oversight

Letter to Congress: Real Estate Owned Maintenance Vendors

Published by the Federal Housing Finance Agency, Office of Inspector General on 2015-07-24.

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

                                           July 24, 2015

The Honorable Elijah E. Cummings
Ranking Member
Committee on Oversight and Government Reform
House of Representatives
Washington, DC 20515

Dear Ranking Member Cummings:

This letter responds to your request to the Federal Housing Finance Agency (FHFA) Office
of Inspector General (OIG) regarding management of real estate owned (REO) properties by
Fannie Mae and Freddie Mac (collectively, “the Enterprises”). Specifically, you asked us to
report on the controls Fannie Mae and Freddie Mac “have in place to prevent violations of
the Fair Housing Act” by REO maintenance vendors; whether the Enterprises “conduct
regular reviews to ensure that [REO maintenance vendors] are complying with the
requirements of the Fair Housing Act;” and whether such reviews have “identified any type
of disparate impact,” and, if so, what “corrective actions have [the Enterprises]
implemented.”1

Both Enterprises are required to maintain all REO properties, regardless of their location,
without “regard [to] race, color, religion, sex, handicap, familial status, or national origin,”
and both impose contractual requirements on their REO vendors to maintain REO properties
in the same condition across the country.2 To respond to your request, we conducted an
1
    By letter dated June 23, 2015, to seven federal regulators with oversight responsibilities for
    housing issues, 15 U.S. senators asked these regulators to investigate whether REO properties
    in communities of color had a higher number of maintenance and marketing deficiencies than
    REO properties in comparable white communities.
2
    The Department of Housing and Urban Development’s regulations implementing the Fair
    Housing Act prohibit “[f]ailing or delaying maintenance or repairs of sale or rental dwellings
    because of race, color, religion, sex, handicap, familial status, or national origin.” See 24
    C.F.R. §100.65(b)(2).
audit survey to (1) understand the requirements imposed by the Enterprises on REO vendors
for the initial and ongoing maintenance of REO properties and the differences, if any, in
these requirements between the Enterprises; (2) determine whether the Enterprises adopted
internal controls to monitor work performed by their vendors; and (3) assess whether the
Enterprises took remedial actions against their REO vendors when their internal controls
identified deficiencies. The following summarizes our findings.

Background

If a borrower defaults on his/her obligation to repay a mortgage owned or guaranteed by one
of the Enterprises, that Enterprise (or one of its authorized representatives) may seek to
foreclose on the underlying property in an effort to recoup the amount due. Once a
foreclosure has occurred, the property typically becomes part of the Enterprise’s REO
inventory. Each Enterprise has a financial interest in maintaining and securing its inventory
of REO properties in order to preserve value until the property is sold and to reduce the
credit losses incurred from the defaults. At year-end 2014, the Enterprises collectively
owned approximately 113,000 homes and,3 according to Enterprise officials, spent about
$557 million on REO maintenance in that calendar year. To break the numbers down
further, as of December 31, 2014, Fannie Mae owned approximately 87,000 REO properties
and had spent $280 million on maintenance, while Freddie Mac owned nearly 26,000 REO
properties and spent $277 million on maintenance.

Each Enterprise has announced virtually identical strategic goals for the maintenance of its
REO properties: to secure and maintain them so that they are appealing to prospective
buyers and ready for sale. Specifically, Fannie Mae’s strategy is to “maintain each property
in [its] inventory at a level of market-readiness both inside and outside of the property,
supporting neighborhood stabilization,”4 and Freddie Mac’s strategy is for its homes to be in
“comparable or better condition than the other homes for sale in the immediate market.”5

Both Enterprises retain vendors to maintain their REO properties but use different
approaches to select their vendors. Historically, Fannie Mae followed a “national” approach
for REO maintenance. Fannie Mae officials informed us that as of August 2014, Fannie

3
    Fannie Mae, 2014 Annual Report on Form 10-K at 131 (February 20, 2015), online at
    http://www.fanniemae.com/resources/file/ir/pdf/quarterly-annual-results/2014/10k_2014.pdf),
    and Freddie Mac 2014 Annual Report on Form 10-K at 177 (February 19, 2015) online at
    http://www.freddiemac.com/investors/er/pdf/10k_021915.pdf.
4
    Fannie Mae, REO Sales Guide, at 80 (February 2015).
5
    Freddie Mac, 2014 HomeSteps Guidebook for Brokers and Vendors, at 89 (March 2014).



                                                  2
Mae contracted with five vendors nationwide to perform maintenance work: three of its
vendors were assigned to service its REO properties in 47 states, the District of Columbia,
and some additional U.S. territories; and two of its vendors were assigned to service its REO
properties in the remaining three states. The five vendors, in turn, contracted with a number
of local subcontractors to perform a good deal of the REO maintenance work. These same
officials advised us that Fannie Mae is continuing its transition from its historic “national”
approach to a hybrid approach. As of July 2015, Fannie Mae has contracted with a total of
nine vendors. Some of these vendors will continue to service many states and some will
service smaller geographic areas. Freddie Mac has long used a “regional” approach.
According to Freddie Mac officials, Freddie Mac contracts with 22 vendors in markets that
generally have high concentrations of REO and relies on real estate brokers to manage
maintenance of REO properties in markets with lower REO concentrations.

Findings

    1. Both Enterprises have established requirements and standards for the initial and
       ongoing maintenance of REO properties.

Each Enterprise imposes requirements and establishes standards for the maintenance of REO
properties in its respective vendor contracts. Among other things, contracts used by both
Enterprises require REO maintenance vendors to comply with anti-discrimination laws,
including the Fair Housing Act.6

The Enterprises’ vendor contracts establish the standards each vendor must follow to
maintain the respective Enterprise’s REO properties. These standards require vendors to
perform “initial” and “ongoing” maintenance activities.7 Both Enterprises confirmed that
contract requirements, standards, and timing metrics are reinforced through corresponding
mandatory training provided by the Enterprises to their vendors.

The first set of standards for “initial” maintenance, which are triggered when an REO
property is assigned to a vendor, impose on that vendor the obligation to perform four

6
    In addition, Freddie Mac’s contracts include a vendor code of conduct that requires vendors to
    work “without respect to the race, color, religion, sex, national origin, handicap or marital
    status, age, familial status, source of income, or sexual orientation.”

    Both Enterprises require real estate brokers marketing REO properties to sign master listing
    agreements in which they agree to comply with fair housing laws.
7
    Freddie Mac permits the real estate broker assigned to market the REO property with authority
    to add or remove maintenance services required by Freddie Mac’s vendor contract.



                                                    3
general categories of maintenance activities within a specified number of days upon
receiving that assignment.

Table 1 provides examples of the requirements and timing metrics for initial maintenance.

             TABLE 1. ENTERPRISE REQUIREMENTS FOR VENDORS’ INITIAL MAINTENANCE
                                      OF REO PROPERTIES

                                                         Contractual Requirements for
        Initial Maintenance                              Performance
        Remove debris/trash from interior                Fannie Mae: 5 days†
        and exterior, including: disposal of             Freddie Mac: 3 business days‡
        inoperable appliances, window
        dressings, play sets, and above
        ground pools
        Clean interior8                                  Fannie Mae: 5 days†
                                                         Freddie Mac: 3 business days‡
        Landscaping/exterior, including:                 Fannie Mae: 5 days†
        cutting grass, weeding, trimming                 Freddie Mac: 3 business days‡
        trees and shrubs near entryways,
        and edging walkways and
        driveways
        Securing the property/re-keying9                 Fannie Mae: Vendors are required to
                                                         identify and resolve safety hazards and
                                                         security issues as part of initial services.
                                                         Brokers are required to re-key the
                                                         property within two days.



8
    Both Enterprises impose comprehensive requirements for the initial interior cleaning in their
    contracts. See Fannie Mae, Field Services Checklists (accessed June 15, 2015) (online at
    https://homepath-activedt.netdna-ssl.com/content/pdf/Field_Services_Checklist.pdf) and
    Section 1.4 “Initial Services” of its services agreements with maintenance vendors; Freddie
    Mac, Section 5(e)(i) “Initial Interior Cleaning” of its services agreements with preservation and
    maintenance vendors. The requirements cover such tasks as vacuuming or sweeping and
    mopping floors; cleaning bathroom cabinets, sinks, tubs, and toilets; cleaning out kitchen
    appliances; and wiping down ceiling fan blades, light fixtures, and switch plates.
9
    Both of the Enterprises’ maintenance vendors perform property security tasks as part of their
    initial maintenance activities. These tasks include securing exposed windows, doors, and
    openings; securing or replacing loose stairway handrails; capping exposed wiring; replacing
    broken or missing switch plates; replacing light bulbs; removing nails and hooks from walls;
    securing pools and hot tubs; and placing padlocks on outbuildings. The broker assigned to
    market an REO property bears responsibility for the initial re-keying of that property.



                                                     4
                                                             Contractual Requirements for
            Initial Maintenance                              Performance
                                                             Freddie Mac: Vendors are required to
                                                             secure the property within 1 day to 3
                                                             business days, depending on the
                                                             activity.‡ Brokers must re-key the
                                                             property before completing the property
                                                             condition certificate informing Freddie
                                                             Mac of the condition of the property.
        †
         Fannie Mae’s contracts require maintenance vendors to maintain a monthly average timeline of
        completing initial services within five calendar days or less across all assigned properties.
        ‡
         Freddie Mac allows vendors 5 business days to complete certain initial maintenance activities
        in states where foreclosure sales occur on the first Tuesday of every month, such as Georgia and
        Texas.


While both Enterprises impose obligations on their REO vendors to perform initial
maintenance in each of these four general categories, the specificity of the contractual
requirements differs between the Enterprises. For example, the initial maintenance
requirements imposed by Fannie Mae’s contract specify that loose cabinets, drawers, and
countertops be secured; Freddie Mac’s contract does not include those specifications.
Conversely, Freddie Mac’s contract requires REO vendors to cover all pools on REO
properties; Fannie Mae’s contract does not include that specification.

The second set of contractually imposed requirements for “ongoing” maintenance arises
after the initial maintenance has been completed. Examples of those requirements and
timing metrics are summarized in Table 2.

              TABLE 2. ENTERPRISE REQUIREMENTS FOR VENDORS’ ONGOING MAINTENANCE
                                        OF REO PROPERTIES

                                                             Contractual Requirements for
            Ongoing Maintenance                              Performance
            Clean interior10                                 Monthly for both Enterprises




10
     The Enterprises’ vendors are required to maintain the interior cleanliness of their REO
     properties through monthly cleaning visits. Both Enterprises have similar comprehensive
     requirements for monthly interior cleaning, which include dusting; sweeping; mopping;
     vacuuming; cleaning of surfaces, fixtures, appliances, doors, and windows; and replacing light
     bulbs, smoke detector batteries, and air fresheners, if necessary.




                                                         5
                                                         Contractual Requirements for
         Ongoing Maintenance                             Performance
         Maintain yard11                                 Fannie Mae: Weekly regardless of the
                                                         season

                                                         Freddie Mac: Weekly during the
                                                         appropriate seasons
         Re-secure property, should                      Fannie Mae: Vendors are required to
         additional security measures be                 identify and resolve safety hazards and
         required12                                      security issues during monthly interior
                                                         cleaning and weekly yard maintenance
                                                         Freddie Mac: 1 day
         Remove snow13                                   Fannie Mae: 2 days or in compliance
                                                         with local codes and ordinances,
                                                         whichever is less
                                                         Freddie Mac: Within 24 hours
         Winterize14                                     Fannie Mae: 2 days15
                                                         Freddie Mac: 3 business days

Again, the specificity of the required contractual tasks in each of the on-going maintenance
categories differs between the Enterprises. For example, Fannie Mae’s contractual ongoing
interior cleaning requirement specifies ceiling cobweb removal, wiping down walls,
cleaning the interior of all appliances, and attic and crawlspace cleaning on a monthly basis;

11
     Vendors are required to maintain the yards of Enterprise REO properties on a weekly basis
     during the appropriate seasons. The Enterprises generally require their vendors to perform the
     same landscaping activities covered under initial services. For Fannie Mae, mail is removed as
     part of the weekly maintenance of the yard. Freddie Mac includes this task in its requirements
     for monthly interior cleaning.
12
     Both Enterprises require vendors to re-secure the REO property in the event of a break-in or
     vandalism.
13
     The Enterprises’ vendors are expected to remove snow from driveways, walkways, entrances,
     and public sidewalks, and to apply salt to cleared areas, within specified timeframes.
14
     In regions that experience freezing temperatures, the Enterprises’ vendors winterize REO
     properties to protect them from freezing pipes and other damage. For Fannie Mae, this
     includes all steps necessary to maintain and protect a property for damages caused by changes
     in temperature. Steps include prevention of the freezing or breakage of the plumbing system.
     For Freddie Mac, vendors must perform services prior to freezing weather to protect the
     property from damage. Services include disconnecting water sources, draining water heaters,
     and draining pipes throughout the property.
15
     Fannie Mae expects vendors to achieve overall winterization within 2 calendar days.



                                                     6
Freddie Mac’s does not. Whereas Freddie Mac’s contractual on-going cleaning requirement
specifies HVAC filter replacement, if needed, and trash compactor cleaning on a monthly
basis, Fannie Mae’s does not.

Both Enterprises permit real estate brokers assigned to market REO properties to request
additional maintenance services, such as cleaning gutters and washing windows, and allow
REO vendors to seek authorization for similar types of services.

     2. Both Enterprises have established internal controls to monitor work performed by
        REO maintenance vendors.

Each Enterprise has adopted a number of complimentary internal controls to monitor vendor
compliance with contractual requirements and maintenance standards.

        Controls imposed by broker inspection of vendors. Each Enterprise requires
         the real estate brokers who have listed REO properties for sale to inspect those
         REO properties weekly for maintenance deficiencies and to document findings
         with date-stamped pictures. Additionally, Fannie Mae requires brokers assigned
         to market REO properties to inspect the initial services performed by the
         maintenance vendor and approve the work in order for the maintenance vendor
         to be paid.

        Controls imposed by anonymous complaint hotlines. Each Enterprise also
         maintains hotlines for neighbors or bystanders to report concerns and complaints
         about REO properties. Freddie Mac posts its hotline numbers on the front
         windows of its REO properties. Fannie Mae’s hotline is available on its
         HomePath website.

        Controls imposed by quality control inspections performed by independent
         inspection contractors. Each Enterprise has hired independent contractors (three
         for Fannie Mae and two for Freddie Mac) to assess whether the maintenance
         activities performed by REO vendors comply with established contractual
         standards for approximately 30% of eligible REO properties every month:
         those independent contractors are required to submit written reports of those
         assessments.16 Beginning in September 2014, Fannie Mae directed its
16
     Both Enterprises’ vendors perform quality control inspections on 30% of eligible REO
     property each month. Fannie Mae defines eligible REO property as those that have received
     the broker inspection approval of initial services. Officials informed us that Freddie Mac’s
     definition is: REO property that is available listed inventory—assets in a listed status and



                                                     7
    independent inspection contractors to perform inspections on 100% of its REO
    properties located in majority minority areas so that Fannie Mae could compare
    the quality of REO maintenance work performed in majority minority areas to
    the work performed in other communities to determine whether there was any
    difference in the quality of the REO maintenance efforts. For the period
    September 2014 through June 2015, Fannie Mae’s analysis of independent quality
    control inspections showed the average final grade of REO inspections of homes
    located in majority minority communities was 90.87% and the average final grade
    of REO inspections of homes located in non-minority communities was 90%.
    That analysis found less than a 1% difference in average quality score between
    REO properties in majority minority communities and in non‐minority
    communities.

   Controls imposed by internal Enterprise review of the independent quality control
    inspection reports. Each Enterprise has assigned full-time employees (eight
    at Fannie Mae and one at Freddie Mac) to review each month the written
    assessments by the independent quality control inspectors. Fannie Mae requires
    its eight employees to review 400 written assessments each month, approximately
    a rate of 2.5 reviews each day. When a written assessment flags maintenance
    deficiencies that Fannie Mae considers to be a high risk (like an unsecured
    pool), Fannie Mae requires the affected vendor to remediate the deficiencies
    immediately. For deficiencies not considered high risk, Fannie Mae notifies its
    vendors of the deficiencies and provides them seven days in which to remediate.
    Pursuant to its vendor contracts, Fannie Mae can seek chargeback fees from
    vendors for specific deficiencies and/or for the severity of deficiencies. Freddie
    Mac requires its one employee to review 300 written assessments each month, a
    rate of approximately 15 each day. Any issues flagged in the written assessments
    are discussed in monthly meetings between Freddie Mac and the affected
    maintenance vendor or listing broker. Officials informed us that depending on
    the severity of the failure, they will require the vendor to remediate the issue by
    reperforming the work.

   Controls imposed by onsite assessments of REO properties by Enterprise
    employees. Each Enterprise has assigned full-time employees (the same eight

awaiting offer, negotiating an offer, or awaiting contract. Both Enterprises exclude properties
located in Alaska, American Samoa, Guam, Puerto Rico, and the Virgin Islands due to the
nominal inventory and the elevated cost of inspection completion due to difficulty of access.
Further, Freddie Mac excludes property types that have an exceptionally high likelihood of
restricted access, such as condos, condotels, co-ops, vacant land, and townhomes.



                                                 8
         Fannie Mae employees reviewing written assessments from the independent
         quality control contractors and six Freddie Mac employees separate from the
         one employee reviewing the written assessments) to make onsite visits to REO
         properties to assess the quality of maintenance work by REO vendors. Fannie
         Mae requires each of its eight employees to conduct roughly 150 inspections
         per month.17 Freddie Mac requires its six employees to perform 300 onsite
         assessments each quarter,18 or roughly 16 to 17 assessments per employee per
         month.

OIG conducted an audit survey to respond to this Congressional request, therefore we do not
have an adequate basis on which to render an opinion about the overall effectiveness of each
of these internal controls.

OIG recognized that there was a significant risk that the volume of monthly reviews of the
independent quality control inspection reports and onsite assessments of the quality of REO
maintenance activities could not be sustained over time, on a robust basis, by the limited
number of assigned Enterprise employees. For that reason, we conducted limited testing of
both metrics.

OIG reviewed Freddie Mac’s desk reviews of the written independent inspection company
reports and onsite assessments for the second quarter of 2015 against its established metrics
and found that Freddie Mac met both metrics for that quarter. Freddie Mac officials
reported to us that the one Freddie Mac employee assigned to conduct desk reviews
completed reviews of 900 inspection company reports on REO maintenance performed
nationwide for the second quarter ending June 30, 2015, meeting the goal of 300 reviews per
month. The same officials advised that Freddie Mac employees completed 344 onsite




17
     Fannie Mae’s procedures state that when a Field QC specialist completes one caravan (which
     are informational training events that increase awareness of expectations) they are given credit
     for the three properties that they actually inspect from the caravan, plus seven to accommodate
     for the time spent during the caravan versus inspecting. This may result in less than 150 actual
     inspections by a field QC specialist but with the accommodation, the 150 would be met.
18
     Freddie Mac allocates the 300 quarterly onsite assessments to each of its six staff based on,
     among other things, the volume of REO properties in the states that make up each of its six
     regions, the location of the regional office, and time and budget.




                                                      9
assessments of the maintenance quality of REO properties nationwide for that quarter,
exceeding the target of 300.19

Because Fannie Mae has assigned more employees to complete desk reviews and onsite
assessments and imposes greater completion requirements on each employee, OIG reviewed
the output for April 2015 from two of the eight Fannie Mae employees assigned to complete
desk reviews and onsite assessments. OIG found that one of the two employees met the
metrics established by Fannie Mae during this month and one did not. For April 2015, the
one Fannie Mae employee responsible for the Florida and Alabama territory completed 65
desk reviews of the written independent inspection company reports, exceeding the metric of
50 desk reviews. Because of approved leave in April, that employee’s on-site assessment
target was reduced from 150 to 100: that employee conducted 119 on-site assessments for
that month, in excess of the reduced target. For that same month, a second Fannie Mae
employee, responsible for seven southwestern/southern states (Arizona, New Mexico,
Texas, Oklahoma, Arkansas, Louisiana, and Mississippi), completed no desk reviews.
Fannie Mae officials reported to OIG that this employee completed 136 desk reviews in
May, which met her April and May 2015 targets. However, that employee completed only
91 (60.7%) of the required onsite assessments in April and 22 (14.7%) of the required on-
site assessments in May, for a total of 113 (37.66%) of the 300 required onsite assessments
for both months. Fannie Mae officials advised OIG that this employee did not meet the
goals because of the press of other work.

The Enterprises report that they use additional tools to monitor vendor performance
including:

        Scorecard reviews

        Periodic meetings

        Audits

        Surveys

        Account reviews

        Operational reports.


19
     While Freddie Mac employees achieved 114% of the second quarter goal, seven Freddie Mac
     employees, rather than the current complement of six employees, conducted onsite assessments
     for two of the three months during this quarter and six employees performed the onsite
     assessments for one month.



                                                   10
     3. Both Enterprises have identified material deficiencies with the maintenance
        performed by several REO vendors and imposed remedial measures

Freddie Mac officials reported to us that it found 1 of its 22 REO vendors failed to meet
contractual requirements in both 2013 and 2014 and placed that vendor on informal
probation in 2013 and formal probation in 2014. They further advised that Freddie Mac
identified a second contractor in 2014 who failed to meet contractual requirements and
placed that vendor on probation. According to these officials, a vendor’s probationary status
can result in reduced assignments, additional training, imposition of a performance
improvement plan, and/or additional monitoring. Both vendors were removed from
probationary status in the second half of 2014 by Freddie Mac.

Fannie Mae officials reported to OIG that it found that 3 (of its 5) REO vendors failed to
meet contractual requirements in 2014. While Fannie Mae does not place its vendors on
“probation,” it can impose the same measures that Freddie Mac can impose for vendors on
probationary status. Fannie Mae reduced the assignments for one of the three REO
maintenance vendors and placed it on a performance improvement plan; it placed the other
two vendors on specific improvement plans to address the identified deficiencies ranging
from work quality to timeliness.20 Table 3 summarizes the vendor failures to meet
contractual requirements and remedial actions taken by each Enterprise.

                     TABLE 3. ENTERPRISE RESULTS OF QUALITY CONTROL REVIEWS
                                  OF REO MAINTENANCE VENDORS

         Vendor Performance Issue                     Remedial Actions
         Freddie Mac vendor not meeting               Freddie Mac placed the vendor on
         service level requirements in contract       informal probation in 2013 and formal
                                                      probation in 2014.21 The vendor’s
                                                      action plan indicated that it hired more

20
     Fannie Mae had placed one of those vendors on an action plan in 2013. Fannie Mae officials
     informed us that it places REO maintenance vendors on performance improvement plans when
     performance issues warrant consequences related to the vendors’ continued employment. The
     performance improvement plans reiterate contractual requirements and notify the vendor that if
     metrics are not met, the contract will be terminated or work load will be reduced. Fannie Mae
     places REO maintenance vendors on action plans as a result of a noted need for improvement.
     Fannie Mae considers action plans to be a first step in requiring a vendor to bring its
     performance in line with contractual requirements.
21
     Freddie Mac officials informed us that informal probation involves monitoring by the business
     unit of the vendor’s performance. If performance issues continue, the vendor will be referred
     to the Vendor Services Disciplinary Committee and placed on formal probation.



                                                    11
Vendor Performance Issue                 Remedial Actions
                                         staff, retrained subcontractors, and
                                         reinforced standard quality control
                                         measures. Freddie Mac removed the
                                         vendor from probation in August 2014.
Freddie Mac vendor not meeting           Freddie Mac placed the vendor on
contract requirements in the areas of    probation in 2014. The vendor’s action
communication, timeliness, quality of    plan indicated that it created a broker
work, and billing; reported broker       liaison position, conducted vendor
dissatisfaction with vendor’s work       training and scorecard reviews, and
                                         terminated several subcontractors.
                                         Freddie Mac officials informed us that
                                         the vendor was removed from
                                         probation in September 2014.
Fannie Mae vendor not meeting            Fannie Mae officials informed us that
contract requirements in the areas of    they reduced the vendor’s work and
communication, timeliness, quality,      placed the vendor on a performance
and reporting                            improvement plan in 2014. The vendor
                                         decided not to renew the contract in
                                         March 2015.
Fannie Mae vendor not meeting            Fannie Mae placed the vendor on an
contract requirements in the areas of    action improvement plan with a target
quality, timeliness, and delivery        completion date of October 2015.
                                         Fannie Mae officials informed us that
                                         actions completed include
                                         implementation of an incentive
                                         program. Ongoing actions include
                                         increasing broker communication and
                                         adopting numerous changes to its
                                         vendor management department.
Fannie Mae vendor not meeting            Fannie Mae placed the vendor on an
contract requirements in the areas of    action improvement plan with a target
quality, timeliness, and delivery        completion date of October 2015.
                                         Fannie Mae officials informed us that
                                         actions completed include adoption of a
                                         photo direct application, which is a
                                         mobile application used to streamline
                                         reception of photos and implementation
                                         of quality reviews. Ongoing actions
                                         include participating in broker caravans
                                         (which are informational training events
                                         that increase awareness of
                                         expectations), encouraging
                                         communication between vendors and
                                         brokers, and conducting vendor training.




                                        12
Freddie Mac officials informed us that, as of June 2015, its internal controls and monitoring
identified no performance issues with any of its top five vendors (based on the dollar value
of the contract) that required remediation plans. Through its internal controls and
monitoring, Fannie Mae reached a different result during the first half of 2015: two of its
five vendors were placed on performance improvement plans in May 2015 for a number of
issues including failing to resolve safety concerns requiring immediate attention and failing
quality control routine inspections.

Thank you for asking OIG to report on the Enterprises’ efforts to secure compliance with the
Fair Housing Act by their REO vendors. I hope this information is helpful to you. Should
you have any further questions, please feel free to contact me at (202) 730-0880 or Tewana
Wilkerson, OIG’s Director of External Affairs and Risk Analysis, at (202) 730-0888. We
look forward to continuing to work closely with you and your staff.

Sincerely,




Laura S. Wertheimer
Inspector General




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