible
                                                            in fiscal year 2014, systems security continues
   for supervision of the FHLBank System,
                                                            to be a preeminent issue for businesses and
   and the Division of Enterprise Regulation is
                                                            individuals alike. The regulated entities, like
   responsible for supervision of the Enterprises.
                                                            most modern institutions, rely on numerous,
   FHFA’s supervisory activities include designing
                                                            complex information technology (IT) systems
   a comprehensive, risk-based supervisory strategy
                                                            to conduct almost every aspect of their work.
   (examination planning), conducting on-site
                                                            These systems manage processes to purchase loans
   examinations (examination execution), and
                                                            and guarantee the timely payment of principal
   monitoring remediation of deficiencies identified
                                                            and interest to investors in mortgage-backed
   during examinations (oversight).
                                                            securities, and support more than $5 trillion
•	 Counterparties and Third Parties. The                    in Fannie Mae and Freddie Mac mortgage
   Enterprises rely heavily on counterparties and           assets. Both Enterprises and the FHLBanks
   third parties for a wide array of professional           have been the subject of cyber attacks, although
   services, including mortgage origination and             none caused significant harm. All of the entities
   servicing. That reliance exposes the Enterprises         regulated by FHFA acknowledge that the
   to counterparty risk—that the counterparty will          substantial precautions put into place to protect
   not meet its contractual obligations. FHFA has           their information systems may be vulnerable
   delegated to the Enterprises the authority to            and penetration of their systems poses a material
   manage their relationships with counterparties           risk to their business operations. Further, the
   and reviews that management largely through              Enterprises are increasingly relying on third-
   its regulatory responsibilities. One of the most         party service providers, requiring the sharing
   significant counterparty risks is the risk posed         of sensitive information between Enterprise
   by loan originators and servicers that are not           and third-party systems. Consequently, the
   depository institutions (also called nonbanks).          Enterprises face an increased risk in that an
   As participants in the mortgage market change,           operational failure by a third party will adversely
   counterparties can affect the risks to be managed        affect them.
   by the Enterprises. Nonbanks are lightly
                                                         OIG focused much of its oversight during this
   regulated by federal financial regulatory agencies
                                                         reporting period (and during the prior reporting
   and may not have the same financial strength,
                                                         period) on identifying vulnerabilities in these
   liquidity, or operational capacity needed to meet
                                                         areas, recommending positive, meaningful actions
   their obligations to the Enterprises as depository
                                                         that the Agency could take to mitigate these risks,
   institutions. As a result, there is a risk that a
                                                         and fulfilling statutory mandates. Our Audit and
   nonbank seller that failed to honor its contractual
                                                         Evaluation Plan is available at
   obligations, such as by selling to an Enterprise
                                                         www.fhfaoig.gov/Reports/AuditAndEvaluationPlan.

                                Semiannual Report to the Congress • April 1, 2016–September 30, 2016       11
OIG’s Organizational Structure
OIG consists of the Inspector General, senior             coordinates with FHFA’s Office of General Counsel
staff, and OIG offices, which principally are its         and manages OIG’s responses to requests and
operational offices: the Office of Audits, Office of      appeals made under the Freedom of Information
Evaluations, Office of Investigations, and the Office     Act and the Privacy Act.
of Compliance and Special Projects. Additionally,
                                                          The Office of External Affairs is also within EO, and
OIG’s Executive Office includes the Office of
                                                          it responds to inquiries from members of Congress.
Chief Counsel, the Office of External Affairs, the
Office of Communications, and OIG’s Equal                 The Office of Communications is also within EO,
Employment Opportunity Program Office and                 and it responds to inquiries from the press and
provides organization-wide supervision; the Office        public.
of Risk Analysis, the Office of Administration, and
the Office of Internal Controls and Facilities provide    Additionally, OIG’s Equal Employment
organization-wide support.                                Opportunity Program Office is within EO, and it
                                                          oversees compliance with federal requirements for
                                                          equal opportunities in the workplace.
Leadership
                                                          Office of Risk Analysis
On May 22, 2014, President Barack Obama
                                                          To exercise rigorous oversight, we must identify
nominated Laura S. Wertheimer to the position of
                                                          emerging risks and revise our work plan as new
FHFA Inspector General; she was confirmed by the
                                                          risks emerge and existing risks are well-controlled.
Senate on September 18, 2014, and sworn in shortly
                                                          Our Office of Risk Analysis uses data mining,
thereafter.
                                                          quantitative data, and analysis of data and relevant
Executive Office                                          information to identify and monitor emerging and
                                                          ongoing areas of risk. The identification, analysis,
The Executive Office (EO) provides leadership
                                                          and prioritization of risk areas allow us to utilize
and programmatic direction for OIG’s offices and
                                                          resources strategically.
activities.

EO includes the Office of Chief Counsel (OC),             Office of Audits
which serves as the chief legal advisor to the            The Office of Audits (OA) is tasked with designing
Inspector General and provides independent legal          and conducting independent performance
advice, counseling, and opinions to OIG about its         audits with respect to the Agency’s programs and
programs and operations. OC also reviews audit,           operations. OA also undertakes projects to address
evaluation, compliance, and other reports and             statutory requirements and stakeholder requests.
white papers for legal sufficiency and compliance         For example, the Improper Payments Information
with OIG’s policies and priorities. Additionally,         Act of 2002 (IPIA), as amended, requires OIG
it reviews drafts of FHFA regulations and policies        annually to audit FHFA’s compliance with IPIA
and prepares comments as appropriate. OC also             during the prior fiscal year. Additionally, the Federal


12      Federal Housing Finance Agency Office of Inspector General
Information Security Modernization Act of 2014          Office of Evaluations
(FISMA) directs OIG annually to perform an
                                                        The Office of Evaluations (OE) conducts
independent evaluation of whether FHFA’s and
                                                        program and management reviews and makes
OIG’s information security programs and practices
                                                        recommendations for improvement where
meet FISMA’s security requirements.
                                                        applicable. OE provides independent and objective
During this reporting period, Marla Freedman            reviews, studies, survey reports, and analyses of
joined OIG as the Deputy Inspector General              FHFA’s programs and operations. The Inspector
of Audits. Ms. Freedman formerly led the audit          General Reform Act of 2008 requires that
division at the Department of the Treasury Office       inspectors general adhere to the Quality Standards
of Inspector General for 15 years, and has over         for Inspection and Evaluation (Blue Book), issued
30 years’ experience conducting audits within the       by the Council of the Inspectors General on
federal government. Ms. Freedman was recently           Integrity and Efficiency (CIGIE). OE performs its
awarded the David M. Walker Excellence in               evaluations in accordance with the Blue Book.
Government Performance and Accountability
Award, awarded to one federal government                Office of Investigations
employee every two years. Robert Taylor also joined     Staffed with special agents, investigators, analysts,
OIG as the Assistant Inspector General of Audits.       prosecutors, and attorney advisors, the Office
Mr. Taylor also comes to OIG from the Department        of Investigations (OI) conducts criminal and
of the Treasury Office of Inspector General and         civil investigations into those, whether inside or
has over 35 years of audit experience. Under the        outside of government, who waste, steal, or abuse
leadership and guidance of Ms. Freedman and             government monies in connection with programs
Mr. Taylor, OIG is continuing to restructure our        and operations of the Agency and the GSEs. OI
audit division to ensure that the skill sets of OIG     pursues wrongdoers within the Agency and the
personnel facilitate the types of performance audits    GSEs as well as individuals and entities that make
and evaluations that OIG plans to conduct, and to       misrepresentations to the Enterprises in connection
fulfill OIG’s strategic vision of producing targeted,   with loans that the Enterprises buy or guarantee.
relevant, high-quality audit and evaluations
products faster and with smaller teams. Toward          OI is responsible for conducting a preliminary
that goal, OIG welcomed six additional new              review of all referrals made to OIG’s hotline through
professionals to OA during this reporting period        telephone, email, website, and in-person complaints,
who will enhance our ability to conduct audits          abiding by all applicable whistleblower protections
relevant to cyber issues and FHFA supervision of        set forth in the Inspector General Act. Our hotline
the FHLBanks.                                           is staffed by a third-party vendor to protect the
                                                        anonymity of the callers and provides easy access
Under the Inspector General Act, inspectors             for individuals to report concerns, allegations,
general are required to comply with generally           information, and evidence of violations of criminal
accepted government auditing standards (GAGAS)          and civil laws in connection with programs and
established by the Comptroller General of               operations of the Agency. During this reporting
the United States. OA performs its audits and           period, our hotline has received and analyzed 1,118
attestation engagements in accordance with the          contacts. OI investigates hotline and whistleblower
Government Auditing Standards (Yellow Book).


                               Semiannual Report to the Congress • April 1, 2016–September 30, 2016       13
complaints involving potential violations of criminal     OCo is charged with several critical responsibilities.
or civil laws; the Office of Compliance and Special       First, it consults with each division in the
Projects, OA, or OE may conduct inquiries, audits,        development of recommendations to ensure
or evaluations regarding hotline and whistleblower        that such recommendations, if accepted and
complaints that involve administrative matters            implemented, will be susceptible to follow-up
or involve potential inefficiencies, waste, or other      verification testing. Second, it tracks, in real time,
abuses.                                                   the status of all OIG recommendations, from
                                                          issuance to closure to subsequent follow-up and
To maximize criminal and civil law enforcement, OI
                                                          testing. Third, it consults with each division,
works closely with other law enforcement agencies,
                                                          prior to closure of a recommendation, to facilitate
including the Department of Justice (DOJ), the
                                                          application of a single standard across the office
Office of the Special Inspector General for the
                                                          for closing recommendations. Last, it conducts
Troubled Asset Relief Program (SIGTARP), the
                                                          verification testing on closed recommendations
Postal Inspection Service, the Federal Bureau of
                                                          to verify independently whether FHFA has
Investigation (FBI), the Department of Housing
                                                          implemented in full the corrective actions it
and Urban Development Office of Inspector
                                                          represented to OIG that it intended to take. The
General (HUD-OIG), the Secret Service, IRS-
                                                          results of OCo’s testing are published in compliance
Criminal Investigation (IRS-CI), and state and local
                                                          reviews.
law enforcement entities nationwide.
                                                          OCo also performs special projects, which include
Office of Compliance and Special Projects                 inquiries or investigations into high-profile or high-
The Office of Compliance and Special                      risk issues that may arise.
Projects (OCo) addresses the reputational risk
arising from the practical necessity of closing
                                                          Office of Administration
OIG recommendations based largely upon                    The Office of Administration (OAd) manages and
representations from the Agency. Pursuant to              oversees OIG administration, including budget,
the Inspector General Act, inspectors general             human resources, financial management, and IT.
(IGs) recommend remedial actions to correct               For human resources, OAd develops policies to
shortcomings identified through reviews of agency         attract, develop, and retain exceptional people,
programs and operations. When an agency accepts           with an emphasis on linking performance planning
an IG recommendation and takes steps to begin             and evaluation to organizational and individual
implementation of the corrective action, the agency       accomplishment of goals and objectives. OAd
reports on its efforts to the IG and the IG typically     also coordinates budget planning and execution
relies on materials and representations from the          and oversees all of OIG’s procedural guidance for
agency to close the recommendation.                       financial management and procurement integrity.




14      Federal Housing Finance Agency Office of Inspector General
Office of Internal Controls and Facilities
The Office of Internal Controls and Facilities
(OICF) manages and oversees OIG’s workplace
safety and facilities in support of OIG program-wide
operations. OICF also manages the implementation
of OIG’s internal controls program in compliance
with Office of Management and Budget (OMB)
Circular A-123 on Management’s Responsibility for
Enterprise Risk Management and Internal Control
and the Standards for Internal Control in the Federal
Government (Green Book).




                               Semiannual Report to the Congress • April 1, 2016–September 30, 2016   15
OIG’s Audit, Evaluation, and Compliance Activities

OIG actively strives to fulfill its mission through       status, and uncertain future, the Enterprises have
audit, evaluation, and compliance projects and            grown in size during conservatorship and, according
reports and through investigations. Our Audit and         to FHFA, their combined market share of newly
Evaluation Plan identifies the four risk areas on which   issued mortgage-backed securities is approximately
our audit and evaluation projects have been focused.      70%.3 The Enterprises’ combined total assets are
                                                          approximately $5.2 trillion and their combined debt
We now discuss our oversight activities during the
                                                          exceeds $5 trillion.4 Although market conditions
reporting period by risk area.
                                                          have improved and the Enterprises have returned
                                                          to profitability, their ability to sustain profitability
Conservatorship Operations                                in the future cannot be assured for a number of
                                                          reasons: the winding down of their investment
When then-Secretary of the Treasury Henry Paulson         portfolios and reduction in net interest income;
announced the conservatorships in September               the level of guarantee fees they will be able to
2008, he explained that they were meant to be a           charge; the future performance of their business
“time out” during which the Enterprises would be          segments; the elimination by 2018 of a capital
stabilized, enabling the “new Congress and the next       cushion to buffer against losses; and the significant
Administration [to] decide what role government           uncertainties involving key market drivers such as
in general, and these entities in particular, should      mortgage rates, homes prices, and credit standards.5
play in the housing market.”2 The current FHFA
                                                          Given the taxpayers’ enormous investment in
Director has echoed that view, recognizing that
                                                          the Enterprises, the unknown duration of the
conservatorship “cannot and should not be a
                                                          conservatorships, the Enterprises’ critical role
permanent state” for the Enterprises. However,
                                                          in the secondary mortgage market, and their
putting the Enterprises into conservatorships has
                                                          unknown ability to sustain future profitability,
proven to be far easier than taking them out, and
                                                          OIG determined that FHFA’s administration of the
the “time out” period for the conservatorships has
                                                          conservatorships has been, and continues to be, a
now entered its ninth year. The lack of consensus in
                                                          critical risk.
Congress about the nation’s future mortgage finance
system and the role, if any, for the Enterprises may
                                                          Non-delegated Matter: Management Alert
mean that the Enterprises will continue to operate
                                                          Questioning Budget for the Build-Out of
under FHFA’s conservatorship for a considerably
                                                          Fannie Mae’s Corporate Headquarters
longer period.
                                                          In response to an anonymous complaint to OIG’s
Earlier in conservatorship, the Enterprises required      hotline, OIG conducted a special project review
$187.5 billion in financial investment from Treasury      of alleged excessive spending on Fannie Mae’s
to avert their insolvency. Through December 2015,         relocation to a new headquarters in downtown
the Enterprises have paid to Treasury approximately       Washington, DC. Our review resulted in a
$241 billion in dividends on its investment. Despite      management alert to FHFA. (See OIG, Management
their high leverage, lack of capital, conservatorship


16      Federal Housing Finance Agency Office of Inspector General
Alert: Need for Increased Oversight by FHFA,            Permian Basin, primarily in western Texas; and
as Conservator of Fannie Mae, of the Projected          Eagle Ford, primarily in southern Texas.
Costs Associated with Fannie Mae’s Headquarters
                                                        The shale oil production boom bolstered the growth
Consolidation and Relocation Project (COM-2016-
                                                        of employment and population in these regions,
004, June 16, 2016), online at www.fhfaoig.gov/
                                                        which put pressure on local housing markets.
Reports/AdditionalActionItems.)
                                                        Widespread use of nontraditional and temporary
OIG found that Fannie Mae’s budget estimates            housing emerged. Single-family home prices in
for the build-out costs for the DC headquarters         North Dakota and Texas increased substantially,
building—for items such as furnishings and office       especially in counties with higher oil and gas
configurations—increased 53% from the time              industry employment, compared to a decline
FHFA approved the project in January 2015 to            nationwide. Demand for multifamily rental housing
March 2016. Further, the FHFA office responsible        also strengthened, with rents in some places rising
for overseeing the project was unaware of these         rapidly.
cost increases. OIG also found that Fannie Mae’s
                                                        Since 2014, oil prices have dropped and currently
planned expenditures on the project included items
                                                        stand at levels below which new shale oil production
that may not be appropriate for an entity in a
                                                        is generally economically viable. These three
taxpayer-supported conservatorship, such as spiral
                                                        shale oil regions have witnessed a decline in new
staircases and glass bridges.
                                                        shale drilling activity over this period. Some areas
OIG recommended that the Agency take immediate          have seen a rise in unemployment. In some of
action to ensure that it had adequate internal staff    the regions, the housing markets have slowed,
or contractors with the necessary professional          accompanied by early signs of stress. As a result,
expertise and experience to oversee the project, and    there is an emerging risk that the shale oil areas
that it direct Fannie Mae to provide regular updates    could face a further slowdown in their housing
and formal budgetary reports for Agency approval        markets, which has the potential to adversely impact
through the design and construction process. The        the Enterprises.
Agency accepted OIG’s recommendations.
                                                        In light of concerns about the potential impact of
                                                        the oil bust on housing raised by Fannie Mae and
Delegated Matter: Shale Oil Boom and
                                                        Freddie Mac, financial and industry entities, and
Bust: Implications for the Mortgage
                                                        media outlets, we assessed the Enterprises’ business
Market
                                                        activities in core shale regions during the 2005 to
Beginning in 2005, rising oil prices together with      2015 boom and bust cycle to better understand
technological developments—horizontal drilling          their potential exposure. (See OIG, Shale Oil Boom
and hydraulic fracturing, also known as fracking—       and Bust: Implications for the Mortgage Market
drove an increase in U.S. oil production. These         (WPR-2016-003, September 7, 2016), online at
technologies made drilling economically feasible        www.fhfaoig.gov/Reports/AuditsAndEvaluations.)
in parts of the country that were not traditional       We found that less than one-tenth of 1% of the
oil producers, particularly “shale” areas. Most U.S.    Enterprises’ single-family mortgage acquisitions and
shale oil production has come from three regions:       less than 1% of their multifamily acquisitions from
Bakken, primarily in western North Dakota;              2005 to 2015 were concentrated in these regions.



                                Semiannual Report to the Congress • April 1, 2016–September 30, 2016     17
From the materials we reviewed, we believe that,          Supervision of the Enterprises: Targeted
as matters now stand, the Enterprises’ potential          Examination Planning and Execution
exposure from this emerging risk is quite small as
                                                          Like other federal financial regulators, FHFA
a proportion of their overall acquisitions, and the
                                                          maintains that it uses a risk-based approach for its
white paper makes no recommendations.
                                                          supervisory activities. Supervision by risk requires a
                                                          comprehensive, risk-focused view of each regulated
Supervision of the Regulated                              entity so that supervisory activities can be tailored
Entities                                                  to the risks with the highest supervisory concerns.
                                                          Each DER core team prepares a number of
As FHFA recognizes, effective supervision of the          semiannual risk assessments for each Enterprise, and
entities it regulates is fundamental to ensuring their    using these risk assessments, they should develop
safety and soundness. Within FHFA, the Division           an annual supervisory plan for the respective
of Federal Home Loan Bank Regulation (DBR)                Enterprise. The annual supervisory plan identifies all
is responsible for supervision of the FHLBanks.           planned supervisory activities—ongoing monitoring
Section 20 of the Federal Home Loan Bank Act              and targeted examinations—of selected areas of high
(12 U.S.C. § 1440) requires each FHLBank to be            importance or risk.
examined at least annually. The exam function for         As discussed in the previous Semiannual Report to
the FHLBanks descends from the old Federal Home           the Congress, earlier this year we published a report
Loan Bank Board, through the Federal Housing              in which we assessed whether FHFA’s requirements
Finance Board, to FHFA. As a result, there is a long      for its risk assessments of the Enterprises were
history of examination practice and examination           sufficiently robust to produce risk assessments that
standards for DBR to draw upon.                           achieve the purpose for which they were intended.
FHFA’s Division of Enterprise Regulation (DER)            We reported that FHFA’s loosely defined parameters
is responsible for supervision of the Enterprises.        lacked standardized measures of risks, did not define
FHFA’s annual examination program assesses                the risk measures that examiners must use, and did
Fannie Mae’s and Freddie Mac’s financial safety           not require examiners to use a common format
and soundness and overall risk management                 or common, defined measures of risk. We also
practices through ongoing monitoring, targeted            found the absence of minimum required standards
examinations, and risk assessments. Prior to the          for risk assessments combined with the broad
creation of FHFA, the Enterprises were regulated by       discretion granted to examiners-in-charge (EICs)
the Office of Federal Housing Enterprise Oversight        and examination managers to select and define risk
(OFHEO), and OFHEO’s first examination took               measures had resulted in a lack of consistency in
place in 1994. In its Fiscal Year 2014 Performance        defining significant risks and identifying supervisory
and Accountability Report to Congress, FHFA               concerns in risk assessments for an Enterprise over
stated, “To ensure that the regulated entities are        a period of years. The significant variability in risk
operating safely and soundly, FHFA identifies             assessments for an Enterprise limits their utility
risks to the regulated entities and takes timely          in development of a risk-based supervisory plan.
supervisory actions to address risks and improve          (See OIG, Utility of FHFA’s Semi-Annual Risk
their condition.”                                         Assessments Would Be Enhanced Through Adoption of
                                                          Clear Standards and Defined Measures of Risk Levels



18      Federal Housing Finance Agency Office of Inspector General
(EVL-2016-001, January 4, 2016), online at www.        Examinations Were Not Completed (AUD-2016-005,
fhfaoig.gov/Reports/AuditsAndEvaluations.)             September 30, 2016), online at www.fhfaoig.gov/
                                                       Reports/AuditsAndEvaluations.)
In response to our recommendations to improve the
preparation of risk assessments, DER issued internal   Of the 61 high-priority targeted examinations
guidance in May 2016 to improve consistency of         planned for the Enterprises for 2014 and 2015, we
definitions and use of key terms and risk measures,    were able to trace 32 to DER risk assessments but
and prescribed specific documentation and approval     were unable to trace the remaining 29—almost
requirements to apply to midyear risk assessments.     half of the total. The then-current EICs for the
According to FHFA senior leadership, FHFA              DER core examination teams for the Enterprises
plans to assess the effectiveness of the enhanced      explained to us that we were unable to trace 27
risk assessment procedures in the first quarter of     of the 29 high-priority targeted examinations to
2017 before midyear risk assessments for 2017 are      underlying risk assessments because the core teams
prepared.                                              obtained information outside the risk assessment
                                                       process and planned those 27 examinations on the
Beginning in October 2015, prior to the issuance
                                                       basis of such information. However, none of the
of DER’s May 2016 internal guidance, we decided
                                                       risk assessments were updated to include this newly
to build upon our evaluation work by conducting
                                                       obtained information, as required by FHFA. The
an audit to determine whether DER (1) supported
                                                       result of gathering information from outside the
its 2014 and 2015 high-priority planned targeted
                                                       risk assessment process meant that risk assessments
examinations identified in its annual supervisory
                                                       did not provide the critical foundation for
plans with risk assessments and completed those
                                                       planning almost half of the high-priority targeted
planned high-priority examinations; (2) performed
                                                       examinations for the Enterprises for the 2014 and
its planned targeted examinations for Fannie Mae
                                                       2015 supervisory cycles.
from 2012 through 2015 and, if it did not, whether
FHFA documented the deviations from its plans          We also determined how many of the 61 high-
in accordance with policies and procedures; and        priority targeted examinations planned for 2014 and
(3) performed its planned targeted examinations        2015 were completed by the end of our fieldwork
for Freddie Mac from 2012 through 2015 and, if it      (June 17, 2016). We found that only 25 (41%) of
did not, whether FHFA documented the deviations        the 61 high-priority targeted examinations planned
from its plans in accordance with policies and         for the 2014 and 2015 supervisory cycles were
procedures. We issued three reports from this audit.   completed.

The first report analyzed whether the high-priority    Our second report analyzed whether DER
planned targeted examinations identified by DER in     examiners performed the planned targeted
its annual supervisory plans for 2014 and 2015 for     examinations for Fannie Mae from 2012 through
each Enterprise were supported by risk assessments     2015 and, in those instances where the planned
and whether those planned high-priority targeted       targeted examinations were not completed, whether
examinations were completed. (See OIG, FHFA’s          DER documented the deviations from its plans
Supervisory Planning Process for the Enterprises:      in accordance with policies and procedures. (See
Roughly Half of FHFA’s 2014 and 2015 High-Priority     OIG, FHFA’s Targeted Examinations of Fannie Mae:
Planned Targeted Examinations Did Not Trace to         Less than Half of the Targeted Examinations Planned
Risk Assessments and Most High-Priority Planned        for 2012 through 2015 Were Completed and No


                               Semiannual Report to the Congress • April 1, 2016–September 30, 2016    19
Examinations Planned for 2015 Were Completed             Freddie Mac from 2012 through 2015 and, in those
Before the Report of Examination Issued (AUD-2016-       instances where the planned targeted examinations
006, September 30, 2016), online at www.fhfaoig.         were not completed, whether DER documented
gov/Reports/AuditsAndEvaluations.)                       the deviations from its plans in accordance with
                                                         policies and procedures. (See OIG, FHFA’s
DER planned 102 targeted examinations for
                                                         Targeted Examinations of Freddie Mac: Just Over
Fannie Mae from 2012 through 2015, of which
                                                         Half of the Targeted Examinations Planned for 2012
43 were completed. Of the remaining 59 planned
                                                         through 2015 Were Completed (AUD-2016-007,
targeted examinations: 19 were cancelled, 9 were
                                                         September 30, 2016), online at www.fhfaoig.gov/
deferred, 14 were converted to ongoing monitoring,
                                                         Reports/AuditsAndEvaluations.)
7 were commenced but not completed, and 10
lacked documentation as to their disposition as          We found that DER planned 90 targeted
of the end of our fieldwork on June 17, 2016.            examinations for Freddie Mac from 2012 through
Overall, we found that both the number and               2015, of which 50 were completed. Of the
percent of completed targeted examinations that          remaining 40 planned targeted examinations: 17
were identified in the annual supervisory plans          were cancelled, 4 were deferred, 7 were converted
decreased significantly during this four-year period.    to ongoing monitoring, 4 were commenced but
Of particular concern, for the 2015 supervisory          not completed, and 8 lacked documentation as
cycle, DER planned 11 targeted examinations,             to their disposition as of the end of our fieldwork
but completed none before the 2015 report of             on June 17, 2016. As with Fannie Mae, we
examination (ROE) issued on March 23, 2016. The          found overall that both the number and percent
only targeted examinations for which findings were       of completed targeted examinations that were
reported in the 2015 ROE were 3 examinations             identified in the annual supervisory plans decreased
planned for the 2014 supervisory cycle and               significantly during this four-year period.
completed in the 2015 supervisory cycle.
                                                         For Freddie Mac, 54 targeted examinations were
Effective January 1, 2014, DER requires that             planned for 2014 and 2015. Of these 54, 22
changes to supervisory plans be risk related,            were completed and 4 were commenced but not
approved by the EIC, and documented. For Fannie          completed as of the end of our fieldwork. The
Mae, 64 targeted examinations were planned for           remaining 28 (52%) were either not conducted or
2014 and 2015. Of these 64, 17 were completed            their disposition was not documented. While DER
and 7 were commenced but not completed as of             provided us with documentation that explained the
June 17, 2016. The remaining 40 (63%) were               change in status for 21 of the 28, only 4 reflected
either not conducted or their disposition was            risk-related reasons for the change in status. The
not documented. While DER provided us with               reasons provided by DER to explain the change in
documentation that explained the change in status        status for the remaining 17 were not risk related.
for 33 of the 40, only 11 reflected risk-related
                                                         The reason repeatedly provided to us by DER
reasons for the change in status. The reasons
                                                         officials for failure to commence a significant
provided by DER to explain the change in status for
                                                         number of planned targeted examinations for
the remaining 22 were not risk related.
                                                         Fannie Mae and Freddie Mac was resource
Our third report analyzed whether DER examiners          constraints, notwithstanding the consistent position
performed the planned targeted examinations for          of DER leadership and FHFA senior leadership that


20     Federal Housing Finance Agency Office of Inspector General
DER has an adequate complement of examiners.             planned targeted examination is documented
For a federal financial regulator, responsible for       and risk based (e.g., change in process, delay in
supervising two Enterprises that together own            implementation); (4) enhance DER guidance
or guarantee more than $5 trillion in mortgage           to provide a common definition for the priority
assets and operate in conservatorship, to fail to        assigned to targeted examinations and require
complete a substantial number of planned targeted        examiners to document the basis of the priority
examinations, including failure to complete any          assigned to targeted examinations; and (5) revise
of its 2015 planned targeted examinations for            existing guidance to require examiners to prepare
Fannie Mae within the 2015 supervisory cycle, is an      complete documentation of supervisory activities
unsound supervisory practice and strategy.               and maintain such documentation in the official
                                                         system of record, and train DER examiners on this
Additionally, as noted in all three reports, our
                                                         guidance. This last recommendation applied to all
audit work was hampered by the lack of DER’s
                                                         three reports.
supervisory documentation maintained in its official
system of record. In our judgment, the lack of such      In its written comments to our draft report, FHFA
documentation creates a significant risk exposure.       stated that it issued internal guidance in May
This significant risk exposure, coupled with the         2016 that FHFA believes confirms its general
other deficiencies identified in this audit, threatens   agreement with recommendations 1, 2, 3, and 4.
FHFA’s ability to fulfill its statutory mission to       FHFA stated that during the first quarter of 2017,
ensure that the Enterprises operate in a safe and        it will assess the effectiveness of the enhanced risk
sound manner.                                            assessment procedures outlined in the guidance and
                                                         determine whether any revisions are needed before
We made nine recommendations to address the
                                                         the midyear risk assessment process commences in
findings identified in the three reports.
                                                         2017. Since FHFA is committed to implementing
In our first report, we recommended that                 recommendations 1, 2, 3, and 4, either through its
FHFA: (1) ensure that risk assessments support           implementation of its May 2016 internal guidance
the supervisory plans in terms of the targeted           or as part of its 2017 assessment, we consider
examinations included in those supervisory               FHFA’s response to these recommendations to
plans and the priority assigned to those targeted        be an agreement. After FHFA performs its 2017
examinations; (2) reinforce and hold the EICs            planned midyear assessment of the implementation
accountable to meet FHFA’s requirement for               of the May 2016 guidance, we plan to review the
risk assessments to be updated semiannually,             results of that assessment. To the extent that FHFA’s
and as additional information is learned that            assessment finds that recommendations 1, 2, 3, and
causes significant changes to the risk profile,          4 are not fully implemented by that guidance, we
such information, from whatever sources, should          expect FHFA to take additional corrective actions.
be factored into the risk assessment during the
                                                         FHFA disagreed with recommendation 5. FHFA
next update; (3) direct DER to develop and
                                                         stated that DER has sufficient guidance in place for
implement controls to ensure that high-priority
                                                         documentation of supervisory activities. Moreover,
planned targeted examinations are completed
                                                         in mid-2015, DER put in place an enhanced quality
before lower-priority targeted examinations, unless
                                                         control function that provides an independent
the reason(s) for performing a lower-priority
                                                         review of targeted examination work products to
targeted examination in lieu of a higher-priority


                                Semiannual Report to the Congress • April 1, 2016–September 30, 2016      21
assess whether written communications to the              fully inform the ROE and CAMELSO ratings for
Enterprises are supported by documentation of             that cycle; (3) develop and implement a control
examination work that meets DER standards                 that provides for the tracking and documentation
and applicable FHFA guidance for preparation              of planned targeted examinations, through
of written products. DER believes that existing           disposition, in DER’s official system of record; and
internal guidance and the quality control reviews         (4) reinforce and hold EICs accountable to follow
now being performed are effective to ensure               DER’s requirement to fully document the risk-
that the official records of examination activities       based justifications for changes to the supervisory
are complete and maintained appropriately. As             plan, and that changes to supervisory plans are
discussed in the first report as well as in the two       documented and approved by the EIC. These
companion reports on the targeted examinations            recommendations also applied with equal force to
of Fannie Mae and Freddie Mac, DER’s operating            our third report on FHFA’s targeted examinations
procedures direct that supervisory planning is            of Freddie Mac. That report did not include any
documented and incorporated into official agency          further recommendations.
records. Our efforts to track the planning and
                                                          DER partially agreed with recommendation 1. DER
execution of DER’s supervisory activities through
                                                          did not agree that current staffing levels adversely
documentation maintained in FHFA’s Information
                                                          affected DER’s ability to meet its supervisory
Management System (IMS) were not successful
                                                          responsibilities. DER agreed, however, that it
because a significant amount of documentation was
                                                          is a sound practice to regularly assess whether
not retained in IMS. FHFA’s suggestion that DER’s
                                                          staffing levels are sufficient to carry out DER
enhanced quality control reviews will remedy these
                                                          responsibilities for fulfillment of FHFA’s mission.
problems is unfounded. In accordance with DER’s
                                                          As part of the annual agency-wide budget process,
quality control review process, put in place in July
                                                          DER assesses its resource needs in making its
2015, these reviews are focused on documentation
                                                          submission for preparation of FHFA’s budget.
for completed targeted examinations. This audit
                                                          DER will continue to provide this information and
found lack of documentation supporting the
                                                          will seek to promptly fill open positions. In OIG’s
planning and execution of supervisory activities.
                                                          view, FHFA’s assertion that DER’s staffing levels
In our second report regarding FHFA’s targeted            have not adversely affected its ability to meet its
examinations of Fannie Mae, we made four                  supervisory responsibilities cannot be squared with
additional recommendations. Specifically, we              findings from this audit: DER failed to conduct
recommended that FHFA: (1) assess whether DER             and complete more than half of its planned targeted
has a sufficient complement of qualified examiners        examinations of Fannie Mae for the past four
to conduct and complete those examinations                supervisory cycles and almost half of its planned
rated by DER to be of high priority within                targeted examinations of Freddie Mac, and the
each supervisory cycle and address the resource           reason repeatedly provided by DER officials for this
constraints that have adversely affected DER’s            failure was resource constraints.
ability to carry out its risk-based supervisory plans;
                                                          With respect to recommendations 2 and 4,
(2) develop and implement guidance that clearly
                                                          FHFA stated that the guidance issued in May
requires supervisory plans to identify and prioritize
                                                          2016 confirms its general agreement with these
the planned targeted examinations that are to be
                                                          recommendations. As noted above, FHFA stated its
completed for each supervisory cycle in order to


22      Federal Housing Finance Agency Office of Inspector General
intent during the first quarter of 2017 is to assess   required by FHFA policy. (See OIG, FHFA’s Failure
the effectiveness of the enhanced risk assessment      to Consistently Identify Specific Deficiencies and Their
procedures outlined in the guidance and determine      Root Causes in Its Reports of Examination Constrains
whether any revisions are needed before the midyear    the Ability of the Enterprise Boards to Exercise Effective
risk assessment process commences in 2017. FHFA        Oversight of Management’s Remediation of Supervisory
agreed with recommendation 3 and stated that           Concerns (EVL-2016-008, July 14, 2016), online at
by September 23, 2017, DER will establish an           www.fhfaoig.gov/Reports/AuditsAndEvaluations.)
improved mechanism for tracking the status of
                                                       We found that the guidance issued by FHFA and
activities included on Enterprise examination plans.
                                                       DER on the structure and content of the annual
                                                       ROE is incomplete compared to guidance issued by
Supervision of the Enterprises: Reports of
                                                       three other federal financial regulators and has led
Examinations
                                                       to inconsistent and incomplete ROEs. Based on our
In its role as regulator of the Enterprises, FHFA      review of ROEs issued for five annual supervisory
produces written ROEs for each annual supervisory      cycles, we found that as a result of the incomplete
cycle. FHFA’s governance regulations and               guidance: (1) the content of the ROEs varied by
Examination Manual charge a board of directors         Enterprise and across the five supervisory cycles;
(board) of each of its regulated entities with         (2) specific deficiencies in management practices
oversight responsibilities to ensure that management   and the root causes of supervisory deficiencies
corrects all deficient, unsafe, or unsound practices   were not consistently reported in the ROEs;
giving rise to supervisory concerns and findings in    and (3) FHFA’s supervisory expectations for the
an ROE. The purpose of an ROE is to communicate        corrective actions to be taken by management and
to the board of each regulated entity examination      overseen by the board for each supervisory concern
results and conclusions, findings, supervisory         or deficiency were not clearly communicated in the
concerns, and the composite and component ratings      ROEs.
assigned in accordance with FHFA’s examination
rating system.                                         We also found that the ROEs issued to each
                                                       Enterprise during the five annual supervisory cycles
Given the central role the ROE serves in               failed to consistently provide Enterprise directors
communicating FHFA’s supervisory concerns,             with critical information on the most serious
examination findings, and ratings to the board of      examination findings, such as specific deficiencies
each of its regulated entities, and the importance     in management practices or the root causes of
of diligent board oversight of corrective action by    those deficiencies giving rise to an open Matter
management, OIG conducted an evaluation to             Requiring Attention (MRA). When a deficiency
compare FHFA’s ROE requirements and applicable         is identified during a supervisory activity, FHFA
requirements established by other federal financial    examiners will classify the deficiency as an MRA,
regulators—the Office of the Comptroller of the        which only issue for the most serious supervisory
Currency (OCC), the Board of Governors of the          matters, a violation, or a recommendation. In
Federal Reserve System (Federal Reserve), and the      those instances where open MRAs were reported
Federal Deposit Insurance Corporation (FDIC).          in an ROE, we found that the deficient, unsafe, or
We first assessed whether DER followed FHFA            unsound practices identified in the narrative section
requirements when issuing the ROEs, and whether        for each component rating typically were not linked
it obtained written responses to the ROEs as

                               Semiannual Report to the Congress • April 1, 2016–September 30, 2016          23
to specific open MRAs, constraining the ability of        instructions will require, in accordance with OIG’s
Enterprise directors to exercise effective oversight of   first recommendation, clear communication of
management’s remedial efforts.                            deficient, unsafe, or unsound practices; explanation
                                                          of how those practices gave rise to supervisory
In addition, we found that DER’s ROE review
                                                          concerns and deficiencies; or prioritization
process continues to create the appearance that the
                                                          of remediation of supervisory concerns and
Enterprises exert influence over ROE content. In
                                                          deficiencies. Because FHFA has advised OIG that
2011, DER was criticized internally for allowing
                                                          its template and accompanying instructions “will
the Enterprises to edit and rewrite sections of draft
                                                          likely not require enumeration of all supervisory
ROEs, some of which changed the language and
                                                          concerns,” we do not consider FHFA’s response as
tone of the ROEs. While the scope of comments
                                                          fully responsive to our recommendation that the
by Enterprise management to draft ROEs has been
                                                          ROEs be required to include all such concerns.
reduced since 2011, we found that proposed line
edits suggested by Enterprise management went             FHFA disagreed with recommendation 2, stating
beyond correction of factual errors to include            that conclusion letters, which are issued from
changes to language, tone, or conclusions.                targeted examinations, along with ROEs and
                                                          unnamed “other supervisory communications,” are
OIG recommended that FHFA: (1) direct DER
                                                          sufficient to enable board oversight to remediate
to develop and adopt a standard template for
                                                          MRAs and other supervisory concerns. FHFA’s
Enterprise ROEs, issue instructions for completing
                                                          corporate governance regulation requires each
that template, and promulgate guidance that
                                                          Enterprise board to ensure that management
establishes baseline elements that must be included
                                                          addresses “all supervisory concerns of FHFA in
in each ROE, such as clear communication of
                                                          a timely and appropriate manner.” While FHFA
deficient, unsafe, or unsound practices; explanation
                                                          requires conclusion letters to report all MRAs
of how those practices gave rise to supervisory
                                                          arising from the targeted examination, DER did
concerns and deficiencies; and prioritization
                                                          not require examiners to provide those conclusion
of remediation of supervisory concerns and
                                                          letters to Enterprise directors until June 2016, when
deficiencies; (2) direct DER to revise its guidance to
                                                          FHFA only changed its guidance in response to
require ROEs to focus the boards’ attention on the
                                                          an OIG recommendation in a report issued earlier
most critical and time-sensitive supervisory concerns
                                                          this year. Neither FHFA nor DER requires DER
through (a) the prioritization of examination
                                                          examiners to identify all supervisory concerns that
findings and conclusions and (b) identification of
                                                          do not rise to the level of an MRA in a conclusion
deficiencies and MRAs in the ROE and discussion
                                                          letter. Consequently, Enterprise directors would
of their root causes; and (3) develop written
                                                          not learn about any such supervisory concerns from
procedures for the “fatal flaw” review of the ROE by
                                                          conclusion letters. Following the publication of the
Enterprise management that establish the purpose
                                                          Examination Manual in December 2013, DER was
of the review, its duration, and a standard message
                                                          not required to identify all open MRAs in ROEs
for conveying this information to Enterprise
                                                          until June 2016, when, in response to the same
management. FHFA partially agreed with our first
                                                          OIG report issued in March 2016, DER adopted
recommendation, disagreed with the second, and
                                                          formal internal guidance requiring the inclusion of
agreed with the third.
                                                          MRAs in ROEs. As we found in this report, only
FHFA’s response does not address whether its              one of the three ROEs issued to Fannie Mae during


24      Federal Housing Finance Agency Office of Inspector General
that period identified open MRAs. DER’s new            commitments of even the most general kind.
guidance does not require supervisory concerns or
                                                       OIG recommended that FHFA (1) revise its
the basis for those concerns to be identified in an
                                                       Examination Manual to:
ROE. FHFA has not identified the “supervisory
communication” in which it communicates                •	 require that each final ROE be addressed
supervisory concerns to Enterprise directors, apart       and delivered to the board of directors of an
from the ROE and conclusion letters. As matters           Enterprise by DER examiners to eliminate any
now stand, there is no clear foundation for FHFA’s        confusion over the meaning of the term “issue;”
assertion that Enterprise directors will learn about
supervisory concerns from conclusion letters, “other   •	 establish a timetable for submission of the final
supervisory communications,” or the ROE. In our           ROE to each Enterprise’s board of directors
recommendation, we sought to address a related            and for DER’s presentation of the ROE results,
shortcoming identified in this report: namely, to         conclusions, and supervisory concerns to each
require DER to identify all supervisory concerns          Enterprise board;
and deficiencies in each ROE and the root causes       •	 require each Enterprise board to reflect its review
of such concerns and deficiencies to Enterprise           of each annual ROE in meeting minutes; and
directors to enable them to satisfy their governance
obligations.                                           •	 require each Enterprise board to reflect its review
                                                          and approval of its written response to the ROE
In OIG’s second report on this topic, we compared         in meeting minutes.
FHFA’s requirements and guidance for the issuance
of an ROE and response to it by the board of           OIG also recommended that FHFA (2) direct DER
the regulated entity to the requirements and           to develop detailed guidance and promulgate that
guidance of other federal financial regulators. (See   guidance to each Enterprise’s board of directors that
OIG, FHFA Failed to Consistently Deliver Timely        explains:
Reports of Examination to the Enterprise Boards and    •	 the purpose for DER’s annual presentation to
Obtain Written Responses from the Boards Regarding        each Enterprise board of directors on the ROE
Remediation of Supervisory Concerns Identified in         results, conclusions, and supervisory concerns
those Reports (EVL-2016-009, July 14, 2016), online       and the opportunity for directors to ask questions
at www.fhfaoig.gov/Reports/AuditsAndEvaluations.)         and discuss ROE examination conclusions and
We found that FHFA’s requirements and guidance            supervisory concerns at that presentation; and
on communication of the annual ROE are more
limited than the requirements of other federal         •	 the requirement that each Enterprise board of
financial regulators and led to divergent and             directors submit a written response to the annual
inefficient practices among DER’s examination             ROE to DER and the expected level of detail
teams. We also assessed whether DER examiners             regarding ongoing and contemplated remediation
followed FHFA’s limited requirements and guidance         in that written response.
and found that they largely had not. In addition to
                                                       Finally, OIG recommended that FHFA (3) direct
frequent delivery of the ROE through Enterprise
                                                       the Enterprises’ boards to amend their charters to
management instead of directly to the boards of
                                                       require review by each director of its annual ROE
directors, we observed that the Enterprises only
                                                       and review and approval of the written response to
rarely responded to the ROEs with any written
                                                       DER for each annual ROE. FHFA partially agreed

                               Semiannual Report to the Congress • April 1, 2016–September 30, 2016       25
with the first and second recommendations and             boards was not aware of its obligation to review
disagreed with the third.                                 each ROE and respond in writing to it. For those
                                                          reasons, our recommendation sought to clarify, in
FHFA disagreed with OIG’s first recommendation
                                                          the respective board of directors’ charters, director
in that it called for delivery of the ROE by
                                                          responsibilities with respect to ROEs.
examiners directly to the board. The Agency
stated that Enterprise management can effectuate          Supervision of the Enterprises: Tracking
the delivery. Pursuant to FHFA’s delegations of           Matters Requiring Attention
authority and corporate governance rule, each
Enterprise board is responsible for day-to-day            When DER examiners identify a deficiency during
operations of that Enterprise and is charged with         supervisory activities and classify it as an MRA,
ensuring that management promptly addresses all           FHFA requires the affected entity to promptly
supervisory concerns. As informed by the guidance         remediate it. According to FHFA, a key component
of the OCC and Federal Reserve, delivery of an            of effective supervision is close oversight of efforts by
ROE to the board of directors of a regulated entity       an entity it regulates to correct identified supervisory
is the best practice. FHFA offers no reasonable           concerns, and it requires all examiners to “check and
basis on which to reject our recommendation that          document” the progress of MRA remediation.
it ensure that every ROE be delivered directly to         To enhance their oversight of MRA remediation,
Enterprise board members rather than through              federal financial regulators, including the OCC and
Enterprise management, which typically is                 the Federal Reserve, use MRA tracking systems.
responsible for the actions or inactions criticized in    These systems provide a centralized repository
the ROE.                                                  of information on open and closed MRAs, track
In addition, FHFA disagreed with the second               upcoming deadlines, and provide ready access to
recommendation to the extent that it called               underlying work papers. Because FHFA maintained
for the Agency to promulgate guidance to each             to us that DER used an MRA tracking system,
Enterprise’s board of directors explaining the            we compared the MRA tracking systems used by
requirement for each Enterprise board to respond          the OCC, the Federal Reserve, and DBR to those
to each ROE and the expected level of detail in           used by the DER Fannie Mae and Freddie Mac
that response. In light of FHFA’s refusal to issue        examination teams. We also reviewed a sample of
supervisory guidance to Enterprise directors about        open and closed MRAs issued to each Enterprise by
their obligations, we intend to monitor closely the       DER to assess whether DER examiners performed
boards’ ROE responses and assess whether they meet        independent assessments of the timeliness and
requirements imposed by FHFA and DER.                     adequacy of each Enterprise’s efforts to remediate
                                                          the MRA. (See OIG, FHFA’s Inconsistent Practices in
FHFA rejected our third recommendation,                   Assessing Enterprise Remediation of Serious Deficiencies
maintaining that its agreement to require directors       and Weaknesses in its Tracking Systems Limit the
to confirm, in writing, their review of each ROE          Effectiveness of FHFA’s Supervision of the Enterprises
obviates the need for Enterprise boards to amend          (EVL-2016-007, July 14, 2016), online at www.
their charters. As we found, the few requirements         fhfaoig.gov/Reports/AuditsAndEvaluations.)
that FHFA has adopted with respect to ROEs
have not been followed. One of the two Enterprise         OIG found substantial weaknesses in DER’s tracking
                                                          systems that limit significantly the utility of those


26      Federal Housing Finance Agency Office of Inspector General
systems as a tool to monitor the Enterprises’ efforts     on a regular basis; and (6) require DER, when
to remediate deficiencies giving rise to MRAs. We         evaluating whether to close an MRA, to conduct and
also found a lack of consistent independent analysis      document (in an Analysis Memorandum or other
by DER examiners of the timeliness and adequacy           work paper) an independent analysis of the adequacy
of each Enterprise’s remedial efforts. Specifically, we   and sustainability of the Enterprise’s remediation
found that:                                               activity, or where appropriate, the adequacy of the
                                                          Enterprise’s internal audit validation work, and
•	 DER’s MRA tracking systems lack important
                                                          maintain that document in DER’s supervisory
   prospective dates and the tracking system for
                                                          record-keeping system.
   Fannie Mae MRAs does not provide ready access
   to underlying remediation documents, thus              FHFA agreed with recommendations 4 and 6, and
   rendering those systems of limited utility in          disagreed with recommendations 3 and 5. While
   tracking the progress of MRA remediation.              FHFA “partially agreed” with recommendations
                                                          1 and 2, its proposed corrective actions did not
•	 DER examiners did not consistently conduct
                                                          address the underlying shortcomings in the Agency’s
   and document independent assessments of the
                                                          oversight of the Enterprises’ remediation of MRAs
   timeliness and adequacy of the Enterprises’
                                                          that were identified.
   remediation efforts.
                                                          OIG made the third recommendation to
OIG recommended that FHFA: (1) require
                                                          enhance the efficiency of DER’s tracking of MRA
the Enterprises to provide, in their remediation
                                                          remediation. As discussed in our report, the tracking
plans, the target date in which their internal audit
                                                          systems used by the OCC, the Federal Reserve, and
departments expect to validate management’s
                                                          DER’s Freddie Mac examination team contain (or
remediation of MRAs, and require examiners to
                                                          examiners may insert) live links to the supervisory
enter that date into a dedicated field in the MRA
                                                          documents relating to each MRA. The tracking
tracking system; (2) require DER, upon acceptance
                                                          system used by the Fannie Mae examination team,
of an Enterprise’s remediation plan, to estimate the
                                                          however, does not. Moreover, Fannie Mae examiners
date by which it expects to confirm internal audit’s
                                                          store remediation documents for open MRAs
validation, and to enter that date into a dedicated
                                                          on four separate SharePoint sites, rather than in
field in the MRA tracking system; (3) ensure that
                                                          FHFA’s centralized examination record-keeping
the underlying remediation documents, including
                                                          system. These remediation documents are migrated
the Procedures Document, are readily available by
                                                          to FHFA’s electronic record-keeping system only
direct link or other means, through DER’s MRA
                                                          after the Fannie Mae examination team closes
tracking system(s); (4) require DER to conduct
                                                          an MRA. Due to DER’s large backlog in closing
and document, in an Analysis Memorandum or
                                                          Fannie Mae MRAs, there is a significant number
other work paper, an independent assessment of
                                                          of MRAs with work papers stove-piped in separate
the adequacy of each Enterprise MRA remediation
                                                          SharePoint sites. In its management response, FHFA
plan and the basis upon which such plan is either
                                                          does not claim that it is preferable to stove-pipe
accepted or rejected, and to maintain that document
                                                          Fannie Mae examination documents into separate
in DER’s supervisory record-keeping system;
                                                          SharePoint sites, nor does it claim that implementing
(5) require DER to track interim milestones and to
                                                          our recommendation—to bring the Fannie Mae
independently assess and document the timeliness
                                                          examination team in line with the Freddie Mac
and adequacy of Enterprise remediation of MRAs


                                 Semiannual Report to the Congress • April 1, 2016–September 30, 2016      27
examination team—would somehow impose an                  Agency management. OIG recommended that
undue burden or expense.                                  the Agency develop and implement a centralized
                                                          reporting system that would provide ready
With respect to the fifth recommendation, FHFA
                                                          access to information about FHLBank findings,
has a statutory obligation to supervise the Enterprises
                                                          planned corrective actions, and their status. The
and, pursuant to its own Examination Manual,
                                                          Agency agreed to adopt OIG’s recommendation
issues MRAs for only the most serious deficiencies
                                                          and developed a tracking system, and the
identified during a supervisory activity. While
                                                          recommendation was closed.
FHFA asserted that its current process is sufficient
to enable DER to effectively oversee the Enterprises’     In our follow-up compliance review, we assessed the
MRA remediation, DER officials acknowledged               Agency’s implementation of the recommendation
to us that DER considers MRA remediation to               and found that it had established and was using
be an Enterprise business function and that there         an automated system, as recommended by OIG.
is no expectation for DER to assess the adequacy          (See OIG, FHFA’s Implementation of Its Automated
or timeliness of the Enterprises’ corrective actions      System to Track Deficiencies Identified in Federal
during the remediation process. Our review of             Home Loan Bank Examinations (COM-2016-003,
a sample of MRAs found virtually no evidence              May 26, 2016), online at www.fhfaoig.gov/Reports/
of independent examiner assessments of the                Compliance_Reviews.) We further found that
sufficiency of the Enterprises’ actions during their      Agency examiners were following the procedures
remediation. That record, combined with FHFA’s            established for use of the automated system and that
refusal to require DER examiners to regularly             Agency officials and supervisory examiners found
assess and document the timeliness and adequacy           that the system represented an improvement over the
of remediation, raises a concern that, as a practical     previous, decentralized records management practice.
matter, FHFA may have shifted a substantial               We concluded that the Agency had fully and
portion of its supervisory responsibilities for MRA       successfully implemented OIG’s recommendation
remediation to the entities that it regulates.            and that the recommendation had, in fact, the
                                                          desired effect.
Supervision of the FHLBanks: Oversight of
MRA Remediation                                           In a special report, we assessed whether DBR
                                                          followed the requirements of FHFA’s Advisory
In a compliance review, we considered the
                                                          Bulletin 2012-01 (AB 2012-01) to oversee MRA
Agency’s implementation of a recommendation
                                                          remediation by an FHLBank. OIG reviewed
issued in an evaluation report, FHFA’s Oversight of
                                                          DBR’s efforts to oversee remediation by different
Troubled Federal Home Loan Banks (EVL-2012-
                                                          FHLBanks of a sample of nine MRAs issued by
001, January 11, 2012). In that evaluation, OIG
                                                          DBR from January 2014 through September 2015.
found that the Agency lacked an automated
                                                          (See OIG, DBR’s Unwritten Procedures and Practices
information system to track deficiencies found
                                                          for Oversight of Efforts by Federal Home Loan Banks
during examinations of the FHLBanks and
                                                          to Correct Deficiencies Underlying the Most Serious
remediation of those deficiencies. The evaluation
                                                          Supervisory Matters Are Inconsistent with the Written
found that the Agency’s practice of having individual
                                                          Oversight Requirements Promulgated by FHFA
examiners maintain separate, decentralized records
                                                          (COM-2016-006, September 30, 2016), online at
was inefficient and presented challenges for
                                                          www.fhfaoig.gov/Reports/Compliance_Reviews.)


28      Federal Housing Finance Agency Office of Inspector General
OIG found that DBR examiners generally did              for monitoring the status of communications
not follow the specific requirements set forth in       referred to the Enterprises. The Agency agreed with
AB 2012-01 for examiner oversight of ongoing            our recommendation and established an IT-based
remediation of MRAs. For example, AB 2012-01            system, as well as the necessary processes; OIG
states that examiners must “check and document          closed the recommendation in 2012.
progress” by regulated entities during the
                                                        In our compliance review (see OIG, Compliance
remediation period to ensure that remediation efforts
                                                        Review of FHFA’s Implementation of its Consumer
are timely and adequate. DBR examiners first review
                                                        Communications Procedures (COM-2016-005,
the corrective actions by the affected FHLBank
                                                        July 14, 2016), online at www.fhfaoig.gov/Reports/
during the next scheduled annual examination,
                                                        Compliance_Reviews), we found that the Agency’s
when remediation may be completed. Similarly,
                                                        system for processing consumer communications
AB 2012-01 requires examiners to “consider other
                                                        had been implemented effectively. We found that
supervisory action” or enforcement actions if
                                                        the Agency responded to 97% of its consumer
progress toward remediation is unsatisfactory, and to
                                                        communications within 30 days and that its average
document its consideration. For its sample of nine
                                                        response time was only three days. We further found
MRAs, OIG found that deadlines were missed and
                                                        that the Agency had successfully implemented
the necessary corrective actions were not timely for
                                                        its procedures for the referral of matters to the
four of the nine MRAs, but DBR examiners never
                                                        Enterprises and the monitoring of those matters. We
considered further regulatory or enforcement actions
                                                        concluded, based on the evidence we had obtained,
or documented the basis for their decisions.
                                                        that the Agency’s adoption and implementation of
Supervision of the Enterprises and                      our recommendation had strengthened its capacity
FHLBanks: Consumer Complaints                           to manage consumer communications.

During this semiannual reporting period, OIG
conducted a compliance review that considered the       Information Technology Security
Agency’s implementation of a recommendation
issued in an audit report, Audit of the Federal         Statutory Audit: FHFA Computer System
Housing Finance Agency’s Consumer Complaints            Controls over Access to Personally
Process (AUD-2011-001, June 21, 2011). In that          Identifiable Information
2011 audit, OIG found that the Agency was
unprepared to manage the increasing volume of           Section 406 of the Cybersecurity Act of 2015,
consumer complaints requiring its attention. Our        enacted as Division N of the Consolidated
audit report noted the lack of a centralized system,    Appropriations Act of 2016 (Pub. L. No. 114-113),
and the absence of any established policies or          required OIG to report to Congress the following
procedures for processing consumer communications       information collected from FHFA on FHFA
in a timely manner. We noted further in the audit       computer systems that provide access to personally
report that the Agency did not monitor the status       identifiable information (PII): (a) a description
of matters referred to the Enterprises for follow-up    of the logical access policies and practices used to
action. OIG recommended, among other things,            access a PII system, including whether appropriate
that FHFA establish a centralized system to track       standards were followed; (b) a description and
communications as well as policies and procedures       list of the logical access controls and multifactor
                                                        authentication used by the agency to govern access

                               Semiannual Report to the Congress • April 1, 2016–September 30, 2016      29
to PII systems by privileged users; (c) a description     there is a possibility that some of these payments
of policies and procedures followed to detect data        may be “improper” in one or more respects. The
exfiltration and maintain an inventory of software        Improper Payments Information Act of 2002
and licenses on the covered systems; and (d) a            (IPIA), as amended by the Improper Payments
description of policies and procedures to ensure          Elimination and Recovery Act of 2010 (IPERA) and
that contractors and other entities providing             the Improper Payments Elimination and Recovery
services to the agency implement appropriate data         Improvement Act of 2012 (collectively, IPIA, as
security management practices. We contracted              amended), requires federal agencies periodically to
with the independent certified public accounting          review, estimate, and report programs and activities
firm of Kearney & Company, P.C. (Kearney) to              that may be susceptible to significant improper
conduct a performance audit to meet this reporting        payments. The IPIA was amended by IPERA to
requirement. (See OIG, Kearney & Company,                 direct federal inspectors general to determine
P.C.’s Results of the Federal Housing Finance             annually whether the agency is in compliance with
Agency’s Cybersecurity Act Audit (AUD-2016-004,           the statute.
August 11, 2016), online at www.fhfaoig.gov/
                                                          This semiannual period, we conducted a
Reports/AuditsAndEvaluations.)
                                                          performance audit to assess FHFA’s compliance
In its audit, Kearney concluded FHFA has                  with the IPIA, as amended, for fiscal year 2015.
established and implemented the required                  (See OIG, FHFA Complied with Applicable Improper
privacy controls according to National Institute          Payment Requirements During Fiscal Year 2015
of Standards and Technology (NIST) Special                (AUD-2016-003, May 5, 2016), online at www.
Publication (SP) 800-53, Revision 4, Security and         fhfaoig.gov/Reports/AuditsAndEvaluations.)
Privacy Controls for Federal Information Systems and
                                                          FHFA, through its Office of General Counsel,
Organizations, for “moderate” impact systems as
                                                          maintains that most requirements of the IPIA,
of June 30, 2016. Additionally, FHFA has satisfied
                                                          as amended, are not applicable to FHFA because
the NIST SP 800-53 required privacy controls
                                                          those requirements apply only to payments made
for six reviewed systems and has implemented a
                                                          with federal funds and FHFA does not finance its
combination of preventive and detective security
                                                          operations with federal funds. We determined that
controls (e.g., network firewalls, encryption,
                                                          this analysis is reasonable and we do not challenge
intrusion detection systems, etc.) to protect sensitive
                                                          FHFA’s conclusions. FHFA also asserts that it has
information such as PII. As required, we provided
                                                          put into place internal controls to achieve the intent
Kearney’s report to Congress on August 11, 2016.
                                                          of the IPIA, as amended.

Agency Operations                                         In our audit, we found that FHFA complied with
                                                          the applicable provisions of the IPIA, as amended,
                                                          as well as related criteria established by OMB.
Statutory Audit: Improper Payments                        Specifically, we found that FHFA published its
Because federal agencies regularly make payments          Fiscal Year 2015 Performance and Accountability
to program beneficiaries, grantees, vendors, and          Report and included relevant information pertaining
contractors, or on behalf of program beneficiaries,       to improper payments. To test the accuracy of




30      Federal Housing Finance Agency Office of Inspector General
FHFA’s assertion about internal controls, we
reviewed relevant invoice and payment desktop
procedures implemented by FHFA to mitigate the
risks of fraud, misuse, and payment delinquency.
We found no design flaws within the policies and
procedures.


Recommendations

A complete list of OIG’s audit and evaluation
recommendations is provided in Appendix B.




                              Semiannual Report to the Congress • April 1, 2016–September 30, 2016   31
OIG’s Investigations

This OIG is vested with statutory law enforcement          During the semiannual reporting period,
authority, which is exercised by OI. OI is comprised       OI conducted numerous criminal, civil, and
of highly trained law enforcement officers,                administrative investigations, which resulted in the
investigative counsels (ICs), forensic auditors, and       filing of criminal charges against 75 individuals, the
support staff who conduct investigations related to        conviction of 45 individuals, and 46 sentencings, as
programs overseen by FHFA. Depending on the type           well as court-ordered fines and restitution awards.
of misconduct uncovered during OIG investigations,
                                                           Figure 2 (see below) summarizes the results obtained
the investigations may result in criminal charges,
                                                           during this reporting period from our investigative
civil complaints, and/or administrative sanctions and
                                                           efforts.
decisions. Criminal charges filed against individuals
or entities may result in plea agreements or trials,       For ease of review of our OI activities, we group
incarceration, restitution, fines, and penalties. Civil    our criminal investigations during this period into
claims can lead to settlements or verdicts with            the categories described below. In each category,
restitution, fines, penalties, forfeitures, assessments,   we describe the nature of the crime and include
and exclusion of individuals or entities from              a few highlights of matters investigated by OIG.
participation in federal programs. ICs in OI have          For a summary of publicly reportable investigative
been appointed as Special Assistant U.S. Attorneys in      outcomes for each category during this reporting
several judicial districts throughout the country. They    period, see Appendices E-K.
have been assigned criminal matters arising from
OI’s investigations in the districts where they have
                                                           Figure 2. Prosecutions and Recoveries from
been appointed and have pursued these investigations       April 1, 2016, Through September 30, 2016
through to conviction and sentencing.
                                                                                   Criminal                 Civil
The type of misconduct OI special agents (SAs)                                  Investigations         Investigations
investigate varies, as does the complexity of the              Finesa                $4,500,908                         $-

schemes involved. Various elements contribute                  Settlements                       $-     $5,060,000,000
                                                               Restitutions         $34,139,854                         $-
to determining the resources necessary for each
                                                               Total                $38,640,762         $5,060,000,000
investigation and the length of time necessary to see
                                                               Charges                         75
each investigation through to the end. For example,
                                                               Convictions                     45
loan or mortgage origination schemes, a common                 Sentencings                     46
type of mortgage fraud, can be very labor intensive.           Trials                            2
Experienced SAs review and analyze mortgage
                                                           a
                                                            Fines include criminal fines, seizures, forfeiture and special
loan files in order to detect red flags. Special agents    assessments, and civil fines imposed by federal court.
understand how to identify the indicators of fraud,
and just as importantly, how to gather necessary
evidence and put together a case.




32      Federal Housing Finance Agency Office of Inspector General
Investigations: Civil Cases                               its RMBS. Among other things, the bank also
                                                          acknowledged that prior to offering the RMBS
During the semiannual reporting period, OI                to investors, it “received information indicating
continued to actively participate in the Residential      that, for certain loan pools, significant percentages
Mortgage-Backed Securities (RMBS) Working                 of the loans reviewed did not conform to the
Group. Established by the President in 2012 to            representations made to investors about the pools of
investigate individuals and entities responsible for      loans about to be securitized.”
misconduct involving the pooling of mortgage              Investors, including federally insured financial
loans and sale of RMBS, the Working Group is a            institutions, suffered billions of dollars in losses
collaborative effort of dozens of federal and state law   from investing in RMBS issued by the bank from
enforcement agencies. OI SAs work closely with U.S.       2005 through 2007.
Attorneys’ offices around the country and with state
attorneys general to investigate allegations of fraud
committed by financial institutions and individuals       Investigations: Criminal Cases
in connection with RMBS. OI has reviewed evidence
produced by various parties for members of the            Below we set forth highlights of OIG criminal
Working Group, assisted with witness interviews,          investigations during this semiannual reporting
provided strategic litigation advice, and briefed         period in a number of different categories that
other law enforcement agencies on the operations          resulted in criminal indictments, convictions, plea
of the RMBS market. Since the inception of the            agreements, sentencings, and court-ordered fines and
RMBS Working Group, DOJ has negotiated civil              restitution judgments.
settlements worth over $39 billion. During this
semiannual reporting period, a civil settlement was       Condo Conversion and Builder Bailout
reached with Goldman Sachs.                               Schemes
                                                          In these types of schemes, sellers or developers
Goldman Sachs Settles RMBS Claims by Agreeing             typically solicit investors with good credit who
to Pay More than $5 Billion                               want low-risk investment opportunities by offering
Goldman Sachs agreed to pay $5.06 billion                 deals on properties with no money down and
to resolve claims related to its conduct in the           other lucrative incentives, such as cash back and
marketing, sale, and issuance of RMBS. The                guaranteed and immediate rent collection. The
settlement included a $2.385 billion civil penalty        sellers fund these incentives with inflated sales prices.
under the Financial Institutions Reform, Recovery,        The fraudsters conceal the incentives and the true
and Enforcement Act, of which $1.8 billion is             property values from the lenders, defrauding them
to be paid in relief to underwater homeowners,            into making loans that are much riskier than they
distressed borrowers, and affected communities            appear. When the properties go into foreclosure,
and $875 million to settle claims brought by other        lenders suffer large losses.
federal and state agencies.                               Below we summarize four OI investigations in this
In a detailed statement of facts that is part of the      category that resulted in criminal charges, a plea,
settlement, Goldman Sachs acknowledged that it            and sentencings during this semiannual reporting
failed to disclose critical information to investors      period. (See Appendix E for a summary of publicly
about the quality of the mortgages underlying             reportable investigative outcomes in this category.)

                                 Semiannual Report to the Congress • April 1, 2016–September 30, 2016          33
Three Charged in Bank and Wire Fraud Scheme,              these incentives and misrepresented other material
Texas                                                     information to lenders. Relying on these fraudulent
On April 14, 2016, James Wright, Daniel Bomar,            documents, lenders provided mortgages to otherwise
and Brett Immel were indicted in Texas and                unqualified borrowers. Eventually, the buyers were
charged with conspiracy to commit bank fraud and          unable to make mortgage payments, causing many
conspiracy to commit money laundering. According          of the condominium units to go into foreclosure
to the indictment, the trio allegedly conspired to        and leading to loss exposure of $18.3 million to the
fraudulently obtain money from mortgage lenders.          lenders and the Enterprises. Both Freddie Mac and
                                                          Fannie Mae had loan exposure.
Wright, a title attorney, handled real estate closing
transactions while Bomar worked for Wright as an          Former President of Tribute Residential, LLC
escrow officer. Immel, a partner in a business called     Indicted for Bank Fraud
Hanover Companies, located investors to purchase
                                                          On September 7, 2016, Rebecca Gheiler was
homes from builders in exchange for a fee. In this
                                                          indicted on charges of conspiracy to commit bank
instance Immel’s fee was funded by inflating the
                                                          fraud and bank fraud.
purchase price of the properties without disclosing to
the lenders the kickback payment. Bomar and Wright        Gheiler and co-conspirators allegedly bought or
created and submitted the relevant misleading loan        facilitated the sale of condominiums to straw
documentation. Out of approximately $11 million           buyers at inflated prices. Proceeds from these
in loan proceeds, approximately $3.4 million were         fraudulently inflated sales were used to pay
undisclosed payments to Hanover. The Enterprises          undisclosed incentives and bonuses to buyers,
secured mortgages on 64 of the 66 properties              brokers, realtors, and others participating in this
identified in this investigation.                         scheme. The co-conspirators were allegedly aware the
                                                          HUD-1 Settlement Statements and other documents
Sentencings and Guilty Plea in Builder Bailout            submitted to financial institutions contained
Scheme, Florida                                           materially false information and that incentives
Real estate agent Joseph Pasquale, real estate agent      provided to straw buyers were not disclosed. For
Gary Blankenship, loan officer Jason Martin, and          example, the “cash to close” incentive provided to
CFO Eli Riesel were given sentences ranging from          straw buyers for use as down payments were supplied
8 to 57 months in prison for their role in a massive      by the title company, broker, or other third party.
fraud scheme. Each defendant was also ordered to          After closing, the seller would reimburse the down
pay restitution and forfeiture. In addition, Gary         payment funds through kickback payments funneled
Hughes pled guilty for his role in the scheme.            through an account at a shell company controlled
                                                          by a co-conspirator. The use of this account was
The scheme involved soliciting potential buyers           intended to further conceal the existence of incentive
of units at Arbors at Carrollwood with promises           payments from the lender and other entities. This
to provide various seller-provided incentives. The        scheme resulted in approximately $4.2 million
incentives included cash-to-close private loans,          in losses to financial institutions, including the
rental guarantee agreements, and money to defray          Enterprises.
maintenance costs. The schemers created and
submitted loan application documents that concealed



34      Federal Housing Finance Agency Office of Inspector General
Seven Charged in Condominium Bank Fraud                   more attractive to lenders. These schemes often use
Scheme, Florida                                           bogus Social Security numbers and fake or altered
                                                          documents, such as W-2 Wage and Tax Statements
On September 26, 2016, seven individuals were
                                                          and bank statements, to defraud lenders into making
charged by information for conspiracy to commit
                                                          loans they would not otherwise make. Typically,
bank and wire fraud affecting a financial institution.
                                                          perpetrators pocket origination fees or inflate home
According to the information, the defendants and          prices and divert proceeds.
other co-conspirators personally enriched themselves
                                                          Below we provide highlights of OIG investigations
by using straw buyers and unqualified buyers to
                                                          resulting in indictments, convictions, sentencings,
purchase and finance residential properties. The
                                                          and court-ordered restitution in this category during
co-conspirators prepared and submitted fraudulent
                                                          this semiannual reporting period. (See Appendix F
loan applications, closings, and related documents
                                                          for a summary of publicly reportable investigative
to lenders to induce the lenders to fund mortgage
                                                          outcomes in this category.)
loans for the purchase of condominium units. The
loan applications and related documents submitted
                                                          Guilty Pleas, Sentencings, and Trial Verdict
to lenders contained false and fraudulent statements,
                                                          of Family Members Working at Worldwide
representations, and omissions relating to the
                                                          Investments, Colorado
borrower’s occupation, occupancy intent, income
and assets/liabilities, earnest money deposit, cash to    Pedro and Pablo Sarabia-Martinez and Ricardo
close, marketing fee paid to the marketing company,       Sarabia-Salcido collaborated with others to
the seller’s payment of a kickback to the borrower by     fraudulently acquire loans on behalf of victim
using the marketing company, and other information        straw buyers. Eventually the borrowers defaulted,
that was material to the borrower’s qualifications to     resulting in foreclosure of their homes and the
borrow money from the lenders.                            destruction of their credit.

Four of the defendants, in their capacity as title        All three defendants pled guilty and were sentenced
settlement agents, disbursed mortgage loan proceeds       for their roles in this scheme. The Sarabia-Martinezes
for the purchase of condominium units even                were sentenced to one year of probation. Sarabia-
though the borrowers would not pay earnest money          Salcido was sentenced to 5 years of probation,
deposits and/or cash to close required by their loan      ordered to pay $459,917 in restitution, joint and
applications and HUD-1 Settlement Statements.             several, and was ordered to surrender himself to
As part of this scheme, distributions through the         the custody of the Immigration and Customs
settlement transactions were made to a marketing          Enforcement (ICE) and ordered to not enter the
company used to disguise the kickback payments to         United States illegally.
the buyers. The losses to the Enterprises are currently
                                                          In June, a jury found co-defendant Jose Ricardo
estimated at over $1.3 million.
                                                          Sarabia-Martinez guilty of conspiracy, pattern of
                                                          racketeering, forgery, attempt to influence a public
Loan Origination Schemes
                                                          servant, and theft of $20,000 or more.
Loan or mortgage origination schemes are the most
common type of mortgage fraud. These schemes              There were 12 properties identified in this scheme
typically involve falsifying borrowers’ income, assets,   and $4.6 million in fraudulent loans acquired for
employment, and credit profiles to make them              securitization by the Enterprises and others.


                                 Semiannual Report to the Congress • April 1, 2016–September 30, 2016       35
Indictment of Former Vice President of                    Barr coordinated undisclosed payments, which
Operations for American Mortgage Field                    included wire transfers to Sanders and other
Services, LLC, Florida                                    recruiters. These payments were then used as
                                                          the buyers’ down payments. To cover the costs
On April 12, 2016, John Coleman was indicted on           of paying the straw buyers’ down payments and
charges of conspiracy to commit bank fraud and            other incentives, Barr and Sanders inflated the
false bankruptcy declaration.                             sales prices of the properties. Additionally, they
                                                          facilitated the production of false loan documents
According to the indictment, Coleman, former
                                                          that did not disclose the true source of the buyers’
vice president of operations at American Mortgage
                                                          down payments. Sanders recruited straw buyers and
Field Services, LLC (AMFS), and others directed
                                                          coordinated their receipt of down payment funds
employees to submit thousands of fraudulent
                                                          and other buyer incentives, including cash back.
property inspection reports to loan servicers who
paid AMFS for services that did not occur. Under          Losses to the Enterprises associated with this scheme
the terms of its servicing agreements with Fannie         are greater than $2 million; overall scheme losses are
Mae, servicers contracted with AMFS for property          in excess of $13 million.
preservation services to conduct inspections of
properties in various states of the foreclosure process   Sentencing in $6 Million Fraudulent Loan
to ensure that the value of these assets was preserved    Scheme, Loan Origination Scheme, New Jersey
and that there were no unaddressed safety issues
                                                          Miguel LaRosa and Paul Chemidlin Jr. were
related to properties. The servicers then submitted
                                                          sentenced for their roles in a multimillion-dollar
claims for reimbursement to Fannie Mae for these
                                                          mortgage fraud scheme.
costs.
                                                          LaRosa, acting as a recruiter, Chemidlin, acting
The investigation also revealed that while employed       as an unlicensed real estate appraiser, and others
at AMFS, Coleman made false statements on his             fraudulently obtained mortgages using straw buyers
bankruptcy petition by intentionally concealing the       and falsified loan documents. The schemers created
full amount of his income at AMFS.                        fictitious bank statements, prepared false appraisal
                                                          reports and backdated deeds, and used unlicensed
Losses to Fannie Mae and servicers associated with
                                                          title agents to close transactions and disburse the
the fraudulent inspection claims submitted by
                                                          mortgage proceeds.
AMFS were in excess of $12 million.
                                                          Chemidlin was sentenced to 60 months in prison,
Developer and Recruiter Plead Guilty, Illinois            36 months of supervised release, and ordered to
On June 17, 2016, Warren Barr, a real estate              pay $1,518,499 in restitution, jointly and severally.
developer, and Leonardo Sanders pled guilty to            LaRosa was sentenced to 6 months in prison,
making a false statement to a financial institution       36 months of supervised release with 6 months
and bank fraud, respectively, for their roles in a        of electronic monitoring, and ordered to pay
loan origination fraud scheme. Barr, Sanders, and         $1,327,222 in restitution, jointly and severally.
others conspired to defraud mortgage lenders and          The conspiracy resulted in more than $6 million in
financial institutions by obtaining over $22 million      fraudulent loans.
in fraudulent mortgages for the purchase of dozens
of condominium units in Illinois.

36      Federal Housing Finance Agency Office of Inspector General
Short Sale Schemes                                       can secure loan modifications, provided that the
                                                         homeowners pay significant upfront fees. Typically,
Short sales occur when a lender allows a borrower
                                                         these businesses take little or no action, leaving
who is “underwater” on his/her loan—that is, the
                                                         homeowners in a worse position. Below are some
borrower owes more than the property securing the
                                                         highlights of OIG investigations that resulted
loan is worth—to sell his/her property for less than
                                                         in criminal indictments, plea agreements, and
the debt owed. Short sale fraud usually involves
                                                         sentencings in this category during this semiannual
a borrower intentionally misrepresenting or not
                                                         reporting period. (See Appendix H for a summary
disclosing material facts to induce a lender to agree
                                                         of publicly reportable investigative outcomes in this
to a short sale to which it would not otherwise agree.
                                                         category.)
Below is an example of an OIG investigation that
resulted in a criminal charge in this category during
                                                         Loan Modification Scheme Owner Charged,
this semiannual reporting period. (See Appendix G
                                                         California
for a summary of publicly reportable investigative
outcomes in this category.)                              On August 18, 2016, Kevin Rasher (also known
                                                         as Kevin Carter, also known as Kevin Fox) was
Licensed Real Estate Agent Charged, Florida              indicted on charges of mail and wire fraud, false
                                                         statements, and impersonating a government official.
On September 20, 2016, Rafael Sanchez, a licensed
                                                         For approximately five years, Rasher allegedly used
real estate agent, was charged by information with
                                                         several business entities, including one entitled
bankruptcy fraud.
                                                         HUD-Making Home Affordable and another
Sanchez allegedly filed false bankruptcy petitions       entitled Modify Law Center, to target homeowners
on behalf of struggling homeowners to delay the          across the country by the use of deceptive letters,
foreclosure process and “buy time” for short sales       flyers, websites, and YouTube videos. Rasher
on their homes to be approved and completed.             allegedly represented that he was a senior mitigation
According to the information, Sanchez prepared           attorney representing the federal government
and filed bankruptcy documents, which included           and that he was approved by the government
false statements on certificates claiming his clients    to renegotiate loans with mortgage lenders for
attended mandatory credit counseling and that            distressed borrowers. Victims believed the funds they
they would pay filing fees in installments. Allegedly,   provided Rasher were being applied toward their
Sanchez filed several petitions for the same             delinquent mortgage; instead, Rasher was allegedly
individuals who never intended to continue in the        pocketing the money for his personal use.
bankruptcy process. Some of the loans involved
                                                         To date, of the approximately 234 victim properties
in this foreclosure-delay bankruptcy scheme were
                                                         linked to the loan modification scheme, 31
purchased by Fannie Mae and Freddie Mac.
                                                         properties have been identified with Fannie Mae
Loan Modification and Property                           loans and 45 properties have been identified with
Disposition Schemes                                      Freddie Mac. Total losses associated with this scheme
                                                         are still being calculated.
These schemes prey on homeowners who are
in default or are at risk of imminent default on
their home loans. Businesses advertise that they



                                 Semiannual Report to the Congress • April 1, 2016–September 30, 2016      37
Three Plead and Four Sentenced in Mortgage                co-conspirators used the payments for their own
Modification Scheme, California                           personal benefits and to further the fraud scheme.
A group of co-conspirators operated a series of           The scheme victimized over 400 individuals
California-based companies that falsely claimed           and families nationwide and resulted in an
to provide home mortgage loan modifications               estimated $3.8 million in losses and approximately
and other consumer debt relief services. The              $1.1 million in potential losses to the Enterprises.
co-conspirators cold-called struggling homeowners,        Between July and September 2016, defendants
claimed they had successfully negotiated favorable        Umali, Maniscan, Perez, and Dacanay were
loan modifications with the victims’ lenders, and         sentenced for their roles in this scheme. The four
offered to provide services in exchange for fees          defendants received prison sentences ranging from
ranging from $2,500 to $4,300. Few homeowners             60 to 220 months. In addition, the defendants were
received any type of mortgage loan modification           ordered to pay over $1.2 million in restitution and
through the defendants’ companies, and few                $3.8 million in forfeiture, both jointly and severally.
homeowners received refunds of their fees.

Between July and September 2016, defendants               Property Management and REO Schemes
Cuong King, Kowit Yuktanon, and Michelle                  The wave of foreclosures following the housing crisis
Lefaoseu pled guilty for their roles in this scheme,      left the Enterprises with an inventory of real estate
and defendants Aria Maleki, Daniel Shiau, Serj            owned (REO) properties (i.e., properties that the
Geutssoyan, and Mehdi Moarefian were sentenced,           Enterprises took back in foreclosure, possess, and
receiving prison terms ranging from 52 to 112             are responsible to maintain). This REO inventory
months. In addition, restitution of $3,064,182            has sparked a number of different schemes to either
was ordered, jointly and severally amongst several        defraud the Enterprises, which use contractors to
defendants.                                               secure, maintain and repair, price, and ultimately sell
                                                          their properties, or defraud individuals seeking to
Over 50 loans associated with this scheme belong to
                                                          purchase REO properties from the Enterprises.
the Enterprises. Loss calculations are ongoing.
                                                          Below is an example of an OIG investigation that
Sentencings in Loan Modification Scheme,                  resulted in charges filed and plea agreements in
California                                                this category during this semiannual reporting
Roscoe Umali, Jefferson Maniscan, Isaac                   period. (See Appendix I for a summary of publicly
Perez, and Raymund Dacanay made a series of               reportable investigative outcomes in this category.)
misrepresentations to struggling homeowners in
                                                          Multiple Pleas in Phoenix, Arizona, REO Scheme
order to induce the homeowners to make payments
of thousands of dollars in exchange for supposed          Between August 25 and 26, 2016, Daphne Iatridis,
home loan modification assistance. Through                Arthur Telles, Brendyn Iatridis, and Spenser Iatridis
mass mailings, phone calls, faxes, and emails, the        were charged and pled guilty to conspiracy to
defendants convinced homeowners to send them              commit mail and wire fraud. Dahphne Iatridis and
“reinstatement fees” and to make several monthly          Telles additionally pled guilty to tax evasion for
“trial mortgage payments” to the conspirators,            their roles in a fraud scheme involving the sale of
rather than to the homeowners’ lenders. The               foreclosed properties.



38      Federal Housing Finance Agency Office of Inspector General
Daphne Iatridis, a licensed real estate agent,          ownership of homes owned by the government
was approved by Fannie Mae to list real estate          or by banks. The defendants then occupied the
properties it owned as a result of foreclosure.         homes themselves or rented or sold the homes to
Iatridis, her husband Telles, and her sons Brendyn      unsuspecting victims for their own financial gain.
and Spenser Iatridis (also real estate agents), used    The indictment further charges that the defendants
trusts and the stolen identities of family members      filed hundreds of false tax forms against police
and others to purchase Fannie Mae properties            officers, judges, and other government employees to
listed by Daphne Iatridis, which is in violation of     try and harass and intimidate them in the course of
Fannie Mae rules. The co-conspirators allegedly         their duties. Hameed and Young created false and
profited from the scheme in a number of ways,           fraudulent deeds purporting to convey ownership
including purchasing the REO properties at a            of approximately 54 properties, three of which were
discounted price, earning commissions on the            owned by the Enterprises.
purchase and sale of the properties, overcharging
                                                        Guilty Plea in Bankruptcy Foreclosure Scheme,
Fannie Mae for maintenance and expenses, and
                                                        California
renting the properties. The co-conspirators spent
over $1.3 million to purchase 28 Fannie Mae REO         On August 23, 2016, pastor and business owner
properties.                                             Karl Robinson pled guilty to bankruptcy fraud for
                                                        his role in a long-running mortgage rescue scheme.
Adverse Possession Schemes
                                                        Robinson operated “Stay in Your Home Today,”
Adverse possession schemes use illegal adverse
                                                        which provided illegal foreclosure and eviction-
possession (also known as “home squatting”) or
                                                        delay services to homeowners who had defaulted
fraudulent documentation to control distressed
                                                        on their mortgages. In exchange for fees, Robinson
homes, foreclosed homes, and REO properties.
                                                        obstructed lawful foreclosure and eviction actions
Below are some highlights of OIG investigations that
                                                        against property owners who had defaulted on their
resulted in plea agreements in this category during
                                                        mortgages. For example, Robinson filed fraudulent
this semiannual reporting period. (See Appendix J
                                                        grant deeds in county records offices and other
for a summary of publicly reportable investigative
                                                        fake documents in formal eviction proceedings to
outcomes in this category.)
                                                        make it appear that fictional people held interests
                                                        in distressed properties. He then fraudulently
Guilty Pleas in Sovereign Citizen Mortgage Fraud
                                                        filed bankruptcy petitions in the names of the
Case, Pennsylvania
                                                        fictional people to trigger an “automatic stay” in the
On June 29, 2016, Steven Hameed and Darnell             bankruptcy cases.
Young pled guilty to charges of conspiracy to
commit offenses against the United States, bank         Robinson arranged for the filing of at least 200
fraud, corrupt interference with Internal Revenue       fraudulent bankruptcy petitions and collected
laws, conversion of government property, and            approximately $2.98 million in proceeds from his
creating fictitious obligations.                        foreclosure and eviction-delay scheme. Losses to the
                                                        Enterprises as a result of this scheme are still being
According to the indictment, the defendants             determined.
filed false land deeds in an attempt to claim




                                Semiannual Report to the Congress • April 1, 2016–September 30, 2016       39
Fraud Committed Against the Enterprises,                  Plea and Charge in Bank Fraud Scheme, South
the FHLBanks, or FHLBank Member                           Carolina
Institutions
                                                          On September 1, 2016, Erick Bradshaw Sr., former
Investigations in this category involve a variety of      executive director of Fresh Start Community
schemes that target Fannie Mae, Freddie Mac, the          Development Corporation (Fresh Start), pled
FHLBanks, or members of FHLBanks directly.                guilty to conspiracy. On May 10, 2016, Bradshaw
Below we provide highlights of OIG investigations         and Augustina Cabral-Rice were charged with
in this category that resulted in indictments, plea       conspiracy and engaging in monetary transactions in
agreements, and a sentencing during this semiannual       connection with their roles in a scheme to defraud
reporting period. (See Appendix K for a summary           the Affordable Housing Program (AHP) through the
of publicly reportable investigative outcomes in this     FHLBank of Atlanta and its member banks.
category.)
                                                          According to the indictment, Bradshaw created
Guilty Plea for Impersonating a U.S. Senator,             Fresh Start as a nonprofit organization that worked
Florida                                                   on repairing homes through grants received from
                                                          the South Carolina State Housing Finance and
On September 6, 2016, Sidney C. Hines pled guilty
                                                          Development Authority (SC Housing) and the
to false personation of a federal officer or employee
                                                          FHLBank of Atlanta. While acting as Fresh Start,
of the United States for impersonating a U.S.
                                                          Bradshaw and Cabral-Rice used mail and wire
senator.
                                                          communications to present false invoices to banks
Hines fell behind on his mortgage payments and            affiliated with the AHP through the FHLBank of
subsequently received a loan through Fannie Mae’s         Atlanta.
HomeSaver Advance (HSA) loan program. The HSA
program is designed to help delinquent borrowers          According to the indictment, Bradshaw and Cabral-
who are able to make future scheduled mortgage            Rice sought grant monies from the FHLBank of
payments but are unable to pay past due amounts           Atlanta and SC Housing for the rehabilitation of
immediately. An HSA loan cures the delinquency by         low-income homes and then forged the signature
entering into an unsecured loan for the amount in         of contractors on FHLBank of Atlanta Funding
arrears.                                                  Certifications and SC Housing Certifications of
                                                          Payment. It is further alleged that the co-conspirators
Hines failed to make the required payments on his         submitted these certificates and draw requests with
HSA loan and the loan was turned over to a debt           inflated costs as compared to the invoices submitted
collection agency. In an attempt to void his debt and     by the contractors who performed the work. They
defraud Fannie Mae, Hines impersonated United             then allegedly “split the profits” received from these
States senator Richard Durbin on multiple occasions       fraudulent statements submitted to the banks, many
in telephone calls that he made to the debt collection    of which were for work described as completed
agency. During those calls, acting as Senator Durbin,     on the statement yet never actually built, such as
he stated that Hines’s HSA loan was paid in full          handicap ramps on front porches. There are 106
and that the loan should be removed from his credit       properties identified in this scheme.
report.




40      Federal Housing Finance Agency Office of Inspector General
Banker and Real Estate Developer Indicted for             Former Bank CEO Sentenced for Obstructing a
Bank Fraud, Missouri                                      Financial Examination

On April 13, 2016, Shaun Hayes and Michael                Former CEO and Chairman of Voyager Bank and
Litz were indicted on charges of bank fraud and           president and CEO of Voyager Financial Services
theft, embezzlement, or misapplication by a bank          Corporation Timothy Owens obstructed an
officer; Hayes was additionally charged with false        examination by the Federal Reserve Board. Owens
entries related to Excel Bank. In 2009, Hayes was         secretly prepared a false and misleading response to
the majority shareholder of Excel Bank’s holding          questions concerning multiple direct loans to himself
company. Litz was an owner of two major real estate       that were raised during an examination by the
businesses, Eighteen Investments and Bellington           Federal Reserve Board. He submitted a false policy
Realty. Hayes and Litz were co-owners of McKnight         statement that had not been approved by the bank’s
Man I LLC (McKnight Man), through which                   board. In addition, he submitted documents that
they were attempting to develop property. Both            inaccurately portrayed his financial circumstances
Eighteen Investments and McKnight Man were                and his ability to repay the loans by exaggerating his
delinquent on loans at Centrue Bank, which, in            wealth and concealing his liabilities. Owens abused
June 2009, sued Eighteen Investments and Litz, and        his position with Voyager Bank to circumvent the
threatened to sue Hayes and Litz as guarantors on         bank’s lending procedures to obtain letters of credit,
the delinquent McKnight Man loan. The delinquent          which included a $7.5 million letter of credit from
loans totaled over $4 million. Around that time,          the FHLBank of Des Moines.
through Hayes’ efforts, Excel Bank opened up a
                                                          On May 25, 2016, Owens was sentenced to
loan production office, which Hayes controlled. The
                                                          18 months in prison and 2 years of supervised release.
indictment alleges that Hayes used his status as an
insider at Excel Bank to cause Excel Bank to buy
the pool of delinquent Eighteen Investments loans         Outreach
from Centrue Bank at a discount. The indictment
further alleges that Hayes and Litz caused Excel          OIG develops public-private partnerships where
Bank to loan $3.3 million to a straw borrower, the        appropriate. We delivered 37 fraud awareness
proceeds of which were used to pay off the Eighteen       briefings to different audiences to raise awareness of
Investments’ pool of loans purchased by Excel Bank        OIG’s law enforcement mission and of fraud schemes
and the remaining McKnight Man loan at Centrue            targeting FHFA programs.
Bank. These actions were hidden from the bank’s
                                                          OIG has developed and intends to further strengthen
board of directors and officials as well as federal and
                                                          ongoing close working relationships with other law
state bank regulators.
                                                          enforcement agencies, including DOJ and U.S.
Excel Bank, an FHLBank member bank, failed                Attorneys’ offices; the FBI; HUD-OIG; the FDIC-
in 2012 and was taken over by the FDIC and                OIG; IRS-CI; SIGTARP; the Financial Crimes
ultimately acquired by Simmons First National             Enforcement Network; state attorneys general;
Bank, an FHLBank member bank. At the time of              mortgage fraud working groups; and other federal,
failure, Excel Bank had outstanding debt to the           state, and local law enforcement agencies nationwide.
FHLBank of Des Moines, some of which was loans            OI also works closely with Fannie Mae’s Mortgage
pledged as collateral in this scheme. This debt was       Fraud Program and with Freddie Mac’s Financial
passed on to the acquiring institution.                   Fraud Investigation Unit.

                                 Semiannual Report to the Congress • April 1, 2016–September 30, 2016       41
During this reporting period OIG worked with               Suspended Counterparty
additional local and state partners, including the         Referrals
Ventura County California District Attorney’s Office,
King County Washington District Attorney’s Office,
                                                           FHFA has adopted a Suspended Counterparty
Orange County California District Attorney’s Office,
                                                           Program under which it issues “suspension orders
Colorado Attorney General’s Office, Colorado
                                                           directing the regulated entities to cease or refrain”
Bureau of Investigation, Chicago Police Department,
                                                           from doing business with counterparties (and
Anderson County South Carolina Sheriff’s Office,
                                                           their affiliates) who were previously found to have
Hudson County New Jersey District Attorney’s
                                                           “engaged in covered misconduct.” Suspension of such
Office, Florida Office of Financial Regulation,
                                                           counterparties is warranted to protect the safety and
Michigan Attorney General’s Office, Tampa Police
                                                           soundness of the regulated entities. For purposes of
Department, San Bernardino California County
                                                           the program, covered misconduct means “convictions
District Attorney’s Office, and the Cook County
                                                           or administrative sanctions within the past three years
Illinois State’s Attorney’s Office.
                                                           based on fraud or similar misconduct in connection
                                                           with the mortgage business.”6
Investigations: Administrative
                                                           During this reporting period, OIG made 23 referrals
Actions
                                                           of counterparties to FHFA for consideration
                                                           of potential suspension under its Suspended
In addition to the criminal cases brought as a result of
                                                           Counterparty Program.
OIG investigations, OI’s investigative work regularly
results in administrative referrals to other entities      A summary of OIG’s referrals during the reporting
for action. For example, a criminal case of mortgage       period is captured in Figure 3 (see below).
fraud that results in a guilty plea by a licensed real
estate agent, attorney, or certified public accountant
for participation in a bank fraud scheme may result        Figure 3. Administrative Actions from April 1,
                                                           2016, Through September 30, 2016
in a referral by OIG to a state licensing body for
disciplinary actions. Where a real estate professional                    Administrative Actions
is prosecuted for mortgage fraud, that prosecution         Suspension/Debarment Referrals                     31
may cause OIG to refer the matter to another federal       Referral to FHFA Suspended Counterparty            23
agency for possible suspension or debarment of that        Program

individual from participation in federal programs.
During this reporting period, OIG made 31 referrals
for suspension and debarment.




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

Regulatory Activities                                     Highlights of our efforts during this reporting period
                                                          include the following:
Pursuant to the Inspector General Act, OIG assesses
whether proposed legislation and regulations              Congress
related to FHFA are efficient, economical, legal, or      To fulfill its mission, OIG works closely with
susceptible to fraud and abuse. OIG is currently          Congress and is committed to keeping it fully
assessing proposed, interim final, and final rules        apprised of our oversight of FHFA. During this
published by FHFA in the Federal Register. Any            semiannual reporting period, OIG provided
recommendations or comments upon those rules will         information and briefings to congressional
be made after these assessments conclude.                 committees and offices.


Public and Private Partnerships,                          Hotline
Outreach, and Communications                              During this reporting period, the OIG hotline
                                                          continued to serve as a vehicle through which
The Enterprises and the FHLBanks play a critical role     Agency, Enterprise, and FHLBank employees and
in the U.S. housing finance system, and the recent        members of the public can report suspected fraud,
financial crisis has shown that financial distress at     waste, abuse, mismanagement, or misconduct in
the Enterprises and deteriorating conditions in U.S.      Agency programs and operations. The individuals
housing and financial markets threaten the U.S.           reporting can choose to remain anonymous or
economy. American taxpayers put their money and           disclose their identity. OIG actively promotes its
confidence in the hands of regulators and lawmakers       hotline in multiple ways, including its website,
to restore stability to the economy and decisions were    posters, and public reports. During this reporting
made to invest $187.5 billion in the Enterprises. The     period, the hotline received 1,118 contacts, which
continuing significant role of the Enterprises and        included: reports of alleged misconduct that were
FHLBanks in housing finance demands constant              referred to OI for potential investigation, reports
supervision and monitoring. Fundamental to OIG’s          of matters related to other agencies, requests for
mission is independent and transparent oversight          assistance on housing-related issues, and complaints
of Agency programs and operations, and of the             related to the Enterprises, FHLBanks, member
Enterprises to the extent FHFA, as conservator, has       banks, and related entities and individuals.
delegated responsibilities to them.
                                                          Close Coordination with Other Oversight
OIG prioritizes outreach and engagement to                Organizations
communicate its mission and work to members of
                                                          OIG shares oversight of federal housing program
Congress and to the public and to actively participate
                                                          administration with other federal agencies,
in government-wide oversight community activities.
                                                          including HUD, the Department of Veterans
We continue to forge public and private partnerships
                                                          Affairs, the Department of Agriculture, and
to prevent fraud, encourage transparency, and ensure
                                                          Treasury’s Office of Financial Stability (which
accountability, responsibility, and ethical leadership.

                                 Semiannual Report to the Congress • April 1, 2016–September 30, 2016        43
manages the Troubled Asset Relief Program); their         •	 Council of Inspectors General on Financial
IGs; and other law enforcement organizations.                Oversight (CIGFO). CIGFO was created by the
To further the oversight mission, we coordinate             Dodd-Frank Wall Street Reform and Consumer
with these entities to exchange best practices, case        Protection Act of 2010 to oversee the Financial
information, and professional expertise. During             Stability Oversight Council (FSOC), which is
the reporting period, OIG made numerous                     charged with strengthening the nation’s financial
presentations to state and local law enforcement            system. OIG is a permanent member of CIGFO,
agencies, prosecutors, mortgage fraud working               along with the IGs of Treasury, the FDIC, the
groups across the country, and individual federal           Securities and Exchange Commission (SEC),
agencies responsible for investigating mortgage             and others. By statute, CIGFO audits FSOC
fraud, such as HUD-OIG, the FBI, U.S. Postal                each year. OIG participates in a CIGFO working
Inspection Service, IRS-CI, and DOJ.                        group that conducts those annual audits. This
                                                            year CIGFO is coordinating a review of FSOC’s
We maintained active participation in coordinated           efforts to promote market discipline. Specifically,
oversight activities during this reporting period:          the working group will assess FSOC’s efforts to
•	 RMBS Working Group. OIG continued its                    eliminate expectations by shareholders, creditors,
   significant role in the RMBS Working Group.              and counterparties of large bank holding
   (See discussion at “Investigations: Civil Cases,”        companies or nonbank financial companies that
   page 33.)                                                the government will shield them from losses in
                                                            the event of failure.
•	 FBI Cybercrimes Task Force. The FBI’s
   Washington, DC, field office spearheads a              Private-Public Partnerships
   cybercrimes task force, and OIG has assigned
                                                          Housing finance professionals are on the frontlines
   two special agents to it. This multiagency task
                                                          and often have a real-time understanding of emerging
   force focuses on investigating cybercrimes. OIG
                                                          threats and misconduct. We speak with officials at the
   made this assignment to help combat such crimes
                                                          FHLBanks and the Enterprises to benefit from their
   and to work in partnership with multiple federal
                                                          insights and make presentations to industry groups.
   agencies. This concerted effort will help prosecute
                                                          Recent presentations include: the Indiana Land
   cybercriminals and stop cyber attacks made
                                                          Title Association, the Indiana Mortgage Bankers
   against institutions maintaining PII, trade secrets,
                                                          Association, the West San Gabriel Valley Elder Abuse
   and financial data.
                                                          Council, National Association of Hispanic Real
•	 CIGIE. OIG actively participates in several            Estate Professionals – New Jersey, Texas Appraiser
   CIGIE committees and working groups:                   Licensing and Certification Board, the Better
                                                          Business Bureau, and Illinois Mortgage Bankers
   űű The Inspection and Evaluation Committee
                                                          Association.
   űű The Investigation Committee

   űű The Audit Committee




44      Federal Housing Finance Agency Office of Inspector General
Semiannual Report to the Congress • April 1, 2016–September 30, 2016   45
Appendices

Appendix A:                                               Default: Occurs when a mortgagor misses one or
                                                          more payments.
Glossary and Acronyms                                     Dodd-Frank Wall Street Reform and Consumer
                                                          Protection Act of 2010: Legislation that intends
Glossary of Terms                                         to promote the financial stability of the United
                                                          States by improving accountability and transparency
                                                          in the financial system, ending “too big to fail,”
Bankruptcy: A legal procedure for resolving debt
                                                          protecting the American taxpayer by ending
problems of individuals and businesses; specifically, a
                                                          bailouts, and protecting consumers from abusive
case filed under one of the chapters of Title 11 of the
                                                          financial services practices.
U.S. Code.
                                                          Emergency Economic Stabilization Act of 2008:
CAMELSO: FHFA’s examiners use a uniform
                                                          Legislation that authorizes Treasury to undertake
rating system called CAMELSO, under which each
                                                          specific measures to provide stability and prevent
regulated entity and the Office of Finance is assigned
                                                          disruption in the financial system and the economy.
a common composite rating based on an evaluation
                                                          It also provides funds to preserve homeownership.
of various aspects of its operations. Specifically, the
composite rating of an FHLBank, Fannie Mae, or            Fannie Mae: A federally chartered corporation that
Freddie Mac is based on an evaluation and rating          purchases residential mortgages and pools them into
of seven components: Capital, Asset Quality,              securities that are sold to investors. By purchasing
Management, Earnings, Liquidity, Sensitivity to           mortgages, Fannie Mae supplies funds to lenders so
Market Risk, and Operational Risk.                        they may make loans to home buyers.
Conservatorship: Conservatorship is a legal               Federal Home Loan Bank System: The FHLBanks
procedure for the management of financial                 are 11 regional cooperative banks that U.S. lending
institutions for an interim period during which the       institutions use to finance housing and economic
institution’s conservator assumes responsibility for      development in their communities. Created by
operating the institution and conserving its assets.      Congress, the FHLBanks have been the largest
Under the Housing and Economic Recovery Act of            source of funding for community lending for
2008, the Enterprises entered into conservatorships       eight decades. The FHLBanks provide loans (or
overseen by FHFA. As conservator, FHFA has                “advances”) to their member banks but do not lend
undertaken to preserve and conserve the assets            directly to individual borrowers.
of the Enterprises and restore them to safety and
soundness. FHFA also has assumed the powers of            Foreclosure: A legal process used by a lender to
the boards of directors, officers, and shareholders;      obtain possession of a mortgaged property in order to
however, the day-to-day operational decision making       repay part or all of the debt.
of each company is delegated by FHFA to the               Freddie Mac: A federally chartered corporation that
Enterprises’ existing management.                         purchases residential mortgages, pools them into
                                                          securities, and sells them to investors. By purchasing

46      Federal Housing Finance Agency Office of Inspector General
mortgages, Freddie Mac supplies funds to lenders so      Inspector General Reform Act of 2008:
they may make loans to home buyers.                      Legislation that amends the Inspector General Act to
                                                         enhance the independence of inspectors general and
Ginnie Mae: A government-owned corporation
                                                         to create the Council of the Inspectors General on
within HUD. Ginnie Mae guarantees investors the
                                                         Integrity and Efficiency.
timely payment of principal and interest on privately
issued mortgage-backed securities backed by pools of     Internal Controls: Internal controls are an integral
government-insured and -guaranteed mortgages.            component of an organization’s management that
                                                         provide reasonable assurance that the following
Government-Sponsored Enterprises: Business
                                                         objectives are achieved: (1) effectiveness and efficiency
organizations chartered and sponsored by the federal
                                                         of operations, (2) reliability of financial reports, and
government.
                                                         (3) compliance with applicable laws and regulations.
Guarantee: A pledge to investors that the guarantor      Internal controls relate to management’s plans,
will bear the default risk on a pool of loans or other   methods, and procedures used to meet its mission,
collateral.                                              goals, and objectives and include the processes and
                                                         procedures for planning, organizing, directing, and
Housing and Economic Recovery Act of 2008:               controlling program operations as well as the systems
Legislation that establishes OIG and FHFA, which         for measuring, reporting, and monitoring program
oversee the GSEs’ operations. HERA also expanded         performance.
Treasury’s authority to provide financial support to
the GSEs.                                                Mortgage-Backed Securities: Debt securities that
                                                         represent interests in the cash flows—anticipated
Inspector General Act of 1978: Legislation that          principal and interest payments—from pools of
authorizes establishment of offices of inspectors        mortgage loans, most commonly on residential
general, “independent and objective units” within        property.
federal agencies, that: (1) conduct and supervise
audits and investigations relating to the programs and   OIG Fiscal Year 2016: OIG’s FY16 covers
operations of their agencies; (2) provide leadership     October 1, 2015, through September 30, 2016.
and coordination and recommend policies for
                                                         Real Estate Owned: Foreclosed homes owned by
activities designed to promote economy, efficiency,
                                                         government agencies or financial institutions, such as
and effectiveness in the administration of agency
                                                         the Enterprises or real estate investors. REO homes
programs and to prevent and detect fraud, waste,
                                                         represent collateral seized to satisfy unpaid mortgage
or abuse in such programs and operations; and
                                                         loans. The investor or its representative then must sell
(3) provide a means for keeping the head of the
                                                         the property on its own.
agency and Congress fully and currently informed
about problems and deficiencies relating to the          Securitization: A process whereby a financial
administration of such programs and operations and       institution assembles pools of income-producing
the necessity for and progress of corrective action.     assets (such as loans) and then sells securities
                                                         representing an interest in the assets’ cash flows to
                                                         investors.
                                 Semiannual Report to the Congress • April 1, 2016–September 30, 2016            47
Senior Preferred Stock Purchase Agreements:               Short Sale: The sale of a mortgaged property for less
Entered into at the time the conservatorships were        than what is owed on the mortgage.
created, the PSPAs authorize the Enterprises to
                                                          Straw Buyer: A straw buyer is a person whose
request and obtain funds from Treasury, among
                                                          credit profile is used to serve as a cover in a loan
other matters. Under the PSPAs, the Enterprises
                                                          transaction. Straw buyers are chosen for their ability
agreed to consult with Treasury concerning a
                                                          to qualify for a mortgage loan, causing loans that
variety of significant business activities, capital
                                                          would ordinarily be declined to be approved. Straw
stock issuance, dividend payments, ending the
                                                          buyers may be paid a fee for their involvement in
conservatorships, transferring assets, and awarding
                                                          purchasing a property and usually never intend to
executive compensation.
                                                          own or occupy the property.
Servicers: Servicers act as intermediaries between
                                                          Underwater: Term used to describe situations in
mortgage borrowers and owners of the loans, such
                                                          which the homeowner’s equity is below zero (i.e.,
as the Enterprises or mortgage-backed securities
                                                          the home is worth less than the balance of the
investors. They collect the homeowners’ mortgage
                                                          loan(s) it secures).
payments, remit them to the owners of the
loans, maintain appropriate records, and address          Underwriting: The process of analyzing a loan
delinquencies or defaults on behalf of the owners         application to determine the amount of risk
of the loans. For their services, they typically          involved in making the loan; it includes a review of
receive a percentage of the unpaid principal balance      the potential borrower’s credit worthiness and an
of the mortgage loans they service. The recent            assessment of the property value.
financial crisis has put more emphasis on servicers’
handling of defaults, modifications, short sales, and     Upfront Fees: One-time payments made by lenders
foreclosures, in addition to their more traditional       when a loan is acquired by an Enterprise. Fannie
duty of collecting and distributing monthly               Mae refers to upfront fees as “loan level pricing
mortgage payments.                                        adjustments” and Freddie Mac refers to them as
                                                          “delivery fees.”




48      Federal Housing Finance Agency Office of Inspector General
References                                               Emergency Economic Stabilization Act of 2008, Pub.
                                                         L. No. 110-343.
United States Courts, Bankruptcy Basics: Glossary.       Department of Housing and Urban Development,
Accessed: October 17, 2016, at www.uscourts.             Glossary. Accessed: October 17, 2016, at www.
gov/FederalCourts/Bankruptcy/BankruptcyBasics/           huduser.org/portal/glossary/glossary_g.html#gse.
Glossary.aspx.
                                                         Federal Housing Finance Agency, “Introduction,”
Federal Housing Finance Agency, CAMELSO.                 Federal Home Loan Bank Membership, at 1 (March
Accessed: October 23, 2016, at https://www.fhfa.gov/     2013). Accessed: October 17, 2016, at www.fhfa.
SupervisionRegulation/ExaminerResources/Pages/           gov/SupervisionRegulation/Documents/Federal_
CAMELSO.aspx.                                            Home_Loan_Bank_Membership_Module_Final_
Freddie Mac, Glossary of Finance and Economic Terms.     Version_1.0_508.pdf.
Accessed: October 17, 2016, at www.freddiemac.           Freddie Mac, About Freddie Mac. Accessed: October
com/smm/a_f.htm.                                         17, 2016, at www.freddiemac.com/corporate/about_
Federal Housing Finance Agency, FHFA as                  freddie.html.
Conservator of Fannie Mae and Freddie Mac.               Ginnie Mae, About Us. Accessed: October 17, 2016,
Accessed: October 17, 2016, at www.fhfa.gov/             at www.ginniemae.gov/about_us/who_we_are/Pages/
Conservatorship/Pages/History-of-Fannie-Mae--            our_history.aspx.
Freddie-Conservatorships.aspx.
                                                         W. Scott Frame and Lawrence J. White, Regulating
Federal Housing Finance Agency, FHFA Announces           Housing GSEs: Thoughts on Institutional Structure
Suspension of Capital Classifications During             and Authorities, Federal Reserve Bank of Atlanta:
Conservatorship: Discloses Minimum and Risk-             Economic Review, Vol. Q2 2004, at 87 (2004).
Based Capital Classifications as Undercapitalized        Accessed: October 17, 2016, at www.frbatlanta.org/
for the Second Quarter 2008 for Fannie Mae and           research/publications/economic-review/2004/q2/
Freddie Mac (October 9, 2008). Accessed: October         vol89no2_regulating-housing-gses.aspx (click on pdf
17, 2016, at www.fhfa.gov/Media/PublicAffairs/           “Download the full text of this article”).
Pages/FHFA-Announces-Suspension-of-Capital-
Classifications-During-Conservatorship-and-              Freddie Mac, Glossary of Finance and Economic Terms.
Discloses-Minimum-and-RiskBased-Cap.aspx.                Accessed: October 17, 2016, at www.freddiemac.
                                                         com/smm/g_m.htm.
Office of the Special Inspector General for the
Troubled Asset Relief Program, “Glossary of Terms,”      Government Accountability Office, Management
“Genesis and Passage of EESA,” SIGTARP: Initial          Report: Opportunities for Improvements in FHFA’s
Report to the Congress, at 29, 111 (February 6, 2009).   Internal Controls and Accounting Procedures, GAO-
Accessed: October 17, 2016, at www.sigtarp.gov/          10-587R, at 1 (June 3, 2010). Accessed: October 17,
Quarterly%20Reports/SIGTARP_Initial_Report_to_           2016, at www.gao.gov/assets/100/96782.pdf.
the_Congress.pdf.
                                                         Inspector General Act of 1978, Pub. L. No. 95-452.
Dodd-Frank Wall Street Reform and Consumer
                                                         Inspector General Reform Act of 2008, Pub. L. No.
Protection Act of 2010, Pub. L. No. 111-203.
                                                         110-409.


                                Semiannual Report to the Congress • April 1, 2016–September 30, 2016     49
Government Accountability Office, “Introduction,”         Letter from David H. Stevens, Assistant Secretary
“Internal Control Standards,” Internal Control:           for Housing, Department of Housing and Urban
Standards for Internal Control in the Federal             Development, to All Approved Mortgagees, FHA
Government, GAO/AIMD-00-21.3.1, at 4, 6, 8                Refinance of Borrowers in Negative Equity Positions
(November 1999). Accessed: October 17, 2016, at           (August 6, 2010). Accessed: October 17, 2016,
www.gao.gov/special.pubs/ai00021p.pdf.                    at http://portal.hud.gov/hudportal/documents/
                                                          huddoc?id=10-23ml.pdf.
Securities and Exchange Commission, Mortgage-
Backed Securities. Accessed: October 17, 2016, at         Freddie Mac, “Straw Buyers,” Shut the Door on
www.sec.gov/answers/mortgagesecurities.htm.               Mortgage Fraud: Information on How to Avoid
                                                          Mortgage Fraud, at 13, 15. Accessed: October
Office of the Special Inspector General for
                                                          17, 2016, at www.freddiemac.com/singlefamily/
the Troubled Asset Relief Program, “Recent
                                                          preventfraud/toolkit.html (scroll to “Shut the Door
Developments,” SIGTARP: Quarterly Report to
                                                          on Mortgage Fraud,” then click “English [PPT]”
Congress, at 150 (October 26, 2010). Accessed:
                                                          under “Educational Presentation: Avoid Mortgage
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                                                          Fraud,” then download the PowerPoint file).
Reports/October2010_Quarterly_Report_to_
Congress.pdf.                                             Office of the Special Inspector General for the
                                                          Troubled Asset Relief Program, “Homeowner
Freddie Mac, Our Business: Single-Family Credit
                                                          Support Programs,” SIGTARP: Quarterly Report to
Guarantee Business. Accessed: October 17, 2016, at
                                                          Congress, at 65 (January 26, 2011). Accessed: October
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                                                          17, 2016, at www.sigtarp.gov/Quarterly%20Reports/
our_business/index.html.
                                                          January2011_Quarterly_Report_to_Congress.pdf.
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                                                          Indiana Secretary of State Securities Division,
Preferred Stock Purchase Agreements. Accessed:
                                                          Investment Terms. Accessed: October 17, 2016, at
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                                                          www.in.gov/sos/securities/2494.htm.
senior-preferred-stock-purchase-agreements.
                                                          Freddie Mac, “PCs,” Form 10-K for the Fiscal Year
Federal Housing Finance Agency Office of Inspector
                                                          Ended December 31, 2013, at 10. Accessed: October
General, “Treasury Agreements,” White Paper: FHFA-
                                                          17, 2016, at www.freddiemac.com/investors/er/
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                                                          pdf/10k_022714.pdf.
of Fannie Mae and Freddie Mac, WPR-2012-001, at
19 (March 28, 2012). Accessed: October 17, 2016, at
www.fhfaoig.gov/Content/Files/WPR-2012-001.pdf.




50      Federal Housing Finance Agency Office of Inspector General
Acronyms and Abbreviations                              Green Book	 Standards for Internal Control in the
                                                                     Federal Government
Agency	      Federal Housing Finance Agency
                                                        GSEs	        Government-Sponsored Enterprises
AHP	         Affordable Housing Program
                                                        HERA	        Housing and Economic Recovery Act
AMFS	        American Mortgage Field Services, LLC                   of 2008
Blue Book	 Quality Standards for Inspection and         HSA	         HomeSaver Advance
             Evaluation
                                                        HUD-OIG	     Department of Housing and Urban
CIGFO	       Council of Inspectors General on                        Development Office of Inspector
             Financial Oversight                                     General
CIGIE	       Council of the Inspectors General on       IC	          Investigative Counsel
             Integrity and Efficiency
                                                        ICE	         Immigration and Customs
DBR	         Division of Federal Home Loan Bank                      Enforcement
             Regulation
                                                        IG	          Inspector General
DER	         Division of Enterprise Regulation
                                                        IMS	         Information Management System
DOC	         Division of Conservatorship
                                                        IPERA	       Improper Payments Elimination and
DOJ	         Department of Justice                                   Recovery Act of 2010
EIC	Examiner-in-Charge                                  IPIA	        Improper Payments Information Act of
Enterprises	 Fannie Mae and Freddie Mac                              2002

EO	          Executive Office                           IRS-CI	      IRS-Criminal Investigation

FBI	         Federal Bureau of Investigation            IT	          Information Technology

FDIC	        Federal Deposit Insurance Corporation      MRA	         Matter Requiring Attention

FHFA	        Federal Housing Finance Agency             NIST 	     National Institute of
                                                        Framework	 Standards and Technology Framework
FHLBanks	 Federal Home Loan Banks                                    for Improving Critical Infrastructure
                                                                     Cybersecurity
FISMA	       Federal Information Security
             Modernization Act of 2014                  NIST SP 	    National Institute of
                                                        	            Standards and Technology Special
FSOC	        Financial Stability Oversight Council
                                                                     Publication
FY16	        Fiscal Year 2016
                                                        OA	          Office of Audits
GAO	         Government Accountability Office
                                                        OAd	         Office of Administration
GAGAS	       Generally Accepted Government
                                                        OC	          Office of Chief Counsel
             Auditing Standards


                                Semiannual Report to the Congress • April 1, 2016–September 30, 2016        51
OCC	         Office of the Comptroller of the             PSPAs	      Senior Preferred Stock Purchase
             Currency                                                 Agreements

OCo	         Office of Compliance and Special             REO	        Real Estate Owned
             Projects
                                                          RMBS	       Residential Mortgage-Backed Securities
OE	          Office of Evaluations
                                                          ROE	        Report of Examination
OFHEO	       Office of Federal Housing Enterprise
                                                          SA	         Special Agent
             Oversight
                                                          SEC	        Securities and Exchange Commission
OI	          Office of Investigations
                                                          SIGTARP	    Office of the Special Inspector General
OICF	        Office of Internal Controls and
                                                                      for the Troubled Asset Relief Program
             Facilities
                                                          Treasury	   Department of the Treasury
OIG	         Federal Housing Finance Agency Office
             of Inspector General                         Yellow 	    Government Auditing Standards
                                                          Book	
OMB	         Office of Management and Budget

PII	         Personally Identifiable Information




52      Federal Housing Finance Agency Office of Inspector General
Semiannual Report to the Congress • April 1, 2016–September 30, 2016   53
Appendix B:                                              (see page 55) summarizes OIG’s formal public
                                                         recommendations that were made, pending, or
OIG Recommendations                                      closed during the reporting period. A report with any
                                                         public recommendations still pending will remain in
In accordance with the provisions of the Inspector       Figure 4 until all recommendations have been closed.
General Act, one of the key duties of OIG is to          Figure 5 (see page 79) lists OIG’s audit, evaluation,
provide to FHFA recommendations that promote             and compliance review reports for which all of the
the transparency, efficiency, and effectiveness of       public recommendations contained within have
the Agency’s operations and aid in the prevention        been closed.
and detection of fraud, waste, or abuse. Figure 4




54     Federal Housing Finance Agency Office of Inspector General
Figure 4. Summary of OIG Public Recommendations

        No.                    Recommendation                        Report                Status

  AUD-2016-007-1    FHFA should revise existing guidance to    FHFA’s Targeted        Closed—
  AUD-2016-006-1    require examiners to prepare complete      Examinations           Recommendation
                    documentation of supervisory activities    of Freddie Mac:        rejected.
  AUD-2016-005-5    and maintain such documentation in         Just Over Half
                    the official system of record, and train   of the Targeted
                    DER examiners on this guidance.            Examinations
                                                               Planned for 2012
                                                               through 2015 Were
                                                               Completed (AUD-
                                                               2016-007);
                                                               FHFA’s Targeted
                                                               Examinations
                                                               of Fannie Mae:
                                                               Less than Half
                                                               of the Targeted
                                                               Examinations
                                                               Planned for 2012
                                                               through 2015 Were
                                                               Completed and
                                                               No Examinations
                                                               Planned for 2015
                                                               Were Completed
                                                               Before the Report
                                                               of Examination
                                                               Issued (AUD-2016-
                                                               006);
                                                               FHFA’s Supervisory
                                                               Planning Process
                                                               for the Enterprises:
                                                               Roughly Half of
                                                               FHFA’s 2014 and
                                                               2015 High-Priority
                                                               Planned Targeted
                                                               Examinations
                                                               Did Not Trace to
                                                               Risk Assessments
                                                               and Most High-
                                                               Priority Planned
                                                               Examinations Were
                                                               Not Completed
                                                               (AUD-2016-005)




                           Semiannual Report to the Congress • April 1, 2016–September 30, 2016        55
      No.                       Recommendation                          Report                 Status

 AUD-2016-007-2      FHFA should assess whether DER has           FHFA’s Targeted        Recommendation
 AUD-2016-006-2      a sufficient complement of qualified         Examinations           partially agreed
                     examiners to conduct and complete            of Freddie Mac:        to by FHFA;
                     those examinations rated by DER to be        Just Over Half         implementation of
                     of high-priority within each supervisory     of the Targeted        recommendation
                     cycle and address the resource               Examinations           pending.
                     constraints that have adversely              Planned for 2012
                     affected DER’s ability to carry out its      through 2015 Were
                     risk-based supervisory plans.                Completed (AUD-
                                                                  2016-007);
                                                                  FHFA’s Targeted
                                                                  Examinations
                                                                  of Fannie Mae:
                                                                  Less than Half
                                                                  of the Targeted
                                                                  Examinations
                                                                  Planned for 2012
                                                                  through 2015 Were
                                                                  Completed and
                                                                  No Examinations
                                                                  Planned for 2015
                                                                  Were Completed
                                                                  Before the Report of
                                                                  Examination Issued
                                                                  (AUD-2016-006)

 AUD-2016-007-3      FHFA should develop and implement            FHFA’s Targeted        FHFA issued
 AUD-2016-006-3      guidance that clearly requires               Examinations           internal guidance
                     supervisory plans to identify and            of Freddie Mac:        in May 2016
                     prioritize the planned targeted              Just Over Half         that FHFA
                     examinations that are to be completed        of the Targeted        believes confirms
                     for each supervisory cycle, in order         Examinations           its general
                     to fully inform the ROE and CAMELSO          Planned for 2012       agreement with the
                     ratings for that cycle.                      through 2015 Were      recommendation.
                                                                  Completed (AUD-        FHFA plans to
                                                                  2016-007);             assess the
                                                                  FHFA’s Targeted        effectiveness of
                                                                  Examinations           that guidance
                                                                  of Fannie Mae:         in the first
                                                                  Less than Half         quarter of 2017.
                                                                  of the Targeted        Recommendation
                                                                  Examinations           remains open and
                                                                  Planned for 2012       will be monitored.
                                                                  through 2015 Were
                                                                  Completed and
                                                                  No Examinations
                                                                  Planned for 2015
                                                                  Were Completed
                                                                  Before the Report of
                                                                  Examination Issued
                                                                  (AUD-2016-006)




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

AUD-2016-007-4   FHFA should develop and implement a        FHFA’s Targeted        Recommendation
AUD-2016-006-4   control that provides for the tracking     Examinations           agreed to by FHFA;
                 and documentation of planned targeted      of Freddie Mac:        implementation of
                 examinations, through disposition, in      Just Over Half         recommendation
                 DER’s official system of record.           of the Targeted        pending.
                                                            Examinations
                                                            Planned for 2012
                                                            through 2015 Were
                                                            Completed (AUD-
                                                            2016-007);
                                                            FHFA’s Targeted
                                                            Examinations
                                                            of Fannie Mae:
                                                            Less than Half
                                                            of the Targeted
                                                            Examinations
                                                            Planned for 2012
                                                            through 2015 Were
                                                            Completed and
                                                            No Examinations
                                                            Planned for 2015
                                                            Were Completed
                                                            Before the Report of
                                                            Examination Issued
                                                            (AUD-2016-006)

AUD-2016-007-5   FHFA should reinforce and hold             FHFA’s Targeted        FHFA issued
AUD-2016-006-5   EICs accountable to follow DER’s           Examinations           internal guidance
                 requirement to fully document the          of Freddie Mac:        in May 2016
                 risk-based justifications for changes to   Just Over Half         that FHFA
                 the supervisory plan, and that changes     of the Targeted        believes confirms
                 to supervisory plans are documented        Examinations           its general
                 and approved by the EIC. Ensure            Planned for 2012       agreement with the
                 that examiners follow DER Operating        through 2015 Were      recommendation.
                 Procedures Bulletin 2013-DER-              Completed (AUD-        FHFA plans to
                 OPB-03.1 to fully document the risk-       2016-007);             assess the
                 based justifications for changes to the    FHFA’s Targeted        effectiveness of
                 supervisory plan, and that changes to      Examinations           that guidance
                 supervisory plans are documented and       of Fannie Mae:         in the first
                 approved by the EIC.                       Less than Half         quarter of 2017.
                                                            of the Targeted        Recommendation
                                                            Examinations           remains open and
                                                            Planned for 2012       will be monitored.
                                                            through 2015 Were
                                                            Completed and
                                                            No Examinations
                                                            Planned for 2015
                                                            Were Completed
                                                            Before the Report of
                                                            Examination Issued
                                                            (AUD-2016-006)




                        Semiannual Report to the Congress • April 1, 2016–September 30, 2016        57
      No.                       Recommendation                          Report                 Status

 AUD-2016-005-1      FHFA should ensure that risk                 FHFA’s Supervisory     FHFA issued
                     assessments support the                      Planning Process       internal guidance
                     supervisory plans in terms of the            for the Enterprises:   in May 2016 that
                     targeted examinations included in            Roughly Half of        FHFA believes
                     those supervisory plans and the              FHFA’s 2014 and        confirms its general
                     priority assigned to those targeted          2015 High-Priority     agreement with the
                     examinations.                                Planned Targeted       recommendation.
                                                                  Examinations           FHFA plans to
                                                                  Did Not Trace to       assess the
                                                                  Risk Assessments       effectiveness of
                                                                  and Most High-         that guidance
                                                                  Priority Planned       in the first
                                                                  Examinations Were      quarter of 2017.
                                                                  Not Completed          Recommendation
                                                                                         remains open and
                                                                                         will be monitored.


 AUD-2016-005-2      FHFA should reinforce and hold the           FHFA’s Supervisory     FHFA issued
                     EICs accountable to meet FHFA’s              Planning Process       internal guidance
                     requirement for risk assessments             for the Enterprises:   in May 2016 that
                     to be updated semiannually, and as           Roughly Half of        FHFA believes
                     additional information is learned that       FHFA’s 2014 and        confirms its general
                     causes significant changes to the risk       2015 High-Priority     agreement with the
                     profile, such information, from whatever     Planned Targeted       recommendation.
                     sources, should be factored into             Examinations           FHFA plans to
                     the risk assessment during the next          Did Not Trace to       assess the
                     update.                                      Risk Assessments       effectiveness of
                                                                  and Most High-         that guidance
                                                                  Priority Planned       in the first
                                                                  Examinations Were      quarter of 2017.
                                                                  Not Completed          Recommendation
                                                                                         remains open and
                                                                                         will be monitored.


 AUD-2016-005-3      FHFA should direct DER to develop            FHFA’s Supervisory     FHFA issued
                     and implement controls to ensure             Planning Process       internal guidance
                     that high-priority planned targeted          for the Enterprises:   in May 2016 that
                     examinations are completed before            Roughly Half of        FHFA believes
                     lower priority targeted examinations,        FHFA’s 2014 and        confirms its general
                     unless the reason(s) for performing a        2015 High-Priority     agreement with the
                     lower priority targeted examination in       Planned Targeted       recommendation.
                     lieu of a higher priority planned targeted   Examinations           FHFA plans to
                     examination is documented and risk           Did Not Trace to       assess the
                     based (e.g., change in process, delay in     Risk Assessments       effectiveness of
                     implementation).                             and Most High-         that guidance
                                                                  Priority Planned       in the first
                                                                  Examinations Were      quarter of 2017.
                                                                  Not Completed          Recommendation
                                                                                         remains open and
                                                                                         will be monitored.




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

AUD-2016-005-4   FHFA should enhance DER guidance          FHFA’s Supervisory     FHFA issued
                 to provide a common definition for        Planning Process       internal guidance
                 the priority assigned to targeted         for the Enterprises:   in May 2016 that
                 examinations and require examiners        Roughly Half of        FHFA believes
                 to document the basis of the priority     FHFA’s 2014 and        confirms its general
                 assigned to targeted examinations.        2015 High-Priority     agreement with the
                                                           Planned Targeted       recommendation.
                                                           Examinations           FHFA plans to
                                                           Did Not Trace to       assess the
                                                           Risk Assessments       effectiveness of
                                                           and Most High-         that guidance
                                                           Priority Planned       in the first
                                                           Examinations Were      quarter of 2017.
                                                           Not Completed          Recommendation
                                                                                  remains open and
                                                                                  will be monitored.

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


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




                        Semiannual Report to the Congress • April 1, 2016–September 30, 2016        59
      No.                       Recommendation                          Report                Status

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


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


 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.




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

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


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


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


    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




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


                                   Semiannual Report to the Congress • April 1, 2016–September 30, 2016                 61
           No.                          Recommendation                             Report                    Status

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


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


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


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




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


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

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


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


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


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


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




                         Semiannual Report to the Congress • April 1, 2016–September 30, 2016         63
       No.                      Recommendation                          Report                Status

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


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


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


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


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




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

EVL-2016-009-1   FHFA should revise its Examination         FHFA Failed to         Recommendation
                 Manual to:                                 Consistently Deliver   partially agreed
                 •	Require that each final ROE be           Timely Reports of      to by FHFA;
                   addressed and delivered to the board     Examination to the     implementation of
                   of directors of an Enterprise by DER     Enterprise Boards      recommendation
                   examiners to eliminate any confusion     and Obtain Written     pending.
                   over the meaning of the term “issue;”    Responses from the
                                                            Boards Regarding
                 •	Establish a timetable for submission
                                                            Remediation
                   of the final ROE to each Enterprise’s
                                                            of Supervisory
                   board of directors and for DER’s
                                                            Concerns Identified
                   presentation of the ROE results,
                                                            in those Reports
                   conclusions, and supervisory
                   concerns to each Enterprise board;
                 •	Require each Enterprise board to
                   reflect its review of each annual ROE
                   in meeting minutes; and
                 •	Require each Enterprise board to
                   reflect its review and approval of its
                   written response to the ROE in its
                   meeting minutes.

EVL-2016-009-2   FHFA should direct DER to develop          FHFA Failed to         Recommendation
                 detailed guidance and promulgate that      Consistently Deliver   partially agreed
                 guidance to each Enterprise’s board of     Timely Reports of      to by FHFA;
                 directors that explains:                   Examination to the     implementation of
                 •	The purpose for DER’s annual             Enterprise Boards      recommendation
                   presentation to each Enterprise          and Obtain Written     pending.
                   board of directors on the ROE            Responses from the
                   results, conclusions, and supervisory    Boards Regarding
                   concerns and the opportunity for         Remediation
                   directors to ask questions and           of Supervisory
                   discuss ROE examination conclusions      Concerns Identified
                   and supervisory concerns at that         in those Reports
                   presentation; and
                 •	The requirement that each Enterprise
                   board of directors submit a written
                   response to the annual ROE to DER
                   and the expected level of detail
                   regarding ongoing and contemplated
                   remediation in that written response.




                        Semiannual Report to the Congress • April 1, 2016–September 30, 2016       65
      No.                       Recommendation                          Report                 Status

 EVL-2016-009-3      FHFA should direct the Enterprises’          FHFA Failed to         Recommendation
                     boards to amend their charters to            Consistently Deliver   not accepted by
                     require review by each director of each      Timely Reports of      FHFA.
                     annual ROE and review and approval           Examination to the
                     of the written response to DER in            Enterprise Boards
                     response to each annual ROE.                 and Obtain Written
                                                                  Responses from the
                                                                  Boards Regarding
                                                                  Remediation
                                                                  of Supervisory
                                                                  Concerns Identified
                                                                  in those Reports


 EVL-2016-008-1      FHFA should direct DER to develop            FHFA’s Failure         Recommendation
                     and adopt a standard template for            to Consistently        partially agreed
                     Enterprise ROEs, issue instructions          Identify Specific      to by FHFA;
                     for completing that template, and            Deficiencies and       implementation of
                     promulgate guidance that establishes         Their Root Causes      recommendation
                     baseline elements that must be               in Its Reports         pending.
                     included in each ROE, such as: clear         of Examination
                     communication of deficient, unsafe,          Constrains the
                     or unsound practices; explanation            Ability of the
                     of how those practices gave rise to          Enterprise Boards
                     supervisory concerns and deficiencies;       to Exercise
                     and prioritization of remediation of         Effective Oversight
                     supervisory concerns and deficiencies.       of Management’s
                                                                  Remediation
                                                                  of Supervisory
                                                                  Concerns




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

EVL-2016-008-2   FHFA should direct DER to revise its       FHFA’s Failure         Recommendation
                 guidance to require ROEs to focus          to Consistently        not accepted by
                 the boards’ attention on the most          Identify Specific      FHFA.
                 critical and time-sensitive supervisory    Deficiencies and
                 concerns through (1) the prioritization    Their Root Causes
                 of examination findings and                in Its Reports
                 conclusions and (2) identification of      of Examination
                 deficiencies and MRAs in the ROE and       Constrains the
                 discussion of their root causes.           Ability of the
                                                            Enterprise Boards
                                                            to Exercise
                                                            Effective Oversight
                                                            of Management’s
                                                            Remediation
                                                            of Supervisory
                                                            Concerns


EVL-2016-008-3   FHFA should develop written procedures     FHFA’s Failure         Recommendation
                 for the “fatal flaw” review of the         to Consistently        agreed to by FHFA;
                 ROE by Enterprise management that          Identify Specific      implementation of
                 establish the purpose of the review, its   Deficiencies and       recommendation
                 duration, and a standard message for       Their Root Causes      pending.
                 conveying this information to Enterprise   in Its Reports
                 management.                                of Examination
                                                            Constrains the
                                                            Ability of the
                                                            Enterprise Boards
                                                            to Exercise
                                                            Effective Oversight
                                                            of Management’s
                                                            Remediation
                                                            of Supervisory
                                                            Concerns


EVL-2016-007-1   FHFA should require the Enterprises        FHFA’s Inconsistent    Recommendation
                 to provide, in their remediation plans,    Practices in           partially agreed
                 the target date in which their internal    Assessing Enterprise   to by FHFA;
                 audit departments expect to validate       Remediation of         implementation of
                 management’s remediation of MRAs,          Serious Deficiencies   recommendation
                 and require examiners to enter that        and Weaknesses         pending.
                 date into a dedicated field in the MRA     in its Tracking
                 tracking system.                           Systems Limit the
                                                            Effectiveness of
                                                            FHFA’s Supervision
                                                            of the Enterprises




                        Semiannual Report to the Congress • April 1, 2016–September 30, 2016         67
      No.                       Recommendation                          Report                 Status

 EVL-2016-007-2      FHFA should require DER, upon                FHFA’s Inconsistent    Recommendation
                     acceptance of an Enterprise’s                Practices in           partially agreed
                     remediation plan, to estimate the date       Assessing Enterprise   to by FHFA;
                     by which it expects to confirm internal      Remediation of         implementation of
                     audit’s validation, and to enter that        Serious Deficiencies   recommendation
                     date into a dedicated field in the MRA       and Weaknesses         pending.
                     tracking system.                             in its Tracking
                                                                  Systems Limit the
                                                                  Effectiveness of
                                                                  FHFA’s Supervision
                                                                  of the Enterprises


 EVL-2016-007-3      FHFA should ensure that the underlying       FHFA’s Inconsistent    Recommendation
                     remediation documents, including the         Practices in           not accepted by
                     Procedures Document, are readily             Assessing Enterprise   FHFA.
                     available by direct link or other means,     Remediation of
                     through DER’s MRA tracking system(s).        Serious Deficiencies
                                                                  and Weaknesses
                                                                  in its Tracking
                                                                  Systems Limit the
                                                                  Effectiveness of
                                                                  FHFA’s Supervision
                                                                  of the Enterprises


 EVL-2016-007-4      FHFA should require DER to conduct           FHFA’s Inconsistent    Recommendation
                     and document, in an Analysis                 Practices in           agreed to by FHFA;
                     Memorandum or other work paper,              Assessing Enterprise   implementation of
                     an independent assessment of the             Remediation of         recommendation
                     adequacy of each Enterprise MRA              Serious Deficiencies   pending.
                     remediation plan and the basis upon          and Weaknesses
                     which such plan is either accepted           in its Tracking
                     or rejected, and to maintain that            Systems Limit the
                     document in DER’s supervisory record-        Effectiveness of
                     keeping system.                              FHFA’s Supervision
                                                                  of the Enterprises


 EVL-2016-007-5      FHFA should require DER to track interim     FHFA’s Inconsistent    Recommendation
                     milestones and to independently assess       Practices in           not accepted by
                     and document the timeliness and              Assessing              FHFA.
                     adequacy of Enterprise remediation of        Enterprise
                     MRAs on a regular basis.                     Remediation of
                                                                  Serious Deficiencies
                                                                  and Weaknesses
                                                                  in its Tracking
                                                                  Systems Limit the
                                                                  Effectiveness of
                                                                  FHFA’s Supervision
                                                                  of the Enterprises




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

EVL-2016-007-6   FHFA should require DER, when              FHFA’s Inconsistent    Recommendation
                 evaluating whether to close an MRA,        Practices in           agreed to by FHFA;
                 to conduct and document (in an             Assessing Enterprise   implementation of
                 Analysis Memorandum or other work          Remediation of         recommendation
                 paper) an independent analysis of the      Serious Deficiencies   pending.
                 adequacy and sustainability of the         and Weaknesses
                 Enterprise’s remediation activity, or      in its Tracking
                 where appropriate, the adequacy of the     Systems Limit the
                 Enterprise’s internal audit validation     Effectiveness of
                 work, and maintain that document           FHFA’s Supervision
                 in DER’s supervisory record-keeping        of the Enterprises
                 system.


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


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


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




                        Semiannual Report to the Congress • April 1, 2016–September 30, 2016        69
      No.                       Recommendation                          Report                 Status

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


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


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


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




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

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


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


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


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




                        Semiannual Report to the Congress • April 1, 2016–September 30, 2016        71
      No.                       Recommendation                          Report                 Status

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


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


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


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


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

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


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

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


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


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


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




                        Semiannual Report to the Congress • April 1, 2016–September 30, 2016         73
      No.                       Recommendation                          Report                  Status

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


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


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




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


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


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




                        Semiannual Report to the Congress • April 1, 2016–September 30, 2016       75
      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              Closed—Final
                     inclusion strategic plan.                    Minorities in FHFA’s   action taken by
                                                                  Workforce              FHFA.


 EVL-2015-003-4      FHFA should research opportunities to        Women and              Closed—Final
                     partner with inner-city and other high       Minorities in FHFA’s   action taken by
                     schools, where feasible, to ensure           Workforce              FHFA.
                     compliance with HERA.


 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




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

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


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


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




                        Semiannual Report to the Congress • April 1, 2016–September 30, 2016       77
      No.                       Recommendation                          Report               Status

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


 COM-2016-004-1      FHFA should ensure that it has               Management Alert:    Recommendation
                     adequate internal staff, outside             Need for Increased   agreed to by FHFA;
                     contractors, or both, who have the           Oversight by FHFA,   implementation of
                     professional expertise and experience        as Conservator       recommendation
                     in commercial construction to oversee        of Fannie Mae,       pending.
                     the build-out plans and associated           of the Projected
                     budget(s), as Fannie Mae continues to        Costs Associated
                     revise and refine them.                      with Fannie Mae’s
                                                                  Headquarters
                                                                  Consolidation and
                                                                  Relocation Project


 COM-2016-004-2      FHFA should direct Fannie Mae to             Management Alert:    Recommendation
                     provide regular updates and formal           Need for Increased   agreed to by FHFA;
                     budgetary reports to DOC for its review      Oversight by FHFA,   implementation of
                     and for FHFA approval through the            as Conservator       recommendation
                     design and construction of Fannie            of Fannie Mae,       pending.
                     Mae’s leased space in Midtown Center.        of the Projected
                                                                  Costs Associated
                                                                  with Fannie Mae’s
                                                                  Headquarters
                                                                  Consolidation and
                                                                  Relocation Project


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




78   Federal Housing Finance Agency Office of Inspector General
Figure 5. Summary of OIG Reports Where All Public Recommendations Are Closed

                                     Report                                      No. of Recommendations
 Review of FHFA’s Tracking and Rating of the 2013 Scorecard Objective for                  3
 the New Representation and Warranty Framework Reveals Opportunities to
 Strengthen the Process (AUD-2016-002)

 FHFA’s Oversight of Risks Associated with the Enterprises Relying on                      1
 Counterparties to Comply with Selling and Servicing Guidelines
 (AUD-2014-018)

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

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

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

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

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

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

 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)



                                Semiannual Report to the Congress • April 1, 2016–September 30, 2016      79
                                     Report                                        No. of Recommendations
 FHFA Should Develop and Implement a Risk-Based Plan to Monitor the                          1
 Enterprises’ Oversight of Their Counterparties’ Compliance with Contractual
 Requirements Including Consumer Protection Laws (AUD-2013-008)

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

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

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

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

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

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

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

 FHFA’s Call Report System (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 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 Exercise of Its Conservatorship Powers to Review and Approve the                     4
 Enterprises’ Annual Operating Budgets Has Not Achieved FHFA’s Stated
 Purpose (EVL-2015-006)



80     Federal Housing Finance Agency Office of Inspector General
                                    Report                                      No. of Recommendations
Evaluation of the Division of Enterprise Regulation’s 2013 Examination                    1
Records: Successes and Opportunities (EVL-2015-001)

Freddie Mac Could Further Reduce Reimbursement Errors by Reviewing More                   2
Servicer Claims (EVL-2014-011)

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

Status of the Development of the Common Securitization Platform                           2
(EVL-2014-008)

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

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

FHFA’s Oversight of the Servicing Alignment Initiative (EVL-2014-003)                     3

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

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

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

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

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

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

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

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

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

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

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




                               Semiannual Report to the Congress • April 1, 2016–September 30, 2016      81
                                     Report                                      No. of Recommendations
 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 (ESR-2012-003)                 2

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

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

 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)

 Compliance Review of FHFA’s Oversight of Enterprise Executive Compensation                2
 Based on Corporate Scorecard Performance (COM-2016-002)




82     Federal Housing Finance Agency Office of Inspector General
Appendix C:                                                     dozen categories of information that we must include
                                                                in our semiannual reports.
Information Required                                            Below, OIG presents a table that directs the reader
by the Inspector General                                        to the pages of this report where the information
Act and Subpoenas Issued                                        required by the Inspector General Act may be found.

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


                                              Source/Requirement                                                  Pages
Section 5(a)(1)- A description of significant problems, abuses, and deficiencies relating to the administration   16-31
of programs and operations of FHFA.
Section 5(a)(2)- A description of the recommendations for corrective action made by OIG with respect to           16-31
significant problems, abuses, or deficiencies.                                                                    55-78
Section 5(a)(3)- An identification of each significant recommendation described in previous semiannual            59-64
reports on which corrective action has not been completed.                                                        69-78
Section 5(a)(4)- A summary of matters referred to prosecutive authorities and the prosecutions and                32-42
convictions that have resulted.                                                                                   88-111
Section 5(a)(5)- A summary of each report made to the Director of FHFA.                                           16-31
Section 5(a)(6)- A listing, subdivided according to subject matter, of each audit and evaluation report issued    16-31
by OIG during the reporting period and for each report, where applicable, the total dollar value of questioned     84
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.                                               16-31
Section 5(a)(8)- Statistical tables showing the total number of audit and evaluation reports and the total        16-31
dollar value of questioned and unsupported costs.                                                                  84
Section 5(a)(9)- Statistical tables showing the total number of audit and evaluation reports and the dollar       16-31
value of recommendations that funds be put to better use by management.                                            84
Section 5(a)(10)- A summary of each audit and evaluation report issued before the commencement of the              84
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              84
decision made during the reporting period.
Section 5(a)(12)- Information concerning any significant management decision with which the Inspector             84-85
General is in disagreement.
Section 5(a)(13)- The information described under section [804](b) of the Federal Financial Management            85-86
Improvement Act of 1996.
Section 5(a)(14)- An appendix containing the results of any peer review conducted by another IG; or the date       86
of the last peer review, if no peer review was conducted during the reporting period.
Section 5(a)(15)- A list of any outstanding recommendations from any peer review conducted by another IG           86
that have not been fully implemented.
Section 5(a)(16)- A list of any peer reviews of another IG during the reporting period.                            86


                                   Semiannual Report to the Congress • April 1, 2016–September 30, 2016                 83
Audit and Evaluation Reports                                no management decision has been made by the
with Recommendations of                                     end of the reporting period. There were no audit or
                                                            evaluation reports issued before April 1, 2016, that
Questioned Costs, Unsupported                               await a management decision.
Costs, and Funds to Be Put to
Better Use by Management                                    Significantly Revised
                                                            Management Decisions
Section 5(a)(6) of the Inspector General Act, as
amended, requires that OIG list its reports during
                                                            Section 5(a)(11) of the Inspector General Act, as
the semiannual period that include questioned costs,
                                                            amended, requires that OIG report information
unsupported costs, and funds to be put to better
                                                            concerning the reasons for any significant revised
use. Section 5(a)(8) and section 5(a)(9), respectively,
                                                            management decision made during the reporting
require OIG to publish statistical tables showing
                                                            period. During the six-month reporting period ended
the dollar value of questioned and unsupported
                                                            September 30, 2016, there were no significantly
costs, and of recommendations that funds be put to
                                                            revised management decisions.
better use by management. The reports that OIG
issued during the reporting period did not include
recommendations with dollar values of questioned            Significant Management
costs, unsupported costs, or funds to be put to better      Decisions with Which the
use by management.                                          Inspector General Disagrees
Figure 6 (see below) discloses OIG’s questioned and
unsupported cost findings, and recommendations              Section 5(a)(12) of the Inspector General Act, as
that funds be put to better use.                            amended, requires that OIG report information
                                                            concerning any significant management decision
                                                            with which the Inspector General is in disagreement.
Audit and Evaluation Reports
                                                            During the six-month reporting period ended
with No Management Decision                                 September 30, 2016, there are four management
                                                            decisions with which the Inspector General disagreed.
Section 5(a)(10) of the Inspector General Act,
as amended, requires that OIG report on each                OIG disagrees with FHFA’s decision in response
audit and evaluation report issued before the               to the evaluation titled FHFA’s Inconsistent Practices
commencement of the reporting period for which              in Assessing Enterprise Remediation of Serious


Figure 6. Funds to Be Put to Better Use by Management, Questioned Costs, and Unsupported Costs
for the Period April 1, 2016, Through September 30, 2016

                                                                          Potential Monetary Benefits
   Report Issued       Recommendation No.            Date         Questioned      Unsupported    Funds Put to
                                                                    Costs            Costs        Better Use
COM-2016-004                                    June 16, 2016     $48,229,370                $-              $-
Total                                                             $48,229,370                $-              $-



84      Federal Housing Finance Agency Office of Inspector General
Deficiencies and Weaknesses in its Tracking Systems        2014 and 2015 High-Priority Planned Targeted
Limit the Effectiveness of FHFA’s Supervision of the       Examinations Did Not Trace to Risk Assessments
Enterprises (EVL-2016-007). FHFA did not agree             and Most High-Priority Planned Examinations Were
with OIG’s recommendations to: (1) ensure that             Not Completed (AUD-2016-005), FHFA’s Targeted
the underlying remediation documents, including            Examinations of Fannie Mae: Less than Half of the
the Procedures Document, are readily available by          Targeted Examinations Planned for 2012 through 2015
direct link or other means, through DER’s MRA              Were Completed and No Examinations Planned for
tracking system(s); and (2) require DER to track           2015 Were Completed Before the Report of Examination
interim milestones and to independently assess and         Issued (AUD-2016-006), and FHFA’s Targeted
document the timeliness and adequacy of Enterprise         Examinations of Freddie Mac: Just Over Half of the
remediation of MRAs on a regular basis.                    Targeted Examinations Planned for 2012 through 2015
                                                           Were Completed (AUD-2016-007). FHFA did not
OIG disagrees with FHFA’s decision in response to
                                                           agree with OIG’s recommendation to: revise existing
the evaluation titled FHFA’s Failure to Consistently
                                                           guidance to require examiners to prepare complete
Identify Specific Deficiencies and Their Root Causes in
                                                           documentation of supervisory activities and maintain
Its Reports of Examination Constrains the Ability of
                                                           such documentation in the official system of record,
the Enterprise Boards to Exercise Effective Oversight of
                                                           and train DER examiners on this guidance.
Management’s Remediation of Supervisory Concerns
(EVL-2016-008). FHFA did not agree with
OIG’s recommendation to: direct DER to revise              Federal Financial Management
its guidance to require ROEs to focus the boards’          Improvement Act of 1996
attention on the most critical and time-sensitive
supervisory concerns through (1) the prioritization        Section 5(a)(13) of the Inspector General Act, as
of examination findings and conclusions and                amended, requires that OIG report information
(2) identification of deficiencies and MRAs in the         concerning instances of and reasons for failures to
ROE and discussion of their root causes.                   meet any intermediate target dates from remediation
                                                           plans designed to remedy findings that the Agency’s
OIG disagrees with FHFA’s decision in response
                                                           financial management systems do not comply with
to the evaluation titled FHFA Failed to Consistently
                                                           federal financial management system requirements,
Deliver Timely Reports of Examination to the Enterprise
                                                           applicable federal accounting standards, and the
Boards and Obtain Written Responses from the Boards
                                                           United States Government Standard General Ledger
Regarding Remediation of Supervisory Concerns
                                                           at the transaction level. During the reporting period,
Identified in those Reports (EVL-2016-009). FHFA
                                                           the Agency did not fail to meet any intermediate
did not agree with OIG’s recommendation to: direct
                                                           target dates in any remediation plans relating to the
the Enterprises’ boards to amend their charters to
                                                           condition of its financial management system.
require review by each director of each annual ROE
and review and approval of the written response to         In its Financial Audit: Federal Housing Finance
DER in response to each annual ROE.                        Agency’s Fiscal Years 2015 and 2014 Financial
                                                           Statements report, the Government Accountability
OIG also disagrees with FHFA’s decision in response
                                                           Office (GAO) did not identify any deficiencies in
to the audit reports titled FHFA’s Supervisory Planning
                                                           FHFA’s internal controls over financial reporting
Process for the Enterprises: Roughly Half of FHFA’s
                                                           that it considered to be a material weakness or


                                  Semiannual Report to the Congress • April 1, 2016–September 30, 2016         85
significant deficiency. Further, GAO issued FHFA’s        the audit organization… has been suitably designed
prior and current financial statements audit reports      and complied with to provide FHFA OIG with
as follows: fiscal year 2015 on November 16, 2015;        reasonable assurance of performing and reporting in
fiscal year 2014 on November 17, 2014; fiscal year        conformity with applicable professional standards
2013 on December 16, 2013; and fiscal year 2012 on        in all material respects.” OIG has implemented the
November 15, 2012. For all four audits, GAO found:        recommendation.
(1) FHFA’s financial statements were presented
                                                          During this semiannual reporting period, OIG
fairly, in all material respects, in accordance with
                                                          conducted a peer review of the Peace Corps Office
generally accepted accounting principles; (2) FHFA
                                                          of Inspector General’s Investigation Unit. The
maintained, in all material respects, effective
                                                          on-site review took place from April 18-20, 2016.
internal controls over financial reporting as of the
                                                          The review focused on the Peace Corps OIG’s efforts
last day of the audit period; and (3) no reportable
                                                          to establish appropriate programs and procedures
noncompliance for the fiscal year tested with
                                                          to meet the standards that accompanied its receipt
provisions of applicable laws, regulations, contracts,
                                                          of Statutory Law Enforcement Authority in July
and grant agreements it tested. HERA requires GAO
                                                          2010. The review team found the examined areas
to conduct this audit.
                                                          to be fully compliant with CIGIE standards and the
                                                          relevant Attorney General Guidelines.
Peer Reviews

Sections 5(a)(14), (15), and (16) of the Inspector
General Act, as amended, require that OIG provide
information—relevant to the semiannual period—
on any peer reviews of OIG, unimplemented
recommendations from any peer reviews of
OIG, and any peer reviews conducted by OIG.
During the reporting period, the Pension
Benefit Guaranty Corporation OIG initiated
a peer review of our audit organization in July
2016, and that peer review is in progress as of
September 30, 2016. The most recent completed
peer reviews of OIG’s audit and investigative
activities were reported on March 20, 2014, and
August 25, 2014, respectively. (For full copies
of these reports, see www.fhfaoig.gov/About/
PlanningAndPerformance.) Neither of these peer
review reports includes recommendations. However,
in connection with the peer review of OIG’s audit
activities, the reviewer issued a separate finding
and recommendation “that was not considered to
be of sufficient significance to affect” the reviewer’s
opinion that OIG’s “system of quality control for


86      Federal Housing Finance Agency Office of Inspector General
Appendix D:                                               FHFA’s Supervisory Planning Process for the Enterprises:
                                                          Roughly Half of FHFA’s 2014 and 2015 High-Priority
OIG Reports                                               Planned Targeted Examinations Did Not Trace to
                                                          Risk Assessments and Most High-Priority Planned
See www.fhfaoig.gov for OIG’s reports.                    Examinations Were Not Completed (AUD-2016-005,
                                                          September 30, 2016).
Evaluation Reports                                        Kearney & Company, P.C.’s Results of the Federal
                                                          Housing Finance Agency’s Cybersecurity Act Audit
FHFA Failed to Consistently Deliver Timely Reports        (AUD-2016-004, August 11, 2016).
of Examination to the Enterprise Boards and Obtain
Written Responses from the Boards Regarding               FHFA Complied with Applicable Improper Payment
Remediation of Supervisory Concerns Identified in those   Requirements During Fiscal Year 2015 (AUD-2016-
Reports (EVL-2016-009, July 14, 2016).                    003, May 05, 2016).

FHFA’s Failure to Consistently Identify Specific
                                                          Other Reports
Deficiencies and Their Root Causes in Its Reports of
Examination Constrains the Ability of the Enterprise
                                                          DBR’s Unwritten Procedures and Practices for Oversight
Boards to Exercise Effective Oversight of Management’s
                                                          of Efforts by Federal Home Loan Banks to Correct
Remediation of Supervisory Concerns (EVL-2016-008,
                                                          Deficiencies Underlying the Most Serious Supervisory
July 14, 2016).
                                                          Matters Are Inconsistent with the Written Oversight
FHFA’s Inconsistent Practices in Assessing Enterprise     Requirements Promulgated by FHFA (COM-2016-
Remediation of Serious Deficiencies and Weaknesses in     006, September 30, 2016).
its Tracking Systems Limit the Effectiveness of FHFA’s
                                                          Shale Oil Boom and Bust: Implications for the Mortgage
Supervision of the Enterprises (EVL-2016-007, July 14,
                                                          Market (WPR-2016-003, September 07, 2016).
2016).
                                                          Compliance Review of FHFA’s Implementation of its
Audit Reports                                             Consumer Communications Procedures (COM-2016-
                                                          005, July 14, 2016).
FHFA’s Targeted Examinations of Freddie Mac: Just         Management Alert: Need for Increased Oversight by
Over Half of the Targeted Examinations Planned for        FHFA, as Conservator of Fannie Mae, of the Projected
2012 through 2015 Were Completed (AUD-2016-007,           Costs Associated with Fannie Mae’s Headquarters
September 30, 2016).                                      Consolidation and Relocation Project (COM-2016-
FHFA’s Targeted Examinations of Fannie Mae: Less          004, June 16, 2016).
than Half of the Targeted Examinations Planned            FHFA’s Implementation of Its Automated System to
for 2012 through 2015 Were Completed and No               Track Deficiencies Identified in Federal Home Loan
Examinations Planned for 2015 Were Completed Before       Bank Examinations (COM-2016-003, May 26,
the Report of Examination Issued (AUD-2016-006,           2016).
September 30, 2016).




                                 Semiannual Report to the Congress • April 1, 2016–September 30, 2016          87
Appendix E:                                                In these types of schemes, sellers or developers
                                                           typically solicit investors with good credit who
OI Publicly Reportable                                     want low-risk investment opportunities by offering
Investigative Outcomes                                     deals on properties with no money down and
                                                           other lucrative incentives, such as cash back and
Involving Condo                                            guaranteed and immediate rent collection. The
Conversion and Builder                                     sellers fund these incentives with inflated sales prices.
                                                           The fraudsters conceal the incentives and the true
Bailout Schemes                                            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

Seven Charged in Condominium Bank Fraud Scheme, Florida
Co-conspirators allegedly personally enriched themselves by using straw buyers and unqualified buyers to
purchase and finance residential properties. To do this, the co-conspirators allegedly submitted loan applications
and other documents to lenders containing materially false statements.
                         Director/Vice           Filed an information on charges of
Rafael Amador            President/Secretary of conspiracy to commit bank and wire          September 26, 2016
                         Title Company           fraud affecting a financial institution.
                         Director/President/     Filed an information on charges of
Osvaldo Sanchez          Treasurer of Title      conspiracy to commit bank and wire         September 26, 2016
                         Company                 fraud affecting a financial institution.
                                                 Filed an information on charges of
Luis Tur                 Straw Buyer             conspiracy to commit bank and wire         September 26, 2016
                                                 fraud affecting a financial institution.
                                                 Filed an information on charges of
Orlando Ortiz            Straw Buyer             conspiracy to commit bank and wire         September 26, 2016
                                                 fraud affecting a financial institution.
                                                 Filed an information on charges of
Jeffrey Canfield         Straw Buyer             conspiracy to commit bank and wire         September 26, 2016
                                                 fraud affecting a financial institution.
                                                 Filed an information on charges of
                         Director/President of
Mirna Pena                                       conspiracy to commit bank and wire        September 26, 2016
                         Title Company
                                                 fraud affecting a financial institution.
                                                 Filed an information on charges of
                         Vice President of Title
Pedro Allende                                    conspiracy to commit bank and wire        September 26, 2016
                         Company
                                                 fraud affecting a financial institution.




88     Federal Housing Finance Agency Office of Inspector General
   DEFENDANT                   ROLE                  MOST RECENT ACTION                         DATE
Developers and Mortgage Broker Charged, Florida
Co-conspirators allegedly sold condominium units to unqualified buyers by offering undisclosed incentives, and
prepared and submitted false and fictitious loan documents to financial institutions.
                                                  Indicted on charges of conspiracy to
Marek Harrison           Owner/Developer                                                   September 21, 2016
                                                  commit bank fraud and bank fraud.
                                                  Indicted on charges of conspiracy to
Brian Allard             Owner/Developer                                                   September 21, 2016
                                                  commit bank fraud and bank fraud.


                                                Indicted on charges of conspiracy to
Scot Rounds             Mortgage Broker                                                  September 21, 2016
                                                commit bank fraud and bank fraud.


Sentencings and Pleas in Bank Fraud Scheme, Florida
Individuals were involved in marketing and selling condominiums at a development in the Tampa, Florida,
area. The scheme involved seller-provided incentive packages that included cash to close, cash rebates, and
guaranteed rent, which were not disclosed to the lenders that funded the mortgages.
                                                  Sentenced to 5 years of supervised
                                                  release, 500 hours of community
Jason Martin             Loan Officer             service, and ordered to pay $273,300     September 21, 2016
                                                  in restitution and forfeiture of $9,927;
                                                  both ordered joint and several.
                                                  Sentenced to 36 months in prison, 5
                                                  years of supervised release (to run
                                                  concurrently with judgment rendered
Eli Riesel               CFO                      in a related case), and ordered to         June 28, 2016
                                                  pay $13,623,102 in restitution and
                                                  forfeiture of $18,394,134; both
                                                  ordered joint and several.
                                                  Pled guilty to conspiracy to commit
Gary Hughes              Loan Officer                                                         April 19, 2016
                                                  bank fraud.
                                                  Sentenced to 8 months in prison,
                                                  5 years of supervised release,
                         Real Estate Agent/Co-
Gary Blankenship                                  and ordered to pay $1,282,961 in            April 14, 2016
                         Conspirator
                                                  restitution and forfeiture of $55,000;
                                                  both ordered joint and several.
                                                  Sentenced to 57 months in prison,
                                                  5 years of supervised release, and
                         Real Estate Agent/
Joseph L. Pasquale                                ordered to pay $901,715 in restitution       April 8, 2016
                         Straw Buyer Recruiter
                                                  and forfeiture of $901,741; both
                                                  ordered joint and several.
                                                  Sentenced to 6 months in prison, 36
Anabel Reiners (also                              months of supervised release, and
known as Anabel          Straw Buyer              ordered to pay $17,350 in restitution,     March 9, 2016
Reiners Bonzon)                                   joint and several, and a $100 special
                                                  assessment.




                               Semiannual Report to the Congress • April 1, 2016–September 30, 2016         89
     DEFENDANT                 ROLE                 MOST RECENT ACTION                         DATE
                                                Sentenced to 12 months in prison,
                                                36 months of supervised release, and
                                                ordered to pay $17,350 in restitution,
Eduardo Ortega          Straw Buyer             joint and several. As part of the         January 29, 2016
                                                sentencing a forfeiture judgment was
                                                entered against Ortega in the amount
                                                of $211,919.
                                                Sentenced to 24 months in prison, 60
                                                months of supervised release, ordered
Brendan Bolger          Marketer                to pay $13,641,197 in restitution        September 18, 2015
                                                and $18,394,134 in forfeiture; both
                                                ordered joint and several.

Charge in $39 Million Builder Bailout Fraud
A scheme allegedly involving numerous mortgage brokers, real estate agents, and settlement agents across
southern and central Florida involved 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.
                                                  Information filed charging conspiracy to
Dagoberto Rodriquez      Real Estate Agent                                                  September 20, 2016
                                                  commit bank fraud.
Maria del Carmen                                  Information filed charging conspiracy to
                         Straw Buyer                                                          August 29, 2016
Rodriguez                                         commit bank fraud.
Alexander Gonzalez-                               Pled guilty to conspiracy to commit
                         Straw Buyer                                                         September 9, 2016
Perez                                             wire and mail fraud.
                                                  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, 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.
                                                  Sentenced to 2 years, 1 month in
Osbelia Lazardi          Co-Conspirator           prison and 3 years of supervised                May 3, 2013
                                                  release.
                                                  Sentenced to 5 years, 10 months
Sandra Campo             Co-Conspirator           in prison and 5 years of supervised           April 29, 2013
                                                  release.
                                                  Sentenced to 1 year, 10 months in
Dayanara Montero         Co-Conspirator           prison and 3 years of supervised               April 9, 2013
                                                  release.
                                                  Sentenced to 4 years, 6 months in
Edward Mena              Straw Buyer              prison and 60 months of supervised          January 11, 2013
                                                  release.



90     Federal Housing Finance Agency Office of Inspector General
   DEFENDANT                     ROLE                 MOST RECENT ACTION                           DATE
                                                 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

Bank Fraud Charges Filed on Attorney-Escrow Agent, Florida
Granitur and others allegedly conspired in a scheme to sell condominium units at inflated prices by providing
buyers with cash and other incentives. These incentives were not disclosed on loan applications and caused
lenders to fund loans based on materially false information.
                                                  Indicted on charges of conspiracy to
Eric Granitur            Attorney/Escrow Agent                                             September 20, 2016
                                                  commit bank fraud and bank fraud.

Real Estate Agent Charged in Property Flipping Scheme, Tennessee
Co-conspirators allegedly engaged in a property flipping scheme wherein straw buyers were paid undisclosed
incentives to purchase houses.
                                                  Indicted on charges of bank fraud, mail
Thomas Boyd               Real Estate Agent                                               September 15, 2016
                                                  fraud, and money laundering.

Former President of Tribute Residential, LLC Indicted for Bank Fraud
Gheiler and others allegedly bought or facilitated the sale of condominiums to straw buyers at inflated prices.
The inflated prices allowed the sellers in the transactions, also co-conspirators, to sell the condominiums for
more than their market value.
                                                   Indicted on conspiracy to commit bank
Rebecca Gheiler          Former President                                                       September 7, 2016
                                                   fraud and bank fraud.
                         Former Attorney and       Charged with conspiracy to commit
Angel Garcia             Principal of Garcia-      bank fraud and wire fraud affecting a          March 8, 2016
                         Oliver & Mainieri, P.A.   financial institution.
                                                   Charged with conspiracy to commit
David Cevallos           Mortgage Broker           bank fraud and wire fraud affecting a          April 29, 2015
                                                   financial institution.
                                                   Charged with conspiracy to commit
Osbel Sanchez            Sales Associate           bank fraud and wire fraud affecting a          April 29, 2015
                                                   financial institution.

Restitution Ordered in Condo Developer Ponzi Scheme Involving Enterprise Properties
Cay Clubs Resorts, which operated resort-style hotels/condominiums throughout the U.S., operated as a
massive Ponzi and securities fraud scheme. It defrauded 1,400 investors, FDIC-insured banks, and the
Enterprises out of over $300 million. The scheme caused a loss to Freddie Mac of $8,390,663 and to Fannie
Mae of $2,850,086.
                                                 Ordered to pay $179,079,941 in
                                                 restitution, joint and several. Previously
                                                 sentenced to 480 months in prison, 5
Fred Davis Clark Jr.                             years of supervised release, forfeiture
                         Cay Clubs Owner/
(also known as Dave                              of $303,800,000 for the bank                June 6, 2016
                         Scheme Leader
Clark)                                           fraud and $3,300,000 for the SEC
                                                 obstruction, and forfeiture of specific
                                                 assets located overseas totaling
                                                 approximately $2.6 million.


                                Semiannual Report to the Congress • April 1, 2016–September 30, 2016            91
     DEFENDANT                  ROLE                 MOST RECENT ACTION                         DATE
                                              Ordered to pay $163,530,377 in
                        Director of Sales for restitution, joint and several. Previously
Barry J. Graham                                                                            October 27, 2015
                        Cay Clubs             sentenced to 60 months in prison and
                                              36 months of supervised release.
                                              Ordered to pay $163,530,377 in
                        Director of Investor  restitution, joint and several. Previously
Ricky L. Stokes                                                                            October 27, 2015
                        Relations/Sales Agent sentenced to 60 months in prison and
                                              36 months of supervised release.
Cristal Clark (also
                        Cay Clubs Owner/
known as Cristal                                Acquitted.                                 August 14, 2015
                        Executive
Coleman)

Guilty Plea by Developer, Florida
Davis, a developer, allegedly provided incentives, such as a “no cash down leaseback agreement” and down
payment assistance to condominium buyers, that were not revealed to the lenders who financed the loans.

Clifford Davis          Developer               Pled guilty to perjury.                     May 31, 2016

Three Charged in Bank and Wire Fraud Scheme, Texas
Co-conspirators allegedly conspired to defraud and obtain money from mortgage lenders Prime Lending and
Federal Savings Bank. The Enterprises secured mortgages on 64 of the 66 properties identified in this scheme.
                                                 Indicted on charges of conspiracy to
Daniel Bomar             Escrow Officer          commit bank fraud and conspiracy to        April 14, 2016
                                                 commit money laundering.
                                                 Indicted on charges of conspiracy to
James Wright             Title Attorney          commit bank fraud and conspiracy to        April 14, 2016
                                                 commit money laundering.
                                                 Indicted on charges of conspiracy to
                         Partner (Hanover
Brett Immel                                      commit bank fraud and conspiracy to        April 14, 2016
                         Companies)/Recruiter
                                                 commit money laundering.




92     Federal Housing Finance Agency Office of Inspector General
Appendix F: OI Publicly                                   Loan or mortgage origination schemes are the most
                                                          common type of mortgage fraud. These schemes
Reportable Investigative                                  typically involve falsifying borrowers’ income,
Outcomes Involving                                        assets, employment, and credit profiles to make
                                                          them more attractive to lenders. These schemes
Loan Origination                                          often use bogus Social Security numbers and fake
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
Loan Processor Pled Guilty in Origination Fraud Involving Kickbacks to Straw Buyers,
Buyers, and Other Participants
Conspirators participated in a mortgage fraud scheme in which they entered into agreements to purchase
properties for amounts in excess of the original asking price. The loss exposure to the Enterprises is
$1,192,125.
                                                  Pled guilty to loan and credit
Mayory Calvo            Loan Processor                                                      September 30, 2016
                                                  application fraud.
                                                  Sentenced to 10 months in prison,
                                                  36 months of supervised release, and
                        Loan Officer/Straw        ordered to pay $549,100 in restitution,
Enrique Hernandez                                                                            February 18, 2016
                        Buyer Recruiter           joint and several. Hernandez was
                                                  previously ordered to pay forfeiture of
                                                  $108,724.
                                                  Sentenced to time served, 36 months
                                                  of supervised release, and ordered to
                        Developer/Straw           pay $230,121 in restitution, joint and
Carlos Morales                                                                              December 18, 2015
                        Buyer                     several. An order of forfeiture in the
                                                  amount of $40,000 was incorporated
                                                  into the judgment.
                                                  Sentenced to 18 months in prison,
                                                  36 months of supervised release, and
Guillermo Rincon        Straw Buyer                                                              May 5, 2015
                                                  ordered to pay $549,100 in restitution,
                                                  joint and several.

Loan Broker Charged, California
Maina, a licensed real estate agent, prepared and submitted to mortgage lenders a number of false documents,
including fraudulent loan applications and falsified letters to explain away problems with credit histories and
fabricated credit reports. At least five loans associated with Maina’s scheme were owned by Freddie Mac, and
they have incurred losses of approximately $1 million.

Lynn Maina              Real Estate Agent       Pled guilty to conspiracy.                September 29, 2016


                               Semiannual Report to the Congress • April 1, 2016–September 30, 2016          93
     DEFENDANT                   ROLE                  MOST RECENT ACTION                            DATE

Former Loan Officer Pleas to Bank Fraud
From 2003 to 2008, Bruce obtained five cash-out mortgages for a property located in Massachusetts. Bruce
submitted false information to the banks regarding employment history, income, assets, and debt. Bruce also
filed fraudulent discharges of mortgages to create the appearance that the earlier loans had been paid in full.
                                                  Sentenced to 24 months in prison,
                                                  5 years of supervised release,
Denise Bruce              Former Loan Officer                                              September 15, 2016
                                                  and ordered to pay $2,081,497 in
                                                  restitution.

Charges Filed in Fraudulent Real Estate Scheme, Texas
Osuagwu and Mitchell allegedly engaged in a series of fraudulent real estate transactions in Texas. There are
at least nine mortgages involved in the scheme, two of which were secured by Fannie Mae. Losses to financial
institutions are in excess of $1.2 million, including a loss of approximately $185,000 to Fannie Mae.
                                                    Charged via superseding information
                                                    with conspiracy to commit bank fraud    September 1, 2016 &
James Mitchell            Buyer
                                                    and indicted on charges of bank fraud      August 2, 2016
                                                    and conspiracy to commit bank fraud.
                                                    Indicted on charges of bank fraud,
                                                    conspiracy to commit bank fraud,
                                                    subscribing to a false and fraudulent
Chukwuma Osuagwu          Buyer/Seller              individual U.S. income tax return, and     August 2, 2016
                                                    corruptly endeavoring to obstruct and
                                                    impede the due administration of the
                                                    Internal Revenue laws.

Three Charged in Mortgage Fraud and Identity Theft Scheme, New Jersey
Co-conspirators allegedly used stolen identities to steal more than $930,000 from lenders through fraudulent
loan and mortgage transactions, two of which were owned by Fannie Mae.
                                                   Charged with money laundering,
Artis Hunter             Scheme Leader             conspiracy, identity theft, and theft by August 30, 2016
                                                   deception.
                                                   Charged with money laundering,
Melissa Phillip          Scheme Participant        conspiracy, identity theft, and theft by August 30, 2016
                                                   deception.
                                                   Charged with money laundering,
Laquan Jones             Scheme Participant        conspiracy, identity theft, and theft by August 30, 2016
                                                   deception.

Plea in Builder Loan Origination Fraud Scheme, Maryland
A builder, along with co-conspirators, participated in preparing a false HUD-1 form that falsely represented that
the borrower provided over $1 million on the date of closing as “cash to close” when in fact he brought no
monies to the closing.

David Steeley            Employee                 Pled guilty to conspiracy.                   August 29, 2016

                                                  Sentenced to 6 months in prison,
                                                  3 years of supervised release,
John Davis               Real Estate Agent                                                      March 31, 2016
                                                  and ordered to pay $1,385,444 in
                                                  restitution, joint and several.


94     Federal Housing Finance Agency Office of Inspector General
   DEFENDANT                     ROLE                  MOST RECENT ACTION                           DATE
                                                  Sentenced to 5 months in prison, 6
                                                  months of home confinement, 3 years
David B. Pick            Mortgage Loan Officer                                                February 10, 2016
                                                  of supervised release, and ordered to
                                                  pay $383,178 in restitution.
                                                  Sentenced to 12 months and 1 day in
                                                  prison, 12 months of home detention
                                                  with an electronic monitoring system,
Timothy Ritchie          Builder/Investor                                                     January 14, 2016
                                                  3 years of supervised release,
                                                  and ordered to pay $1,385,445 in
                                                  restitution.

Sentencings and Restitution Ordered for Four Former Employees of SunTrust Mortgage
SunTrust Mortgage employees conspired to commit wire fraud affecting a financial institution involving 13
properties. The employees prepared false mortgage loan applications for prospective borrowers containing
false material information, such as inflated incomes, inflated assets, reduced liabilities, and statements that
the borrowers intended to use the houses as their primary residences. Their actions resulted in a total loss of
$2,093,270 to SunTrust Mortgage, including a loss of $139,726 to Fannie Mae.
                                                  Ordered to pay $1,923,324 in
                                                  restitution and $694,667 in forfeiture;
                         Loan Officer/Branch      both ordered joint and several.               August 12, 2016 &
Moshin Raza
                         Manager                  Previously sentenced to 24 months               April 29, 2016
                                                  in prison and 2 years of supervised
                                                  release.
                                                  Ordered to pay $1,923,324 in
                                                  restitution and $694,667 in forfeiture;
                                                  both ordered joint and several.               August 12, 2016 &
Farukh Iqbal             Loan Officer
                                                  Previously sentenced to 12 months               April 29, 2016
                                                  and 1 day in prison and 2 years of
                                                  supervised release.
                                                  Ordered to pay $1,923,324 in
                                                  restitution and $694,667 in forfeiture;
                                                  both ordered joint and several.               August 12, 2016 &
Humaira Iqbal            Loan Officer Assistant
                                                  Previously sentenced to 15 months               April 29, 2016
                                                  in prison and 2 years of supervised
                                                  release.
                                                  Ordered to pay $1,923,324 in
                                                  restitution and $694,667 in forfeiture;
                                                  both ordered joint and several.               August 12, 2016 &
Mohammed Haider          Loan Officer
                                                  Previously sentenced to 12 months               April 29, 2016
                                                  and 1 day in prison and 2 years of
                                                  supervised release.

Sentencing of National Property Investments Owner, Maryland
Williams and others conspired to obtain real estate loans from financial institutions based on materially false
and fraudulent information, including misrepresenting the source of funds used for real estate closings and
submitting false and fraudulent bank statements and other documents for the purpose of defrauding the
financial institutions.
                                                 Sentenced to 12 months and 1 day in
                                                 prison, 2 years of supervised release,
Jamel Williams           Business Owner                                                         July 11, 2016
                                                 200 hours of community service, and
                                                 ordered to pay $700,622 in restitution.

                                Semiannual Report to the Congress • April 1, 2016–September 30, 2016              95
     DEFENDANT                   ROLE                   MOST RECENT ACTION                          DATE
Guilty Pleas, Sentencings, and Trial Verdict of Family Members Working at Worldwide
Investments, Colorado
Family members allegedly used their status in the real estate industry to perpetrate a fraud-for-profit mortgage
scheme by manipulating straw buyers to buy and sell properties going into foreclosure. Twelve properties were
named in the indictment in relation to $4.6 million in fraudulently obtained loans.
                                                  Found guilty at trial of conspiracy,
Jose Ricardo Sarabia-                             pattern of racketeering, forgery,
                        Owner                                                                   June 23, 2016
Martinez                                          attempt to influence a public servant,
                                                  and theft of $20,000 or more.
                                                  Sentenced to 5 years of probation,
                                                  ordered to pay $459,917 in restitution,
Ricardo Sarabia-        Telemarketer and Loan joint and several, and ordered to
                                                                                                  May 9, 2016
Salcido                 Processor                 surrender himself to the custody of
                                                  ICE and ordered to not enter the U.S.
                                                  illegally.
Pedro Sarabia-          Telemarketer and Real Pled guilty to bait advertising and
                                                                                                April 22, 2016
Martinez                Estate Agent              sentenced to 1 year of probation.
                        Telemarketer,
Pablo Sarabia-          Processor, and Loan       Pled guilty to bait advertising and
                                                                                                April 22, 2016
Martinez                Officer with Mortgage     sentenced to 1 year of probation.
                        License
                                                  Pled guilty to criminal mischief and
                                                  sentenced to 5 years of probation,
Teresa Martinez de
                        Office Assistant          ordered to pay $597,340 in restitution,      March 24, 2016
Sarabia
                                                  joint and several, and $3,427 in
                                                  assessments and fees.
                                                  Ordered to pay $646,125 in
Lauren Sarabia-         Real Estate Agent and
                                                  restitution, joint and several, and            July 23, 2015
Martinez                Loan Processor
                                                  $2,052 in assessments and fees.

Guilty Pleas in Builder Bailout Scheme, Illinois
The CFO of 13th & State, an LLC created to facilitate the development and sale of units at a high-rise condo
building known as Vision on State, and others allegedly created a builder bailout scheme that used inflated
sales prices to pay undisclosed incentives to recruiters and straw buyers. The scheme resulted in approximately
$22.8 million in fraudulent mortgages and $13 million in losses to financial institutions.
                                                  Pled guilty to making a false statement
Warren Barr              Developer                                                             June 17, 2016
                                                  to a financial institution.

Leonardo Sanders         Recruiter                 Pled guilty to bank fraud.                   June 17, 2016

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

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

Jeffrey Budzik           Attorney                  Pled guilty to bank fraud.                 September 29, 2015

                                                   Indicted on charges of making a false
Asif Aslam               Recruiter                 statement to a financial institution and     May 15, 2014
                                                   bank fraud.



96     Federal Housing Finance Agency Office of Inspector General
   DEFENDANT                    ROLE                  MOST RECENT ACTION                          DATE

Identity Theft Charge, California
Venegas allegedly purchased a residence in California using the Social Security number of another individual. The
mortgage on the residence was liquidated in March 2012, resulting in a loss to Fannie Mae of $98,853.
                                                Charged with identity theft, theft by
Micaela Venegas         Borrower                                                              May 24, 2016
                                                false pretenses, and false statements.

Sentencings in Mortgage Fraud Scheme
Defendants conspired to cause lenders to release liens on encumbered properties via fraudulently arranged
short sale transactions. To complete the transactions, they submitted false loan applications and documents and
recruited straw buyers. The losses to financial institutions/lenders total approximately $2 million. Fannie Mae
purchased or secured over 100 loans from the mortgage lenders.
                                                   Sentenced to 6 months in prison,
                                                   3 years of supervised release with
                         Recruiter of Straw
Miguel LaRosa                                      6 months of electronic monitoring,              May 5, 2016
                         Buyers
                                                   and ordered to pay $1,327,222 in
                                                   restitution, joint and several.
                                                   Sentenced to 60 months in prison,
                                                   3 years of supervised release,
Paul Chemidlin Jr.       Unlicensed Appraiser                                                    April 26, 2016
                                                   and ordered to pay $1,518,499 in
                                                   restitution, joint and several.
                                                   Sentenced to time served (1 day),
                                                   36 months of supervised release,
                         Co-Owner of NJ            8 months of location monitoring,
Yazmin Soto-Cruz                                                                              December 8, 2015
                         Property Management 200 hours of community service,
                                                   and ordered to pay a $100 special
                                                   assessment.
                                                   Sentenced to 36 months in prison,
                                                   36 months of supervised release,
Delio Coutinho           Loan Officer                                                          August 11, 2015
                                                   and ordered to pay $1,312,334 in
                                                   restitution, joint and several.
                                                   Sentenced to 24 months in prison,
                                                   36 months of supervised release,
Kenneth Sweetman         Unlicensed Title Agent                                                   July 27, 2015
                                                   and ordered to pay $2,223,131 in
                                                   restitution, joint and several.
                                                   Sentenced to 27 months in prison,
                                                   36 months of supervised release,
Carmine Fusco            Unlicensed Title Agent forfeiture of $370,334, and ordered               July 14, 2015
                                                   to pay $2,233,131 in restitution, joint
                                                   and several.
                                                   Sentenced to 24 months of
                                                   supervised release, 4 months of
                         Former Real Estate
Christopher Ju                                     home confinement, and ordered to               June 8, 2015
                         Agent
                                                   pay $256,511 in restitution, joint and
                                                   several.
                                                   Sentenced to 12 months in prison,
                                                   36 months of supervised release,
Amedeo Gaglioti          Closing Attorney          forfeiture of $1 million, and ordered          June 4, 2015
                                                   to pay $2,001,245 in restitution, joint
                                                   and several.


                                Semiannual Report to the Congress • April 1, 2016–September 30, 2016          97
     DEFENDANT                  ROLE                  MOST RECENT ACTION                           DATE
                                                 Pled guilty to conspiracy to commit
Joseph DiValli          Loan Officer                                                            May 28, 2015
                                                 wire fraud, wire fraud, and tax evasion.

Straw Buyer Scheme Falls Flat
Senior managers of Flatiron Development profited by selling homes to straw buyers at inflated   prices. The homes
fell into foreclosure, causing losses to the lending institutions, including Freddie Mac.
                                                    Ordered to pay $1,464,848 in
Theodoros Ezanidis        Owner                                                                 April 25, 2016
                                                    restitution, joint and several.
                                                    Ordered to pay $1,464,848 in
Christopher Hopper        Employee                                                              April 25, 2016
                                                    restitution, joint and several.
                                                    Ordered to pay $1,078,280 in
Robert Rendino            Employee                                                              April 25, 2016
                                                    restitution, joint and several.
                                                    Sentenced to 3 years of probation and
Susan Rendino             Co-Conspirator            ordered to pay $2,504 in restitution        May 19, 2015
                                                    and a $2,000 fine.

Former Vice President of Inspection Company Indicted, Florida
Coleman, former VP of operations and other managers of American Mortgage Field Services, LLC (AMFS), a
property inspection company, allegedly directed employees to submit thousands of fraudulent inspection reports
to servicers who paid AMFS for services that did not occur. Fannie Mae contracted with servicing lenders to
oversee periodic inspections on properties in various stages of the foreclosure process. Losses to Fannie Mae
and servicers are in excess of $12 million.
                         Formerly Vice            Indicted on charges of conspiracy
John Coleman             President of             to commit bank fraud and false              April 12, 2016
                         Operations               bankruptcy declaration.
                                                  Sentenced to 33 months in prison,
                                                  36 months of supervised release,
Tammy Roaderick          Manager                                                               May 29, 2014
                                                  and ordered to pay $2,396,498 in
                                                  restitution, joint and several.
                                                  Sentenced to 97 months in prison,
                                                  3 years of supervised release, and
Dean Counce              Owner and President                                                February 20, 2013
                                                  ordered to pay $12,774,102 in
                                                  restitution.




98     Federal Housing Finance Agency Office of Inspector General
Appendix G: OI Publicly                                     Short sales occur when a lender allows a borrower
                                                            who is “underwater” on his/her loan—that is, the
Reportable Investigative                                    borrower owes more than the property is worth—to
Outcomes Involving                                          sell his/her property for less than the debt owed. Short
                                                            sale fraud usually involves a borrower intentionally
Short Sale Schemes                                          misrepresenting or not disclosing 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

Licensed Real Estate Agent Charged, Florida
Sanchez allegedly ran a scheme wherein he charged fees to file false bankruptcy petitions on behalf of struggling
homeowners in an attempt to delay the foreclosure process.
                                               Filed an information charging
Rafael Sanchez          Real Estate Agent                                                 September 20, 2016
                                               bankruptcy fraud.

Plea in Short Sale Fraud Scheme, New York
Several individuals were allegedly involved in a pattern of short sale schemes that 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 over $5.5 million, of which over
$2.7 million was their profit from the scheme.
Barthelemy “Bart”                                  Pled guilty to conspiracy to commit
                         Straw Buyer                                                          September 16, 2016
Adjavehoude                                        bank fraud and wire fraud.
                         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 on charges of conspiracy to
                         Lead Defendant/Real
Dirk Ameen Hall                                    commit bank fraud and wire fraud and           June 20, 2014
                         Estate Buyer/Flipper
                                                   bank fraud.
                                                   Indicted on charges of conspiracy to
Michelle Baker           Title Agent               commit bank fraud and wire fraud and           June 20, 2014
                                                   bank fraud.
                                                   Indicted on charges of conspiracy to
                         Foreclosure/Straw
James Bayfield                                     commit bank fraud and wire fraud and           June 20, 2014
                         Buyer Recruiter
                                                   bank fraud.


                                 Semiannual Report to the Congress • April 1, 2016–September 30, 2016            99
   DEFENDANT                     ROLE                  MOST RECENT ACTION                           DATE

Charges in Short Sale Fraud, California
Hadayat and Singh allegedly conspired with others to participate in short sale transactions of properties to family
members, concealing the relationships and violating the terms of the agreement. Of the 16 loans associated
with this scheme, at least two belonged to the Enterprises.
                                                 Charged with conspiracy, grand theft,
Shaima Hadayat           Real Estate Broker                                                     June 15, 2016
                                                 and perjury.
                                                 Charged with conspiracy, grand theft,
Harpreet Singh           Real Estate Agent                                                      June 15, 2016
                                                 and forgery.

Short Sale Fraud Sentencing, New York
Conspirators attempted to engage in a short sale property flipping scheme with a property located in Brooklyn.
Freddie Mac held the property and raised concerns after analysis of the submitted documentation.
                                                Sentenced to 3 years of probation
Fedlaire Aristede       Short Sale Facilitator  and satisfied his ordered restitution of       April 6, 2016
                                                $20,500.




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




   DEFENDANT                     ROLE                  MOST RECENT ACTION                             DATE

Sentencing in Foreclosure Rescue Scam, Michigan
Longordo and his company, Modify Loan Experts, LLC, engaged in fraud by collecting upfront payments for loan
modifications never received by homeowners. Modify Loan Experts, LLC promised homeowners an attorney
would work directly with their financial institutions to negotiate on their behalf when in fact no such negotiations
occurred.
                                                     Sentenced to serve 1 day in jail, 5
                                                     years of probation, 500 hours of
Pasquale Longordo         Business Owner                                                        September 27, 2016
                                                     community service, and ordered to pay
                                                     $125,000 in restitution.
                                                     Ordered to pay restitution and fees;
Modify Loan Experts,
                          Business Entity            see judgment for related case,             September 27, 2016
LLC
                                                     Longordo.

Guilty Plea in Bankruptcy Foreclosure Scheme, California
Verbera and others allegedly conspired to commit bankruptcy fraud by operating a business that falsely
purported to provide assistance to struggling homeowners seeking to delay or avoid foreclosure.
                                                 Pled guilty to bankruptcy fraud and
Matilde Verbera         Business Owner                                                    September 12, 2016
                                                 aiding and abetting.

Pleas and Sentencings in Loan Modification Scheme
The co-conspirators engaged in a mortgage loan modification fraud wherein using various company names,
they claimed to negotiate with lenders to lower mortgage payments on behalf of victims. Co-conspirators made
numerous false statements to induce payment of advance fees. Once the fees were paid, however, victims stated
they were unable to contact anyone within the various business entities.
                                                 Sentenced to 52 months in prison,
                                                 3 years of supervised release,
Mehdi Moarefian          Closer                                                            September 6, 2016
                                                 and ordered to pay $2,390,496 in
                                                 restitution, joint and several.



                                 Semiannual Report to the Congress • April 1, 2016–September 30, 2016           101
   DEFENDANT                     ROLE                 MOST RECENT ACTION                          DATE
                                               Sentenced to 58 months in prison,
                        Closer, Set Up Website 3 years of supervised release,
Daniel Shiau                                                                                September 1, 2016
                        and Email Accounts     and ordered to pay $2,390,496 in
                                               restitution, joint and several.
                                               Sentenced to 52 months in prison,
                                               3 years of supervised release,
Serj Geutssoyan         Closer                                                              September 1, 2016
                                               and ordered to pay $2,390,496 in
                                               restitution, joint and several.
                                               Sentenced to 112 months in prison,
                                               3 years of supervised release,
Aria Maleki             Scheme Leader                                                          July 18, 2016
                                               and ordered to pay $3,064,182 in
                                               restitution, joint and several.

Cuong King              Closer                   Pled guilty to misprision of a felony.        July 11, 2016

                        Processing Team
Michelle Lefaoseu                                Pled guilty to misprision of a felony.        July 11, 2016
                        Leader

Kowit Yuktanon          Closer                   Pled guilty to misprision of a felony.        July 11, 2016

Multiple Charges and Sentencings in California Loan Modification Scheme
Defendants, along with others, allegedly devised a scheme to obtain upfront payments from victims who were
trying to obtain a loan modification by leading them to believe they were receiving federally funded home loan
modifications under the government’s Home Affordable Modification Program.
                                                   Sentenced to 130 months in prison,
                                                   3 years of supervised release,
                         Bookkeeper,
                                                   and ordered to pay $1,255,179
Isaac Perez              Customer Service                                                      September 1, 2016
                                                   in restitution and $3.8 million in
                         Representative
                                                   forfeiture; both ordered joint and
                                                   several.
                                                   Sentenced to 220 months in prison,
                                                   3 years of supervised release,
                                                   and ordered to pay $1,255,179
Roscoe Umali             Scheme Leader                                                           August 18, 2016
                                                   in restitution and $3.8 million in
                                                   forfeiture; both ordered joint and
                                                   several.
                                                   Sentenced to 120 months in prison,
                                                   3 years of supervised release,
                         Customer Service          and ordered to pay $1,255,179
Jefferson Maniscan                                                                               August 18, 2016
                         Representative            in restitution and $2.69 million in
                                                   forfeiture; both ordered joint and
                                                   several.
                                                   Sentenced to 60 months in prison,
                                                   3 years of supervised release,
                         Facilitator, Opened       and ordered to pay $1,255,179
Raymund Dacanay                                                                                   July 21, 2016
                         Bank Accounts             in restitution and $1.2 million in
                                                   forfeiture; both ordered joint and
                                                   several.




102    Federal Housing Finance Agency Office of Inspector General
   DEFENDANT                    ROLE                MOST RECENT ACTION                         DATE
                                               Sentenced to 121 months in prison,
                                               3 years of supervised release,
                                               and ordered to pay $1,255,179
Joshua Johnson         Sub-Leader, Closer                                                   July 7, 2016
                                               in restitution and $3,156,960 in
                                               forfeiture; both ordered joint and
                                               several.
                                               Charged via superseding indictment on
                       Facilitator, Direct
Hanh “Jennifer” Seko                           charges of mail fraud, wire fraud, and       July 7, 2016
                       Marketer/Mailer
                                               conspiracy.
                                               Charged via superseding indictment on
                       Customer Service
Michael Henderson                              charges of mail fraud, wire fraud, and       July 7, 2016
                       Representative
                                               conspiracy.
                                               Charged via superseding indictment on
Sammy Araya            Scheme Leader           charges of mail fraud, wire fraud, and       July 7, 2016
                                               conspiracy.
                                               Charged via superseding indictment on
                       Customer Service
Sabrina Rafo                                   charges of mail fraud, wire fraud, and       July 7, 2016
                       Representative
                                               conspiracy.
                                               Charged via superseding indictment on
Nicholas Estilow       Sub-leader, Closer      charges of mail fraud, wire fraud, and       July 7, 2016
                                               conspiracy.
                                               Sentenced to 151 months in prison
Joshua Sanchez         Scheme Leader                                                     October 29, 2015
                                               and 3 years of supervised release.
                                               Sentenced to 135 months in prison
Kristen Ayala          Co-Conspirator                                                    October 29, 2015
                                               and 3 years of supervised release.

One Sentenced in Loan Modification Scheme
Defendants operated a loan modification scheme and made a number of false statements to clients in an effort
to induce them to pay upfront fees, with little or no services rendered.
                                                    Sentenced to 8 months in prison and 3
Charlie Rose            Trained Telemarketers                                             August 29, 2016
                                                    years of supervised release.
                                                    Sentenced to 24 months of probation,
                        Office Manager
                                                    100 hours of community service, and
Stacy Tuers             of Telemarketing                                                  March 10, 2016
                                                    ordered to pay a special assessment
                        Company
                                                    of $25.
                                                    Sentenced to 9 months in prison,
                                                    3 years of supervised release, and
Michael Nazarinia       Supervisor and Trainer                                            February 8, 2016
                                                    ordered to pay a special assessment
                                                    of $100.

Loan Modification Scheme
Rasher allegedly operated businesses claiming he was a senior mitigation attorney representing the federal
government and was approved by the federal government to renegotiate distressed homeowners’ loans with their
mortgage lenders. Rasher allegedly pocketed funds received from victims who believed the payments were being
applied toward their delinquent mortgages.
Kevin Rasher
                                               Indicted on charges of mail fraud,
(as known as Kevin
                          Scheme Owner         wire fraud, false statements, and            August 18, 2016
Carter, also known as
                                               impersonating a government official.
Kevin Fox)


                               Semiannual Report to the Congress • April 1, 2016–September 30, 2016        103
   DEFENDANT                    ROLE                  MOST RECENT ACTION                          DATE

Six Defendants Charged in Mortgage Modification Scheme, California
Six defendants allegedly operated a foreclosure rescue scheme involving the filing of false bankruptcies, grant
deeds, and other lawsuits. The scheme involved over 80 properties, and the defendants allegedly received over
$1 million in payments from victims.
                                                 Charged with grand theft, conspiracy,
                         Notary/Bankruptcy
Prakashkumar Bahkta                              filing false documents, and identity          June 30, 2016
                         Filing Preparer
                                                 theft.
                                                 Charged with grand theft, conspiracy,
                         Purported Attorney/
David Boyd                                       filing false documents, and identity          June 30, 2016
                         Document Preparer
                                                 theft.
                                                 Charged with grand theft, conspiracy,
                         Salesman/Document
John Contreras                                   filing false documents, and identity          June 30, 2016
                         Preparer
                                                 theft.
                                                 Charged with grand theft, conspiracy,
Aide Orona               Received Payments       filing false documents, and identity          June 30, 2016
                                                 theft.
                                                 Charged with grand theft, conspiracy,
Jacob Orona              Scheme Promoter         filing false documents, and identity          June 30, 2016
                                                 theft.
                                                 Charged with grand theft, conspiracy,
                         Salesman/Document
Marcus Robinson                                  filing false documents, and identity          June 30, 2016
                         Preparer
                                                 theft.




104    Federal Housing Finance Agency Office of Inspector General
Appendix I: OI Publicly                                     The wave of foreclosures following the housing crisis
                                                            left the Enterprises with a large inventory of REO
Reportable Investigative                                    properties. This large REO inventory has sparked a
Outcomes Involving                                          number of different schemes to either defraud the
                                                            Enterprises, who use contractors to secure, maintain
Property Management                                         and repair, price, and ultimately sell their properties,
and REO Schemes                                             or defraud individuals seeking to purchase REO
                                                            properties from the Enterprises.




   DEFENDANT                     ROLE                   MOST RECENT ACTION                            DATE

Guilty Pleas of Four Real Estate Agent Family Members for REO Fraud
The subjects, all real estate agents, conspired to use trusts and the identities of others to purchase Fannie Mae
REO properties in violation of Fannie Mae rules.
                                                   Charged and pled guilty to conspiracy
Spenser Iatridis          Real Estate Agent                                                     August 26, 2016
                                                   to commit mail and wire fraud.
                                                   Charged and pled guilty to conspiracy
Daphne Iatridis           Real Estate Agent        to commit mail and wire fraud and tax        August 25, 2016
                                                   evasion.
                                                   Charged and pled guilty to conspiracy
Arthur Telles             Real Estate Agent        to commit mail and wire fraud and tax        August 25, 2016
                                                   evasion.
                                                   Charged and pled guilty to conspiracy
Brendyn Iatridis          Real Estate Agent                                                     August 25, 2016
                                                   to commit mail and wire fraud.

Conviction and Sentencing in Flipping REO Scheme, Tennessee
This scheme involved investor flipping of foreclosure properties by offering financial incentives to the borrowers
that were not disclosed to the lenders. Allegations also involve loan officers facilitating the sales by falsifying
loan applications.

Thomas Munn              Recruiter                 Pled guilty to conspiracy.                   August 11, 2016

                                                   Sentenced to 4 years of probation,
                                                   24 months of home detention, and
Nicholas Maxwell         Recruiter                 ordered to pay $455,252 in restitution         June 23, 2016
                                                   and $1,986,384 in forfeiture; both
                                                   ordered joint and several.




                                 Semiannual Report to the Congress • April 1, 2016–September 30, 2016           105
   DEFENDANT                   ROLE                 MOST RECENT ACTION                    DATE
                                            Sentenced to time served, 12 months
                                            in a halfway house, 3 years of
                       Mortgage Company     supervised release, and ordered to pay
Charlie Paul                                                                         January 7, 2016
                       President            $463,372 in restitution and $455,252
                                            in forfeiture; both ordered joint and
                                            several.
                                            Sentenced to 15 months in prison,
                                            2 years of supervised release, and
                       Mortgage Broker/Loan
Cedric Scott                                ordered to pay $104,237 in restitution   October 16, 2015
                       Officer
                                            and $301,974 in forfeiture; both
                                            ordered joint and several.




106    Federal Housing Finance Agency Office of Inspector General
Appendix J: OI Publicly                                    Adverse possession schemes use illegal adverse
                                                           possession (also known as “home squatting”) or
Reportable Investigative                                   fraudulent documentation to control distressed
Outcomes Involving                                         homes, foreclosed homes, and REO properties.

Adverse Possession
Schemes




   DEFENDANT                     ROLE                  MOST RECENT ACTION                           DATE

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

Guilty Plea in Bankruptcy Foreclosure Scheme, California
Robinson operated “Stay in Your Home Today,” a business marketed to struggling homeowners as a way to delay
the foreclosure of their homes. To accomplish this, Robinson arranged for the filing of fraudulent bankruptcy
petitions, as well as fraudulent deeds of trust, for which he received approximately $2.98 million in fees from the
victims of his scheme.
                          Pastor/Business
Karl Robinson                                       Pled guilty to bankruptcy fraud.           August 23, 2016
                          Owner




                                Semiannual Report to the Congress • April 1, 2016–September 30, 2016          107
   DEFENDANT                    ROLE                  MOST RECENT ACTION                          DATE
Guilty Pleas in Adverse Possession Scheme Involving Enterprise Properties,
Pennsylvania
Subjects operated a scheme where properties were stolen, including properties owned by the Enterprises, by
creating fraudulent deeds purporting to convey ownership of the properties. The subjects then occupied several
of the properties or attempted to rent or sell the properties.
                                                   Pled guilty to conspiracy to commit
                                                   offenses against the United States,
                                                   bank fraud, corrupt interference with
Steven Hameed            Scheme Leader                                                        June 29, 2016
                                                   Internal Revenue laws, conversion of
                                                   government property, and creating
                                                   fictitious obligations.
                                                   Pled guilty to conspiracy to commit
                                                   offenses against the United States,
                                                   bank fraud, corrupt interference with
Darnell Young            Scheme Leader                                                        June 29, 2016
                                                   Internal Revenue laws, conversion of
                                                   government property, and creating
                                                   fictitious obligations.

Washington State Sovereign Citizens Involved in Illegal Occupancy of Fannie Mae REO
Yishmael allegedly marketed a fraudulent adverse possession scheme as a legitimate way for people to own
abandoned houses facing foreclosure. According to the charging documents, Yishmael allegedly assisted others
in filing false paperwork in an effort to legitimize the squatting of foreclosed homes. At least 11 homes were
impacted.
                                                      Charged with theft and conspiracy to
Naziyr Yishmael            Scheme Organizer                                                       April 25, 2016
                                                      commit theft.

Sentencing in Foreclosure Rescue and Bankruptcy Fraud Scheme
From early 2011 to early 2014, defendants collected more than $2 million in proceeds from their foreclosure
delay/eviction delay scheme involving hundreds of fraudulent bankruptcies and deeds of trust. At least 11 of the
properties were owned by Freddie Mac, resulting in a loss of at least $800,000.
                                                 Sentenced to 22 days in prison and 5
Eugene Fulmer            Salesman                                                             April 20, 2016
                                                 years of probation.
                                                 Sentenced to 120 days in prison and 5
Shara Surabi             Salesman                                                          February 11, 2016
                                                 years of probation.
                                                 Sentenced to 120 days in prison and 5
Panik Karikorian         Salesman                                                          February 11, 2016
                                                 years of probation.
                         Beneficiary of False    Sentenced to 120 days in prison and 5
Juan Velasquez                                                                             February 11, 2016
                         Deeds of Trust          years of probation.




108    Federal Housing Finance Agency Office of Inspector General
Appendix K: OI Publicly                                    Investigations in this category involve a variety of
                                                           schemes that target Fannie Mae, Freddie Mac, the
Reportable Investigative                                   FHLBanks, or members of FHLBanks.
Outcomes Involving
Fraud Committed
Against the Enterprises,
the FHLBanks, or
FHLBank Member
Institutions



   DEFENDANT                    ROLE                  MOST RECENT ACTION                           DATE

Indictment of Title Company Employee, Maryland
Franz, a title company employee, allegedly defrauded her employer, financial institutions, and homeowners by
misapplying escrow fees received for real estate transactions.
                         Settlement Agent/
Margie Franz                                      Indicted on charges of wire fraud.         September 28, 2016
                         Office Manager

Guilty Plea for Impersonating a U.S. Senator, Florida
Hines was contacted by a debt collection agency when he allegedly failed to make payments on the unsecured
loan he received through Fannie Mae’s HomeSaver Advance program. Hines allegedly impersonated a sitting
United States senator on multiple occasions in telephone calls to the debt collection agency where he, acting as
the senator, stated that Hines’ loan was paid in full and that the loan should be removed from his credit report.
                                                  Pled guilty to false personation of
Sidney Hines             Homeowner                an officer or employee of the United       September 6, 2016
                                                  States.

Indictment and Plea in FHLBank Fraud Scheme, South Carolina
The owner and employee of a nonprofit allegedly conspired to defraud an FHLBank and its member banks by
submitting fraudulent invoices to banks with forged contractor signatures, inflated costs, and for work never
performed.

Erick Bradshaw Sr.      Executive Director       Pled guilty to conspiracy.                 September 1, 2016

                                                 Indicted on charges of conspiracy and
Augustina Cabral-Rice   Nonprofit Employee                                                     May 10, 2016
                                                 engaging in monetary transactions.




                                Semiannual Report to the Congress • April 1, 2016–September 30, 2016            109
   DEFENDANT                    ROLE                 MOST RECENT ACTION                          DATE

Three Sentenced in Fraud Scheme Against La Jolla Bank, California
In February 2010, La Jolla Bank failed and was taken over by the FDIC. At the time of failure, La Jolla had
outstanding advances of $700 million from the FHLBank of San Francisco. Beginning in 2004, Martinez and
senior bank officers agreed to issue loans under favorable terms to high-volume borrowers they referred to as
“Friends of the Bank,” or “FOBs,” several of whom made large cash kickbacks in return for the loans.
                                                 Sentenced to 12 months of home
                                                 confinement, 36 months of supervised
Amalia Martinez          Loan Manager and VP release, and ordered to pay                       August 22, 2016
                                                 $1,456,073 in restitution, joint and
                                                 several.
                                                 Sentenced to 10 months of home
                                                 confinement, 3 years of supervised
Joceyln Brown            Loan Broker                                                           August 15, 2016
                                                 release, and ordered to pay $82,185
                                                 in restitution.
                                                 Sentenced to 36 months of supervised
                                                 release, 18 of which is home
                         Small Business
Annand Sliuman                                   confinement, and ordered to pay                 July 18, 2016
                         Owner/Bank Customer
                                                 $992,582 in restitution, joint and
                                                 several.
                                                 Sentenced to 36 months of supervised
                         Bank Customer
Laura Ortuondo                                   release and ordered to pay $3,000 in        September 12, 2014
                         Employee
                                                 fines.

Plea of Loan Officer, Missouri
Cox, a loan officer at Focus Bank, an FHLBank member, embezzled approximately $170,000 in loan proceeds
from Focus Bank. Cox had been entrusted with funds from multiple borrowers but converted the funds to his
personal use and concealed his acts from his employer.
                                                Pled guilty to theft, embezzlement,
Brian Cox                 Loan Officer          or misapplication by a bank officer or     August 1, 2016
                                                employee.

Plea of Bank Official Charged with Theft and Embezzlement, Florida
Johnson, a former Special Assets Officer at Synovus Bank and Senior VP of Special Assets at American
Momentum Bank, devised a scheme to defraud the banks during REO closing transactions. Both institutions are
member banks of the FHLBank system.
                                                 Pled guilty to theft, embezzlement, or
Michael Johnson        Bank Officer                                                          July 8, 2016
                                                 misapplication by a bank officer.

Bank CEO Sentenced for Bank Fraud Involving FHLBank Member
Owens 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.
Owens obstructed a bank examination of Voyager Bank by providing false information to the Federal Reserve
Board.
                         Former CEO/Chairman
                         of Voyager Bank and
                                                   Sentenced to 18 months in prison and
Timothy Owens            President/CEO of                                                        May 25, 2016
                                                   2 years of supervised release.
                         Voyager Financial
                         Services Corporation



110    Federal Housing Finance Agency Office of Inspector General
   DEFENDANT                    ROLE                  MOST RECENT ACTION                           DATE

Sentencing in Identity Theft Scheme Involving Fannie Mae Insider
Thomas and others conspired to steal the PII of over 1,000 Fannie Mae customers, which also caused monetary
damages to involved financial institutions, including JPMorgan Chase and Bank of America.
                                                   Sentenced to 10 months in prison and
Karen Mendoza           Runner                                                              April 21, 2016
                                                   2 years of supervised release.
                                                   Sentenced to 16 years in prison,
                                                   3 years of supervised release, and
Anthony Minor           Recruiter                                                           March 18, 2015
                                                   ordered to pay $88,131 in restitution,
                                                   joint and several.
                                                   Sentenced to 48 months in prison,
                        Underwriting Support       24 months of supervised release, and
Katrina Thomas                                                                            November 13, 2014
                        Specialist                 ordered to pay $76,831 in restitution,
                                                   joint and several.
                                                   Sentenced to 48 months in prison,
                                                   24 months of supervised release, and
Tilisha Morrison        Recruiter                                                         November 12, 2014
                                                   ordered to pay $88,131 in restitution,
                                                   joint and several.
                                                   Sentenced to 1 day (time served)
                                                   in prison, 2 years of supervised
Kario Butler            Runner                                                            November 4, 2014
                                                   release, and ordered to pay $8,970 in
                                                   restitution, joint and several.
                                                   Sentenced to 1 day (time served) in
                                                   prison, 2 years of supervised release,
Jamilah Karriem         Runner                                                            November 2, 2014
                                                   80 hours of community service, and
                                                   ordered to pay $1,000 in restitution.
                                                   Sentenced to 4 months (time served)
                                                   in prison, 2 years of supervised
Cyrus Pritchett         Runner                                                             October 23, 2014
                                                   release, and ordered to pay $9,800 in
                                                   restitution.
                                                   Sentenced to 1 day (time served) in
                                                   prison, 2 years of supervised release,
Spetial Collins         Runner                                                              June 17, 2014
                                                   80 hours of community service, and
                                                   ordered to pay $1,000 in restitution.

Bank Official and Real Estate Investor Indicted for Bank Fraud, Missouri
Hayes, prior owner of Excel Bank, along with Litz, prior owner of Bellington Realty and Eighteen Investments,
allegedly engaged in a scheme in which straw borrowers were used to disguise insider loans totaling over $3
million. The loans were allegedly used to pay delinquent pool loans of two entities in which Hayes and Litz had
ownership. This activity was concealed from Excel Bank and the FDIC.
                                                   Indicted on charges of bank fraud,
Shaun Hayes               Bank Owner               theft, embezzlement, or misapplication        April 13, 2016
                                                   by a bank officer and false entries.
                                                   Indicted on charges of bank fraud and
Michael Litz              Real Estate Investor     theft, embezzlement, or misapplication        April 13, 2016
                                                   by a bank officer.




                                Semiannual Report to the Congress • April 1, 2016–September 30, 2016         111
Appendix L: Endnotes                                             FHFA-Announces-Suspension-of-Capital-
                                                                 Classifications-During-Conservatorship-and-
                                                                 Discloses-Minimum-and-RiskBased-Cap.aspx.
1	   12 U.S.C. § 4617(b)(2)(A), (B), (D) (2011).
                                                                 The Safety and Soundness Act does not expressly
      Accessed: October 17, 2016, at www.gpo.
                                                                 permit the FHFA Director to suspend this
      gov/fdsys/pkg/USCODE-2011-title12/pdf/
                                                                 requirement, but FHFA asserts that it suspended
      USCODE-2011-title12-chap46-subchapII-
                                                                 the requirement using its incidental powers as
      sec4617.pdf.
                                                                 conservator or receiver. See 12 C.F.R. § 1237.3(c)
                                                                 (2013). Accessed: October 17, 2016, at www.gpo.
2	    epartment of the Treasury, Statement by Secretary
     D                                                           gov/fdsys/pkg/CFR-2013-title12-vol9/pdf/CFR-
     Henry M. Paulson, Jr. on Treasury and Federal               2013-title12-vol9-sec1237-3.pdf. FHFA currently
     Housing Finance Agency Action to Protect Financial          does not publish the data necessary for third
     Markets and Taxpayers (September 7, 2008).                  parties to determine whether the Enterprises meet
     Accessed: October 17, 2016, at www.treasury.gov/            the definition of “critically undercapitalized.”
     press-center/press-releases/Pages/hp1129.aspx.
                                                            4	    ederal Housing Finance Agency, Division
                                                                 F
3	   See Freddie Mac Update July 2015 and                        of Housing Mission and Goals, Quarterly
     Fannie Mae and Freddie Mac monthly volume                   Performance Report of the Housing GSEs: First
     summaries for market share information. For                 Quarter 2015, at 14-17 (June 29, 2015).
     a discussion of the Enterprises’ capital reserves           Accessed: October 17, 2016, at www.fhfa.
     and under the PSPAs, see OIG white paper                    gov/AboutUs/Reports/ReportDocuments/
     FHFA’s Conservatorships of Fannie Mae and                   PerformanceReportofHousingGSEs-1Q2015.pdf.
     Freddie Mac: A Long and Complicated Journey,
     WPR-2015-002 (March 25, 2015). Accessed:
                                                            5	    or a detailed discussion of the uncertainty
                                                                 F
     October 17, 2016, at www.fhfaoig.gov/Content/
                                                                 of the Enterprises’ future profitability, see
     Files/WPR-2015-002_0.pdf. By operation of
                                                                 Federal Housing Finance Agency Office of
     the PSPAs, the Enterprises’ capital cushion will
                                                                 Inspector General, The Continued Profitability
     be eliminated over time. Given their paucity of
                                                                 of Fannie Mae and Freddie Mac Is Not Assured,
     capital, it is believed that the Enterprises may
                                                                 WPR-2015-001 (March 18, 2015). Accessed:
     meet the definition of “critically undercapitalized”
                                                                 October 17, 2016, at www.fhfaoig.gov/Reports/
     as set forth in the Federal Housing Enterprises
                                                                 AuditsAndEvaluations.
     Financial Safety and Soundness Act of 1992,
     as amended (the Safety and Soundness Act).
                                                            6	   Suspended Counterparty Program, 80 Fed.
     However, shortly after FHFA placed the
                                                                  Reg. 79,675 (final rule December 23, 2015) (to
     Enterprises in conservatorship, it suspended
                                                                  be codified at 12 C.F.R. pt. 1227). Accessed:
     the statutory requirement that the Agency
                                                                  October 17, 2016, at www.gpo.gov/fdsys/pkg/
     issue quarterly capital classifications for the
                                                                  FR-2015-12-23/pdf/2015-32183.pdf.
     duration of the conservatorships. See FHFA
     press release FHFA Announces Suspension of
     Capital Classifications During Conservatorship
     (October 9, 2008). Accessed: October 17, 2016,
     at www.fhfa.gov/Media/PublicAffairs/Pages/

112      Federal Housing Finance Agency Office of Inspector General
Federal Housing Finance Agency
Office of Inspector General

Se m iann ual R e p ort
to t h e Cong r e ss
April 1, 2016, through September 30, 2016




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