oversight

Seventeenth Semiannual Report to the Congress

Published by the Federal Housing Finance Agency, Office of Inspector General on 2019-03-31.

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

F EDERAL H OUSING F INANCE A GENCY
   O FFICE OF I NSPECTOR G ENERAL
    S EMIANNUAL R EPORT        TO THE    C ONGRESS
         October 1, 2018, through March 31, 2019
F ederal H ousing F inance a gency
   o FFice oF i nspector g eneral




  S
Table of Contents
Our Vision .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 1
Our Mission  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 1
Core Values  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 2
Snapshot of OIG Accomplishments  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 3
A Message from the Office of Inspector General  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 4
Executive Summary  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 6
      Overview                                                                                                                                  6
      This Report                                                                                                                               7
OIG’s Oversight  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 8
      OIG’s Risk-Based Oversight Strategy                                                                                                       8
      OIG Impact Through its Oversight Initiatives                                                                                            12
               Office of Risk Analysis                                                                                                        12
               Administrative Inquiries                                                                                                       14
               Office of Compliance and Special Projects                                                                                      14
OIG’s Oversight of FHFA’s Programs and Operations Through Audit, Evaluation, and
Compliance Activities During This Reporting Period  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 16
      Office of Audits                                                                                                                        16
      Office of Evaluations                                                                                                                   16
      Office of Compliance and Special Projects                                                                                               16
      Oversight Activities This Period                                                                                                        16
      Agency Operations and Internal Controls                                                                                                 17
               Report of Administrative Inquiry into Allegations of Misconduct by the
               Then-FHFA Director                                                                                                             17
               Management Alert: Improper Hiring of Relatives of FHFA Employees for
               Summer Internships                                                                                                             19
               Audits of FHFA Offboarding Processes During 2016 and 2017: Controls over Access
               Cards, Sensitive IT Assets, and Records Were Not Always Documented or Followed;
               Post-Employment Restrictions and Financial Disclosure Requirements
               Were Followed                                                                  20
               Administrative Inquiry: Review of Alleged Badgering and Harassment of FHFA
               Employees that Play an Important Role in the Agency’s Internal
               Control Framework                                                                                                              21
      Conservatorship Operations                                                                                                              21



                                Federal Housing Finance Agency Office of Inspector General
		




Semiannual Report to the Congress • October 1, 2018­–March 31, 2019
	




Federal Housing Finance Agency Office of Inspector General
Appendix H: OI Publicly Reportable Investigative Outcomes Involving Adverse
Possession and Distressed Property Schemes .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 134
Appendix I: OI Publicly Reportable Investigative Outcomes Involving Multifamily
Schemes  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 137
Appendix J: OI Publicly Reportable Investigative Outcomes Involving Fraud
Affecting the Enterprises, the FHLBanks, or FHLBank Member Institutions  .  .  .  .  .  . 138
Appendix K: Glossary and Acronyms .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 142
      Glossary of Terms                                                                                                                     142
      Acronyms and Abbreviations                                                                                                            145




                          Semiannual Report to the Congress • October 1, 2018­–March 31, 2019
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, and the American people.
The FHFA Office of Inspector General (OIG or Office) achieves this vision by being a first-rate
independent oversight organization in the federal government that acts as a catalyst for effective
management, accountability, and positive change in FHFA and holds accountable those, whether
inside or outside of the federal government, who waste, steal, or abuse funds in connection with
the Agency, Fannie Mae and Freddie Mac (the Enterprises), or any of the Federal Home Loan
Banks (FHLBanks).


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




                              Semiannual Report to the Congress • October 1, 2018­–March 31, 2019   1
Core Values
OIG’s core values are integrity, respect, professionalism, and results. Accordingly, we endeavor
to maintain the highest level of integrity, professionalism, accountability, and transparency in
our work. We follow the facts—wherever they lead—without fear or favor, report findings that
are supported by sufficient evidence in accordance with professional standards, and recommend
actions tied to our findings. Our work is independent, risk-based, relevant, and timely. We play a
vital role in promoting the economy and efficiency in the management of the Agency and view
our oversight role both prospectively (advising the Agency on internal controls and oversight, for
example) and retrospectively (by assessing the Agency’s oversight of Fannie Mae, Freddie Mac,
and the FHLBanks in its role as supervisor, and its operation of Fannie Mae and Freddie Mac in
its role as conservator).

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

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

Report fraud, waste, or abuse on our hotline webpage or by calling (800) 793-7724.




2    Federal Housing Finance Agency Office of Inspector General
           Snapshot of OIG Accomplishments
                 Snapshot of OIG Accomplishments
                       Semiannual
                          SemiannualReporting     Period
                                      Reporting Period
                      October  1,1,2018–March
                         October    2018–March 31,31,
                                                   20192019


  Reports Issued                                                                                          19
     Includes audits, evaluations, compliance reviews,
     a management alert, a management advisory,
     administrative inquiries, a special report, and
     white papers
  Recommendations made or reopened                                                                        23
  Investigative Activities:
      Indictments / Charges                                                                               50
      Arrests                                                                                             27
      Convictions / Pleas                                                                                 30
      Sentencings                                                                                         41
      Suspension / Debarment Referrals to Other Agencies                                                  68
      Suspended Counterparty Referrals to FHFA                                                            17
  Investigative Monetary Results:
      Criminal Restitution                                                                    $110,659,243
      Criminal Fines / Special Assessments / Forfeitures                                       $82,352,372
      Civil Settlements                                                                    $1,251,600,000
  Investigations Total Monetary Results*                                                   $1,444,611,615



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




                                    Semiannual Report to the Congress • October 1, 2018­–March 31, 2019        3
A Message from the Office of Inspector General
We are pleased to present this Semiannual Report on
the operations of the OIG, which covers the period from
October 1, 2018, to March 31, 2019.

FHFA has unique responsibilities in its dual roles as
conservator and supervisor of the Enterprises and as
supervisor of the FHLBanks. Despite their high leverage,
diminished capital buffer, conservatorship status, and
uncertain future, the Enterprises have grown during
conservatorship and, according to FHFA, their combined
market share of newly issued mortgage-backed securities
is more than 60%. As of year-end 2018, the Enterprises
collectively reported approximately $5.4 trillion in
assets. As conservator of the Enterprises, FHFA exercises
control over trillions of dollars in assets and billions
of dollars in revenue and makes business and policy
decisions that influence and affect the entire mortgage
finance industry. As of year-end 2018, the FHLBanks
collectively reported roughly $1.1 trillion in assets. Given              Laura S. Wertheimer
the size and complexity of the regulated entities and the                 Inspector General
dual responsibilities of FHFA, we structure our oversight
program to examine FHFA’s exercise of its dual responsibilities. As a result of FHFA’s dual
responsibilities as conservator and supervisor, OIG’s responsibilities are broader than those of
OIGs for other prudential federal financial regulators.

To best leverage our resources to strengthen OIG’s oversight, our work is risk-based and is
focused on the four management and performance challenges and a management concern facing
FHFA, the Enterprises in its conservatorship, and the entities it regulates. See OIG, Fiscal Year
2019 Management and Performance Challenges (October 15, 2018).

We have established a rigorous process to develop oversight projects based on risk. Once we
begin an oversight project, we follow the facts, wherever they lead, without fear or favor. We
are a trusted change agent because of our demonstrated independence and objectivity: we ask
difficult questions and are not persuaded by rote answers; we critically assess the evidence
we obtain during our fieldwork; we report findings that are supported by sufficient evidence
in accordance with professional standards; and we recommend practical solutions tied to our
findings. Through our audits, evaluations, and compliance reviews, we challenge FHFA to
improve its oversight over its conserved entities, enhance its supervision, put more rigorous
internal controls into place, and look for and eliminate fraud, waste, and abuse. Our work is
independent, relevant, and timely.

During this semiannual period, we published 19 reports, including audits, evaluations, compliance
reviews, a management alert, a management advisory, administrative inquiries, a special report,
and white papers, which are available on our website, and on Oversight gov, a publicly accessible,



4    Federal Housing Finance Agency Office of Inspector General
searchable website containing the latest public reports from federal Inspectors General who are
members of the Council of the Inspectors General on Integrity and Efficiency. These 19 reports
illustrate the broad scope of our oversight responsibilities.

Where our fact-finding has identified shortcomings, deficiencies, or processes that could
be upgraded, our reports include actionable recommendations to assist FHFA in improving
the effectiveness and efficiency of its operations. For this semiannual period, we issued 22
recommendations and reopened one. Appendix B of this report summarizes all recommendations
made or reopened by OIG during this period, recommendations made in prior periods that
remain open (and unimplemented), and closed, unimplemented recommendations. During each
reporting period, we update information in Appendix B as new recommendations are issued or
recommendations are closed, and we publish the updated information monthly in a Compendium
of Open Recommendations on our website.

Through our robust law enforcement efforts, both civil and criminal, we protect the interests
of the American taxpayer. In many of these investigations, we worked collaboratively with our
law enforcement colleagues in other agencies. During this reporting period, we successfully
conducted a number of investigations involving civil and criminal fraud, which resulted in
significant criminal prosecutions and civil fraud enforcement, including:

    •	 50 indictments/charges;
    •	 27 arrests;
    •	 30 convictions/pleas;
    •	 41 defendants sentenced for an aggregate total of 81 years in prison;
    •	 More than $193 million in criminal restitutions, fines, special assessments, and
       forfeitures; and
    •	 More than $1.2 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. The work described in
this Semiannual Report demonstrates the importance of effective, fair, and objective investigative
oversight conducted by this Office, and the accomplishments described in this Semiannual
Report are a credit to its talented and dedicated career professionals.




                              Semiannual Report to the Congress • October 1, 2018­–March 31, 2019   5
Executive Summary
Overview                                                Initially, the conservatorships were intended
                                                        to be a “time out” during a period of extreme
The Federal Housing Finance Agency (FHFA                stress to stabilize the mortgage markets and
or Agency) was created on July 30, 2008, when           promote financial stability. Now in their
the President signed into law the Housing and           eleventh year, FHFA’s conservatorships of
Economic Recovery Act of 2008 (HERA)                    the Enterprises are of unprecedented scope,
HERA charged FHFA to serve as regulator and             scale, and complexity. Since September 2008,
supervisor of Fannie Mae and Freddie Mac                FHFA has served in the unique role of both
(the Enterprises) and of the Federal Home               conservator and supervisor of the Enterprises
Loan Banks (FHLBanks) (collectively, the                and supervisor of the FHLBank System.
regulated entities), and the FHLBanks’ fiscal
agent, the Office of Finance. HERA also                 HERA also authorized the establishment of
enhanced FHFA’s resolution authority to act as          OIG to oversee the work of FHFA pursuant
conservator or receiver                                 to the Inspector General Act of 1978 OIG
                                                        began operations in October 2010 when its first
In September 2008, FHFA exercised its                   Inspector General was sworn in. As a result of
authority under HERA to place Fannie Mae and            FHFA’s dual responsibilities as supervisor of
Freddie Mac into conservatorship in an effort           the Enterprises and the FHLBanks, and, since
to stabilize the residential mortgage finance           2008, as conservator of the Enterprises, OIG’s
market. Concurrently, the U.S. Department of            oversight responsibilities are correspondingly
the Treasury (Treasury) entered into a Senior           broader than those of an Office of Inspector
Preferred Stock Purchase Agreement (PSPA)               General for other prudential federal financial
with each Enterprise to ensure that each                regulators.
maintained a positive net worth going forward
Under these PSPAs, U.S. taxpayers, through              Our mission is to promote economy,
Treasury, have invested nearly $191.5 billion           efficiency, and effectiveness and protect
in the Enterprises since 2008. As conservator           FHFA and the entities it regulates against
of the Enterprises, FHFA succeeded to all rights,       fraud, waste, and abuse, contributing to the
titles, powers, and privileges of the Enterprises,      liquidity and stability of the nation’s housing
and of any stockholder, officer, or director of         finance system, and advising the Director of
the Enterprises. FHFA is authorized under               the Agency, Congress, and the public on our
HERA to:                                                findings and recommendations. In doing so,
                                                        we further the Agency’s statutory obligation
       • Operate the Enterprises and                    to ensure that the regulated entities operate
       • Take such action as may be:                    in a safe and sound manner and that their
           ° Necessary to put the Enterprises in a      operations foster liquid, efficient, competitive,
             sound and solvent condition and            and resilient national housing finance markets.
           ° Appropriate to carry on the                We also engage in robust law enforcement
             Enterprises’ business and preserve         efforts to protect the interests of the regulated
             and conserve the Enterprises’ assets       entities and the American taxpayers.
             and property 1
1
    12 U.S.C. § 4617(b)(2)(A), (B), (D) (2018).




6      Federal Housing Finance Agency Office of Inspector General
OIG’s operations are funded by annual
assessments that FHFA levies on the                  Terms and phrases in bold are defined in
                                                     Appendix K, Glossary and Acronyms. If you are
Enterprises and the FHLBanks pursuant to
                                                     reading an electronic version of this Semiannual
12 U.S.C. § 4516. For Fiscal Year (FY)               Report, then simply move your cursor to the
2019, OIG’s operating budget remained at             term or phrase and click for the definition.
$49.9 million.

This Report
This Semiannual Report to the Congress
summarizes the work of OIG and discusses
OIG operations for the reporting period of
October 1, 2018, to March 31, 2019. Among
other things, this report:

    • Explains OIG’s risk-based oversight
      strategy;
    • Discusses the 19 audits, evaluations,
      compliance reviews, management alerts,
      management advisories, administrative
      inquiries, special reports, and white
      papers published during the period;
    • Highlights some of the numerous
      OIG investigations that resulted in 50
      indictments/charges, 30 convictions/
      pleas, and 41 sentencings of individuals
      responsible for fraud, waste, or abuse
      in connection with programs and
      operations of FHFA and the Enterprises;
      more than $193 million in criminal
      restitutions, fines, special assessments,
      and forfeitures; and more than $1.2
      billion in civil settlements;
    • Summarizes OIG’s outreach during the
      reporting period; and
    • Reviews the status of OIG’s
      recommendations




                              Semiannual Report to the Congress • October 1, 2018­–March 31, 2019       7
OIG’s Oversight
OIG’s Risk-Based Oversight                            basis, we assess FHFA’s major management
Strategy                                              and performance challenges. In October
                                                      2018, we identified four challenges (all of
Currently, FHFA serves as supervisor for              which carried over from prior years) and a
the Enterprises and the FHLBanks and as               management concern. In our view, these are
conservator of the Enterprises. FHFA’s                the serious management and performance
conservatorships of the Enterprises, now in           challenges facing FHFA for the foreseeable
their eleventh year, are of unprecedented             future and, if not addressed, could
scope, scale, and complexity. FHFA’s dual             adversely affect FHFA’s accomplishment
roles continue to present novel challenges.           of its mission. (See OIG, Fiscal Year
Consequently, OIG must structure its                  2019 Management and Performance
oversight program to examine FHFA’s                   Challenges (October 15, 2018)). During
exercise of its dual responsibilities,                this reporting period, OIG continued to
which differ significantly from the typical           focus much of its oversight activities on
federal financial regulator. Beginning in             identifying vulnerabilities in these areas and
Fall 2014, OIG determined to focus its                recommending positive, meaningful actions
resources on programs and operations that             that the Agency could take to mitigate these
pose the greatest financial, governance,              risks and remediate identified deficiencies.
and/or reputational risk to the Agency,               These challenges and the management
the Enterprises, and the FHLBanks to                  concern are:
best leverage its resources to strengthen
oversight. We established an integrated                    • Supervision of the Regulated
approach to identify these programs and                      Entities – Upgrade Supervision of
operations of greatest risk and published                    the Enterprises and Continue Robust
our initial risk-based plan in February 2015,                Supervision of the FHLBanks
which is updated annually.
                                                      As supervisor of the Enterprises and the
Our Audit, Evaluation, and Compliance Plan,           FHLBanks, FHFA is tasked by statute to
adopted in March 2018, describes FHFA’s               ensure that these entities operate safely and
and OIG’s roles and missions, explains our            soundly so that they serve as a reliable
risk-based methodology for developing                 source of liquidity and funding for housing
this plan, provides insight into particular           finance and community investment.
risks within four areas, and generally                Examinations of its regulated entities are
discusses areas where we will focus our               fundamental to FHFA’s supervisory mission.
audit, evaluation, and compliance resources.          Within FHFA, the Division of Federal Home
In addition to our risk-based work plan,              Loan Bank Regulation (DBR) is responsible
OIG completes work required to fulfill its            for supervision of the FHLBanks, and the
statutory mandates                                    Division of Enterprise Regulation (DER)
                                                      is responsible for supervision of the
An integral part of OIG’s oversight is to             Enterprises.
identify and assess FHFA’s top management
and performance challenges and to align our           As a former FHFA Director observed, Fannie
work with these challenges. On an annual              Mae and Freddie Mac would be Systemically



8    Federal Housing Finance Agency Office of Inspector General
Important Financial Institutions (SIFIs), but                   4 Where clear requirements and
for the conservatorships, and are subject to                      guidance for specific elements of
the heightened supervision requirements for                       DER’s supervisory program exist,
SIFIs, except that they are supervised by                         DER examiners-in-charge and
FHFA, not the Federal Reserve. Because the                        subordinate examiners have not
asset size of the FHLBanks is a fraction of                       consistently followed them.
the asset size of the Enterprises and because
the Enterprises are in conservatorship, we                 In that roll-up report, we cautioned that
determined that the magnitude of risk is                   “[w]ithout prompt and robust Agency attention
significantly greater for the Enterprises.                 to address the shortcomings we have
Since the Fall of 2014, the majority of our                identified,” the “safe and sound operation
work on supervision issues has focused on                  of the Enterprises cannot be assumed from
FHFA’s supervision of the Enterprises.                     FHFA’s current supervisory program.” The
                                                           findings from subsequent audits, evaluations,
Over the past few years, we have assessed                  and compliance reports regarding FHFA’s
critical elements of DER’s supervision                     supervision program for the Enterprises
program for the Enterprises. For each                      identified additional shortcomings. In light
element that we assessed, we issued                        of the observation that the Enterprises would
reports that identified shortcomings and                   be SIFIs, but for the conservatorships, FHFA
recommended remedial actions.                              must make a heightened and sustained effort
                                                           to improve its supervision of the Enterprises.
Based on our assessments of different
elements of DER’s supervision program, we                  We also looked at elements of FHFA’s
identified four recurring themes, which were               supervision program for the FHLBanks.
explained in a roll-up report issued during                While our reports of that work identified
FY 2017. 2 Those themes are:                               some shortcomings, they did not identify
                                                           significant weaknesses. Like any other
       1 FHFA lacks adequate assurance that                federal financial regulator, FHFA faces
         DER’s supervisory resources are                   challenges in appropriately tailoring and
         devoted to examining the highest risks            keeping current its supervisory approach to
         of the Enterprises.                               the FHLBanks.

       2 Many supervisory standards and                         • Conservatorship Operations –
         guidance issued by FHFA and DER                          Improve Oversight of Matters
         lack the rigor of those issued by other                  Delegated to the Enterprises
         federal financial regulators.                            and Strengthen Internal Review
                                                                  Processes for Non-Delegated
       3. The flexible and less prescriptive                      Matters
          nature of many requirements and
          guidance promulgated by FHFA and                 As conservator of the Enterprises since
          DER has resulted in inconsistent                 September 2008, FHFA has expansive
          supervisory practices                            authority to oversee and direct operations of
                                                           two large, complex financial institutions that

2
    See OIG, Safe and Sound Operation of the Enterprises Cannot Be Assumed Because of Significant Shortcomings
    in FHFA’s Supervision Program for the Enterprises (OIG-2017-003, Dec. 15, 2016).



                                   Semiannual Report to the Congress • October 1, 2018­–March 31, 2019           9
dominate the secondary mortgage market                by some directors in seeking information
and the mortgage securitization sector of the         from management about the matters for which
U.S. housing finance industry. Under HERA,            they are responsible. We have also identified
FHFA, as conservator, possesses all rights            instances in which corporate governance
and powers of any stockholder, officer, or            decisions generally reserved to the board of
director of the Enterprises and is vested with        directors have been delegated to management.
express authority to operate the Enterprises
and conduct their business activities. Given          As the Enterprises’ conservator, FHFA is
the taxpayers’ enormous investment in the             ultimately responsible for actions taken
Enterprises, the unknown duration of the              by the Enterprises, pursuant to authority it
conservatorships, the Enterprises’ critical role      has delegated to them. FHFA’s challenge,
in the secondary mortgage market, and their           therefore, is to improve the quality of its
uncertain ability to sustain future profitability,    oversight of matters it has delegated to the
FHFA’s administration of the conservatorships         Enterprises.
remains a major risk.
                                                      Generally, FHFA has retained authority (or
FHFA has delegated authority for many                 has revoked previously delegated authority)
matters, both large and small, to the                 to resolve issues of significant monetary and/
Enterprises. FHFA, as conservator, can revoke         or reputational value. FHFA has established
delegated authority at any time (and retains          written internal review and approval processes
authority for certain significant decisions).         for non-delegated matters, designed to provide a
                                                      consistent approach for analyzing and resolving
Since the Fall of 2014, OIG’s body of                 such matters and for providing decision-
work has found that FHFA has limited its              makers with all relevant facts and existing
oversight of delegated matters largely to             analyses. FHFA faces challenges in ensuring
attendance at Enterprise internal management          that its established processes are followed.
and board meetings as an observer and to
discussions with Enterprise managers and                   • Information Technology Security –
directors. Read together, our findings in                    Enhance Oversight of Cybersecurity
these reports show that, for the most part,                  at the Regulated Entities and Ensure
FHFA, as conservator, has not assessed                       an Effective Information Security
the reasonableness of Enterprise actions                     Program at FHFA
pursuant to delegated authority, including
actions taken by the Enterprises to implement         Cybersecurity, as defined by the National
conservatorship directives, or the adequacy           Institute of Standards and Technology (NIST),
of director oversight of management actions           is the process of protecting information
FHFA also has not clearly defined the                 by preventing, detecting, and responding
Agency’s expectations of the Enterprises for          to attacks. In May 2017, President Trump
delegated matters and has not established the         issued an executive order to strengthen
accountability standard that it expects the           the cybersecurity of federal networks and
Enterprises to meet for such matters. Our work        critical infrastructure. The Financial Stability
has identified internal control systems at the        Oversight Council (FSOC), of which FHFA
Enterprises that fail to provide directors with       is a member, has identified cybersecurity
accurate, timely, and sufficient information to       oversight as an emerging threat for increased
enable them to exercise their oversight duties.       regulatory attention. The Council reported
Likewise, we have identified a lack of rigor          that cybersecurity-related incidents create



10     Federal Housing Finance Agency Office of Inspector General
significant operational risk, which may impact            •	 Counterparties and Third Parties –
critical services in the financial system,                   Enhance Oversight of the Enterprises’
and ultimately affect financial stability and                Relationships with Counterparties and
economic health.                                             Third Parties

As cyberthreats and attacks at financial             The Enterprises rely heavily on
institutions increase in number and                  counterparties and third parties for a wide
sophistication, FHFA faces challenges in             array of professional services, including
designing and implementing its supervisory           mortgage origination and servicing.
activities for the financial institutions it         That reliance exposes the Enterprises to
supervises. These supervisory activities may         counterparty risk, including the risk that the
be made increasingly difficult by FHFA’s             counterparty will not meet its contractual
continuing need to attract and retain highly-        obligations, and the risk that a counterparty
qualified technical personnel, with expertise        will engage in fraudulent conduct. FHFA has
and experience sufficient to handle rapid            delegated to the Enterprises the management
developments in technology.                          of their relationships with counterparties and
                                                     reviews that management largely through its
Computer networks maintained by federal              supervisory activities.
government agencies have proven to be a
tempting target for disgruntled employees,           Our publicly reportable criminal investigations
hackers, and other intruders. Over the past          include inquiries into alleged fraud by different
few years, cyber attacks against federal             types of counterparties, including real estate
agencies have increased in frequency and             brokers and agents, builders and developers,
severity. As cyber attacks continue to evolve        loan officers and mortgage brokers, and title
and become more sophisticated and harder             and escrow companies.
to detect, they pose an ongoing challenge for
virtually every federal agency to fortify and        In light of the financial, governance, and
safeguard its internal systems and operations.       reputational risks arising from the Enterprises’
                                                     relationships with counterparties and third
As conservator of and supervisor for                 parties, FHFA is challenged to effectively
the Enterprises and supervisor for the               oversee the Enterprises’ management of risks
FHLBanks, FHFA collects and manages                  related to their counterparties.
sensitive information, including personally
identifiable information (PII), that it                   •	 Management Concern: Sustain and
must safeguard from unauthorized                             Strengthen Internal Controls Over
access or disclosure. Equally important                      Agency and Enterprise Operations
is the protection of its computer network
operations that are part of the nation’s             FHFA’s programs and operations are
critical financial infrastructure. FHFA, like        subject to legal and policy requirements
other federal agencies, faces challenges in          common to federal agencies. Satisfying such
enhancing its information security programs,         requirements necessitates the development
ensuring that its internal and external online       and implementation of, and compliance with,
collaborative environments are restricted to         effective internal controls within the Agency.
those with a need to know, and ensuring that
its third-party providers meet information           In January 2019, there was a leadership
security program requirements.                       change with the appointment of an acting



                             Semiannual Report to the Congress • October 1, 2018­–March 31, 2019   11
FHFA Director, while the Senate considered            to enhance our ability to focus our resources
the President’s nominee for the next FHFA             on the areas of greatest risk to FHFA. ORA is
Director. Key senior positions within FHFA            tasked with identifying, analyzing, monitoring,
have been filled on an acting capacity for a          and prioritizing emerging and ongoing risks
long period of time (e.g., Chief Operating            and with educating stakeholders on those
Officer and, until recently, the Division of          issues. Through its work, it has contributed
Conservatorship Deputy Director). Our work            data and information to our annual risk-based
demonstrates that FHFA is challenged to               planning process for audits, evaluations, and
ensure that its existing controls, including          compliance reviews. It has also made significant
its written policies and procedures, are              contributions to our online knowledge library
sufficiently robust, and its personnel are            accessible to OIG employees.
adequately trained on these internal controls
and comply fully with them.                           During this reporting period, ORA issued
                                                      three white papers discussing areas of
Both Enterprises have also experienced                potential emerging and ongoing risks.
significant leadership changes. For example,
in late March 2019, Fannie Mae appointed              White Paper: Subprime Mortgages:
a new Chief Executive Officer (CEO); that             Enterprise and FHFA Reporting
individual had been serving as Interim CEO
with the departure of the previous CEO in             Fannie Mae reported in annual reports on
October 2018. In addition, Freddie Mac                Form 10-K for 2008 to 2017 that it was not
announced that its CEO will retire with its           currently acquiring new subprime mortgages.
current President to take over as CEO in              Freddie Mac told us it had never acquired
July 2019. Among other things, changes in             subprime mortgages for its guarantee
leadership can lead to lack of attention to           portfolio (though it had guaranteed a de
internal controls.                                    minimis amount of structured securities
                                                      backed by loans identified as subprime by the
OIG Impact Through its                                original issuer).
Oversight Initiatives
                                                      Under HERA, the FHFA Director is
Since the Fall of 2014, OIG has developed             required to issue annual reports that identify
and implemented new initiatives and                   the extent of Enterprise involvement in
enhanced existing processes to strengthen             purchases of subprime mortgages and
its oversight and provide FHFA with                   compare the characteristics of subprime
critical information necessary to improve             mortgages acquired and securitized by the
its programs and operations. Given the size           Enterprises to other loans that they acquired
and complexity of the regulated entities and          and securitized. Our review of FHFA’s
the unique, dual responsibilities of FHFA,            Annual Housing Reports through 2017
making the right choices about what we                found that none explicitly did so. In October
audit, evaluate, examine for compliance, and          2018, FHFA reported that the Enterprises
investigate in our oversight efforts is critical.     are not involved in mortgage purchases
                                                      and secondary market activities involving
Office of Risk Analysis                               subprime loans. However, FHFA told us that
                                                      it had not defined subprime for this purpose.
To assist in making those choices, we created,        According to the Agency, the statement
in 2015, the Office of Risk Analysis (ORA)            reflects the fact that the Enterprises purchase



12     Federal Housing Finance Agency Office of Inspector General
very few mortgages that could plausibly be          ineligible. Additionally, the Enterprises had
characterized as subprime.                          to eliminate any DTI-related overlays for
                                                    mortgages up to 50% DTI.
HERA also requires the FHFA Director
to conduct a monthly survey of mortgage             Beginning in the latter part of 2017, both
markets to collect data, including the              Enterprises experienced an increase in their
characteristics of subprime loans and               acquisitions of mortgages with a DTI ratio
subprime borrowers, and to make a                   greater than 45% up to 50% (maximum
determination of whether the borrowers              allowable DTI). FHFA internal reports also
would have qualified for prime lending.             show that Enterprise mortgages acquired
FHFA has been working to develop the                with maximum allowable DTI and either a
National Mortgage Database (NMDB), and              loan-to-value (LTV) ratio greater than 95%
it represented in recent Annual Reports to          or a credit score less than 680 increased after
Congress that the NMDB will enable FHFA to          implementation of the FHFA directive.
meet subprime data requirements in HERA.
However, FHFA subsequently told us that             We summarized the evolution of the
the NMDB, as currently designed, does not           Enterprises’ DTI limits, explained FHFA’s
enable FHFA to make that determination. An          2017 directive related to mortgages with
FHFA official told us that the Agency spent         maximum allowable DTI, and detailed
about a year thinking about how to meet this        subsequent DTI developments to provide an
requirement and decided not to pursue it.           understanding of the risks from the maximum
                                                    allowable DTI directed by FHFA. (See OIG,
In light of the possible increase in subprime       An Overview of Enterprise Debt-to-Income
mortgage products and FHFA’s lack of                Ratios (WPR-2019-002, March 27, 2019)).
definition of subprime, we sought reporting
requirements and available information to           White Paper: The Enterprises’ Use
understand the risks to the Enterprises from        of 12-Month Recourse as a Credit
subprime mortgages. (See OIG, Subprime              Enhancement Under Their Charters
Mortgages: Enterprise and FHFA Reporting
(WPR-2019-001, March 27, 2019)).                    Recourse is one of the three credit
                                                    enhancements permitted by the Enterprise
White Paper: An Overview of Enterprise              charters for single-family loans with
Debt-to-Income Ratios                               LTV ratios greater than 80%; however, it
                                                    amounts to significantly less than 1% of the
The Enterprises’ automated underwriting             Enterprises’ business. When used in these
systems consider a borrower’s debt-to-              limited circumstances, it has primarily been
income (DTI) ratio, along with other factors,       for mortgages purchased by the Enterprises
to determine if a mortgage is eligible for          to meet their affordable housing goals.
purchase. An overlay describes the additional       According to FHFA, lender concerns with
requirements placed on top of an automated          complex accounting treatment made the
underwriting system’s risk assessment In            use of longer-term recourse agreements
April 2017, FHFA issued a directive to the          challenging. FHFA regards 12-month recourse
Enterprises that required them to ensure that       when used in conjunction with certain other
their automated underwriting systems operate        forms of additional credit enhancement as
so that DTI alone was not the reason for a          complying with the credit enhancement
mortgage with up to 50% DTI to be deemed            requirement in the Enterprise charters.



                            Semiannual Report to the Congress • October 1, 2018­–March 31, 2019     13
On March 19, 2019, FHFA issued guidance              follow-up and oversight to ensure that
to the Enterprises that established consistent       the recommendations have been fully
standards for the Enterprises to use recourse        implemented and the shortcomings that
as a credit enhancement under the charters           gave rise to the recommendations have been
FHFA eliminated the need for the Enterprises         corrected. Created in December 2014, the
to seek approval for individual recourse             Office of Compliance and Special Projects
agreements that met one of four options              (OCom) has strengthened our capacity to
Each option required a minimum 12-month              perform compliance reviews to determine
recourse period, with an additional credit           whether FHFA has fully implemented
enhancement or backstop beyond 12 months             our recommendations. OCom has several
to reduce Enterprise exposure in the event           responsibilities:
of borrower default. On an annual basis, at
least 65% of the recourse mortgages, other                • Closure of Recommendations. When
than recourse-only agreements, must fulfill                 FHFA believes that its implementation
specified affordable housing purposes.                      efforts are well underway or that
                                                            implementation is complete, FHFA
We published a white paper to explain the                   provides that information to us,
use of recourse as a credit enhancement                     along with corroborating documents.
for mortgages eligible for purchase by the                  Each respective operational
Enterprises. (See OIG, The Enterprises’                     division that conducted an audit or
Use of Recourse as a Credit Enhancement                     evaluation reviews the materials and
Under Their Charters (WPR-2019-003,                         representations submitted by the
March 29, 2019)).                                           Agency to determine whether to close
                                                            recommendations—and may close some
Administrative Inquiries                                    recommendations based on the Agency’s
                                                            representations as to corrective actions
During the reporting period, OIG completed                  it has taken. OCom tracks these
several administrative inquiries into hotline               decisions and communicates with each
complaints. Administrative inquiries provide                OIG division prior to the closure of
additional, targeted oversight where specific               a recommendation to ensure we are
waste, fraud, and/or abuse has been alleged.                applying a single standard across OIG
Reports of completed inquiries keep FHFA                    for closing recommendations.
senior management, Congress, and the public
informed of risks and shortcomings in agency              • Tracking of Recommendations. OCom
programs and operations. Results of public                  maintains a database in which it tracks
administrative inquiries are discussed in the               the status of all recommendations issued
next section, OIG’s Oversight of FHFA’s                     by OIG in its reports.
Programs and Operations Through Audit,
Evaluation, and Compliance Activities During              • Validation Testing. We are not always
This Reporting Period                                       able to assess, at the time of closure,
                                                            whether the implementation actions
Office of Compliance and Special Projects                   by FHFA meet the letter and spirit of
                                                            the agreed-upon recommendation,
Recommendations to address deficiencies                     nor can we determine, at closure,
identified during an audit, evaluation, or                  whether the underlying shortcoming
administrative inquiry require meaningful                   has been addressed. OCom conducts



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

Compliance reviews enhance our ability
to stimulate positive change in critical
areas and promote economy, efficiency,
and effectiveness at FHFA, and OCom’s
validation testing is a key component.
Overall, we validated that since January 2015,
FHFA has adequately implemented 12 of the
20 recommendations (60%) we tested and has
not implemented the remaining 8 (40%).

OCom also undertakes special projects, which
include reviews and administrative inquiries
of hotline complaints alleging non-criminal
misconduct. During this reporting period,
OCom issued three compliance reviews and
one special report, which are discussed in
the next section, OIG’s Oversight of FHFA’s
Programs and Operations Through Audit,
Evaluation, and Compliance Activities During
This Reporting Period.




                             Semiannual Report to the Congress • October 1, 2018­–March 31, 2019   15
OIG’s Oversight of FHFA’s Programs and Operations
Through Audit, Evaluation, and Compliance Activities
During This Reporting Period

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

The Office of Audits (OA) conducts                   OCom also undertakes special projects,
independent performance audits with respect          which include reviews and administrative
to the Agency’s programs and operations. OA          inquiries of hotline complaints alleging non-
also undertakes projects to address statutory        criminal misconduct. OCom performs its
requirements and stakeholder requests.               compliance reviews and special projects in
As required by the Inspector General Act,            accordance with the Blue Book.
OA performs its audits in accordance with
the audit standards promulgated by the               Oversight Activities This Period
Comptroller General of the United States,
which are known as generally accepted                As explained earlier, OIG publishes an
government auditing standards or GAGAS.              annual Audit, Evaluation, and Compliance
                                                     Plan setting forth the risk-based areas
Office of Evaluations                                on which we intend to focus our audit,
                                                     evaluation, and compliance resources
The Office of Evaluations (OE) conducts              during the calendar year. That risk-based
independent and objective reviews,                   work plan aligns OIG’s work to the top
assessments, studies, and analyses of                management and performance challenges
                                                     we have identified to FHFA. For FY 2019,
FHFA’s programs and operations. Under the
                                                     we also identified a management concern
Inspector General Reform Act of 2008,                facing FHFA: working to sustain and
IGs are required to adhere to the professional       strengthen internal controls over Agency
standards designated by the Council of the           and Enterprise operations.
Inspectors General on Integrity and Efficiency
(CIGIE). OE performs its evaluations                 We now discuss our oversight activities
in accordance with the standards CIGIE               executed by OA, OE, and OCom during
                                                     the reporting period by each risk area and
established for inspections and evaluations,
                                                     our assessment of certain FHFA agency
which are known as the Quality Standards for         operations and internal controls.
Inspection and Evaluation (Blue Book).



16    Federal Housing Finance Agency Office of Inspector General
Agency Operations and Internal                       Equal Pay Act and discrimination (including
Controls                                             sexual harassment) on the basis of her sex
                                                     and race in violation of Title VII of the
During this reporting period, we completed           Civil Rights Act of 1964 (as amended).
two administrative inquiries, a management           Subsequently, the PMO Manager provided
alert, and two audits relating to agency             FHFA with specific allegations in support of
operations and internal controls.                    her claims. FHFA contracted with the United
                                                     States Postal Service to gather facts and
Report of Administrative Inquiry into                information regarding the PMO Manager’s
Allegations of Misconduct by the Then-               sexual harassment claim. This fact gathering
FHFA Director                                        began on June 14, 2018.

We received several anonymous hotline                On July 3, 2018, while fact gathering was
complaints in the summer of 2017                     ongoing, the PMO Manager used her FHFA
alleging that: (1) a senior FHFA official            computer and email address to forward
inappropriately created an executive position        to her counsel an email exchange she had
in the FHFA Office of the Chief Operating            with the contract investigator regarding her
Officer for an FHFA employee, the Project            disparate treatment EEO claims. She also
Management Office (PMO) Manager; (2) that            blind-copied this message to over 100 FHFA
official advised two senior FHFA employees           managers. The message referenced recordings
“not to bother applying for the job;” and,           of conversations between the PMO Manager
(3) the creation of a new executive position         and the then-FHFA Director and stated that
was inconsistent with FHFA’s prior buy-out.          transcripts of those recordings were attached
We conducted an administrative inquiry into          to it, although they were not. Several minutes
these allegations. At the conclusion of our          later, the PMO Manager re-forwarded that
fact finding, in late March 2018, we formally        email message to her counsel and, once
referred the matter to the Office of Special         again, the FHFA managers. Attached to that
Counsel (OSC) and provided the OSC with              re-forwarded message was an audio file
a summary of the facts found during that             containing a recording of a conversation
inquiry. On May 3, 2018, the OSC provided            between the PMO Manager and the then-
us with its preliminary determination that the       FHFA Director, as well as three purported
record as it then existed did not support the        transcripts of other conversations between the
allegations that the new executive position          PMO Manager and the then-FHFA Director
had been created improperly or that FHFA             which were prepared by the PMO Manager.
executives provided the PMO Manager with             Shortly thereafter, the PMO Manager sent
an unauthorized preference or advantage              a third email to the more than 100 FHFA
in her selection for it. On May 7, 2018,             managers that read “Sorry – this was sent
we provided OSC’s written preliminary                in error – please disreagrd [sic].” The body
determination to FHFA and informed                   of that email contained the same string of
the Agency that we had completed our                 communications as the first two messages.
administrative inquiry and planned to close it.
                                                     We were unaware of the PMO Manager’s
On May 9, 2018, the PMO Manager filed                sexual harassment claim against the then-
an informal complaint with FHFA’s Office             FHFA Director during our first inquiry. We
of Equal Employment Opportunity (EEO)                learned of it in July 2018, after we received
alleging violations of her rights under the          three additional hotline complaints citing to



                             Semiannual Report to the Congress • October 1, 2018­–March 31, 2019   17
the email messages and attachments sent by           The then-FHFA Director advised the PMO
the PMO Manager. These three anonymous               Manager, and reported to us, that only
complaints alleged, in summary, that the             he could approve the creation of a new
then-FHFA Director misused his government            executive position and the selection of a
position for personal gain by creating an            candidate to fill it. By his own design, he
unnecessary executive position for the PMO           met alone in his apartment with the PMO
Manager. We opened a new administrative              Manager, a subordinate who the then-
inquiry into these complaints, and added the         FHFA Director knew desired a promotion
five prior anonymous hotline complaints that         to an executive position in the Agency, and
also alleged the executive position had been         raised two possible opportunities for such a
created improperly (and for which we had             promotion. In a recording of a portion of their
previously completed our work). Our second           conversation in the then-FHFA Director’s
inquiry, which began in July 2018, focused           apartment, the then-FHFA Director can be
solely on possible misconduct by the then-           heard to intermingle comments about his
FHFA Director.                                       attraction to the PMO Manager and his
                                                     admiration of her physical appearance with
The Inspector General Act requires Inspectors        a discussion of possible paths by which she
General to timely report substantiated               could advance into FHFA’s executive ranks.
allegations of misconduct by senior agency
officials. We determined that the information        We found that there are no circumstances
we obtained during our administrative inquiry        under which it would be appropriate for
provided a sufficient basis to substantiate one      the head of FHFA to induce a subordinate
allegation of misconduct by the then-FHFA            employee to meet with him alone, in his
Director and to give rise to a second finding        apartment, for a conversation in which he
of misconduct. We found that: (1) the then-          professes his attraction for that employee
FHFA Director misused his official position to       and holds out opportunities for the employee
attempt to obtain a personal benefit and (2) he      to serve in specific executive positions over
was not candid with OIG.                             which he exercises total control.

Misuse of Official Position. Section 702             Lack of Candor. Every agency employee
of the Standards of Ethical Conduct for              providing information in an OIG inquiry,
Employees of the Executive Branch (the               including the head of an agency, must be
Standards), 5 CFR § 2635.702, prohibits              fully forthcoming and candid as to all facts
an officer or employee from using any                and information relevant to the inquiry, even
authority associated with his federal office         if that employee is not specifically asked
in a manner that is intended to coerce or            about particular facts or information. Thus,
induce a subordinate to provide him with any         an employee must disclose those things that,
benefit, financial or otherwise. The then-           in the circumstances, are needed to make the
FHFA Director was bound by the Standards.            employee’s statement complete and accurate.
We found that the then-FHFA Director
violated Section 702 when he attempted               At the start of our interview with the then-
to coerce or induce the PMO Manager to               FHFA Director on February 15, 2018, in
engage in a personal relationship with him           connection with the initial administrative
by suggesting or implying he would use his           inquiry regarding these matters, we advised
official authority to assist her in attaining an     the then-FHFA Director that his interview
executive position with FHFA.                        was part of an administrative inquiry into



18    Federal Housing Finance Agency Office of Inspector General
allegations that FHFA senior executives had         promotion or advancement within the
improperly created a new executive position         agency,” there are additional legal restrictions
and pre-selected the PMO Manager to fill            on the hiring of relatives. Specifically,
it. We found that the then-Director lacked          federal law prohibits (1) federal employees
candor when he omitted information that             from hiring, or advocating for the hiring, of
was material to our inquiry. Specifically,          their relatives and (2) hiring officials from
he omitted: (1) any mention of his personal         awarding preference to applicants because
friendship with, and mentorship of, the PMO         they are relatives of employees.
Manager; and (2) that he had a “plan,” dating
back to at least June 2016, under which the         FHFA has a long-standing practice of
PMO Manager could advance into FHFA’s               hiring relatives of Agency employees for
executive ranks.                                    summer internships. In 2011, OIG’s Office
                                                    of Investigations (OI) investigated a hotline
We issued the report to the President of the        complaint alleging improper hiring of
United States for such action as he deemed          summer interns who were relatives of FHFA
appropriate, and to the Office of Government        employees. At that time, OI found that 9 of
Ethics and to our Congressional oversight           32 interns hired for the summer of 2011 were
committees. We referred to the OSC certain          relatives of FHFA employees and advised
allegations for its review and determination        FHFA to develop a policy regarding the hiring
and provided to OSC the evidentiary record          of relatives. However, we discovered during
we compiled in our second inquiry. (See             this inquiry that FHFA never developed such a
OIG, Report of Administrative Inquiry into          policy and that the practice of hiring relatives
Allegations of Misconduct by the FHFA               of FHFA employees as summer interns has
Director (OIG-2019-001, November 29,                continued at such a level that it was described
2018)).                                             as a “norm” by a senior FHFA official.

Management Alert: Improper Hiring of                During our inquiry, we reviewed the 2017
Relatives of FHFA Employees for Summer              and 2018 internship hiring data. We also
Internships                                         interviewed the employees whose relatives
                                                    obtained internships and the managers who
As a result of an anonymous hotline                 hired those interns during those two years.
complaint, we conducted an inquiry and              We found that, in 2017, FHFA hired 39 paid
issued a management alert regarding the             college interns, 5 of whom (12.8%) were
improper hiring of relatives of FHFA                relatives of employees. In 2018, FHFA
employees for summer internships.                   hired 27 paid college interns, 4 of whom
FHFA hires college students for paid                (14.8%) were relatives of employees. We
summer internships through the Pathways             also determined that during 2017 and 2018
Internship Program, a federal government-           two FHFA employees sought to “influence”
wide internship program. Although                   the hiring of their relatives by advocating or
regulations issued by the Office of                 otherwise interceding on their behalf, and
Personnel Management permit a Pathways              three FHFA employees improperly awarded
intern to work in the same agency with a            preferences for summer internships to three
relative “when there is no direct reporting         relatives of other FHFA employees.
relationship” and the relative is “not in
a position to influence or control the              Our management alert made six
Participant’s appointment, employment,              recommendations, to which FHFA agreed.



                            Semiannual Report to the Congress • October 1, 2018­–March 31, 2019   19
(See OIG, FHFA Must Strengthen its Controls          for all except a contractor employee, who
over the Hiring of Pathways Interns to Prevent       departed from FHFA in April 2017 but
Improper Hiring of Relatives of Agency               retained building access until January 2019.
Employees (OIG-2019-004, March 26, 2019)).
                                                     Our testing identified that Enterprise records
Audits of FHFA Offboarding Processes                 reflected that certain separated employees
During 2016 and 2017: Controls over                  and departed contractor employees had
Access Cards, Sensitive IT Assets, and               active Enterprise access cards in 2018. We
Records Were Not Always Documented or                determined that (1) FHFA did not maintain a
Followed; Post-Employment Restrictions               list of separated employees and/or departed
and Financial Disclosure Requirements                contractor employees who returned Enterprise
Were Followed                                        access cards and (2) FHFA did not have
                                                     written procedures for the collection and
When employees separate from FHFA, they              deactivation of access cards for FHFA
are required to go through an “offboarding”          facilities and collection and transfer of
process, which has several elements.                 Enterprise access cards.
We completed two audits this period on
FHFA’s offboarding processes for calendar            During the review period, separating FHFA
years 2016 and 2017. Sound offboarding               employees were required to complete a
processes are important because the failure          Pre-Exit Clearance Form, which required
by an agency to adopt and implement                  them to collect sign-off signatures from each
effective offboarding controls could lead            identified FHFA office that its offboarding
to facilities being wrongfully accessed and          requirements had been satisfied. Our testing
assets, including information, being lost,           found that FHFA maintained the forms for all
stolen, or misused.                                  but three separated employees. Our review
                                                     of the retained forms found that 78% of the
In one audit, we assessed the adequacy               forms were completed and 22% were not.
of FHFA’s controls over its offboarding
processes for facility access cards (issued          During the review period, FHFA required
by FHFA and by the Enterprises), sensitive           the use of a checklist to track the return
information technology (IT) assets, and              of sensitive IT assets. However, FHFA
Agency records. We found that some of                could provide a checklist for only 4% of
FHFA’s offboarding controls and some                 separated employees and departed contractor
of its implementation of other controls              employees. FHFA explained that the lack of
were inadequate. For example, our testing            checklists for these individuals was a records
identified inadequate implementation of              management failure by a former Help Desk
the control requiring collection of Personal         contractor.
Identity Verification (PIV) cards and
Enterprise access cards. FHFA’s inadequate           We also tested FHFA’s offboarding form for
record-keeping frustrated our efforts to             the return of Agency records and disposition
determine whether FHFA collected PIV cards           of nonrecords, which all separating employees
from some individuals who offboarded during          and departing contractor employees were
the review period. Because we could not              required to complete. Again, FHFA could
make that determination, we tested whether           not provide all the offboarding forms. Of the
building access had been deactivated for these       forms provided, we found that many were not
individuals. We found that it was deactivated        completed properly.



20    Federal Housing Finance Agency Office of Inspector General
In a written management response, FHFA                of interest on the part of the named FHFA
agreed with the five recommendations in               senior official. OI concluded, at the end of its
our report on this first audit. We consider           inquiry, that it was unable to substantiate the
FHFA’s planned corrective actions                     allegations and closed the matter.
responsive to those recommendations. (See
OIG, FHFA’s Offboarding Controls over                 This inquiry focused on the allegation of
Access Cards, Sensitive IT Assets, and                badgering and harassment of FHFA personnel
Records Were Not Always Documented or                 who play an important role in the Agency’s
Followed During 2016 and 2017 (AUD-                   internal control framework. Because an
2019-004, March 13, 2019)).                           effective internal control framework is
                                                      critical to FHFA’s ability to achieve its
In the second audit, we performed two                 mission and objectives, we recognize
audit tests to assess FHFA’s controls over            that badgering and harassment of such
its employee offboarding process related to           personnel, if substantiated, could undermine
post-employment restrictions and financial            the effectiveness of the overall internal
disclosure requirements. From our tests,              control framework. We interviewed relevant
we found that FHFA’s controls over post-              FHFA employees and reviewed Agency
employment restrictions and financial                 records and pertinent materials as part of
disclosure requirements for separating                our inquiry. Based on this work, we were
employees during 2016 and 2017 were                   unable to substantiate the allegation. (See
followed. We made no recommendations in               OIG, Summary of Administrative Inquiry:
the report for this audit. (See OIG, FHFA’s           The Office of Inspector General’s Review of
Controls over Post-Employment Restrictions            Alleged Badgering and Harassment of FHFA
and Financial Disclosure Requirements                 Employees that Play an Important Role in the
for Offboarded Employees Were Followed                Agency’s Internal Control Framework (OIG-
During 2016 and 2017 (AUD-2019-005,                   2019-003, March 13, 2019)).
March 13, 2019)).                                      
                                                      Conservatorship Operations
Administrative Inquiry: Review of Alleged
Badgering and Harassment of FHFA                      Delegated Matters
Employees that Play an Important Role in
the Agency’s Internal Control Framework               FHFA, as conservator, has delegated to each
                                                      Enterprise responsibility for a significant
OIG conducted an administrative inquiry               portion of day-to-day management and risk
into allegations contained in an anonymous            management controls. For this governance
hotline complaint. These allegations raised           approach to succeed, FHFA must be
concerns about: (1) a conflict of interest            confident that the Enterprises’ directors
on the part of an FHFA senior official with           and committees are properly exercising the
respect to an internal control function under         powers they have been given and fulfilling
his authority; and (2) FHFA employees                 their responsibilities.
badgering and harassing FHFA staff who play
an important role in the Agency’s internal            During this reporting period, we issued one
control framework.                                    special report, two evaluations, one audit, and
                                                      one management advisory in connection with
We previously conducted an inquiry into               delegated matters.
the virtually identical allegation of conflict



                              Semiannual Report to the Congress • October 1, 2018­–March 31, 2019   21
Special Report on the Common                         During this reporting period, we conducted
Securitization Platform: FHFA Lacked                 a review to determine whether (1) FHFA
Transparency and Exercised Inadequate                honored its commitment to transparency about
Oversight Over a $2.13 Billion, Seven-               the CSP by disclosing updated projections for
Year Project                                         the total cost (development and integration)
                                                     of the CSP and its internal assessment of the
In 2012, FHFA directed the Enterprises to            risks of this project after December 2016; and
build a Common Securitization Platform               (2) FHFA exercised adequate oversight of the
(CSP or Platform) to replace their current           CSP project. We found that: (1) FHFA was not
separate “back-office” systems and to issue          transparent; and (2) its oversight of the CSP
a single mortgage-backed security (single            project was inadequate.
security). As originally envisioned, the
CSP was intended to facilitate issuance of           FHFA issued a public update in March 2017,
mortgage-backed securities (MBS) by                  in which it projected a total of $1.12 billion in
multiple market participants in a future             CSP development costs. However, FHFA did
housing finance system. In May 2014, the             not disclose the projected $955 million cost
then-FHFA Director decided to limit the              to integrate the Enterprises’ IT systems into
current scope of the Platform to working             the CSP. Because a thorough review of the
“for the benefit of Fannie Mae and Freddie           program was conducted in late 2016, FHFA
Mac” and committed to transparency in its            was aware that the CSP development was
development.                                         “off track” with a significant risk of untimely
                                                     completion and additional costs. However,
The first phase of CSP development, Release          it disclosed no known issues or risks in its
1, was rolled out in November 2016. Release          March 2017 update. It announced that Release
1 allowed Freddie Mac to use the CSP to              1 had been implemented but reported that
issue single-family fixed-rate MBS. Under the        Release 2 would be delayed by six months,
second phase, Release 2, both Enterprises will       until the second quarter of 2019.
use the CSP to issue the new single security.
Release 2 is now scheduled for completion by         Since March 2017, FHFA has provided no
June 2019.                                           further cost information in public updates.
                                                     Our review of internal FHFA documents
In December 2016, we reported that                   found that, as of February 2019, FHFA
FHFA had not fully met its commitment to             projected a total of $2.13 billion in costs for
transparency around the development of               development of the Platform and integration
the CSP. We found that the Agency publicly           by the Enterprises by June 30, 2019. Although
disclosed only the actual costs incurred to          the Agency has asserted that the Platform
develop and test the CSP; represented to             was developed using standard industry
Congress that, as of the first quarter of 2016,      technology and interfaces, it acknowledged
the actual and projected costs to develop            to us that it has yet to develop plans, establish
and test the CSP through 2018 totaled $696           a timetable, and determine the costs for use
million; and did not disclose to Congress or         of the Platform by any third party. (See OIG,
the public what it knew about the Enterprises’       Special Report on the Common Securitization
actual and projected integration costs. We also      Platform: FHFA Lacked Transparency and
found that FHFA had not publicly disclosed           Exercised Inadequate Oversight over a $2.13
the risks to successful development and              Billion, Seven-Year Project (OIG-2019-005,
implementation of the CSP.                           March 29, 2019)).



22    Federal Housing Finance Agency Office of Inspector General
FHFA’s Approval of Senior Executive                 to Fannie Mae’s management structure by
Succession Planning at the Enterprises              filling the positions of President and CEO
Acted to Circumvent the Congressionally             with separate individuals. (Since 2008, those
Mandated Cap on CEO Compensation                    positions had been held by one individual.)
                                                    Under the Fannie Mae Board Transition Plan,
During this reporting period, we issued two         certain responsibilities previously executed by
reports that evaluated FHFA oversight of the        the individual holding the CEO and President
Enterprises’ boards of directors succession         positions would be assigned to the position of
planning efforts.                                   President. The Fannie Mae Board proposed
                                                    that the annual compensation for the President
Under HERA, FHFA is empowered to                    position should be no less than Fannie Mae’s
operate the Enterprises “with all the powers        most highly compensated Fannie Mae officer,
of the shareholders, the directors, and the         which was then $3.25 million. The then-
officers” while the Enterprises remain              FHFA Director approved the Board Transition
in conservatorship. FHFA delegated                  Plan in July 2018.
responsibility to the respective boards of
directors to develop a succession plan for          We found that FHFA’s approval of the
the CEO and President positions and select          Fannie Mae Board Transition Plan acted to
candidates for vacant CEO and President             circumvent the congressionally mandated
positions, and the selections are subject to        cap of $600,000 on CEO compensation.
review by FHFA as conservator. According            By authorizing Fannie Mae to fill the
to FHFA, it has, as a practical matter, chosen      positions of CEO and President with two
to approve such selections after review.            separate individuals and transfer substantial
FHFA has retained the responsibility to             responsibilities from the CEO and President
approve compensation actions for senior             to the President position, FHFA permitted
executive officers.                                 Fannie Mae to compensate its President at
                                                    a level more than five times greater than the
FHFA reported to us that the then-FHFA              statutory cap. After the current President had
Director raised the need for succession             served in the position for less than seven
planning with the Fannie Mae Board Chair            weeks, the Board approved an 11% increase
in 2018, following the CEO’s notice of              in the President’s target compensation, raising
his likely departure. In June 2018, the             it to $3.6 million per year, which FHFA
Board Chair submitted the Board’s written           approved in October 2018. Fannie Mae is
proposed transition plan for directors              now compensating its interim CEO and
and senior executive leadership (Board              President a total of $4.2 million to execute
Transition Plan) to FHFA for approval.              the same responsibilities for which it had
The Fannie Mae Board Transition Plan                previously paid $600,000.
represented that the statutory cap of
$600,000 on compensation for Enterprise             In addition, we found that the then-FHFA
CEOs imposed by the Equity in Government            Director overrode internal controls for
Compensation Act of 2015 created                    processing, tracking, and monitoring requests
challenges to recruit internal and external         for conservator approval, which he was
qualified candidates for the CEO position.          authorized to do, when he determined to
                                                    review the Fannie Mae Board Transition
To address these challenges, the Board              Plan directly, without any staff analysis or
Transition Plan recommended a change                recommendation. The decision by the then-



                            Semiannual Report to the Congress • October 1, 2018­–March 31, 2019   23
FHFA Director to override established FHFA           Board Transition Plan was refined to include:
internal controls for conservator review and         designation of the senior executive who
approval of an Enterprise request created            would succeed the CEO after his retirement;
an information vacuum within the Division            creation of a “Deputy CEO” position to be
of Conservatorship (DOC) and rendered it             filled by this designated senior executive for
unable to execute its responsibilities.              one year; mentorship of the Deputy CEO by
                                                     the CEO until his retirement; and a proposed
To address these shortcomings, we                    compensation package for the Deputy CEO
recommended that FHFA (1) re-assess the              position at a level no less than the highest
appropriateness of the annual compensation           paid executive who reported to the CEO (then
award of $3.6 million to the Fannie Mae              $3.25 million).
President; and (2) establish a process for
maintaining and monitoring sensitive                 Acting upon a written staff recommendation,
conservator requests in its tracking system.         the then-FHFA Director approved this
FHFA disagreed with our first recommendation         executive compensation package of $3.25
and agreed with our second recommendation.           million for the Deputy CEO position on
(See OIG, FHFA’s Approval of Senior                  August 15, 2018. Despite FHFA’s earlier
Executive Succession Planning at Fannie              response to Freddie Mac that the Board
Mae Acted to Circumvent the Congressionally          Transition Plan was reasonable, FHFA
Mandated Cap on CEO Compensation (EVL-               notified Freddie Mac after August 15, 2018,
2019-001, March 26, 2019)).                          that the Enterprise would need to conduct
                                                     an external search for a CEO and title the
In a companion report, we focused on FHFA            new position “President,” rather than Deputy
oversight of the Freddie Mac Board of                CEO. FHFA approved creation of the position
Directors. FHFA reported that Freddie Mac’s          of President with the understanding that the
CEO, who has served as CEO since May                 individual in that position would serve as the
2012, advised the Freddie Mac Board that he          “understudy” to the CEO and execute only
intended to retire during the second half of         those responsibilities previously executed by
2019. In May 2018, the Freddie Mac Board             the CEO and now delegated to him over a
Chairman provided the then-FHFA Director             one-year period.
with a Board Transition Plan that included
recommendations to address this transition.          We found that FHFA’s approval of a $3.25
The Freddie Mac Board Transition Plan stated         million compensation package for the
that the statutory cap on the compensation of        Deputy CEO position (which was never
Enterprise CEOs of $600,000, imposed by              created) and subsequent approval of the same
the Equity in Government Compensation Act            compensation for the President position, acted
of 2015, created challenges to Freddie Mac’s         to circumvent the congressionally mandated
ability to recruit qualified external candidates     cap of $600,000 on CEO compensation.
and an external search could be disruptive           As a result of FHFA’s approval, Freddie
to existing internal leadership. The then-           Mac provided a total of $3.85 million in
FHFA Director responded in writing to the            compensation for the same set of CEO
Board Transition Plan, advising the Freddie          responsibilities for which it previously paid
Mac Board that the plan “strikes us as being         $600,000. We recommended that FHFA
very reasonable” and concurred with the              re-assess the appropriateness of the Freddie
Board’s request to forego an external search.        Mac President’s $3.25 million compensation.
Over the following months, the Freddie Mac           FHFA disagreed with our recommendation.



24    Federal Housing Finance Agency Office of Inspector General
FHFA’s Approval of Senior Executive                  We completed an audit in which we sought
Succession Planning at Freddie Mac Acted             to assess FHFA’s oversight of Fannie Mae’s
to Circumvent the Congressionally Mandated           master agreements with its single-family
Cap on CEO Compensation (EVL-2019-002,               mortgage sellers from 2015 through 2017
March 26, 2019)).                                    (review period). As part of the audit, we
                                                     analyzed master agreements for Fannie Mae’s
Fannie Mae Purchased Single-Family                   top three single-family mortgage sellers and
Mortgages, Including those Purchased                 found no variation between the terms in the
through Master Agreements, in Accordance             master agreements for DTI ratio, LTV ratio,
with Selected Credit Terms Set Forth in its          credit score, and property valuation method
Selling Guide for 2015 – 2017                        from the terms for the same element set forth
                                                     in the Selling Guide.
Fannie Mae manages the quality of its
mortgage purchases by requiring mortgage             We also obtained information from FHFA
sellers to comply with its Selling Guide.            and Fannie Mae and analyzed loan-level
The Selling Guide sets forth Fannie Mae’s            data in FHFA’s Mortgage Loan Integrated
underwriting standards and eligibility               System (MLIS) for all single-family
guidelines, as well as its policies and              mortgage sellers to determine whether the
procedures related to sales of single-family         credit terms for DTI ratio, LTV ratio, credit
mortgages to it. Fannie Mae’s underwriting           score, and property valuation methods for
standards are developed, in part, based on           the mortgages purchased by Fannie Mae
risk-based criteria which enables it to evaluate     differed from those credit terms in the
a borrower’s willingness and capacity                governing Selling Guide. For the single-
to repay a mortgage and the value of the             family mortgages purchased by Fannie Mae
property to ensure that it provides adequate         during the review period (nearly 6.46 million
collateral for the mortgage. Risk-based              mortgages with a total unpaid principal
criteria relating to a borrower’s willingness        balance of $1.49 trillion), through our
and capacity include DTI ratio, LTV ratio, and       analysis, we identified some differences with
credit score while collateral value is assessed      these credit terms, but those differences were
through property valuation. None of these            not material (less than one-tenth of 1% of the
criteria are considered in a vacuum but are          mortgages purchased by Fannie Mae during
considered together to build a snapshot of the       the review period).
potential risk level of the mortgage.
                                                     We did, however, identify issues with the
Historically, many mortgage sellers sought to        reliability of certain data fields in MLIS.
sell mortgages to Fannie Mae that did not meet       Specifically, we found instances where data
the underwriting standards and/or eligibility        fields for our selected credit terms were
requirements in the Selling Guide. Fannie            either missing information or were shown
Mae captured these negotiated terms, referred        as “unknown,” particularly with respect to
to as variances, with its mortgage sellers in a      the data field for property valuation method.
document called a “master agreement.” Each           FHFA subsequently brought this matter to
master agreement supplemented the general            Fannie Mae’s attention for resolution.
requirements of the Selling Guide and set forth
the additional negotiated terms under which          Our report also identified examples where
Fannie Mae agreed to purchase mortgages              FHFA performed oversight of Fannie Mae’s
from the mortgage seller.                            use of master agreements.



                             Semiannual Report to the Congress • October 1, 2018­–March 31, 2019   25
We made one recommendation to address the            he considered those expenses to be business
MLIS property valuation method data field.           expenses for which he sought reimbursement
FHFA agreed with the recommendation. (See            totaling more than $8,000, which his
OIG, Fannie Mae Purchased Single-Family              manager approved. Although Freddie Mac’s
Mortgages, Including those Purchased                 Travel Policy requires employees to refund
through Master Agreements, in Accordance             overpayments (such as duplicate payments
with Selected Credit Terms Set Forth in its          and credits for refunds) to Freddie Mac, it
Selling Guide for 2015-2017 (AUD-2019-               does not specifically direct an employee
006, March 27, 2019)).                               to repay reimbursements received by the
                                                     employee for travel expenses not authorized
Management Advisory: Freddie Mac’s                   by the Travel Policy. Where an employee has
Reimbursement of a Senior Vice                       been reimbursed for expenses not permitted
President’s Commuting Expenses from                  under the Travel Policy, the policy directs the
2015 through the Third Quarter of 2018               employee to report the reimbursed amount as
                                                     income on his or her personal tax return.
OIG received an anonymous hotline
complaint alleging wasteful spending                 Freddie Mac advised us that it reported the
practices by the Senior Vice President               improperly reimbursed commuting expenses
(SVP) of a Freddie Mac business unit. We             totaling $8,111.21 as imputed income to
determined that we had previously reviewed           the SVP and that it would not cover any
certain allegations in this complaint as part        additional tax liability for this imputed
of an administrative inquiry into an earlier         income. Freddie Mac also informed us
hotline complaint and we reported those              that it intended to clarify its Travel Policy
results in our prior semiannual report (See          and to provide additional training to assist
OIG, Management Advisory: Freddie Mac’s              administrative staff in distinguishing between
Reimbursement of Certain Employees’                  business travel and commuting expenses.
Commuting Expenses (OIG-2018-003,
September 6, 2018)).                                 A Freddie Mac official explained to us that
                                                     Freddie Mac will not seek reimbursement from
The two remaining allegations claimed that           the SVP for the $8,111.21 he received for these
the SVP was exempt from Freddie Mac’s                expenses. According to that official, Freddie
Travel and Business Expenses Policy (Travel          Mac determined that the SVP acted in good
Policy) and that Freddie Mac wasted monies           faith when he sought reimbursement for travel
by paying for an apartment used by the SVP           expenses driven by a business component
for several days each week. We found no facts        because those expenses were outside of his
to substantiate either allegation.                   normal commuting expenses. FHFA’s Division
                                                     of Conservatorship considered this to be a
Our requests for documents in connection             reasonable determination.
with this inquiry led Freddie Mac to
review its reimbursements to the SVP for             We do not question the determination made
his commuting expenses. Freddie Mac                  by Freddie Mac, which FHFA affirmed,
determined that the SVP, not the corporation,        that the SVP acted in good faith when
paid for his regular commuting expenses from         he submitted his reimbursement request.
his home to Freddie Mac headquarters. From           However, he was paid for expenses that
time to time, the SVP changed his normal             were not eligible for reimbursement under
commute because of business exigencies and           the Travel Policy. Freddie Mac’s existing



26    Federal Housing Finance Agency Office of Inspector General
Travel Policy requires employees to refund           Compliance Review of the Content and
any overpayments to Freddie Mac, even                Communication of FHFA’s Reports of
where the employee acted in good faith. As           Examination to the Enterprises’ Boards
Freddie Mac clarifies its Travel Policy, we          of Directors
suggested in our management advisory that
it require employees to refund all improperly        FHFA sends an annual report of examination
reimbursed expenses, consonant with its              (ROE) to each regulated entity. The purpose
obligations as an entity in conservatorship.         of an ROE is to communicate to the board
In addition, we suggested that training on           of directors (board) of each entity the
the clarified Travel Policy be provided to           cumulative results of FHFA’s supervisory
all employees who travel and to managers             activities conducted during the annual
responsible for approving travel-related             examination cycle, supervisory concerns,
reimbursements, not just administrative staff.       and the composite and component ratings
                                                     assigned in accordance with FHFA’s rating
In a written management response to this             system. The boards can meet their oversight
report, FHFA stated that it would provide our        responsibilities only when they are informed
management advisory to Freddie Mac. (See             in a timely manner of all deficient, unsafe, or
OIG, Management Advisory: Freddie Mac’s              unsound practices giving rise to supervisory
Reimbursement of a Senior Vice President’s           concerns and findings.
Commuting Expenses from 2015 through the
Third Quarter of 2018 (OIG-2019-002, March           In two 2016 evaluation reports, we found
11, 2019)).                                          multiple deficiencies both in the content of
                                                     the ROEs issued by DER and in how the
Supervision of the                                   ROEs were communicated to the Enterprises’
Regulated Entities                                   boards. We made six recommendations in
                                                     those reports. The Agency agreed with one
As supervisor of the Enterprises and the             recommendation and partially agreed with
FHLBanks, FHFA is tasked by statute to               three others.
ensure that these entities operate safely and
soundly so that they serve as a reliable source      In a compliance review completed this period,
of liquidity and funding for housing finance         we tested whether the Agency complied
and community investment. Examinations               with those portions of two recommendations
of its regulated entities are fundamental to         concerning ROE content and communication
FHFA’s supervisory mission. Within FHFA,             with which it agreed, in the 2018 ROEs.
DER is responsible for supervision of the            In response to the 2016 evaluation reports,
Enterprises and DBR is responsible for               FHFA represented that it would:
supervision of the FHLBanks.
                                                          • Adopt a standard ROE template and
During this reporting period, we conducted                  instructions for completing the template,
two compliance reviews in connection with                   and stated that the instructions would
FHFA’s supervision of its regulated entities.               establish baseline elements that must be
                                                            included in each ROE.

                                                          • Amend its internal guidance to provide
                                                            that each Enterprise’s final ROE
                                                            should be addressed to the respective



                             Semiannual Report to the Congress • October 1, 2018­–March 31, 2019   27
      board; each ROE should be issued               it may identify concerns or deficiencies
      and presented within established               occurring at an Enterprise. A Matter
      timeframes; the board, or a committee          Requiring Attention (MRA) represents the
      thereof, should confirm review of the          Agency’s most serious supervisory concern.
      ROE on a signature page appended to            When DER issues an MRA to an Enterprise,
      the ROE; and the examiners-in-charge           that Enterprise must submit a proposed
      (EICs) should request responses to             remediation plan to DER. DER’s guidance
      ROEs from the Enterprise boards, with          requires DER examiners to conduct an
      documentation of approval of such              independent analysis or assessment of each
      responses.                                     proposed remediation plan to determine
                                                     whether that plan is sufficient to address the
Regarding the first recommendation,                  MRA and to document that analysis in DER’s
we found that DER adopted a standard                 supervisory record-keeping system.
ROE template and issued instructions for
completing the template, which established           In a July 2016 evaluation report, we found
the baseline elements that must be included          that DER examiners did not consistently
in each ROE. Both of the 2018 ROEs                   conduct and document independent
included the mandatory sections in the               assessments of a random sample of 18
template and followed the instructions for           Enterprise MRA remediation plans.
use of the template.                                 We also found that DER examiners did
                                                     not consistently and timely store their
Regarding the second recommendation,                 independent assessments of proposed
we found that DER amended its internal               remediation plans in DER’s supervisory
guidance and generally complied with the             record-keeping system. FHFA accepted
guidance regarding ROE issuance deadline             our recommendation to address these
and presentation to the boards. For one              shortcomings. In June 2017, DER issued
Enterprise, the ROE was issued and presented         revised guidance directing its examiners
within the established timeframe; for the            to perform and document independent
other Enterprise, the ROE was issued and             assessments of the Enterprises’ MRA
presented one month later than its established       remediation plans and maintain those
timeline because of a change in the EIC as           assessments in DER’s supervisory record-
the ROE was being prepared. We also found            keeping system.
that the boards responded in writing to the
ROEs and confirmed their receipt and review          During this reporting period, we assessed
of the ROEs within the established timeline.         DER’s compliance with its June 2017
(See OIG, Compliance Review of the Content           guidance. We reviewed examiner assessments
and Communication of the Federal Housing             (and workpapers and other documentation) of
Finance Agency’s Reports of Examination to           proposed MRA remediation plans conducted
the Enterprises’ Boards of Directors (COM-           between June 21, 2017, and September 1,
2019-001, January 3, 2019)).                         2018. For 30 of the 35 assessments, we found
                                                     that DER examiners conducted independent
Compliance Review of FHFA Assessments                assessments (86%). We identified five
of MRA Remediation Plans Submitted by                instances where the examiner assessment
the Enterprises                                      reflected that the examiner simply copied
                                                     (or summarized) portions of the proposed
When DER conducts supervisory activities,            remediation plan or recited the proposed



28    Federal Housing Finance Agency Office of Inspector General
corrective actions and concluded, without            administratively for, engaging in mortgage-
any analysis, that the proposed plan was             related fraud or other financial misconduct
sufficient. We found that all 35 analysis            within the last three years. FHFA’s Office
memoranda (and workpapers and other                  of General Counsel (OGC) was tasked
documentation) were properly maintained in           with reviewing each referral to determine
DER’s supervisory record-keeping system.             whether to propose a suspension for the
(See OIG, Compliance Review of FHFA                  referred counterparty from conducting further
Assessments of MRA Remediation Plans                 business with the regulated entities. FHFA has
Submitted by the Enterprises (COM-2019-              delegated to its General Counsel the authority
003, February 13, 2019)).                            to suspend counterparties under the SCP.

Counterparties and                                   In 2017, we assessed OGC’s administration
Third Parties                                        of the SCP and identified deficiencies.
                                                     Specifically, we found that, as of December
The Enterprises rely heavily on counterparties       31, 2016, OGC had a backlog of 424 referrals,
and third parties for a wide array of                the majority of which had been pending for a
professional services, including mortgage            year or more. We also found several instances
origination and servicing. As the Enterprises        in which actual suspensions deviated from the
and FHFA recognize, that reliance exposes            suspension guidelines with no documented
the Enterprises to a number of risks,                rationale in the record.
including the risk that a counterparty will
not meet its contractual obligations, and            In our July 2017 report, we recommended
the risk that a counterparty will engage in          that OGC: (1) develop and implement a
fraudulent conduct. FHFA has delegated               review plan containing a timeliness standard
to the Enterprises the management of                 in order to eliminate the current backlog of
their relationships with counterparties and          referrals and prevent future backlogs; and
reviews their management largely through its         (2) document its reasons for any departures
supervisory activities.                              from the suspension periods prescribed
                                                     in the guidelines. FHFA agreed with our
During this reporting period, we issued one          recommendations.
compliance review in connection with this risk.
                                                     OGC notified us, in a memorandum dated
Compliance Review of FHFA’s Suspended                January 31, 2018, that, in response to our first
Counterparty Program                                 recommendation, it had developed timeliness
                                                     standards for processing referrals. According
In June 2012, FHFA promulgated a                     to OGC, those standards required it to: 1)
Suspended Counterparty Program (SCP) to              send referrals to the regulated entities for
augment the regulated entities’ counterparty         preliminary review within 30 days of their
risk management programs and provide them            receipt; and 2) prepare a draft memorandum
with additional protection from the financial        to the General Counsel recommending
and reputational risks posed by individuals          whether or not a suspension was warranted
and businesses with a history of engaging            within 30 days of its receipt of the regulated
in fraudulent conduct. Under the SCP,                entities’ responses. OGC also represented
each regulated entity must refer to FHFA a           that it had cleared 86% of the referrals in the
current or former counterparty or an affiliate       backlog, intended to assign an additional staff
that has been convicted of, or sanctioned            member to review referrals, and developed an



                             Semiannual Report to the Congress • October 1, 2018­–March 31, 2019   29
information system to increase its ability to        We did not identify any suspensions issued
monitor SCP deadlines.                               after January 2018 that departed from the
                                                     Agency’s suspension guidelines. Accordingly,
In response to our second recommendation,            there was no record on which to test OGC’s
OGC reported that FHFA updated its written           compliance with our second recommendation.
guidance: reviewers were required to                 In its management response, FHFA stated
document, in writing, any departures from the        that OGC is currently deploying new
suspension periods specified in the guidelines.      resources to assist in ongoing SCP reviews
We closed both recommendations, based on             and it would determine, by July 31, 2019,
those representations.                               whether additional timeliness standards are
                                                     necessary to manage existing and incoming
We completed a compliance review during              SCP referrals. (See OIG, Compliance Review
this reporting period to verify implementation       of FHFA’s Suspended Counterparty Program
of the agreed-upon corrective actions. We            (COM-2019-002, January 25, 2019)).
found that OGC abandoned the two timeliness
standards identified in its January 31, 2018,        Information Technology
memorandum and that neither had been                 Security
implemented.
                                                     During the reporting period, we issued
OGC claimed that it adopted an unwritten             three audit reports regarding IT security and
process to prioritize the processing of aged         compliance with the Federal Information
referrals in its inventory, based on when the        Security Modernization Act of 2014
terms of the convictions or administrative           (FISMA). FISMA requires agencies,
sanctions will expire, and that it considered        including FHFA, to develop, document, and
this process to be a “timeliness standard.”          implement agency-wide programs to provide
While OGC’s unwritten prioritization                 information security for the information
process may provide a reasonable means               and information systems that support the
for prioritizing referrals, it does not ensure       operations and assets of the agency, and to
that referrals are disposed of on a timely           periodically test those assets.
basis, nor does it prevent future backlogs. In
contrast, the timeliness standards OGC never         External Penetration Test of FHFA’s
implemented and has now abandoned would              Network and Systems During 2018
have prevented future backlogs because they
established timelines for completing specific        To support our ongoing oversight of FHFA’s
tasks associated with the disposition of all         implementation of FISMA, we completed an
SCP referrals.                                       audit during this period to determine whether
                                                     FHFA’s security controls were effective
In December 2018, OGC reported to us                 to protect its network and systems against
that it eliminated the remaining backlog.            external threats.
We noted that OGC’s lack of attention to
the referrals created that backlog, and that         We found that FHFA’s security controls
the recommendations in our 2017 report               successfully prevented us from gaining
were designed to mitigate the risk of future         unauthorized access to its systems via the
backlogs. For that reason, we reopened the           internet, wireless access points, or phishing
first recommendation.                                email. Through a vulnerability scan of the
                                                     Internet Protocol addresses registered to



30    Federal Housing Finance Agency Office of Inspector General
FHFA, we identified two medium severity              and practices and respond to the Department
vulnerabilities related to an outdated               of Homeland Security’s FY 2018 Inspector
encryption protocol and web cookies;                 General (IG) Federal Information Security
however, we were not able to exploit these           Modernization Act of 2014 Reporting Metrics,
vulnerabilities to gain unauthorized access          dated May 24, 2018. Because information
to FHFA’s systems. Upon receiving our                in these reports could be used to circumvent
vulnerability scan reports, FHFA management          FHFA’s and OIG’s internal controls, the
reported that a plan was underway to replace         complete text of the reports has not been
systems with an outdated encryption protocol         released publicly.
and FHFA took action to address the web
cookie vulnerability. We also performed a
test that revealed FHFA employees were
susceptible to email phishing.

FHFA agreed with our three
recommendations. We considered the
Agency’s reportedly completed and planned
corrective actions responsive to those
recommendations. (See OIG, External
Penetration Test of FHFA’s Network and
Systems During 2018 (AUD-2019-003,
February 11, 2019)).

Statutory Audit: FHFA’s and OIG’s
Information Security Programs

We completed two audits, conducted in
accordance with FISMA, that assessed the
existing security programs at FHFA and OIG.
(See OIG, Performance Audit of the Federal
Housing Finance Agency’s Information
Security Program, Fiscal Year 2018
(AUD-2019-001, October 24, 2018), and
Performance Audit of the Federal Housing
Finance Agency, Office of Inspector General’s
Information Security Program, Fiscal Year
2018 (AUD-2019-002, October 24, 2018)).

OIG contracted with an independent public
accounting firm, Kearney & Company, P.C.,
to perform separate FISMA audits of FHFA’s
and OIG’s information security programs
because FHFA and OIG maintain separate IT
infrastructures. The objectives of these audits
were to evaluate the effectiveness of FHFA’s
and OIG’s information security program



                             Semiannual Report to the Congress • October 1, 2018­–March 31, 2019   31
Reports and Recommendations
Below are the 19 audits, evaluations, compliance reviews, management alerts and advisories,
administrative inquiries, special report, and white papers published during the period. A list of
the recommendations made in these OIG reports is provided in Appendix B. See OIG’s website
for a list of all reports issued by OIG since its inception.


                                 Report                                            Date

 Performance Audit of the Federal Housing Finance Agency’s                 October 24, 2018
 Information Security Program Fiscal Year 2018 (AUD-2019-001)

 Performance Audit of the Federal Housing Finance Agency, Office           October 24, 2018
 of Inspector General’s Information Security Program Fiscal Year
 2018 (AUD-2019-002)

 Report of Administrative Inquiry into Allegations of Misconduct by        November 29, 2018
 the FHFA Director (OIG-2019-001)

 Compliance Review of the Content and Communication of the                 January 3, 2019
 Federal Housing Finance Agency’s Reports of Examination to the
 Enterprises’ Boards of Directors (COM-2019-001)

 Compliance Review of FHFA’s Suspended Counterparty Program                January 25, 2019
 (COM-2019-002)

 External Penetration Test of FHFA’s Network and Systems During            February 11, 2019
 2018 (AUD-2019-003)

 Compliance Review of FHFA Assessments of MRA Remediation                  February 13, 2019
 Plans Submitted by the Enterprises (COM-2019-003)

 Management Advisory: Freddie Mac’s Reimbursement of a Senior              March 11, 2019
 Vice President’s Commuting Expenses from 2015 through the Third
 Quarter of 2018 (OIG-2019-002)

 FHFA’s Offboarding Controls over Access Cards, Sensitive IT               March 13, 2019
 Assets, and Records Were Not Always Documented or Followed
 During 2016 and 2017 (AUD-2019-004)

 FHFA’s Controls over Post-Employment Restrictions and Financial           March 13, 2019
 Disclosure Requirements for Offboarded Employees Were Followed
 During 2016 and 2017 (AUD-2019-005)




32    Federal Housing Finance Agency Office of Inspector General
                             Report                                                Date

Summary of Administrative Inquiry: The Office of Inspector                March 13, 2019
General’s Review of Alleged Badgering and Harassment of FHFA
Employees that Play an Important Role in the Agency’s Internal
Control Framework (OIG-2019-003)

FHFA Must Strengthen its Controls over the Hiring of Pathways             March 26, 2019
Interns to Prevent Improper Hiring of Relatives of Agency
Employees (OIG-2019-004)

FHFA’s Approval of Senior Executive Succession Planning at Fannie         March 26, 2019
Mae Acted to Circumvent the Congressionally Mandated Cap on
CEO Compensation (EVL-2019-001)

FHFA’s Approval of Senior Executive Succession Planning at                March 26, 2019
Freddie Mac Acted to Circumvent the Congressionally Mandated
Cap on CEO Compensation (EVL-2019-002)

Fannie Mae Purchased Single-Family Mortgages, Including those             March 27, 2019
Purchased through Master Agreements, in Accordance with Selected
Credit Terms Set Forth in its Selling Guide for 2015-2017
(AUD-2019-006)

Subprime Mortgages: Enterprise and FHFA Reporting                         March 27, 2019
(WPR-2019-001)

An Overview of Enterprise Debt-to-Income Ratios (WPR-2019-002)            March 27, 2019

Special Report on the Common Securitization Platform: FHFA                March 29, 2019
Lacked Transparency and Exercised Inadequate Oversight over a
$2.13 Billion, Seven-Year Project (OIG-2019-005)

The Enterprises’ Use of Recourse as a Credit Enhancement Under            March 29, 2019
Their Charters (WPR-2019-003)




                         Semiannual Report to the Congress • October 1, 2018­–March 31, 2019   33
Oversight Through OIG’s Investigations
OIG is vested with statutory law                     Criminal and Civil Investigations
enforcement authority that is exercised by           and Results
its Office of Investigations (OI). OI conducts
criminal and civil investigations into those,        Working with federal and state prosecutors,
whether inside or outside of government,             OI SAs conduct investigations that may result
who waste, steal, or abuse in connection with        in criminal charges against individuals and
the programs and operations of the Agency            entities that engaged in illegal conduct. The
and the regulated entities. OI is staffed with       imposition of such charges may result in
special agents (SAs), investigative counsel,         plea agreements or trials, incarceration, and
analysts, and attorney advisors who work             criminal monetary penalties, including orders
in field offices across the nation. OI has           of restitution and forfeiture.
offices located within several federal judicial
districts that lead the nation in reported           This reporting period, as a result of OI
instances of mortgage fraud: the Southern            investigations, 41 defendants were sentenced
District of Florida; the Northern District of        to an aggregate total of 81 years in prison and
Illinois; the District of New Jersey; and the        criminal and civil monetary penalties over
Central District of California.                      $1.4 billion.

                                                     Investigations undertaken by OIG SAs
                                                     sometimes result in the filing of civil
                                                     complaints that may end in settlements or
                                                     judgments, as well as the imposition of
                                                     fines, penalties, forfeitures, assessments,
                                                     and exclusion of individuals or entities from
                                                     participation in federal programs.




OI is the only federal law enforcement
organization that specializes in deterring
and detecting fraud perpetrated against the
Enterprises. OI’s focus on fraud committed
against the Enterprises is essential to the
well-being of the secondary mortgage
market. Collectively, Fannie Mae and
Freddie Mac hold more than $5 trillion
worth of mortgages on their balance sheets.
Each year the Enterprises acquire millions of
mortgages worth several hundreds of billions
of dollars. The potential for fraud in these
circumstances is significant.



34    Federal Housing Finance Agency Office of Inspector General
 Figure 1. OI Monetary Results
 October 1, 2018 – March 31, 2019
                            Criminal                               Civil
                         Investigations                       Investigations
 Fines*                    $82,352,372                                   $0
 Settlements                         $0                      $1,251,600,000
 Restitutions             $110,659,243                                   $0
 Total                    $193,011,615                       $1,251,600,000
*Fines include criminal fines, forfeiture and special assessments, and civil fines
imposed by federal court.

 Figure 2. Reports, Referrals, Prosecutions, and Convictions
 October 1, 2018 – March 31, 2019*
 Investigative Reports**                                   26
 Criminal Referrals to DOJ                                 74
 Criminal Referrals to State and Local Prosecuting         15
 Authorities
 Indictments and Informations during the Reporting         31
 Period that Resulted from Referral to Prosecutors
 during Prior Reporting Periods
 Total Indictments and Informations during the Reporting   19
 Period Resulting from OIG Referrals
 Trials                                                    4
 Defendants Tried                                          4
 Convictions/Pleas                                         30
 Sentencings                                               41
*All criminal charges and successive actions (pleas/convictions/sentencings) are
supported with documents filed with the corresponding federal or state court.
This includes both public and non-public documents (sealed). All referrals made
to DOJ and to state prosecutors are captured within each investigative file; these
actions are tabulated via a statistical report run in OIG’s case management system.
Criminal referrals on this chart include both individuals and entities.
**For the purposes of this SAR, an investigative report is defined as the Report of
Investigation finalized at the conclusion of the investigation, prior to case closure.

To date, OI’s criminal investigations have resulted in over $5
billion in orders of restitution, forfeiture, seizures, fines, and special
assessments. Our civil investigations have resulted in over $63
billion in civil settlements, recoveries, and fines.




                  Semiannual Report to the Congress • October 1, 2018­–March 31, 2019    35
Mortgage Fraud Investigations                        Multifamily Fraud Investigations

The most effective and efficient investigations      Multifamily investigations involve fraud
of mortgage fraud schemes require                    schemes related to loans purchased by the
specialized knowledge of the mortgage                Enterprises to finance properties that have
industry to investigate, solve, and support          five or more residential units, primarily
prosecutors and fact-finders. The time and           rental apartment communities. OI has
effort required to investigate an allegation         recently created a team at HQ to support our
of mortgage fraud varies with the scheme by          multifamily investigations around the country.
which it is perpetrated.
                                                     Special Assistant U.S. Attorney Program
For example, loan origination and short sale
schemes may be labor intensive due to the            To increase OIG’s effectiveness, four OIG
extensive review and analysis of mortgage            attorney-investigators have been appointed
loan files and bank documents necessary to           as Special Assistant U.S. Attorneys in several
spot indications of fraud. Fraudulent loan           judicial districts throughout the country. They
modification schemes sometimes involve               have been assigned criminal matters arising
hundreds of victims. Those investigations            from OI’s investigations in the districts where
require comprehensive document and                   they have been appointed and have pursued
financial records reviews, victim interviews,        these investigations to conviction
and the tracking of illicitly received fees          and sentencing.
charged by the perpetrators. In condominium
or builder bailout scheme investigations,            To maximize criminal and civil law
SAs carefully examine mortgage and bank              enforcement, OI works closely with other
documents to determine fraudulent patterns           law enforcement agencies, including
of behavior, including undisclosed incentives        the Department of Justice (DOJ), the
to attract buyers to purchase and invest in          Federal Bureau of Investigation (FBI), the
properties. In these investigations, SAs locate      U.S. Department of Housing and Urban
and interview investors, learn the nuances of        Development OIG (HUD-OIG), Internal
how the scheme is organized, and determine           Revenue Service-Criminal Investigation
how the perpetrators financially benefitted.         (IRS-CI), and state and local law enforcement
                                                     entities nationwide.
In bankruptcy or foreclosure-delay
schemes, SAs cull documents received by
the Enterprises and the FHLBanks, calculate
scheme losses, and coordinate with the
United States Trustee’s offices as needed to
determine if fraudulent paperwork has been
submitted to initiate a bankruptcy. Other
investigations conducted by SAs include real
estate owned (REO) and adverse possession
schemes. Each of these schemes presents
with unique circumstances and requires many
hours of intense document analysis, potential
victim and witness interviews, and other             Seized property from a multi-state deed fraud
investigative techniques.                            scheme, purchased with proceeds from the fraud.




36    Federal Housing Finance Agency Office of Inspector General
                                                       and 41 sentencings, as well as court-ordered
                                                       forfeiture and restitution awards.

                                                       Figures 1 and 2 (see above) summarize the
                                                       results obtained during this reporting period
                                                       from our investigative efforts.

                                                       Below, we highlight some of our civil and
                                                       criminal cases, grouped by category. A
                                                       summary of publicly-reportable investigative
                                                       outcomes for each criminal category during
                                                       this reporting period and a description of each
                                                       category may be found at Appendices C-J.
Seized property from a multi-state deed fraud
scheme, purchased with proceeds from the fraud.
                                                       Investigations: Civil Cases
                                                       During the semiannual reporting period,
                                                       OI continued to participate in RMBS
Hotline                                                investigations and other civil investigations
                                                       by working closely with U.S. Attorneys’
Since its inception, OIG has maintained a              offices to investigate allegations of fraud
hotline to provide easy access for individuals         committed by financial institutions and
to report tips, complaints, or referrals (TCRs)        individuals.
of alleged violations of criminal and civil
laws in connection with programs and                   Residential Mortgage-Backed Securities
operations of the Agency. OI is responsible            Investigations
for conducting a preliminary review of all
hotline TCRs. OIG’s hotline is staffed by a            HSBC Agrees to Pay $765 Million in
third-party vendor to protect the anonymity            Connection with its Sale of RMBS,
of the callers and to provide easy access              Colorado
for reporting. Every TCR, whether made
by telephone directly to the hotline, email,           On October 9, 2018, the United States
website, or in person, is sent to the hotline and      announced that HSBC will pay $765 million
logged by the hotline. Attorneys in OI conduct         to settle claims related to its packaging,
a preliminary assessment to determine                  securitization, issuance, marketing, and sale of
whether further review and investigation is            RMBS between 2005 and 2007. During that
appropriate. During this reporting period, 579         period, federally-insured financial institutions
discrete contacts to the hotline were made             and others suffered major losses from investing
involving TCRs, and 128 separate TCRs were             in RMBS issued and underwritten by HSBC.
logged by the hotline.                                 Under the settlement, HSBC will pay the
                                                       $765 million as a civil penalty pursuant to the
During the semiannual reporting period, OI             Financial Institutions Reform, Recovery,
conducted numerous criminal, civil, and                and Enforcement Act (FIRREA).
administrative investigations, which resulted
in the filing of criminal charges against 50           The United States alleged that HSBC had a
individuals, the conviction of 30 individuals,         due diligence process for reviewing the loans



                               Semiannual Report to the Congress • October 1, 2018­–March 31, 2019     37
HSBC planned to securitize as RMBS, but as           securitized it yet. Early payment defaults
early as 2005, an HSBC credit risk manager           (EPDs)—when a borrower fails to make one
expressed concerns with HSBC’s due diligence         of the first few payments on a mortgage—
process. HSBC nevertheless touted its due            could be, in the words of HSBC’s co-head of
diligence process to potential investors. It         RMBS, “an indicator of higher expected loss
told investors that when it purchased pools of       on the pool.” In an internal email, HSBC’s
subprime loans, HSBC would review at least           head of risk management for RMBS wrote
25% of the loans in the pool for credit and          that the high EPD rate could be a sign of
compliance. It told investors that it selected       systemic problems with the pool. Others
20% of the loan pool as an “adverse sample”          within HSBC’s risk management group
based on “a proprietary model, which will            expressed concern that the pool “may be
risk-rank the mortgage loans in the pool.” But       contaminated” and asked whether “they
on some loan pools, HSBC’s RMBS trading              should hold back on the securitization
desk influenced how the risk management              launch until there is further clarity on all
group selected loans for the adverse portion of      the issues… .” The next day, the head of
the sample, and as a result, the sample was not      HSBC’s whole loan trading risk management
based on its model. HSBC also told investors         group stated that he was “comfortable that
that it selected another 5% of the loan pool as      we need not make any further disclosures to
a “random sample.” But in some instances,            investors….” HSBC issued the securitization
HSBC used a random sample that was less              a few days later. A later post-close quality
than 5% of the pool, or used a sample that was       control review indicated that loans that
not random at all.                                   “appear to have fraud or misrep” went into
                                                     the securitization. HSBC went on to buy
To review the loans HSBC did select for              and securitize more loans from the same
review, HSBC used due diligence vendors,             originator, even after the head of HSBC’s
and HSBC saw the results of the vendors’             due diligence team concluded that the
reviews of the loans before the deals were           originator had offered “bad collateral.”
issued. Between January 2006 and June 2007,
HSBC’s primary due diligence vendor flagged          After purchasing certain loan pools, HSBC
over 7,400 loans as having low grades—more           ordered a quality control review but did not
than one out of every four loans the vendor          wait for the final results before issuing the
reviewed for HSBC during that time. When             securitization. On two pools, HSBC received
HSBC employees saw loans with low grades,            preliminary quality control results before the
they sometimes “waived” those loans through          issuance of the securitization that, according
or recategorized the grades to make the due          to the quality control vendor, showed
diligence “percentages look better.” They            indications of fraud in the origination of
also expressed views about the deals they            particular loans, but included those loans in
were issuing. For example, in 2007, an HSBC          the RMBS anyway. On a loan pool in 2007,
trader said, in reference to an RMBS that            HSBC performed post-close due diligence on
HSBC was about to issue, “it will suck.”             a sample of loans from that pool. HSBC’s due
                                                     diligence vendor graded approximately 30%
For a loan pool HSBC purchased in 2006,              of the loans in the post-close due diligence
HSBC learned of what employees referred to           sample as having the lowest grade. HSBC
as an “abnormally large” and “alarmingly”            went on to securitize loans from that same
high number of payment defaults. HSBC                pool without any further credit or compliance
had purchased the loan pool but had not              review before securitization.



38    Federal Housing Finance Agency Office of Inspector General
These are allegations only, which HSBC                 to Nomura as “dogsh[*]t.” As stated by a
disputes and does not admit.                           member of Nomura’s RMBS due diligence
                                                       group: “There is no such thing as a bad loan...
Nomura Agrees to Pay $480 Million in                   just a bad price.”
Civil Penalties for Misleading Investors
in Sale of Residential Mortgage-Backed                 Nomura also knew that a significant number
Securities, New York                                   of loans that it securitized in its RMBS
                                                       had not gone through Nomura’s stated due
On October 16, 2018, the United States                 diligence process, and, more broadly, that its
announced it had reached an agreement with             process had been compromised. Nomura’s
Nomura Holding America Inc. and several                head of RMBS due diligence (in the context
of its affiliates (“Nomura”), which will pay           of proposed changes to Nomura’s loan-by-
a $480 million penalty to resolve federal              loan buying program) stated that Nomura
civil claims that Nomura misled investors              was “turning into the lemming of the
in connection with the marketing, sale,                mortgage business,” “following the herd,”
and issuance of RMBS between 2006 and                  and compromising its standards “to comply
2007. Nomura’s investors, which included               with the masses in p[u]rsuit of volume.”
university endowments, retirement funds and            Additionally, a member of Nomura’s RMBS
federally insured financial institutions, suffered     group’s origination sales team, in an email
significant losses due to Nomura’s misconduct.         to the entire RMBS group, remarked that
                                                       “advertising will be a great career when
The settlement stems from allegations that             all these loans finally blow up... . (I will be
Nomura knowingly securitized defective                 selling vacuum cleaners door to door when
mortgage loans in its RMBS and misled                  the market goes by the way).”
investors regarding the quality and
characteristics of those loans. For example,
the United States alleged that, in presentations
                                                         “The actions of Nomura resulted in
regarding its RMBS program, Nomura                       significant losses to investors, including
claimed that its due diligence process was               Fannie Mae and Freddie Mac, which
“extensive,” “disciplined,” and “carefully               purchased Nomura Residential
developed.” Nomura also told investors                   Mortgage-Backed Securities backed by
that it only worked with “hand-picked                    defective loans. We are proud to have
industry leading” due diligence vendors,                 partnered with the U.S. Attorney’s Office
                                                         for the Eastern District of New York on
and that, because of its superior standards              this matter.”
and due diligence processes, “Nomura’s
                                                          – Jennifer Byrne
loan performance should surpass industry
standards.” In reality, Nomura knew, based                  Associate Inspector General
on its due diligence, that thousands of loans
that it securitized in its RMBS did not comply         Despite this knowledge, Nomura failed to
with applicable underwriting guidelines or             address the weaknesses in its due diligence
were supported by inflated and potentially             processes, and continued to do business
fraudulent appraisals. Nomura concealed                with originators that, according to its own
these deficiencies from investors, securitizing        due diligence personnel, were “extremely
many of these defective loans as “favors” to           dysfunctional,” had “systemic” underwriting
loan originators—including, for example,               issues, and employed “questionable”
loans that one originator openly described             origination practices. Indeed, Nomura’s



                               Semiannual Report to the Congress • October 1, 2018­–March 31, 2019   39
securitization of defective loans in the subject     with its sale of RMBS in 2006-2007.
deals—despite numerous red flags—reflected           The complaint alleges that UBS’s actions
a conscious decision by senior Nomura                violated the FIRREA, based on mail fraud,
personnel to compete for market share in a           wire fraud, bank fraud, and other misconduct.
highly competitive RMBS market.                      FIRREA authorizes the Attorney General to
                                                     seek civil penalties up to the amount of the
Likewise, despite knowing that its due               gain derived from the violation, or the losses
diligence was ineffective and did not remove         suffered by persons other than the violator
large numbers of defective loans from its            resulting from the violation.
RMBS, in mid-2006, Nomura announced
new, “more liberal” underwriting guidelines          As detailed in the complaint, from 2006
for its loan-by-loan purchase program.               through 2007, UBS misled investors about
Although Nomura’s head of RMBS due                   the quality of billions of dollars in subprime
diligence warned that Nomura had already             and Alt-A mortgage loans backing 40 RMBS
“loosened guidelines in so many areas”               deals. Specifically, in publicly filed offering
and that it was “at risk of giving away the          documents, UBS knowingly misrepresented
proverbial store,” the prevailing view, as           key characteristics of the loans, thereby
characterized by Nomura’s RMBS trading               concealing the fact that the loans were
desk, was that Nomura’s “box [was] too               much riskier and much more likely to
restrictive.” Nomura’s new guidelines allowed        default than UBS represented. In the end,
for the purchase of loans that Nomura’s due          the 40 RMBS, sustained substantial losses.
diligence personnel previously described as          The Enterprises were investors with some
“sheer lunacy.”                                      of the loans in this scheme.

The actions of Nomura resulted in significant        These are allegations only, which UBS
losses to investors, including Fannie Mae            disputes and does not admit.
and Freddie Mac, which purchased Nomura
RMBS backed by defective loans.                      Other Civil Investigations

These are allegations only, which Nomura             Settlement of Civil Fraud Claims against
disputes, and there has been no trial or             Law Firm Rosicki, Rosicki & Associates,
adjudication or judicial finding of any issue of     P.C., and two Affiliates for Inflating
fact or law.                                         Foreclosure- and Eviction-Related
                                                     Expenses, New York
The settlement was the result of a multi-year
investigation pursuant to FIRREA.                    On December 4, 2018, the United States
                                                     Attorney’s Office for the Southern District
United States Sues UBS to Recover Civil              of New York announced the settlement of
Penalties for Fraud in the Sale of RMBS,             a civil fraud lawsuit against New York law
New York                                             firm Rosicki, Rosicki & Associates, P.C.
                                                     (Rosicki) and its wholly owned affiliates,
On November 8, 2018, the United States filed         Enterprise Process Service, Inc. (Enterprise)
a civil complaint against UBS AG and several         and Paramount Land, Inc. (Paramount). The
of its U.S. affiliates (together, UBS), alleging     settlement resolves the United States’ claims,
that UBS defrauded investors throughout the          asserted under the False Claims Act, alleging
United States and the world in connection            that Rosicki used its affiliates, Enterprise



40    Federal Housing Finance Agency Office of Inspector General
and Paramount, to systematically generate              contractors and otherwise took actions
false and inflated bills for foreclosure-related       that increased costs and expenses. Rosicki
and eviction-related expenses, and caused              submitted those costs and expenses for
those expenses to be submitted to and paid             payment, with the understanding that Fannie
for by Fannie Mae. As part of the settlement,          Mae would reimburse for them.
Rosicki, Enterprise, and Paramount admitted
and accepted responsibility for their conduct          $2 Million Settlement Agreement in
and must pay $4.6 million to the United                Condominium Scheme, Illinois
States. The settlement also requires Rosicki
to implement a compliance program with                 On December 31, 2018, a $2,000,000
regular reporting over the next five years, and        Settlement Agreement was entered into
to publicly disclose the nature of its affiliation     between the United States of America and
with Enterprise and Paramount.                         Richard Borkowski, Edward Borkowski, and
                                                       RJE Investments, LLC (RJE).
Rosicki’s main practice area is mortgage
foreclosures. The two founding Rosicki                 RJE was a member of 13th & State, a now
partners also own a number of affiliated               dissolved limited liability company that
entities, including Enterprise, a service-of-          facilitated the construction of Vision on State,
process company, and Paramount, a title                a condominium building in Illinois. Vision
search company. Fannie Mae approved                    on State had approximately 250 residential
Rosicki to perform legal work in connection            units that were offered for sale beginning in
with foreclosures on residential properties for        approximately November 2004. Many of the
which Fannie Mae owned the mortgage loans.             mortgages resulting from 13th & State’s sale
Fannie Mae’s Servicing Guide required,                 of condominium units in Vision on State were
among other things, that all foreclosure               originated and/or held by federally insured
costs and expenses be “actual, reasonable,             financial institutions and mortgage lenders, as
and necessary,” and that foreclosure law               well as sold to the Enterprises.
firms “must make every effort to reduce
foreclosure-related costs and expenses in a            The United States contends that, from August
manner that is consistent with all applicable          1, 2007, through February 2009, Richard
laws.” Rosicki understood those requirements           Borkowski and Edward Borkowski, as
and represented at various times that the firm         members of RJE, were integral in the builder-
was complying with them.                               bailout mortgage fraud scheme that operated
                                                       through 13th & State with respect to the sale
In fact, as Rosicki, Enterprise, and Paramount         of the Vision on State units.
have admitted, from 2009 through 2018, on
certain invoices for service of process (i.e.,         For example, the Vision on State development
delivery or attempted delivery of legal papers)        broke ground in November 2004. Initially,
in connection with foreclosures or evictions,          13th & State sold Vision on State’s
Enterprise added additional charges to the             condominium units at market prices through
costs charged by independent contractors               licensed real estate brokers. However,
and otherwise took actions that increased              when 13th & State struggled to sell the
costs and expenses. Similarly, on certain              condominium units at market prices during
invoices for foreclosure searches and title            the real estate downturn of 2007, the 13th &
continuations, Paramount added additional              State members, including the Borkowskis,
charges to the costs charged by independent            agreed to inflate the price of the condominium



                               Semiannual Report to the Congress • October 1, 2018­–March 31, 2019   41
units and use unlicensed recruiters to find          Fannie Mae suffered losses of $1,991,578 and
straw buyers.                                        $192,000, respectively.

The Borkowskis were aware that the straw             This Settlement Agreement is neither
buyers were investors who did not intend             an admission of liability by RJE or the
to reside in the condominium units and               Borkowskis, nor a concession by the United
that recruiters promised them incentives             States that its claims are not well founded.
such as providing their down payments,
paying the first two years of homeowners’            Investigations: Criminal Cases
association dues, and that they would
find renters for the properties. In turn, the        Below we highlight some OIG criminal
recruiters received sizeable commissions             investigations during this semiannual
for facilitating the closings.                       reporting period in a number of different
                                                     categories. These investigations resulted
The incentives and the commissions to                in criminal charges, trial convictions, plea
recruiters then were subsumed into the               agreements, sentencings, and court-ordered
inflated sales price of the condominiums but         fines, forfeitures, and restitution judgments.
were not stated in the real estate contracts,
nor were they listed on the settlement               Condo Conversion and Builder
statements for those closings. The banks             Bailout Schemes
providing the mortgages with respect to the
condominium units thus were not informed             Sentencings of Attorney and Real
that the mortgages they originated were              Estate Developer in Builder Bailout
inflated by the undisclosed payments to the          Scheme, Illinois
straw buyer and the recruiters, nor that the
source of the down payment was actually the          Between October 2018 and February 2019,
seller, 13th & State. Likewise, the Enterprises      Robert Lattas and Warren Barr, III, were
were not informed that the mortgages secured         sentenced to 63 months and 87 months in
by the condominium units that they were              prison, respectively, and ordered to pay
purchasing from lenders had been inflated            over $12.8 million in restitution, jointly and
to include the undisclosed incentive and             severally, for their roles in a builder bailout
commission payments.                                 scheme. Barr was additionally sentenced to
                                                     two years of supervised release. Previously,
The Borkowskis, along with others, created           Lattas pled guilty to bank fraud and Barr
this scheme and pressured others to carry            pled guilty to making false statements to a
it out, causing false entries to be made on          financial institution.
settlement statements. The Borkowskis did
this in order to receive a return on their           According to court documents, Barr,
investment and/or avoid greater financial            a real estate developer, conspired with
liability for debts owed in connection with the      Lattas, an attorney, and others to defraud
Vision on State development.                         mortgage lenders and financial institutions
                                                     by obtaining over $22 million dollars in
The straw buyers ultimately defaulted on             fraudulent mortgages for the purchase of
these fraudulent loans, causing losses of            dozens of condominium units in Illinois. Barr
more than $13 million to the Enterprises and         coordinated undisclosed payments, which
other lenders. Specifically, Freddie Mac and         included wire transfers to a co-defendant



42    Federal Housing Finance Agency Office of Inspector General
and other recruiters; these payments were            approximately $761,150 to the Enterprises
used as the buyers’ down payments. To                and lenders when the mortgages involved
cover the costs of paying the straw buyers’          in the fraudulent transactions went into
down payments and other incentives, the              foreclosure.
co-conspirators inflated the sales prices of
the properties and facilitated the production        Loan Origination Schemes
of false loan documents and settlement
statements signed by Lattas that concealed           Sentencings of Cook County Judge and
material facts from the lenders.                     Loan Officer convicted in Mortgage Fraud
                                                     Scheme, Illinois
Losses to the Enterprises associated with this
scheme are greater than $2 million; overall          During December 2018 – February 2019,
scheme losses are approximately $13 million.         Jessica Arong O’Brien and Maria Bartko
                                                     were sentenced to 366 days and seven
Real Estate Broker and Business Partner              months in prison, respectively, along with
Convicted of Bank Fraud in Mortgage                  two years of supervised release for their roles
Scheme, Florida                                      in a mortgage fraud scheme. Bartko was
                                                     additionally ordered to pay $1,335,500 in
On March 4, 2019, Geo Geovanni and                   restitution, $660,000 of which is jointly and
Elizabeth Longerbone were sentenced to 37            severally with O’Brien. Previously, O’Brien
months and one day in prison, respectively,          was convicted at trial on charges of bank
and three years of supervised release, for           fraud and mail fraud affecting a financial
their roles in a mortgage fraud scheme.              institution and Bartko pled guilty to mail
Additionally, the defendants were ordered to         fraud affecting a financial institution.
pay $736,791 in restitution, and $56,948 in
forfeiture, jointly and severally. Longerbone        The jury found that O’Brien caused lenders
was additionally ordered to serve six months         to issue and refinance approximately $1.4
home detention. Previously, Geovanni was             million in mortgage and commercial loans by
found guilty after a federal jury trial on           making false representations and concealing
charges of conspiracy to commit bank fraud           material facts in documents submitted to
and bank fraud and Longerbone pled guilty to         the lenders. Trial evidence demonstrated
conspiracy to commit bank fraud.                     that O’Brien used the fraudulently obtained
                                                     mortgage loan proceeds to purchase an
According to testimony and evidence                  investment property in Chicago, then
presented at trial, Geovanni was a real              refinanced the mortgage on the property and
estate broker who owned his own brokerage            another investment property using fictitious
firm based in Orlando, Florida. Geovanni             documentation. Additionally, O’Brien obtained
sold condominium units to buyers at The              a commercial line of credit to maintain the
Landing, located in Altamonte Springs,               properties, before selling them to a loan
Florida. Geovanni engaged in a conspiracy            officer—co-defendant Maria Bartko—and a
with Longerbone to conceal from mortgage             straw buyer whom O’Brien knew would be
lenders sales incentives that he provided to         fraudulently qualified to obtain mortgage loans.
the buyers. These undisclosed incentives
included making the buyers’ down payments            Evidence at trial revealed that O’Brien
and paying kickbacks after closing. As a             engaged in the alleged wrongful activities
result, Geovanni’s actions caused losses of          and, while carrying them out, was employed



                             Semiannual Report to the Congress • October 1, 2018­–March 31, 2019   43
as a Special Assistant Attorney General              Lenders issued over $2.3 million in reverse
for the Illinois Department of Revenue,              mortgage proceeds because of this scheme.
owned a real estate company, and was                 The Enterprises, as investors, suffered losses.
employed with Bartko as a loan officer at
a mortgage company.                                  Loan Modification and Property
                                                     Disposition Schemes
Losses to victims, including the Enterprises,
are over $1.3 million.                               Sentencing in $4 Million Mortgage Fraud
                                                     Scheme, California
Two Indicted for Targeting Elderly in
Reverse Mortgage Loan Origination                    On February 13, 2019, Prakashumar
Fraud, New Jersey                                    Bhakta was sentenced to seven years and
                                                     eight months in prison and ordered to pay
On February 8, 2019, Rafael Peralta and              $256,494 in restitution, jointly and severally,
Philip Puccio, Jr., were indicted on charges         for operating a mortgage fraud scheme that
of conspiracy to commit bank fraud and bank          preyed on homeowners facing foreclosure.
fraud for their respective roles in a reverse        Bhakta previously pled guilty on the first
mortgage scheme that took advantage of               date of his scheduled trial to grand theft,
several elderly homeowners.                          conspiracy, filing false documents, and
                                                     identity theft.
According to court documents, Peralta and
Puccio, home repair contractors, allegedly           The fraud scheme stretched through San
conspired to fraudulently obtain Home                Diego, Riverside, San Bernardino, and Los
Equity Conversion Mortgage (HECM) –                  Angeles counties. Bhakta and co-defendants
also known as reverse mortgage – proceeds            convinced distressed homeowners that they
by submitting inflated and fraudulent                could provide legal assistance to help save
documentation to various victim banks                their home. They persuaded victims to pay
to influence their decision to approve and           them $3,500 to start; then $1,000 monthly;
fund HECMs. Peralta and Puccio recruited             and separate fees for filing legal documents.
a conspirator to prepare inflated real estate        Co-defendants filed and recorded numerous
appraisals that falsely increased the value of       fraudulent documents, including false
the properties securing the HECMs, thereby           bankruptcies and false court filings. The
influencing each lender’s decision to provide        scheme defrauded lenders and other owners
loans in amounts greater than what would             of their rightful possession of the residential
otherwise be available.                              properties. Meanwhile, the co-defendants took
                                                     thousands of dollars from homeowner victims
Peralta and Puccio also allegedly caused             to perform fraudulent services. Bhakta, who
the submission of false and fraudulent               was an integral part of the scheme, falsely
loan documents that actively concealed the           notarized numerous fractional interest grant
disbursement of loan proceeds to Peralta,            deeds without the presence of the person
Puccio, and entities they owned and                  whose signature was being notarized. Bhakta
controlled. The diverted loan proceeds were          previously pled guilty to conspiracy, grand
deposited into bank accounts controlled              theft, and filing false or forged documents.
by Peralta and Puccio and used for their
personal benefit and to further                      The scheme defrauded lenders and other
the conspiracy.                                      owners of the mortgages of their rightful



44    Federal Housing Finance Agency Office of Inspector General
possession of the residential properties.            Loan Modification Operators Sentenced
Meanwhile, the homeowners gave the                   in Foreclosure Prevention Fraud Scheme,
defendants over $1 million to perform                Maryland
services that were fraudulent and deprived
them of the opportunity to save their homes,         On December 3, 2018, Michelle Jordan and
in some instances leaving them homeless. At          her husband, Michael Welsh, were sentenced
least 150 homeowners were victimized in this         to 57 months and 46 months in federal
scheme, with losses to the lenders and the           prison, respectively, followed by three years
Enterprises estimated at over $4 million.            of supervised release, for their roles in a
                                                     foreclosure prevention fraud scheme. Co-
Sentencing of Participant in $20 Million             conspirator Carrol Jackson was sentenced
Mortgage Fraud Scheme, California                    to time served, followed by nine months of
                                                     home detention and three years of supervised
On December 3, 2018, Jane Matsuba-Garcia             release. Each defendant was ordered to pay
was sentenced to 57 months in prison, years          $491,036 in restitution, jointly and severally.
years of supervised release, and ordered to          A federal jury previously convicted the three
pay $12,208,992 in restitution, jointly and          co-conspirators on charges of conspiracy and
severally, for her role in a mortgage fraud          wire fraud.
scheme. Also on this date, Matsuba-Garcia’s
forfeiture order was finalized, ordering her to      According to the evidence presented at their
pay $200,446. She previously pled guilty to          eight-day trial, Jordan and Welsh were chief
charges of conspiracy to commit wire fraud,          executive officer and president, respectively,
making false statements to federally insured         of MJ Loan Auditor Group, LLC (MJLAG),
institutions, and identity theft.                    a limited liability company registered and
                                                     doing business in Maryland. Jackson was the
According to her plea agreement, Matsuba-            owner and manager of CJ Maxx Group LLC,
Garcia and others engaged in a scheme to             a limited liability company doing business in
defraud financially distressed homeowners            Maryland, Virginia, and Georgia.
by offering to prevent foreclosure on their
properties through short sales. Instead, the         Trial evidence proved that Jordan and Welsh
conspirators rented out the properties to            falsely told victim homeowners that, for a
third parties, did not pay the mortgages             fee, MJLAG could help these homeowners
on the properties, and submitted false               modify their mortgage loans and prevent
and fraudulent documents to mortgage                 foreclosure of their homes. Jordan and
lenders and servicers to delay foreclosure.          Welsh falsely represented that MJLAG
The evidence further established that the            could help the homeowners get “free and
conspirators obtained mortgages in the               clear” title to their homes, with no debt or
names of stolen identities. The defendants           liens against the property, and that MJLAG
also used additional tactics, including filing       could obtain money from the homeowners’
bankruptcy in the names of distressed                lenders, typically by suing the lenders.
homeowners without their knowledge and               Jordan and Welsh told homeowners that they
fabricating liens on the distressed properties,      needed to purchase one or more “audits” of
the evidence showed.                                 the homeowners’ mortgage loans in order
                                                     to uncover fraud and alleged illegal acts
Losses to the Enterprises and lenders are            committed by the lenders, and that these
nearly $19 million.                                  “audits” could be used as evidence in lawsuits



                             Semiannual Report to the Congress • October 1, 2018­–March 31, 2019   45
against the lenders and in negotiating for a         On October 10, 2018, William Elias and
loan modification.                                   Kimberly Doren pled guilty bank fraud for
                                                     their roles in a short sale fraud scheme. Elias
Witnesses testified that as part of the scheme,      additionally pled guilty to money laundering.
Jordan and Welsh had homeowners sign a
“contract fee agreement” setting out what            William Elias, owner and operator of Elias
fees would be charged for the “audit.” The           Realty, Kimberly Doren, his employee, and
contract fee agreement contained the seal            another co-conspirator, devised a buy-and-
of the National Association of Mortgage              bail short sale fraud scheme. According to
Underwriters (NAMU), even though the                 Elias’s plea agreement, through extensive
defendants and their companies had no                advertising, the co-conspirators contacted
current affiliation with NAMU. Jordan                struggling homeowners and promised to
advised clients to submit baseless complaints        help sell their homes, eliminate their debt,
about their lender to state and federal              and buy new homes. To accomplish this, the
agencies, file frivolous lawsuits in local           co-conspirators instructed clients to obtain
courts, and to stop paying their mortgages.          a mortgage to purchase a second home.
Jordan further advised MJLAG clients                 The clients’ mortgage applications falsely
whose homes already were in foreclosure              inflated the values of the first homes and
proceedings to file for bankruptcy in order          misrepresented that the clients intended to
to delay the foreclosure proceedings and as          keep their existing homes as rental properties.
part of the process to prevent foreclosure of        The homes were worth significantly less than
the clients’ homes. Jordan assisted MJLAG            stated in the mortgage applications, and the
clients in filing for bankruptcy, by preparing       homeowners had no intention of renting their
bankruptcy petitions and related documents           homes; rather, they intended to sell them by
and court filings.                                   short sale.

The evidence proved that Jordan and                  Once the second homes were purchased,
Welsh paid Jackson to prepare fraudulent             the co-conspirators would assist the clients
documents purporting to be “Forensic Audit           with short selling their original homes. Many
Reports” and “Real Estate Securitization             homeowners were permitted to conduct short
Audits” relating to loans for properties             sales resulting in financial loss to lenders and
owned by MJLAG clients. The victim                   investors. In some instances, when the short
homeowners paid money to MJLAG with                  sales could not be completed, the mortgages
the expectation of receiving assistance              were foreclosed.
with modifying their mortgage loans and
preventing foreclosure of their homes.               According to Doren’s plea agreement, she
                                                     used her business entity, KLD Consulting,
At least 20 of the properties involved in            to act as a straw buyer on behalf of Elias
this investigation were financed through             and his business entity Michigan Property
Enterprise-backed loans.                             Ventures, the true buyer. In fact, Doren
                                                     knew that Elias did not want to disclose to
Short Sale Schemes                                   the lenders that he was the purchaser of the
                                                     properties listed with his company, nor did
Guilty Pleas of Real Estate Broker and               he want the lenders to know that Elias Realty
Employee in a Buy-and-Bail Scheme,                   was negotiating the short sale on behalf of
Michigan                                             its own owner.



46    Federal Housing Finance Agency Office of Inspector General
The scheme resulted in more than $5 million          Todd Morgan, Frank Giacobbe, and others,
in losses to the Enterprises.                        conspired to defraud financial institutions and
                                                     the Enterprises. Kevin Morgan was employed
Guilty Plea in $6 Million Fraud Scheme,              as a Vice President at Morgan Management,
New Jersey                                           LLC, a real estate management company
                                                     that managed more than 200 multi-family
On December 18, 2018, Mehdi Kassai pled              properties. Todd Morgan also was employed
guilty to charges of bank fraud, wire fraud,         by Morgan Management as a Project Manager.
and money laundering for his role in a scheme        Kevin and Todd Morgan worked with Frank
to defraud financial institutions and others of      Giacobbe, who owned and operated Aurora
more than $6 million.                                Capital Advisors, LLC, a mortgage brokerage
                                                     company, and Patrick Ogiony, an Aurora
According to documents filed in this case            employee, to secure financing for properties
and statements made in court, Kassai and             managed by Morgan Management or certain
others fraudulently induced mortgage lenders         principals of Morgan Management.
to participate in “short sale” transactions.
Kassai admitted that he used false documents         Kevin Morgan, Ogiony, and others created
and straw buyers, caused cosmetic damage             and provided false information to lenders, the
to properties to lower their apparent value,         Enterprises, and servicers, including reporting
and restricted the ability of others to bid and      inflated revenues and reduced expenses
buy those properties. This allowed Kassai to         for the properties managed by Morgan
gain control of properties through the short         Management. This resulted in the financial
sale process for substantially less than the         institutions issuing loans for larger amounts
properties were actually worth. Kassai then          than they would have authorized had they
sold many of those properties to third parties       been provided with truthful information.
at a substantial profit.
                                                     The co-defendants misled the financial
The Enterprises, as investors with some              institutions regarding the occupancy of
of the properties involved in this scheme,           properties. For example, Kevin Morgan and
suffered losses.                                     Ogiony conspired to provide false rent rolls to
                                                     lenders and appraisers on a variety of dates,
Multifamily Schemes                                  overstating either the number of renters in a
                                                     property and/or the rent paid by occupants;
VP of Real Estate Management Company                 conspired to provide false and inflated
and Managing Director of Commercial                  income statements for the properties; and
Real Estate Financing Firm Plead Guilty              worked with others to deceive inspectors into
in Multi-Million Dollar Mortgage Fraud               believing that unoccupied apartments were, in
Scheme, New York                                     fact, occupied.

Between December 2018 and March 2019,                In one such instance, Kevin Morgan, Ogiony,
Kevin Morgan and Patrick Ogiony were                 and others provided false information to
charged by information and pled guilty to            Berkadia Commercial Mortgage LLC and
conspiracy to commit bank fraud.                     Freddie Mac, in connection with Rochester
                                                     Village Apartments at Park Place, a multi-
According to court documents, Kevin Morgan           family residential community owned by
and Ogiony, along with co-defendants                 certain Morgan Management principals. The



                             Semiannual Report to the Congress • October 1, 2018­–March 31, 2019   47
false information included inflated income           fraud and deprivation of honest services
derived from storage unit rentals, parking           involving a scheme where she received bribes
revenue, and apartment leases. Additionally,         and kickbacks from brokers in exchange
during the construction phase, apartments            for Fannie Mae real estate listings and for
were reported to lenders as “occupied”               approving the discounted sales of Fannie
prior to the issuance of the certificates of         Mae-owned properties.
occupancy. At another property, radon testing
procedures were falsified to secure financing.       According to the evidence presented at
                                                     a five-day trial, Hernandez was a sales
In addition, Kevin Morgan, Ogiony, and               representative at Fannie Mae. As part of its
others made misrepresentations to the lending        operations, Fannie Mae acquires properties
institutions to conceal the unauthorized use         through foreclosures and other methods, and
of loan proceeds by Morgan Management                then it manages and sells those properties for
and its principals. Loan funding was used to         Fannie Mae’s benefit. Since at least 2012,
maintain or improve other properties managed         Fannie Mae’s profits have gone to the U.S.
by Morgan Management, and to satisfy debts           Treasury for the benefit of U.S. taxpayers.
associated with other properties managed
by Morgan Management. For example, the               As a sales representative, Hernandez assigned
defendants included a fictitious $2.5 million        Fannie Mae-owned properties to real estate
debt in a loan application, purportedly owed         brokers and approved sales of the properties
to a Morgan Management controlled entity             based on offers the brokers submitted. In
and created a fabricated payoff letter for           violation of Fannie Mae rules and federal
that debt to increase the amount of the loan         law, Hernandez approved sales of Fannie
in connection with a property known as               Mae-owned properties at discounted prices
Autumn Ridge.                                        to herself and to the brokers who paid her
                                                     kickbacks. She also received bribes—mostly
Charges are pending against Giacobbe and             in cash payments—in return for listing
Todd Morgan. The investigation revealed              opportunities and commissions that brokers
fraud in at least 23 loans issued for over           earned on real estate sales.
$500 million, secured by at least 21
different properties.                                Hernandez also assigned listings to family
                                                     members who earned nearly $2 million
Loss calculations are ongoing. Some loans            in commissions in less than three years.
involved in this scheme were purchased or            Other brokers who paid kickbacks earned
securitized by the Enterprises.                      millions more. For her part in the scheme,
                                                     Hernandez received more than $1 million in
Property Management and REO Schemes                  benefits, including the cash kickbacks that she
                                                     received, and the value of a property that she
Ex-Fannie Mae Employee Found Guilty                  obtained with kickback money.
and Fannie Mae REO Broker Pled Guilty
in Multi-Million Dollar Scheme Involving             As part of the scheme, Hernandez purchased
Property Listings and Approval of Below-             a Fannie Mae-owned property in Sonoma,
Market Sales, California                             California, that she was responsible for
                                                     selling, and she rejected higher, market-
On February 13, 2019, Shirene Hernandez              priced offers in favor of her own below-
was found guilty at trial on charges of wire         market price. Hernandez purchased the



48    Federal Housing Finance Agency Office of Inspector General
Sonoma property through intermediaries and           According to court documents, Dustin, a
affiliates that she controlled, selling it first     licensed real estate broker, owned Home
to a company affiliated with a broker who            Choice Real Estate (HCRE), a company that
was bribing her, then directing the broker           contracted with Fannie Mae to manage and
to transfer the property to her sister-in-law,       perform preservation services on various
who paid for the property with a duffel bag          Fannie Mae foreclosed properties. As part
filled with $286,450 in cash from Hernandez          of a master listing agreement with Fannie
– far below the market price. The Sonoma             Mae, Dustin’s company was prohibited
property was rented out and Hernandez                from using any vendors that she controlled
received the rent proceeds.                          to perform preservation services on Fannie
                                                     Mae properties. Dustin fraudulently used
In a related case, on January 7, 2019, Peter         ProPreserve, a company that she controlled,
Michno, a broker, was charged and pled guilty        to perform preservation services on the
to conspiracy to commit wire fraud involving         properties without Fannie Mae’s knowledge
deprivation of honest services for his role in       or consent. She then submitted approximately
this scheme.                                         550 fraudulent ProPreserve invoices for
                                                     HCRE, which Fannie Mae paid.
According to the plea agreement, Michno was
a Fannie Mae-approved REO broker entitled            Dustin also created inflated ProPreserve
to receive a commission from the sale of REO         invoices for work already performed by
properties as compensation for his services.         other vendors, then submitted those false
Michno was not authorized to purchase                invoices to Fannie Mae for payment, and used
Fannie Mae REO properties for himself                interstate wires to fraudulently submit the
or for his friends, relatives, and associates        invoices to Fannie Mae.
or permitted to pay referral fees, bribes, or
kickbacks to Fannie Mae employees.                   Adverse Possession, Distressed Property,
                                                     and Bankruptcy Fraud Schemes
Michno paid co-conspirators, employed
by Fannie Mae, cash bribes and kickbacks             11 Individuals and 3 Businesses Charged in
in exchange for the assignment of listings           National Foreclosure Relief Scheme, Ohio
and the approval of below-market sales of
Fannie Mae REO properties to him and his             On March 6, 2019, 11 people from across the
affiliates. Michno then transferred some of          country and three businesses were indicted for
these properties to his co-conspirators as           their roles in a scheme to defraud distressed
a kickback for the performance of their              homeowners by falsely representing that they
official duties.                                     could help the victims save their homes.

Licensed Real Estate Broker Sentenced for            According to the 26-count indictment,
Fannie Mae Fraud, Florida                            the co-conspirators took advantage of
                                                     homeowners’ desperation to save their
On December 6, 2018, Hollie Dustin was               homes and used money from homeowner
sentenced to six months in prison, three years       victims to personally enrich themselves. It is
of supervised release, and ordered to pay            alleged that co-conspirators were involved
$34,001 in both restitution and forfeiture for       in a multilevel marketing scheme, which
committing wire fraud against Fannie Mae.            promised affiliates commissions by recruiting
Dustin previously pled guilty to wire fraud.         distressed homeowners to companies they



                             Semiannual Report to the Congress • October 1, 2018­–March 31, 2019   49
controlled, including MVP Home Solutions,            Among other things, the referral programs
LLC, Bolden Pinnacle Group Corp.,                    promised to negotiate with mortgage lenders
and Silverstein & Wolf Corp. They used               on the homeowners’ behalf for the purchase
multiple ways to recruit affiliates, including       of the mortgage notes at a discount, negotiate
conference calls and direct mailings. For            the sale of their home and release of their
example, some co-conspirators hosted                 mortgage loans through a short sale and/
weekly conference calls where participants           or deed in lieu of foreclosure sale, stop
from across the country dialed in to hear            an imminent foreclosure sale, remove the
details of the scheme and share sales                mortgage lien via a tender offer, and achieve
strategies. During the calls, co-conspirators        short sale prices at a fraction of the value of
encouraged affiliates to recruit homeowners          the outstanding lien/note.
to their companies on the promise of
easy money.                                          Further, co-conspirators represented that they
                                                     had “proprietary” methods or “legal tactics”
Some co-conspirators also allegedly promoted,        to help homeowners stall or completely avoid
organized, and attended conferences in which         foreclosure. In actuality, the indictment says
affiliates came to hear details of the scheme        co-conspirators persuaded homeowners to
in person. For example, some co-conspirators         file chapter 13 bankruptcies in order to delay
organized and participated in a national             foreclosure actions.
conference in Columbus, Ohio, in April
2015 in which they provided “deep impact             Co-conspirators allegedly filed skeletal
training” and techniques for affiliates to           bankruptcy petitions that they called “pump
convince homeowners to enroll in Bolden              fakes.” These petitions intentionally failed to
Pinnacle Group Corp. and Silverstein & Wolf          disclose the co-conspirators as preparers and
Corp. programs.                                      named the homeowners as filing pro se. Any
                                                     relief from foreclosure delay was temporary
Affiliates were encouraged to be aggressive          until the bankruptcy court dismissed the
in recruiting homeowners. Affiliates used            proceeding.
online databases and court records to identify
vulnerable, financially distressed homeowners        In 2014 alone, one co-conspirator allegedly
who had recently received notice of                  prepared and filed petitions for 30
foreclosure on their home.                           homeowners without their knowledge.

According to the indictment, some co-                The Enterprises suffered losses because of
conspirators mailed more than 22,000                 this scheme.
postcards promising that they could “stop
foreclosure” or “stop the sheriff sale” for a        Sentencing in $2 Million Mortgage Fraud
fixed fee. Co-conspirators also reached out to       Scheme, California
homeowners using Craigslist ads, websites,
emails, and social media platforms.                  On January 7, 2019, Arnold Millman was
                                                     sentenced to 40 months in prison and ordered
On the promise of reducing or eliminating            to pay $126,786, for his role in a large-
mortgage obligations in exchange for a fee,          scale mortgage fraud scheme. Millman
initial recruiters would collect payments            previously pled guilty to grand theft, filing
from homeowners and refer the victims to             false or forged documents in a public office,
the co-conspirator’s companies.                      conspiracy, and identity theft.



50    Federal Housing Finance Agency Office of Inspector General
According to court documents, Millman,                purported reimbursements, the brokerage
along with others, operated “SafeCare,” a             paid James Murray approximately 90% of
fictitious insurance company that purported to        those amounts and retained an approximate
sell, for upfront fees, low-interest real estate      10% skim. Joanne Murray ensured that James
loans. These fictional loans were offered with        Murray’s company would win these projects
no down-payment requirement and were                  by submitting fraudulent bids to Freddie Mac
primarily marketed to Latino and African              by purported competitors. To avoid detection
American families. The co-conspirators filed          by Freddie Mac, Joanne Murray submitted
false bankruptcy and other court documents            inflated bids in a friend’s name, without his
using fictitious names to delay foreclosure           knowledge, knowing that James Murray’s
and eviction actions and instructed victims           company would submit a lower bid and be
to deposit fees into a bank account they              awarded the project. The Murrays also agreed
controlled. To further victimize their clients,       to submit similar fraudulent requests for
one co-conspirator posed as an attorney and           reimbursement of minor cleaning projects for
charged the victims additional fees for legal         James’ relative, amounting to approximately
services. The victims did not receive real            $68,960, in exchange for the brokerage’s
estate loans and, in fact, many ultimately lost       retention of approximately 10% of the
their homes and life savings. Scheme losses to        relative’s payments.
date are approximately $2 million to lenders
and victims. Potential losses to the Enterprises      In a related case, on February 5, 2019,
are $1 million.                                       Talal Soffan pled guilty to making false
                                                      statements to a federally insured financial
Fraud Affecting the Enterprises, the                  institution, wire fraud, aggravated identity
FHLBanks, or FHLBank Member                           theft, conspiracy, and bank fraud for his
Institutions                                          role in this scheme. Soffan admitted to,
                                                      amongst other crimes, conspiring with
Couple and Business Owner Pled Guilty                 others to submit real and fictitious bids for
for Roles in Freddie Mac Foreclosure                  repair work contracts in exchange for a
Fraud Scheme, Massachusetts                           kickback to the brokerage firm.

On February 11, 2019, Joanne Murray and               Freddie Mac paid reimbursement expenses in
James Murray were charged and pled guilty to          excess of $1.3 million because of this scheme.
conspiracy to commit mail fraud, aggravated           Additional loss calculations are ongoing.
identity theft, and tax evasion for their role in
a scheme to defraud Freddie Mac.                      Pastor and Co-Conspirators Indicted
                                                      for Conspiracy to Defraud FHLBank
According to court documents, Joanne                  Affordable Housing Program, South
Murray worked at a real estate brokerage,             Carolina
which managed hundreds of foreclosed
properties owned by Freddie Mac. The                  On December 12, 2018, Tommy Quick, Isaac
Murrays and others agreed to submit                   Quick, and John Bagwell, Jr. were charged by
fraudulent “reimbursements” by the                    indictment with conspiracy for their roles in
brokerage to Freddie Mac for James Murray’s           a scheme to defraud the Affordable Housing
company, amounting to nearly $1.4 million             Program (AHP) through the FHLBank of
in repair, improvement, and maintenance               Atlanta and its member bank, Community
projects. After Freddie Mac paid the                  First Bank.



                              Semiannual Report to the Congress • October 1, 2018­–March 31, 2019   51
According to an indictment, Tommy Quick,             Law Enforcement Outreach
Pastor of Promised Land Church, created
Promised Land Community Development                  OIG develops public-private partnerships
Corporation (PLCDC), a non-profit                    where appropriate. During this reporting
organization that repaired homes through             period, OIG delivered 36 fraud awareness
grants received from the South Carolina              briefings to different audiences to raise
State Housing Finance and Development                awareness of its law enforcement mission and
Authority (SC Housing), FHLBank of                   of fraud schemes targeting FHFA programs.
Atlanta, and Spartanburg County Community
Development (SCCD). Tommy Quick, acting              OIG has developed ongoing close working
as PLCDC’s Executive Director, and Isaac             relationships with other law enforcement
Quick, PLCDC’s Program Manager, allegedly            agencies, including DOJ and U.S. Attorneys’
submitted false statements and certifications        offices; FBI; HUD-OIG; Federal Deposit
containing inflated construction costs to the        Insurance Corporation (FDIC)-OIG; IRS-CI;
FHLBank of Atlanta and SC Housing.                   the Financial Crimes Enforcement Network;
                                                     state attorneys general; mortgage fraud
Allegedly, the Quicks conspired with                 working groups; and other federal, state, and
Bagwell, a general contractor, who agreed,           local law enforcement agencies nationwide.
for a fee, to falsely sign FHLBank of Atlanta        OI also works closely with Fannie Mae and
and SC Housing certifications claiming               Freddie Mac to combat fraud.
his company, Construction Development
Associates (CDA), was the contractor utilized        During this reporting period, OIG
by PLCDC to perform the grant work. After            worked with additional local and state
the Quicks submitted the fraudulent invoices,        partners, including the Miami-Dade
PLCDC paid CDA. Bagwell then allegedly               Police Department; the New York State
transferred the money paid to CDA, less his          Department of Financial Services; the
fee, to Total Action Against Poverty (TAAP),         Bergen County (NJ) Prosecutor’s Office;
an entity controlled by the Quicks. The              the Prince George’s County (MD) Police
Quicks then used TAAP to hire subcontractors         Department; the Montgomery County (MD)
to perform the work.                                 Police Department; the Liberty County
                                                     (GA) Sheriff’s Office; the Georgia Bureau
Additionally, the Quicks allegedly solicited         of Investigation; the Maryland Department
kickbacks from Bagwell in exchange for               of Labor, Licensing, and Regulation; the
steering SCCD grant projects to CDA.                 Massachusetts State Police; the Springfield
                                                     (MA) Police Department; the California DOJ
The Quicks’ profit from this scheme was the          Fraud and Special Prosecutions Section; the
difference of the submitted verses actual costs      Stanislas County (CA) District Attorney’s
of the grant work, as well as from sponsor           Office; the Orange County (CA) District
fees paid by the FHLBank of Atlanta and SC           Attorney’s Office; the Orange County (CA)
Housing to administer the grants.                    Sheriff’s Department; the Kern County (CA)
                                                     District Attorney’s Office; the Los Angeles
Currently, there are 59 properties identified        Police Department; the Los Angeles Sheriff’s
in this scheme with losses estimated at              Department; and the Illinois State Police.
approximately $300,000 and exposure of over
$700,000.




52    Federal Housing Finance Agency Office of Inspector General
Investigations: Administrative                            or otherwise threaten the safe and sound
Actions                                                   operation of a regulated entity.”3

In addition to the criminal cases brought                 During this reporting period, OIG made
as a result of OIG investigations, OI’s                   17 referrals of counterparties to FHFA for
investigative work regularly results in                   consideration of potential suspension under
administrative referrals to other entities                its Suspended Counterparty Program and
for action. For example, a criminal case of               additional suspension/debarment referrals to
mortgage fraud that results in a guilty plea              other agencies, summarized in Figure 3.
by a licensed real estate agent, attorney, or
certified public accountant for participation
                                                           Figure 3. Administrative Actions
in a bank fraud scheme might result in a
referral by OIG to a state licensing body                  October 1, 2018 – March 31, 2019
for disciplinary actions. When a real estate               Suspension/Debarment Referrals to            68
professional is prosecuted for mortgage fraud,             Other Agencies
that prosecution may cause OIG to refer the                Suspended Counterparty Program               17
matter to another federal agency for possible              Referrals to FHFA
suspension or debarment of that individual
from participation in federal programs.
During this reporting period, OIG made 68
such referrals for suspension and debarment.

Suspended Counterparty
Referrals
FHFA has adopted a Suspended Counterparty
Program under which it issues “suspension
orders directing the regulated entities to
cease or refrain” from doing business with
counterparties (and their affiliates) that
were previously found to have “engaged
in covered misconduct.” Suspension of
such counterparties is warranted to protect
the safety and soundness of the regulated
entities. For purposes of the program,
“covered misconduct” includes convictions
or administrative sanctions within the
past three years based on fraud or similar
misconduct in connection with the mortgage
business. FHFA issues suspension orders
if the misconduct “is of a type that would
be likely to cause significant financial or
reputational harm to a regulated entity

3
    FHFA Suspended Counterparty Program, 12 C.F.R. pt. 1227 (2018). Accessed: March 27, 2019, at FHFA
    Suspended Counterparty Program, 12 C.F.R. pt. 1227.



                                 Semiannual Report to the Congress • October 1, 2018­–March 31, 2019         53
OIG’s Regulatory Activities and Outreach
Regulatory Activities                                 Highlights of our efforts during this reporting
                                                      period include the following:
Pursuant to the Inspector General Act, OIG
assesses whether proposed legislation and             Congress
regulations related to FHFA are efficient,
economical, legal, or susceptible to fraud            To fulfill its mission, OIG works closely
and abuse. OIG is currently assessing                 with Congress and is committed to keeping
proposed, interim final, and final rules              it fully apprised of our oversight of FHFA.
published by FHFA in the Federal Register.            During this semiannual reporting period,
Any recommendations or comments                       OIG provided information and briefings to
upon those rules will be made after these             congressional staff on OIG work.
assessments conclude.
                                                      Hotline
Public and Private Partnerships,
Outreach, and Communications                          The OIG hotline serves as a vehicle
                                                      through which Agency, Enterprise, and
The Enterprises and the FHLBanks play                 FHLBank employees and members of the
a critical role in the U.S. housing finance           public can report suspected fraud, waste,
system, and the financial crisis has shown that       abuse, mismanagement, or misconduct in
financial distress at the Enterprises can threaten    Agency programs and operations. For more
the U.S. economy. American taxpayers put              information about OIG’s hotline, including
their money and confidence in the hands of            OIG contact information, see https://www.
regulators and lawmakers to restore stability         fhfaoig.gov/ReportFraud.
to the economy, and decisions were made to
invest $191.5 billion in the Enterprises. The         Close Coordination with Other Oversight
continuing significant role of the Enterprises        Organizations
and FHLBanks in housing finance demands
constant supervision and monitoring.                  During the reporting period, we maintained
Fundamental to OIG’s mission is independent           active participation in coordinated oversight
and transparent oversight of Agency programs          activities:
and operations and of the Enterprises to the
extent FHFA, as conservator, has delegated                 • FBI Cybercrimes Task Force.
responsibilities to them.                                    The FBI’s Washington, D.C., field
                                                             office spearheads a cybercrimes
OIG prioritizes outreach and engagement                      task force, and OIG has assigned
to communicate its mission and work to                       two special agents to it. This
members of Congress and to the public and                    multiagency task force focuses on
to actively participate in government-wide                   investigating cybercrimes. OIG made
oversight community activities. We continue                  this assignment to help combat such
to forge public and private partnerships to                  crimes and to work in partnership
prevent fraud, encourage transparency, and                   with multiple federal agencies. This
ensure accountability, responsibility, and                   concerted effort will help prosecute
ethical leadership.                                          cybercriminals and stop cyberattacks



54     Federal Housing Finance Agency Office of Inspector General
      made against institutions maintaining          Working Group, the Las Vegas Consumer
      PII, trade secrets, and financial data.        Fraud Protection Fair, the Los Angeles Real
                                                     Estate Fraud Task Force, the Association of
    • CIGIE. OIG actively participates in            Certified Fraud Examiners, the Cook County
      several CIGIE committees and working           Regional Organized Crime Task Force, the
      groups:                                        South Florida Organized Fraud Intelligence
       ◦ The Inspection and Evaluation               Meeting, the Northern California Real
         Committee                                   Estate Fraud Task Force, the Treasure Coast
       ◦ The Investigations Committee                Economic Crimes Working Group, the City
       ◦ The Audit Committee                         of Hyattsville (MD) Senior Group, the New
                                                     Jersey Security Association, the Chicago
    • Council of Inspectors General on               Bank Fraud Investigators Group, the Dane
      Financial Oversight (CIGFO).                   County (WI) Financial Crimes Investigators
      CIGFO was created by the Dodd-                 Group, the El Dorado Task Force South,
      Frank Wall Street Reform and                   students from the University of Chicago, state
      Consumer Protection Act of 2010                and county regulators, and bank investigators.
      to oversee the Financial Stability
      Oversight Council (FSOC), which
      is charged with identifying risks to
      the financial stability of the United
      States, promoting market discipline,
      and responding to emerging risks
      to the stability of the U.S. financial
      system. The FHFA IG is a statutory
      member of CIGFO, along with the IGs
      of Treasury, FDIC, the Securities and
      Exchange Commission, and others. By
      statute, CIGFO may convene working
      groups to evaluate the effectiveness
      and internal operations of FSOC.
      OIG has participated, and continues
      to participate, in different CIGFO
      working groups.

Private-Public Partnerships

Housing finance professionals are on
the frontlines and often have a real-time
understanding of emerging threats and
misconduct. We speak with officials at
the FHLBanks and the Enterprises to
benefit from their insights. We also make
presentations to academic and industry
groups. Recent presentations include: the
U.S. Trustee Program (nationwide), the
Palm Beach County (FL) Economic Crimes



                             Semiannual Report to the Congress • October 1, 2018­–March 31, 2019   55
Appendices
Appendix A:
Information Required
by the Inspector                                     activities during the immediately preceding
                                                     six-month periods ending March 31 and
General Act                                          September 30.

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

                                Source/Requirement                                       Pages
 Section 5(a)(1) – A description of significant problems, abuses, and deficiencies       8-12,
 relating to the administration of programs and operations of FHFA.                      17-33

 Section 5(a)(2) – A description of the recommendations for corrective action           17-33,
 made by OIG with respect to significant problems, abuses, or deficiencies.             63-121

 Section 5(a)(3) – An identification of each significant recommendation                 63-121
 described in previous semiannual reports on which corrective action has not
 been completed.

 Section 5(a)(4) – A summary of matters referred to prosecutive authorities and         34-53,
 the prosecutions and convictions that have resulted.                                   122-125

 Section 5(a)(5) – A summary of each report made to the Director of FHFA                  62
 about information or assistance requested and unreasonably refused or not
 provided.

 Section 5(a)(6) – A listing, subdivided according to subject matter, of each audit     17-33,
 and evaluation report issued by OIG during the reporting period and for each             59
 report, where applicable, the total dollar value of questioned costs (including a
 separate category for the dollar value of unsupported costs) and the dollar value
 of recommendations that funds be put to better use.

 Section 5(a)(7) – A summary of each particularly significant report.                   12-14,
                                                                                         17-33

 Section 5(a)(8) – Statistical tables showing the total number of audit and              3, 59
 evaluation reports and the total dollar value of questioned and
 unsupported costs.


56    Federal Housing Finance Agency Office of Inspector General
                              Source/Requirement                                           Pages
Section 5(a)(9) – Statistical tables showing the total number of audit and                  3, 59
evaluation reports and the dollar value of recommendations that funds be put to
better use by management.

Section 5(a)(10)(A) – A summary of each audit and evaluation report issued                   59
before the commencement of the reporting period for which no management
decision has been made by the end of the reporting period.

Section 5(a)(10)(B) – A summary of each audit and evaluation report issued                   59
before the commencement of the reporting period for which no FHFA comment
was returned within 60 days of providing the report to the Agency.

Section 5(a)(10)(C) – A summary of each audit and evaluation report issued               63-121
before the commencement of the reporting period for which there are any
outstanding unimplemented recommendations, including the aggregate potential
cost savings of those recommendations.

Section 5(a)(11) – A description and explanation of the reasons for any                      59
significant revised management decision made during the reporting period.

Section 5(a)(12) – Information concerning any significant management decision              59-60
with which the Inspector General is in disagreement.

Section 5(a)(13) – The information described under section 804(b) of the                     60
Federal Financial Management Improvement Act of 1996.

Section 5(a)(14) – An appendix containing the results of any peer review                     60
conducted by another IG; or the date of the last peer review if no peer review
was conducted during the reporting period.

Section 5(a)(15) – A list of any outstanding recommendations from any peer                   60
review conducted by another IG that have not been fully implemented.

Section 5(a)(16) – A list of any peer reviews of another IG during the                       60
reporting period.

Section 5(a)(17) – Statistical tables showing, for the reporting period, the total           35
number of: investigative reports issued; persons referred to DOJ for criminal
prosecution; persons referred to State and local prosecuting authorities for
criminal prosecution; and indictments and criminal informations that resulted
from any prior referral to prosecuting authorities.




                            Semiannual Report to the Congress • October 1, 2018­–March 31, 2019     57
                               Source/Requirement                                    Pages
 Section 5(a)(18) – A description of the metrics used for developing the data for     35
 the statistical tables under paragraph (17).

 Section 5(a)(19) – A report on each investigation conducted by OIG involving        60-62
 a senior Government employee where allegations of misconduct were
 substantiated, including a detailed description of the facts and circumstances of
 the investigation, and the status and disposition of the matter.

 Section 5(a)(20) – A detailed description of any instance of whistleblower           61
 retaliation, including information about the official found to have engaged in
 retaliation and what, if any, consequences FHFA imposed to hold that official
 accountable.

 Section 5(a)(21) – A detailed description of any attempt by FHFA to interfere        62
 with the independence of OIG, including with budget constraints designed to
 limit OIG’s capabilities, and incidents where FHFA has resisted or objected
 to OIG oversight activities or restricted or significantly delayed access to
 information.

 Section 5(a)(22)(A) – Detailed descriptions of the particular circumstances          62
 of each evaluation and audit conducted by OIG that is closed and was not
 disclosed to the public.

 Section 5(a)(22)(B) – Detailed descriptions of the particular circumstances of      60-62
 each investigation conducted by OIG involving a senior Government employee
 that is closed and was not disclosed to the public.




58   Federal Housing Finance Agency Office of Inspector General
Reports Identifying Questioned                      No Agency Response Within
Costs, Unsupported Costs, and                       60 Days
Funds to Be Put to Better Use
by Management Issued During                         Section 5(a)(10)(B) of the Inspector General
the Semiannual Period                               Act, as amended, requires that OIG report
                                                    on each audit, inspection, and evaluation
Section 5(a)(6) of the Inspector General            report issued before the commencement
Act, as amended, requires that OIG list             of the reporting period for which no FHFA
its audit reports, inspection reports, and          comment was returned within 60 days of
evaluation reports issued during the                providing the report to the Agency. There
semiannual period and include for each              were no audit, inspection, evaluation, or
report, where applicable, questioned costs,         other oversight reports issued before October
unsupported costs, and funds to be put to           1, 2018, for which OIG did not receive a
better use. Section 5(a)(8) and section 5(a)        response within 60 days of providing the
(9), respectively, require OIG to publish           report to the Agency for comment.
statistical tables showing the total number
of audit reports, inspection reports, and           Significant Revised
evaluation reports and the dollar value of          Management Decisions
questioned and unsupported costs, and
of recommendations that funds be put                Section 5(a)(11) of the Inspector General
to better use by management. Oversight              Act, as amended, requires that OIG report
conducted by OIG is not limited to reports          information concerning the reasons for any
issuing from inspections, audits, and               significant revised management decision
evaluations. OIG also issues other reports          made during the reporting period. During
in furtherance of its mission, including            the six-month reporting period ended March
management alerts and advisories, special           31, 2019, there were no significant revised
reports, and compliance reviews. During             management decisions by FHFA.
this reporting period, the reports that OIG
issued did not include recommendations              Significant Management
with dollar values of questioned costs,             Decisions with Which the
unsupported costs, or funds to be put to            Inspector General Disagrees
better use by management.
                                                    Section 5(a)(12) of the Inspector General
Audit and Evaluation Reports                        Act, as amended, requires that OIG report
with No Management Decision                         information concerning any significant
                                                    management decision with which the
Section 5(a)(10)(A) of the Inspector General        Inspector General is in disagreement.
Act, as amended, requires that OIG report on        During the six-month reporting period ended
each audit, inspection, and evaluation report       March 31, 2019, there was one significant
issued before the commencement of the               management decision by FHFA with which
reporting period for which no management            the Inspector General disagreed.
decision has been made by the end of the
reporting period. There were no audit,              OIG disagrees with FHFA’s decision
inspection, evaluation, or other oversight          regarding one recommendation in our
reports issued before October 1, 2018, that         evaluation report titled FHFA’s Approval
await a management decision.                        of Senior Executive Succession Planning



                            Semiannual Report to the Congress • October 1, 2018­–March 31, 2019   59
at Fannie Mae Acted to Circumvent the                the semiannual period on any peer reviews
Congressionally Mandated Cap on CEO                  of OIG, unimplemented recommendations
Compensation (EVL-2019-001). FHFA                    from any peer reviews of OIG, and any peer
declined to accept our recommendation that           reviews conducted by OIG.
the Agency re-assess the appropriateness
of the annual compensation award of $3.6             The most recent peer review of our
million to Fannie’s Mae President. OIG               investigative function was conducted by
closed the recommendation as rejected.               the United States Nuclear Regulatory
                                                     Commission Office of Inspector General
Federal Financial Management                         (NRC-OIG) and reported on July 12, 2017.
Improvement Act of 1996                              NRC-OIG issued an Opinion Letter and a
                                                     Letter of Observations detailing the results of
Section 5(a)(13) of the Inspector General            its review. In the Opinion Letter, the NRC-
Act, as amended, requires that OIG report            OIG reported that OIG’s system of internal
information concerning instances of and              safeguards and management procedures for
reasons for failures to meet any intermediate        our investigative function is in compliance
target dates from remediation plans designed         with the quality standards established by
to remedy findings that the Agency’s financial       CIGIE and the applicable Attorney General
management systems do not comply with                guidelines. In the Letter of Observations,
federal financial management system                  NRC-OIG recognized OIG for employing five
requirements, applicable federal accounting          “best practices” in its investigative operations.
standards, and the United States Government
Standard General Ledger at the transaction           The most recent peer review of our audit
level. For the six-month reporting period            organization was conducted by the Pension
ended March 31, 2019, this reporting                 Benefit Guaranty Corporation Office of
provision did not apply to the Agency or OIG.        Inspector General and reported on February
                                                     28, 2017. OIG received a final System
HERA requires the Government                         Review Report with a rating of pass, which
Accountability Office (GAO) to audit FHFA            is the highest rating that can be issued to an
financial statements. In its Financial Audit:        audit organization.
Federal Housing Finance Agency’s Fiscal
Years 2018 and 2017 Financial Statements             Copies of both peer review reports are on
report, GAO did not identify any deficiencies        OIG’s website under Current Peer Review
in FHFA’s internal controls over financial           Reports. During this semiannual reporting
reporting that it considered to be material          period, OIG did not complete any peer
weaknesses or significant deficiencies. GAO          reviews of another Office of Inspector
also reported that its test for compliance with      General.
provisions of applicable laws, regulations,
contracts, and grant agreements disclosed no         Investigations into Allegations
reportable instances of noncompliance.               of Employee Misconduct and
                                                     Whistleblower Retaliation
Peer Reviews
                                                     In accordance with the Inspector General Act,
Sections 5(a)(14), (15), and (16) of the             as amended, Sections 5(a)(19), (20), (22)(B),
Inspector General Act, as amended, require           and 5(e), OIG is required to report certain
that OIG provide information relevant to             information regarding (1) investigations



60    Federal Housing Finance Agency Office of Inspector General
involving senior government employees                have any reportable information during the
(SGEs) or (2) government officials found to          applicable time frame.
have engaged in whistleblower retaliation.
In this section, we include the results of OIG       Sections 5(a)(22)(B) and 5(e)(1) of the
administrative inquiries as appropriate.             Inspector General Act, as amended, require
                                                     that OIG report—to the extent that public
Sections 5(a)(19) and 5(e)(1) of the Inspector       disclosure of the information is not prohibited
General Act, as amended, require that OIG            by law (e.g., the Privacy Act of 1974)—on
report—to the extent that public disclosure          each investigation involving an SGE that is
of the information is not prohibited by law          closed and was not disclosed to the public.
(e.g., the Privacy Act of 1974)—on each
investigation it conducted involving an SGE          During this reporting period, OIG completed
when allegations of misconduct                       an administrative inquiry of an anonymous
were substantiated.                                  hotline complaint alleging that an FHFA SGE
                                                     engaged in nepotism and favoritism during an
As discussed earlier in the section titled           internal hiring process, and that the individual
“OIG’s Oversight of FHFA’s Programs and              selected by the SGE lacked necessary
Operations Through Audit, Evaluation, and            qualifications for the position. OIG did not
Compliance Activities During This Reporting          find evidence sufficient to substantiate these
Period,” OIG completed an administrative             allegations, and the matter was closed.
inquiry this period into allegations of
misconduct by the then-FHFA Director.                During this reporting period, OIG completed
OIG determined that the information we               an administrative inquiry of hotline
obtained during our administrative inquiry           complaints alleging that another FHFA SGE
provided a sufficient basis to substantiate one      circumvented or manipulated federal hiring
allegation of misconduct by the then-FHFA            and compensation practices and provided
Director and to give rise to a second finding        jobs to at least two individuals without proper
of misconduct. We found that (1) the then-           regard to their qualifications. OIG did not find
FHFA Director misused his official position          sufficient evidence to support a conclusion
to attempt to obtain a personal benefit and          that any violations of law, rule, or regulation
(2) he was not candid with OIG. We issued            occurred, and the matter was closed.
the report to the President for such action as
he deemed appropriate, and to the Office of          During the prior reporting period, OIG
Government Ethics and to our Congressional           completed an administrative inquiry of
oversight committees. See OIG, Report of             hotline complaints alleging, among other
Administrative Inquiry into Allegations of           things, that two FHFA SGEs falsified their
Misconduct by the FHFA Director (OIG-                time and attendance records. (See OIG,
2019-001, November 29, 2018).                        Summary of Administrative Inquiry: The
                                                     Office of Inspector General’s Review of
Sections 5(a)(20) and 5(e)(1) of the Inspector       Alleged Time and Attendance Fraud by Two
General Act, as amended, require that OIG            Senior Agency Officials (OIG-2018-005,
report—to the extent that public disclosure of       September 24, 2018)). FHFA concluded that
the information is not prohibited by law (e.g.,      both SGEs discussed in the OIG summary
the Privacy Act of 1974)—on any instance of          violated FHFA’s policies regarding leave and
whistleblower retaliation by an official found       work schedules, and their conduct warranted
to have engaged in retaliation. OIG does not         discipline. During this reporting period, FHFA



                             Semiannual Report to the Congress • October 1, 2018­–March 31, 2019   61
imposed disciplinary measures for both SGEs.         OIG’s oversight activities or restricting or
As part of the same matter, OIG conducted            significantly delaying access to information.
an inquiry into alleged misuse of an FHFA            OIG does not have any reportable information
vehicle by another SGE. OIG did not find             during the applicable time frame.
sufficient evidence to substantiate that
allegation; therefore, the matter was closed.

During this reporting period, OIG
completed an administrative inquiry into
an allegation of wasteful spending by an
SGE on an office budget. OIG did not
find sufficient evidence to substantiate the
claims and closed the inquiry.

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

Interference with Independence
Section 5(a)(21) of the Inspector General
Act, as amended, requires that OIG report
any attempt by FHFA to interfere with the
independence of the office, including through
budget constraints designed to limit OIG’s
capabilities and resistance or objection to



62    Federal Housing Finance Agency Office of Inspector General
Appendix B: OIG                                     recommendations still pending, made,
                                                    or reopened during this reporting period.
Recommendations                                     Figure 5 (see page 87) summarizes
                                                    OIG’s outstanding unimplemented
In accordance with the provisions of the            recommendations. Figure 6 (see page 88)
Inspector General Act, one of the key               lists OIG’s outstanding unimplemented open
duties of OIG is to provide to FHFA                 recommendations, organized by risk area.
recommendations that promote economy,               Figure 7 (see page 107) lists OIG’s closed,
efficiency, and effectiveness in the Agency’s       unimplemented recommendations. Summaries
operations and aid in the prevention and            for all reports are available on OIG’s
detection of fraud, waste, or abuse. Since          website or through the links provided in the
OIG began operations in October 2010, we            accompanying tables. OIG also publishes a
have made more than 425 recommendations.            Compendium of Open Recommendations on
Figure 4 (see page 64) summarizes OIG’s             its website.




                            Semiannual Report to the Congress • October 1, 2018­–March 31, 2019   63
Figure 4.

Summary of OIG Recommendations Made, Pending, or Reopened
During This Period

                                                           Report Name
       No.                  Recommendation                                         Status
                                                            and Date
AUD-2019-006-1        FHFA should work with              Fannie Mae           Recommendation
                      Fannie Mae to resolve the          Purchased Single-    agreed to
                      high instance (over 10             Family Mortgages,    by FHFA;
                      percent of loans during            Including those      implementation
                      our review period) of the          Purchased            pending.
                      property valuation method          through Master
                      being reported as “unknown”        Agreements, in
                      in FHFA’s Mortgage Loan            Accordance with
                      Integrated System.                 Selected Credit
                                                         Terms Set Forth in
                                                         its Selling Guide
                                                         for 2015-2017
                                                         (AUD-2019-006,
                                                         March 27, 2019)
AUD-2019-004-1        FHFA should develop and            FHFA’s               Recommendation
                      implement written procedures       Offboarding          agreed to
                      for all offboarding activities,    Controls over        by FHFA;
                      to include procedures for the      Access Cards,        implementation
                      collection and deactivation        Sensitive IT         pending.
                      of access cards for FHFA           Assets, and
                      facilities and the collection      Records Were
                      and transfer of Enterprise         Not Always
                      access cards.                      Documented or
                                                         Followed During
                                                         2016 and 2017
                                                         (AUD-2019-004,
                                                         March 13, 2019)




64   Federal Housing Finance Agency Office of Inspector General
                                                      Report Name
      No.             Recommendation                                              Status
                                                       and Date
AUD-2019-004-2   FHFA should ensure that           FHFA’s                  Recommendation
                 PIV cards are collected,          Offboarding             agreed to
                 and building access is            Controls over           by FHFA;
                 deactivated, for all separated    Access Cards,           implementation
                 and departed individuals to       Sensitive IT            pending.
                 whom cards were issued. For       Assets, and
                 unaccounted/lost PIV cards,       Records Were
                 ensure that building access       Not Always
                 associated with those cards is    Documented or
                 promptly deactivated.             Followed During
                                                   2016 and 2017
                                                   (AUD-2019-004,
                                                   March 13, 2019)
AUD-2019-004-3   FHFA should implement             FHFA’s                  Recommendation
                 controls to ensure all departed   Offboarding             agreed to
                 contractor employees              Controls over           by FHFA;
                 complete applicable               Access Cards,           implementation
                 offboarding requirements.         Sensitive IT            pending.
                                                   Assets, and
                                                   Records Were
                                                   Not Always
                                                   Documented or
                                                   Followed During
                                                   2016 and 2017
                                                   (AUD-2019-004,
                                                   March 13, 2019)
AUD-2019-004-4   FHFA should reinforce,            FHFA’s                  Recommendation
                 through training and              Offboarding             agreed to
                 supervision, that offices with    Controls over           by FHFA;
                 offboarding responsibilities      Access Cards,           implementation
                 ensure offboarding forms are      Sensitive IT            pending.
                 properly completed.               Assets, and
                                                   Records Were
                                                   Not Always
                                                   Documented or
                                                   Followed During
                                                   2016 and 2017
                                                   (AUD-2019-004,
                                                   March 13, 2019)




                       Semiannual Report to the Congress • October 1, 2018­–March 31, 2019   65
                                                           Report Name
       No.                  Recommendation                                          Status
                                                            and Date
AUD-2019-004-5        FHFA should ensure that            FHFA’s                Recommendation
                      offboarding documentation          Offboarding           agreed to
                      is maintained in accordance        Controls over         by FHFA;
                      with FHFA’s retention              Access Cards,         implementation
                      requirement.                       Sensitive IT          pending.
                                                         Assets, and
                                                         Records Were
                                                         Not Always
                                                         Documented or
                                                         Followed During
                                                         2016 and 2017
                                                         (AUD-2019-004,
                                                         March 13, 2019)
AUD-2019-003-1        FHFA should ensure planned         External              Recommendation
                      systems replacements               Penetration Test of   agreed to
                      meet National Institute of         FHFA’s Network        by FHFA;
                      Standards and Technology           and Systems           implementation
                      (NIST) Special Publication         During 2018           pending.
                      800-52 Revision 1                  (AUD-2019-003,
                      requirements for encryption.       February 11, 2019)
AUD-2019-003-2        FHFA should emphasize              External              Recommendation
                      to employees the need to           Penetration Test of   agreed to
                      [redacted] in emails and           FHFA’s Network        by FHFA;
                      report suspicious emails.          and Systems           implementation
                                                         During 2018           pending.
                                                         (AUD-2019-003,
                                                         February 11, 2019)
AUD-2019-003-3        FHFA should continue to            External              Recommendation
                      perform periodic phishing          Penetration Test of   agreed to
                      email tests.                       FHFA’s Network        by FHFA;
                                                         and Systems           implementation
                                                         During 2018           pending.
                                                         (AUD-2019-003,
                                                         February 11, 2019)




66   Federal Housing Finance Agency Office of Inspector General
                                                      Report Name
      No.             Recommendation                                              Status
                                                       and Date
AUD-2019-001-3   Because information in            Performance             Recommendation
                 this report could be used to      Audit of the            agreed to
                 circumvent FHFA’s internal        Federal Housing         by FHFA;
                 controls, it has not been         Finance Agency’s        implementation
                 released publicly.                Information             pending.
                                                   Security Program
                                                   Fiscal Year 2018
                                                   (AUD-2019-001,
                                                   October 24, 2018)
AUD-2019-001-4   Because information in            Performance             Recommendation
                 this report could be used to      Audit of the            agreed to
                 circumvent FHFA’s internal        Federal Housing         by FHFA;
                 controls, it has not been         Finance Agency’s        implementation
                 released publicly.                Information             pending.
                                                   Security Program
                                                   Fiscal Year 2018
                                                   (AUD-2019-001,
                                                   October 24, 2018)




                       Semiannual Report to the Congress • October 1, 2018­–March 31, 2019   67
                                                           Report Name
       No.                  Recommendation                                        Status
                                                            and Date
AUD-2018-014-1        FHFA should reinforce              Audit of FHFA’s     Recommendation
                      FHFA’s government travel           Fiscal Year 2017    agreed to
                      card policies and procedures       Government Travel   by FHFA;
                      through periodic reminders         Card Program:       implementation
                      to, and training of, FHFA          FHFA Needs          pending.
                      travelers and approving            to Emphasize
                      officials, including               Certain Program
                      requirements to ensure:            Requirements
                                                         to Travelers
                        •	 Travel card holders do
                                                         and Approving
                           not pay lodging taxes
                                                         Officials
                           in states that exempt
                                                         (AUD-2018-014,
                           government issued
                                                         September 25,
                           travel cards from taxes;
                                                         2018)
                        •	 Employees submit
                           vouchers within five
                           working days after
                           employees complete
                           their travel, initiate
                           travel only after their
                           travel authorizations are
                           approved, and submit
                           required receipts with
                           travel vouchers;
                        •	 Employees use their
                           government-issued
                           travel cards for all
                           official travel expenses;
                           and
                        •	 Employees use travel
                           cards only for official
                           travel.




68   Federal Housing Finance Agency Office of Inspector General
                                                     Report Name
      No.             Recommendation                                             Status
                                                      and Date
AUD-2018-013-1   FHFA should develop,             FHFA Needs              Recommendation
                 document, and implement          to Strengthen           agreed to
                 control activities to ensure     Controls over           by FHFA;
                 that (a) only current FHFA       its Employee            implementation
                 employees are receiving          Transportation          pending.
                 transportation benefits, (b)     Benefits Programs
                 no employee is improperly        (AUD-2018-013,
                 participating in both            September 25,
                 transportation benefit           2018)
                 programs, (c) FHFA’s
                 Transit Benefits System
                 has a record/certification
                 for each employee who
                 receives a transportation
                 benefit, and (d) SmarTrip®
                 cards are physically
                 controlled. Such control
                 activities include periodic
                 reconciliation of approved
                 transit subsidy recipients
                 in [the] Transit Benefits
                 System to FHFA transit
                 subsidy recipients listed on
                 Washington Metropolitan
                 Area Transit Authority
                 Monthly Activity Reports;
                 periodic reconciliation of
                 approved transit subsidy
                 recipients to active parking
                 permit recipients; and
                 periodic inventory counts of
                 SmarTrip® cards registered
                 to FHFA and undistributed
                 parking permits.




                      Semiannual Report to the Congress • October 1, 2018­–March 31, 2019   69
                                                           Report Name
       No.                  Recommendation                                         Status
                                                            and Date
AUD-2018-013-2        FHFA should ensure that            FHFA Needs          Recommendation
                      FHFA’s Transit Benefits            to Strengthen       agreed to
                      System has accurate and            Controls over       by FHFA;
                      up-to-date records of, and         its Employee        implementation
                      current certifications for, each   Transportation      pending.
                      FHFA employee who receives         Benefits Programs
                      a transportation benefit.          (AUD-2018-013,
                                                         September 25,
                                                         2018)
AUD-2018-013-3        Should FHFA identify,              FHFA Needs          Recommendation
                      through these newly imple-         to Strengthen       agreed to
                      mented controls, any indi-         Controls over       by FHFA;
                      viduals who improperly used        its Employee        implementation
                      transit subsidies to which         Transportation      pending.
                      they were not entitled, FHFA       Benefits Programs
                      should determine whether to        (AUD-2018-013,
                      recover the amounts (taking        September 25,
                      cost/benefit into consider-        2018)
                      ation).
AUD-2018-008-2        FHFA should ensure that            FHFA Failed to      OIG review
                      Freddie Mac takes, or has          Ensure Freddie      pending closure.
                      taken, remedial action             Mac’s Remedial
                      to address the deficiency          Plans for a
                      underlying the MRA                 Cybersecurity
                      regarding the need to              MRA Addressed
                      implement a process to verify      All Deficiencies;
                      and monitor [certain matters].     as Allowed by its
                                                         Standard, FHFA
                                                         Closed the MRA
                                                         after Independently
                                                         Determining
                                                         the Enterprise
                                                         Completed its
                                                         Planned Remedial
                                                         Actions
                                                         (AUD-2018-008,
                                                         March 28, 2018)




70   Federal Housing Finance Agency Office of Inspector General
                                                      Report Name
      No.             Recommendation                                             Status
                                                       and Date
AUD-2017-010-2   FHFA should reinforce              FHFA Failed to     OIG review
                 through training and               Complete Non-      pending closure.
AUD-2017-011-1
                 supervision of DER                 MRA Supervisory
                 personnel, the requirements        Activities Related
                 established by FHFA and            to Cybersecurity
                 reinforced by DER guidance,        Risks at Fannie
                 for the risk assessment and        Mae Planned
                 supervisory planning process.      for the 2016
                 Specifically:                      Examination Cycle
                                                    (AUD-2017-010,
                 a.	 Ensure that the annual         September 27,
                     supervisory strategy           2017);
                     identifies significant risks
                     and supervisory concerns       FHFA Did
                     and explains how the           Not Complete
                     planned supervisory            All Planned
                     activities to be conducted     Supervisory
                     during the examination         Activities Related
                     cycle address the most         to Cybersecurity
                     significant risks in           Risk at Freddie
                     the operational risk           Mac for the 2016
                     assessment. (Applies           Examination Cycle
                     to AUD-2017-010 and            (AUD-2017-011,
                     AUD-2017-011)                  September 27,
                                                    2017)
                 b.	 Ensure that supervisory
                     activities planned
                     during an examination
                     cycle to address the
                     most significant risks
                     in the operational
                     risk assessment are
                     completed within the
                     examination cycle.
                     (Applies to AUD-2017-
                     010)




                      Semiannual Report to the Congress • October 1, 2018­–March 31, 2019   71
                                                           Report Name
       No.                  Recommendation                                        Status
                                                            and Date
AUD-2017-010-1        FHFA should assess whether         FHFA Failed to     OIG review
                      DER has a sufficient               Complete Non-      pending closure.
                      complement of qualified            MRA Supervisory
                      examiners to conduct and           Activities Related
                      complete those examinations        to Cybersecurity
                      rated by DER to be of              Risks at Fannie
                      high-priority within each          Mae Planned
                      supervisory cycle and address      for the 2016
                      the resource constraints           Examination Cycle
                      that have adversely affected       (AUD-2017-010,
                      DER’s ability to carry out its     September 27,
                      risk-based supervisory plans.      2017)
AUD-2017-007-1        The FHFA Privacy                   Performance Audit OIG review
                      Office should conduct a            of the Federal    pending closure.
                      comprehensive business             Housing Finance
                      process analysis to identify       Agency’s (FHFA)
                      all FHFA business processes        Privacy Program
                      that collect PII in electronic     (AUD-2017-007,
                      and hardcopy form to build         August 30, 2017)
                      an inventory of where PII is
                      stored.
AUD-2017-007-2        The FHFA Privacy Office            Performance Audit OIG review
                      should develop manual and          of the Federal    pending closure.
                      automated processes to             Housing Finance
                      maintain an accurate and           Agency’s (FHFA)
                      complete inventory of where        Privacy Program
                      PII is stored.                     (AUD-2017-007,
                                                         August 30, 2017)
AUD-2017-007-3        The FHFA Privacy Office            Performance Audit   Recommendation
                      should establish, implement,       of the Federal      agreed to
                      and train end users to apply       Housing Finance     by FHFA;
                      naming conventions to files        Agency’s (FHFA)     implementation
                      and folders containing PII.        Privacy Program     pending.
                                                         (AUD-2017-007,
                                                         August 30, 2017)




72   Federal Housing Finance Agency Office of Inspector General
                                                      Report Name
      No.              Recommendation                                             Status
                                                       and Date
AUD-2017-007-4   The FHFA Privacy                  Performance Audit OIG review
                 Office should conduct a           of the Federal    pending closure.
                 feasibility study of available    Housing Finance
                 technologies to supplement        Agency’s (FHFA)
                 the manual and automated          Privacy Program
                 processes to identify and         (AUD-2017-007,
                 secure PII at rest and in         August 30, 2017)
                 transit.
AUD-2016-007-2   FHFA should assess whether        FHFA’s Targeted         Recommendation
                 DER has a sufficient              Examinations            partially agreed
AUD-2016-006-2
                 complement of qualified           of Freddie Mac:         to by FHFA; OIG
                 examiners to conduct and          Just Over Half          review pending
                 complete those examinations       of the Targeted         closure.
                 rated by DER to be of             Examinations
                 high-priority within each         Planned for 2012
                 supervisory cycle and address     through 2015
                 the resource constraints          Were Completed
                 that have adversely affected      (AUD-2016-
                 DER’s ability to carry out its    007, September
                 risk-based supervisory plans.     30, 2016);
                                                   FHFA’s Targeted
                                                   Examinations
                                                   of Fannie Mae:
                                                   Less than Half
                                                   of the Targeted
                                                   Examinations
                                                   Planned for 2012
                                                   through 2015 Were
                                                   Completed and
                                                   No Examinations
                                                   Planned for 2015
                                                   Were Completed
                                                   Before the Report
                                                   of Examination
                                                   Issued
                                                   (AUD-2016-006,
                                                   September 30,
                                                   2016)




                       Semiannual Report to the Congress • October 1, 2018­–March 31, 2019   73
                                                           Report Name
       No.                  Recommendation                                        Status
                                                            and Date
EVL-2019-002-1        FHFA should re-assess              FHFA’s Approval     Recommendation
                      the appropriateness of             of Senior           not agreed to by
                      the annual compensation            Executive           FHFA; closed as
                      package of $3.25 million to        Succession          rejected.
                      the Freddie Mac President          Planning at
                      with consideration paid            Freddie Mac Acted
                      to the following factors:          to Circumvent the
                      the congressional intent           Congressionally
                      behind the statutory               Mandated
                      cap on compensation;               Cap on CEO
                      Freddie Mac’s continued            Compensation
                      conservatorship status and         (EVL-2019-002,
                      the burdens imposed on             March 26, 2019)
                      the taxpayers from that
                      status; the 10-year practice
                      at Freddie Mac where one
                      individual executed the CEO
                      responsibilities with annual
                      compensation capped at
                      $600,000 since 2015; and
                      the temporary nature of the
                      position of President, in light
                      of FHFA’s representation
                      that Candidate A will leave
                      Freddie Mac if he is not
                      selected for the CEO position.




74   Federal Housing Finance Agency Office of Inspector General
                                                      Report Name
      No.             Recommendation                                              Status
                                                       and Date
EVL-2019-001-1   FHFA should re-assess             FHFA’s Approval         Recommendation
                 the appropriateness of            of Senior               not agreed to by
                 the annual compensation           Executive               FHFA; closed as
                 package of $3.6 million to        Succession              rejected.
                 the Fannie Mae President          Planning at Fannie
                 with consideration paid           Mae Acted to
                 to the following factors:         Circumvent the
                 the congressional intent          Congressionally
                 behind the statutory cap on       Mandated
                 compensation; Fannie Mae’s        Cap on CEO
                 continued conservatorship         Compensation
                 status and the burdens            (EVL-2019-001,
                 imposed on the taxpayers          March 26, 2019)
                 from that status; and the
                 10-year practice at Fannie
                 Mae where one individual
                 executed the responsibilities
                 of both the CEO and
                 President positions, with
                 annual compensation capped
                 at $600,000 since 2015.
EVL-2019-001-2   FHFA should establish a           FHFA’s Approval         Recommendation
                 process for maintaining           of Senior               agreed to
                 and monitoring sensitive          Executive               by FHFA;
                 conservator requests in the       Succession              implementation
                 DOC’s Status Tracking and         Planning at Fannie      pending.
                 Reporting System.                 Mae Acted to
                                                   Circumvent the
                                                   Congressionally
                                                   Mandated
                                                   Cap on CEO
                                                   Compensation
                                                   (EVL-2019-001,
                                                   March 26, 2019)




                       Semiannual Report to the Congress • October 1, 2018­–March 31, 2019   75
                                                           Report Name
       No.                  Recommendation                                          Status
                                                            and Date
EVL-2018-004-1        Because Congress required          FHFA Should           Recommendation
                      the Enterprises to prepare         Re-evaluate and       agreed to
                      fraud reports and FHFA             Revise Fraud          by FHFA;
                      has directed them to submit        Reporting by the      implementation
                      detailed monthly and               Enterprises to        pending.
                      quarterly reports to meet          Enhance its Utility
                      this statutory requirement,        (EVL-2018-004,
                      we recommend that FHFA             September 24,
                      re-evaluate the fraud              2018)
                      information it requires from
                      the Enterprises, and revise,
                      as appropriate, its existing
                      reporting requirements to
                      enhance the utility of these
                      reports with the goal of using
                      these reports to inform its
                      supervisory activities with
                      respect to the risk that fraud
                      poses to the Enterprises.
EVL-2018-003-1        FHFA should adopt clear            FHFA’s Adoption    OIG review
                      guidance for examiners             of Clear Guidance pending closure.
                      to follow when assessing           on the Review of
                      the sufficiency of MRA             the Enterprises’
                      remediation by the                 Internal Audit
                      Enterprises that identifies        Work When
                      the work steps that should         Assessing the
                      be included in examiners’          Sufficiency of
                      independent assessments of         Remediation
                      Internal Audit’s work and          of Serious
                      specifies the conditions under     Deficiencies Would
                      which examiner testing is          Assist FHFA
                      expected.                          Examiners
                                                         (EVL-2018-003,
                                                         March 28, 2018)




76   Federal Housing Finance Agency Office of Inspector General
                                                     Report Name
      No.             Recommendation                                             Status
                                                      and Date
EVL-2018-002-2   FHFA should revise its           FHFA Requires           OIG review
                 guidance to provide clear        the Enterprises’        pending closure.
                 direction to examiners on        Internal Audit
                 whether, or the circumstances    Functions
                 under which, its examiners       to Validate
                 may rely on information,         Remediation
                 analyses, or conclusions         of Serious
                 provided by an Enterprise’s      Deficiencies
                 Internal Audit function when     but Provides
                 assessing the adequacy of        No Guidance
                 MRA remediation.                 and Imposes No
                                                  Preconditions on
                                                  Examiners’ Use
                                                  of that Validation
                                                  Work
                                                  (EVL-2018-002,
                                                  March 28, 2018)
EVL-2018-001-5   FHFA should direct FHFA          Corporate               Recommendation
                 employees to monitor the         Governance:             agreed to
                 review and resolution of         Review and              by FHFA;
                 SEO disclosures of potential,    Resolution of           implementation
                 actual, or apparent conflicts    Conflicts of            pending.
                 of interest to ensure that       Interest Involving
                 revised Board committee          Fannie Mae’s
                 charter(s) and management        Senior Executive
                 policies and procedures are      Officers Highlight
                 being followed.                  the Need for
                                                  Closer Attention to
                                                  Governance Issues
                                                  by FHFA
                                                  (EVL-2018-001,
                                                  January 31, 2018)




                      Semiannual Report to the Congress • October 1, 2018­–March 31, 2019    77
                                                           Report Name
       No.                  Recommendation                                         Status
                                                            and Date
EVL-2017-002-1        In 2017, or as expeditiously       FHFA’s              Recommendation
                      as possible, FHFA should           Examinations Have   agreed to
                      complete the examination           Not Confirmed       by FHFA;
                      activities necessary               Compliance by       implementation
                      to determine whether               One Enterprise      pending.
                      [the Enterprise’s] risk            with its Advisory
                      management of nonbank              Bulletins
                      seller/servicers meets             Regarding Risk
                      FHFA’s supervisory                 Management of
                      expectations as set forth in its   Nonbank Sellers
                      supervisory guidance. These        and Servicers
                      activities should include an       (EVL-2017-002,
                      independent assessment of          December 21,
                      the [related matters].             2016)
EVL-2016-005-1        FHFA should revise its             FHFA’s              OIG review
                      supervision guidance to            Supervisory         pending closure.
                      require DER to provide the         Standards for
                      Chair of the Audit Committee       Communication
                      of an Enterprise Board with        of Serious
                      each conclusion letter setting     Deficiencies to
                      forth an MRA. (In COM-             Enterprise Boards
                      2018-005, OIG clarified            and for Board
                      that the recommendation            Oversight of
                      covers “supervisory                Management’s
                      correspondence,” which             Remediation
                      includes conclusion letters        Efforts are
                      and supervisory letters that       Inadequate
                      set forth MRAs.)                   (EVL-2016-005,
                                                         March 31, 2016)
EVL-2016-003-3        FHFA should comply with            FHFA Should Map     Recommendation
                      FSOC recommendations               Its Supervisory     agreed to
                      to address the gaps, as            Standards for       by FHFA;
                      prioritized, to reflect and        Cyber Risk          implementation
                      incorporate appropriate            Management          pending.
                      elements of the NIST               to Appropriate
                      Framework.                         Elements of the
                                                         NIST Framework
                                                         (EVL-2016-003,
                                                         March 28, 2016)




78   Federal Housing Finance Agency Office of Inspector General
                                                      Report Name
      No.              Recommendation                                             Status
                                                       and Date
EVL-2016-003-4   FHFA should comply with           FHFA Should Map         Recommendation
                 FSOC recommendations to           Its Supervisory         agreed to
                 revise existing regulatory        Standards for           by FHFA;
                 guidance to reflect and           Cyber Risk              implementation
                 incorporate appropriate           Management              pending.
                 elements of the NIST              to Appropriate
                 Framework in a manner             Elements of the
                 that achieves consistency         NIST Framework
                 with other federal financial      (EVL-2016-003,
                 regulators.                       March 28, 2016)
EVL-2015-003-2   FHFA should regularly             Women and               OIG review
                 analyze Agency workforce          Minorities in           pending closure.
                 data and assess trends            FHFA’s Workforce
                 in hiring, awards, and            (EVL-2015-003,
                 promotions.                       January 13, 2015)
EVL-2014-002-2   FHFA should develop a             Update on               OIG review
                 process that links annual         FHFA’s Efforts          pending closure.
                 Enterprise examination plans      to Strengthen
                 with core team resource           its Capacity to
                 requirements.                     Examine the
                                                   Enterprises
                                                   (EVL-2014-002,
                                                   December 19,
                                                   2013)
EVL-2014-002-3   FHFA should establish a           Update on               OIG review
                 strategy to ensure that the       FHFA’s Efforts          pending closure.
                 necessary resources are           to Strengthen
                 in place to ensure timely         its Capacity to
                 and effective Enterprise          Examine the
                 examination oversight.            Enterprises
                                                   (EVL-2014-002,
                                                   December 19,
                                                   2013)
EVL-2013-010-1   Because information in            Reducing Risk           OIG review
                 the report could be used to       and Preventing          pending closure.
                 exploit vulnerabilities and       Fraud in the New
                 circumvent countermeasures,       Securitization
                 the recommendations have          Infrastructure
                 not been released publicly.       (EVL-2013-010,
                                                   August 22, 2013)




                       Semiannual Report to the Congress • October 1, 2018­–March 31, 2019    79
                                                           Report Name
       No.                  Recommendation                                        Status
                                                            and Date
EVL-2013-010-3        Because information in             Reducing Risk      OIG review
                      the report could be used to        and Preventing     pending closure.
                      exploit vulnerabilities and        Fraud in the New
                      circumvent countermeasures,        Securitization
                      the recommendations have           Infrastructure
                      not been released publicly.        (EVL-2013-010,
                                                         August 22, 2013)
EVL-2013-010-4        Because information in             Reducing Risk      OIG review
                      the report could be used to        and Preventing     pending closure.
                      exploit vulnerabilities and        Fraud in the New
                      circumvent countermeasures,        Securitization
                      the recommendations have           Infrastructure
                      not been released publicly.        (EVL-2013-010,
                                                         August 22, 2013)




80   Federal Housing Finance Agency Office of Inspector General
                                                     Report Name
     No.              Recommendation                                             Status
                                                      and Date
COM-2017-005-1   FHFA should develop and          FHFA Should             Recommendation
                 implement a plan containing      Improve its Ad-         agreed to
                 a timeliness standard by         ministration of the     by FHFA;
                 which to eliminate the current   Suspended Coun-         implementation
                 backlog of referrals and         terparty Program        pending. This
                 prevent future backlogs.         (COM-2017-005,          recommendation
                                                  July 31, 2017); see     was agreed to in
                                                  also Compliance         July 2017 and
                                                  Review of FHFA’s        closed in February
                                                  Suspended Coun-         2018. In January
                                                  terparty Program        2019, an OCom
                                                  (COM-2019-002,          review found
                                                  January 25, 2019)       that FHFA had
                                                                          not implemented
                                                                          the agreed-
                                                                          upon corrective
                                                                          actions. OCom
                                                                          determined that the
                                                                          recommendation
                                                                          should be
                                                                          reopened and
                                                                          remain open until
                                                                          FHFA establishes
                                                                          and implements
                                                                          timeliness
                                                                          processing
                                                                          standards to avoid
                                                                          future backlogs.




                      Semiannual Report to the Congress • October 1, 2018­–March 31, 2019   81
                                                           Report Name
       No.                  Recommendation                                          Status
                                                            and Date
COM-2015-001-1        FHFA should determine the          OIG’s Compliance     Recommendation
                      causes of the shortfalls in the    Review of FHFA’s     agreed to
                      Housing Finance Examiner           Implementation       by FHFA;
                      Commission Program that            of Its Housing       implementation
                      we have identified, and            Finance Examiner     pending. In
                      implement a strategy to            Commission           September 2018,
                      ensure the program fulfills its    Program              OCom reported
                      central objective of producing     (COM-2015-           its assessment
                      commissioned examiners who         001, July 29,        of the status of
                      are qualified to lead major        2015); see also      the Housing
                      risk sections of government-       FHFA’s Housing       Finance Examiner
                      sponsored enterprise               Finance Examiner     Commission
                      examinations.                      Commissioning        Program. OCom
                                                         Program: $7.7        determined that the
                                                         Million and Four     recommendation
                                                         Years into the       should be
                                                         Program, the         maintained as open
                                                         Agency has Fewer     and OCom will
                                                         Commissioned         monitor FHFA’s
                                                         Examiners            efforts to revise
                                                         (COM-2018-006,       the Program.
                                                         September 6,
                                                         2018)
OIG-2019-004-1        FHFA should develop,               FHFA Must            Recommendation
                      implement, and circulate           Strengthen its       agreed to
                      to all FHFA employees a            Controls over the    by FHFA;
                      written policy to promote          Hiring of Pathways   implementation
                      compliance with laws and           Interns to Prevent   pending.
                      regulations regarding the          Improper Hiring
                      hiring of relatives of agency      of Relatives of
                      employees, including for           Agency Employees
                      summer internship positions.       (OIG-2019-004,
                      That policy ought to clearly       March 26, 2019)
                      explain the scope of the
                      prohibition on advocating
                      or otherwise interceding
                      on behalf of a relative and
                      on preferential treatment in
                      the hiring of a relative of an
                      Agency employee.




82   Federal Housing Finance Agency Office of Inspector General
                                                      Report Name
      No.             Recommendation                                              Status
                                                       and Date
OIG-2019-004-2   FHFA should provide training      FHFA Must               Recommendation
                 on the operation of its written   Strengthen its          agreed to
                 policy [on the hiring of          Controls over the       by FHFA;
                 relatives], with examples, to     Hiring of Pathways      implementation
                 educate FHFA employees on         Interns to Prevent      pending.
                 the limitations on the hiring     Improper Hiring
                 of relatives.                     of Relatives of
                                                   Agency Employees
                                                   (OIG-2019-004,
                                                   March 26, 2019)
OIG-2019-004-3   FHFA should reinforce the         FHFA Must               Recommendation
                 written policy on the hiring      Strengthen its          agreed to
                 of relatives in the annual        Controls over the       by FHFA;
                 email to FHFA employees           Hiring of Pathways      implementation
                 about summer internship           Interns to Prevent      pending.
                 opportunities.                    Improper Hiring
                                                   of Relatives of
                                                   Agency Employees
                                                   (OIG-2019-004,
                                                   March 26, 2019)




                       Semiannual Report to the Congress • October 1, 2018­–March 31, 2019   83
                                                           Report Name
       No.                  Recommendation                                         Status
                                                            and Date
OIG-2019-004-4        FHFA should require written        FHFA Must            Recommendation
                      certifications from hiring         Strengthen its       agreed to
                      officials and human resources      Controls over the    by FHFA;
                      officials regarding the            Hiring of Pathways   implementation
                      proposed hiring of a relative      Interns to Prevent   pending.
                      of an FHFA employee for a          Improper Hiring
                      summer internship, prior to        of Relatives of
                      the extension of an internship     Agency Employees
                      offer to a selectee, in which      (OIG-2019-004,
                      each official certifies, to the    March 26, 2019)
                      best of his or her knowledge:
                      a. After reasonable inquiry,
                      there is no evidence that an
                      FHFA employee advocated
                      or otherwise interceded on
                      behalf of a relative for a
                      summer internship position;
                      b. After reasonable inquiry,
                      there is no evidence that
                      the hiring official provided
                      preferential treatment to a
                      relative of an FHFA employee
                      for a summer internship
                      position.
OIG-2019-004-5        FHFA should execute                FHFA Must            Recommendation
                      Participant Agreements with        Strengthen its       agreed to
                      each Pathways intern in            Controls over the    by FHFA;
                      accordance with 5 C.F.R. §         Hiring of Pathways   implementation
                      362.106.                           Interns to Prevent   pending.
                                                         Improper Hiring
                                                         of Relatives of
                                                         Agency Employees
                                                         (OIG-2019-004,
                                                         March 26, 2019)




84   Federal Housing Finance Agency Office of Inspector General
                                                     Report Name
      No.             Recommendation                                             Status
                                                      and Date
OIG-2019-004-6   FHFA should determine            FHFA Must               Recommendation
                 the appropriateness of the       Strengthen its          agreed to
                 exclusive referral system        Controls over the       by FHFA;
                 established and relied upon      Hiring of Pathways      implementation
                 by an FHFA hiring official.      Interns to Prevent      pending.
                                                  Improper Hiring
                                                  of Relatives of
                                                  Agency Employees
                                                  (OIG-2019-004,
                                                  March 26, 2019)
OIG-2018-001-1   Prior to the FHFA Director’s     Administrative          OIG review
                 final decision on alternative    Review of a             pending closure.
                 credit score models, FHFA        Potential Conflict
                 should promptly perform          of Interest Matter
                 a comprehensive review           Involving a Senior
                 of the conflict of interest      Executive Officer
                 implications arising             at an Enterprise
                 from [redacted] possible         (OIG-2018-001,
                 involvement in Fannie Mae’s      July 26, 2018)
                 assessment of the potential
                 impact of [redacted] and
                 possible discussions with
                 FHFA about Fannie Mae’s
                 assessment, in light of
                 [redacted] employment of
                 [redacted] as [redacted].
                 Public release by OIG
                 of certain information in
                 the Management Alert is
                 prohibited by the Privacy Act
                 of 1974 (Pub.L. 93–579, 88
                 Stat. 1896, enacted December
                 31, 1974, 5 U.S.C. § 552a).




                      Semiannual Report to the Congress • October 1, 2018­–March 31, 2019    85
                                                           Report Name
       No.                  Recommendation                                          Status
                                                            and Date
OIG-2018-001-2        Prior to the FHFA Director’s       Administrative       OIG review
                      final decision on alternative      Review of a          pending closure.
                      credit score models, FHFA          Potential Conflict
                      should ensure appropriate          of Interest Matter
                      controls are in place to           Involving a Senior
                      mitigate any potential,            Executive Officer
                      apparent, or actual conflict       at an Enterprise
                      of interest.                       (OIG-2018-001,
                                                         July 26, 2018)




86   Federal Housing Finance Agency Office of Inspector General
Figure 5.4

Summary of OIG Outstanding Unimplemented Recommendations

                                                                       Total Number           Dollar Value
                          Number of Unimplemented                     of Reports with         of Aggregate
    Fiscal Year
                             Recommendations                          Unimplemented          Potential Cost
                                                                     Recommendations             Savings

    2013              3 open recommendations                                    2                         $–
                      1 closed, rejected recommendation
    2014              2 open recommendations                                    7              $5,015,5055
                      8 closed, rejected recommendations
    2015              2 open recommendations                                    3                         $–
                      1 closed, rejected recommendation
    2016              4 open recommendations                                   116                        $–
                      14 closed, rejected recommendations
    2017              8 open recommendations                                    67                        $–
                      2 closed, rejected recommendations
    2018              11 open recommendations                                  10                         $–
                      5 closed, rejected recommendations
    2019              18 open recommendations                                   7
                      2 closed, rejected recommendations
    TOTAL             48 open recommendations                                  46               $5,015,505
                      33 closed, rejected recommendations




4
    This figure summarizes OIG’s outstanding unimplemented recommendations, comprised of open
    recommendations and closed, rejected recommendations, which were closed in light of the Agency’s permanent
    rejection or failure to follow through on corrective action.
5
    This potential cost savings is associated with a closed, rejected recommendation.
6
    Recommendations from AUD-2016-007 are repeated in AUD-2016-006 and AUD-2016-005. Each repeated
    recommendation is only counted once; the reports are counted separately.
7
    As with 2016, some audit recommendations appear in two reports (AUD-2017-010 and AUD-2017-011).
    Recommendations are counted only once; reports are counted separately.



                                   Semiannual Report to the Congress • October 1, 2018­–March 31, 2019      87
Figure 6.

Summary of OIG Open Recommendations

 Specific Risk to                                                            Report Name
                        Open Recommendation             Expected Impact
  be Mitigated                                                                and Date

Conservatorship: Delegated Responsibilities

Development          Because information in       Improved fraud          Reducing Risk
of Common            the report could be used to  prevention              and Preventing
Securitization       exploit vulnerabilities and                          Fraud in the New
Platform             circumvent countermeasures,                          Securitization
                     the recommendations have not                         Infrastructure
                     been released publicly.                              (EVL-2013-010,
                                                                          August 22, 2013)

                     Because information in       Improved fraud          Reducing Risk
                     the report could be used to  prevention              and Preventing
                     exploit vulnerabilities and                          Fraud in the New
                     circumvent countermeasures,                          Securitization
                     the recommendations have not                         Infrastructure
                     been released publicly.                              (EVL-2013-010,
                                                                          August 22, 2013)

                     Because information in       Improved fraud          Reducing Risk
                     the report could be used to  prevention              and Preventing
                     exploit vulnerabilities and                          Fraud in the New
                     circumvent countermeasures,                          Securitization
                     the recommendations have not                         Infrastructure
                     been released publicly.                              (EVL-2013-010,
                                                                          August 22, 2013)




88   Federal Housing Finance Agency Office of Inspector General
 Specific Risk to                                                              Report Name
                      Open Recommendation             Expected Impact
  be Mitigated                                                                  and Date

Conflicts of        FHFA should direct FHFA          Improved              Corporate
Interest            employees to monitor the         oversight             Governance: Review
                    review and resolution of                               and Resolution of
                    SEO disclosures of potential,                          Conflicts of Interest
                    actual, or apparent conflicts of                       Involving Fannie
                    interest to ensure that revised                        Mae’s Senior
                    Board committee charter(s)                             Executive Officers
                    and management policies and                            Highlight the Need
                    procedures are being followed.                         for Closer Attention
                                                                           to Governance Issues
                                                                           by FHFA
                                                                           (EVL-2018-001,
                                                                           January 31, 2018)

                    Prior to the FHFA Director’s      Improved             Administrative
                    final decision on alternative     oversight            Review of a Potential
                    credit score models, FHFA                              Conflict of Interest
                    should promptly perform a                              Matter Involving a
                    comprehensive review of the                            Senior Executive
                    conflict of interest implications                      Officer at an
                    arising from [redacted]                                Enterprise
                    possible involvement in Fannie                         (OIG-2018-001, July
                    Mae’s assessment of the                                26, 2018)
                    potential impact of [redacted]
                    and possible discussions
                    with FHFA about Fannie
                    Mae’s assessment, in light
                    of [redacted] employment of
                    [redacted] as [redacted].

                    Prior to the FHFA Director’s      Improved             Administrative
                    final decision on alternative     oversight            Review of a Potential
                    credit score models, FHFA                              Conflict of Interest
                    should ensure appropriate                              Matter Involving a
                    controls are in place to mitigate                      Senior Executive
                    any potential, apparent, or                            Officer at an
                    actual conflict of interest.                           Enterprise
                                                                           (OIG-2018-001, July
                                                                           26, 2018)




                          Semiannual Report to the Congress • October 1, 2018­–March 31, 2019   89
 Specific Risk to                                                             Report Name
                        Open Recommendation             Expected Impact
  be Mitigated                                                                 and Date

Oversight            FHFA should establish a            Improved          FHFA’s Approval
of Sensitive         process for maintaining            oversight         of Senior Executive
Conservator          and monitoring sensitive                             Succession Planning
Requests             conservator requests in the                          at Fannie Mae Acted
                     DOC’s Status Tracking and                            to Circumvent the
                     Reporting System.                                    Congressionally
                                                                          Mandated Cap on
                                                                          CEO Compensation
                                                                          (EVL-2019-001,
                                                                          March 26, 2019)

Data Integrity       FHFA should work with           Improved             Fannie Mae
                     Fannie Mae to resolve the high oversight             Purchased Single-
                     instance (over 10 percent of                         Family Mortgages,
                     loans during our review period)                      Including those
                     of the property valuation                            Purchased through
                     method being reported as                             Master Agreements,
                     “unknown” in the Mortgage                            in Accordance with
                     Loan Integrated System.                              Selected Credit Terms
                                                                          Set Forth in its Selling
                                                                          Guide for 2015-2017
                                                                          (AUD-2019-006,
                                                                          March 27, 2019)

Supervision

Examiner             FHFA should develop a              Improved          Update on FHFA’s
Capacity             process that links annual          supervision       Efforts to Strengthen
                     Enterprise examination plans                         its Capacity to
                     with core team resource                              Examine the
                     requirements.                                        Enterprises
                                                                          (EVL-2014-002,
                                                                          December 19, 2013)

                     FHFA should establish a            Improved          Update on FHFA’s
                     strategy to ensure that the        supervision       Efforts to Strengthen
                     necessary resources are                              its Capacity to
                     in place to ensure timely                            Examine the
                     and effective Enterprise                             Enterprises
                     examination oversight.                               (EVL-2014-002,
                                                                          December 19, 2013)




90   Federal Housing Finance Agency Office of Inspector General
Specific Risk to                                                              Report Name
                     Open Recommendation             Expected Impact
 be Mitigated                                                                  and Date

                   FHFA should assess whether     Improved                FHFA Failed to
                   DER has a sufficient           supervision             Complete Non-
                   complement of qualified                                MRA Supervisory
                   examiners to conduct and                               Activities Related
                   complete those examinations                            to Cybersecurity
                   rated by DER to be of                                  Risks at Fannie Mae
                   high-priority within each                              Planned for the 2016
                   supervisory cycle and address                          Examination Cycle
                   the resource constraints that                          (AUD-2017-010,
                   have adversely affected DER’s                          September 27, 2017)
                   ability to carry out its risk-
                   based supervisory plans.

                   FHFA should assess whether     Improved                FHFA’s Targeted
                   DER has a sufficient           supervision             Examinations
                   complement of qualified                                of Freddie Mac:
                   examiners to conduct and                               Just Over Half
                   complete those examinations                            of the Targeted
                   rated by DER to be of                                  Examinations
                   high-priority within each                              Planned for 2012
                   supervisory cycle and address                          through 2015
                   the resource constraints that                          Were Completed
                   have adversely affected DER’s                          (AUD-2016-007,
                   ability to carry out its risk-                         September 30, 2016);
                   based supervisory plans.                               FHFA’s Targeted
                                                                          Examinations
                                                                          of Fannie Mae:
                                                                          Less than Half
                                                                          of the Targeted
                                                                          Examinations
                                                                          Planned for 2012
                                                                          through 2015 Were
                                                                          Completed and
                                                                          No Examinations
                                                                          Planned for 2015
                                                                          Were Completed
                                                                          Before the Report of
                                                                          Examination Issued
                                                                          (AUD-2016-006,
                                                                          September 30, 2016)




                         Semiannual Report to the Congress • October 1, 2018­–March 31, 2019   91
 Specific Risk to                                                            Report Name
                        Open Recommendation             Expected Impact
  be Mitigated                                                                and Date

Accreditation of     FHFA should determine the        Improved quality    OIG’s Compliance
Examiners            causes of the shortfalls in the                      Review of FHFA’s
                     Housing Finance Examiner                             Implementation
                     Commission Program that                              of Its Housing
                     we have identified, and                              Finance Examiner
                     implement a strategy to                              Commission Program
                     ensure the program fulfills its                      (COM-2015-001,
                     central objective of producing                       July 29, 2015);
                     commissioned examiners who                           FHFA’s Housing
                     are qualified to lead major risk                     Finance Examiner
                     sections of GSE examinations.                        Commissioning
                                                                          Program: $7.7
                                                                          Million and Four
                                                                          Years into the
                                                                          Program, the
                                                                          Agency has Fewer
                                                                          Commissioned
                                                                          Examiners
                                                                          (COM-2018-006,
                                                                          September 6, 2018)




92   Federal Housing Finance Agency Office of Inspector General
 Specific Risk to                                                             Report Name
                     Open Recommendation              Expected Impact
  be Mitigated                                                                 and Date

Risk Assessments FHFA should reinforce,          Improved                 FHFA Failed to
for Supervisory  through training and            supervision              Complete Non-
Planning         supervision of DER personnel,                            MRA Supervisory
                 the requirements established                             Activities Related
                 by FHFA, and reinforced by                               to Cybersecurity
                 DER guidance, for the risk                               Risks at Fannie Mae
                 assessment and supervisory                               Planned for the 2016
                 planning process. Specifically:                          Examination Cycle
                                                                          (AUD-2017-010,
                    a. Ensure that the annual
                                                                          September 27, 2017);
                       supervisory strategy
                                                                          and FHFA Did
                       identifies significant risks
                                                                          Not Complete All
                       and supervisory concerns
                                                                          Planned Supervisory
                       and explains how the
                                                                          Activities Related to
                       planned supervisory
                                                                          Cybersecurity Risks
                       activities to be conducted
                                                                          at Freddie Mac for
                       during the examination
                                                                          the 2016 Examination
                       cycle address the most
                                                                          Cycle
                       significant risks in
                                                                          (AUD-2017-011,
                       the operational risk
                                                                          September 27, 2017)
                       assessment. (Applies
                       to AUD-2017-010 and
                       AUD-2017-011)
                    b. Ensure that supervisory
                       activities planned
                       during an examination
                       cycle to address the
                       most significant risks
                       in the operational risk
                       assessment are completed
                       within the examination
                       cycle. (Applies to AUD-
                       2017-010)




                         Semiannual Report to the Congress • October 1, 2018­–March 31, 2019   93
 Specific Risk to                                                            Report Name
                        Open Recommendation             Expected Impact
  be Mitigated                                                                and Date

Communication        FHFA should revise its          Improved             FHFA’s Supervisory
of Deficiencies      supervision guidance to         supervision          Standards for
to Enterprise        require DER to provide the                           Communication of
Boards               Chair of the Audit Committee                         Serious Deficiencies
                     of an Enterprise Board with                          to Enterprise
                     each conclusion letter setting                       Boards and for
                     forth an MRA. (In COM-                               Board Oversight
                     2018-005, OIG clarified that                         of Management’s
                     the recommendation covers                            Remediation Efforts
                     “supervisory correspondence,”                        are Inadequate
                     which includes conclusion                            (EVL-2016-005,
                     letters and supervisory letters                      March 31, 2016),
                     that set forth MRAs.)                                Compliance
                                                                          Review of FHFA’s
                                                                          Communication of
                                                                          Serious Deficiencies
                                                                          to the Enterprises’
                                                                          Boards of Directors
                                                                          (COM-2018-005,
                                                                          September 5, 2018)

Assessing            FHFA should ensure that       Improved               FHFA Failed to
Remediation of       Freddie Mac takes, or has     remediation of         Ensure Freddie Mac’s
Deficiencies         taken, remedial action        deficiencies           Remedial Plans for
                     to address the deficiency                            a Cybersecurity
                     underlying the MRA regarding                         MRA Addressed
                     the need to implement a                              All Deficiencies;
                     process to verify and monitor                        as Allowed by its
                     [certain matters].                                   Standard, FHFA
                                                                          Closed the MRA
                                                                          after Independently
                                                                          Determining the
                                                                          Enterprise Completed
                                                                          its Planned Remedial
                                                                          Actions
                                                                          (AUD-2018-008,
                                                                          March 28, 2018)




94   Federal Housing Finance Agency Office of Inspector General
Specific Risk to                                                              Report Name
                     Open Recommendation             Expected Impact
 be Mitigated                                                                  and Date

                   FHFA should adopt clear        Improved                FHFA’s Adoption
                   guidance for examiners         remediation of          of Clear Guidance
                   to follow when assessing       deficiencies            on the Review of
                   the sufficiency of MRA                                 the Enterprises’
                   remediation by the Enterprises                         Internal Audit Work
                   that identifies the work steps                         When Assessing
                   that should be included in                             the Sufficiency of
                   examiners’ independent                                 Remediation of
                   assessments of Internal                                Serious Deficiencies
                   Audit’s work and specifies                             Would Assist FHFA
                   the conditions under which                             Examiners
                   examiner testing is expected.                          (EVL-2018-003,
                                                                          March 28, 2018)

                   FHFA should revise its           Improved              FHFA Requires
                   guidance to provide clear        remediation of        the Enterprises’
                   direction to examiners on        deficiencies          Internal Audit
                   whether, or the circumstances                          Functions to Validate
                   under which, its examiners                             Remediation of
                   may rely on information,                               Serious Deficiencies
                   analyses, or conclusions                               but Provides
                   provided by an Enterprise’s                            No Guidance
                   Internal Audit function when                           and Imposes No
                   assessing the adequacy of                              Preconditions on
                   MRA remediation.                                       Examiners’ Use of
                                                                          that Validation Work
                                                                          (EVL-2018-002,
                                                                          March 28, 2018)




                         Semiannual Report to the Congress • October 1, 2018­–March 31, 2019   95
 Specific Risk to                                                            Report Name
                        Open Recommendation             Expected Impact
  be Mitigated                                                                and Date

Use of Fraud Risk Because Congress required       Improved                FHFA Should Re-
Reporting         the Enterprises to prepare      supervision             evaluate and Revise
                  fraud reports and FHFA                                  Fraud Reporting by
                  has directed them to submit                             the Enterprises to
                  detailed monthly and quarterly                          Enhance its Utility
                  reports to meet this statutory                          (EVL-2018-004,
                  requirement, we recommend                               September 24, 2018)
                  that FHFA re-evaluate the
                  fraud information it requires
                  from the Enterprises, and
                  revise, as appropriate, its
                  existing reporting requirements
                  to enhance the utility of these
                  reports with the goal of using
                  these reports to inform its
                  supervisory activities with
                  respect to the risk that fraud
                  poses to the Enterprises.

Counterparties

Compliance           In 2017, or as expeditiously     Improved risk       FHFA’s Examinations
with Advisory        as possible, FHFA should         management          Have Not Confirmed
Bulletins            complete the examination                             Compliance by One
                     activities necessary to                              Enterprise with its
                     determine whether [the                               Advisory Bulletins
                     Enterprise’s] risk management                        Regarding Risk
                     of nonbank seller/servicers                          Management of
                     meets FHFA’s supervisory                             Nonbank Sellers and
                     expectations as set forth in its                     Servicers
                     supervisory guidance. These                          (EVL-2017-002,
                     activities should include an                         December 21, 2016)
                     independent assessment of the
                     [related matters].




96   Federal Housing Finance Agency Office of Inspector General
 Specific Risk to                                                               Report Name
                      Open Recommendation              Expected Impact
  be Mitigated                                                                   and Date

Improved Fraud      FHFA should develop and           Improved fraud        FHFA Should
Prevention          implement a plan containing       prevention            Improve its
                    a timeliness standard by                                Administration
                    which to eliminate the current                          of the Suspended
                    backlog of referrals and                                Counterparty
                    prevent future backlogs.                                Program
                                                                            (COM-2017-005,
                                                                            July 31, 2017); see
                                                                            also Compliance
                                                                            Review of FHFA’s
                                                                            Suspended
                                                                            Counterparty
                                                                            Program
                                                                            (COM-2019-002,
                                                                            January 25, 2019)

Information Technology

Information         FHFA should comply with           Improved risk         FHFA Should Map
Technology Risk     FSOC recommendations              management            Its Supervisory
Examinations        to address the gaps, as                                 Standards for Cyber
                    prioritized, to reflect and                             Risk Management
                    incorporate appropriate                                 to Appropriate
                    elements of the NIST                                    Elements of the NIST
                    Framework.                                              Framework
                                                                            (EVL-2016-003,
                                                                            March 28, 2016)

                    FHFA should comply with           Improved risk         FHFA Should Map
                    FSOC recommendations to           management            Its Supervisory
                    revise existing regulatory                              Standards for Cyber
                    guidance to reflect and                                 Risk Management
                    incorporate appropriate                                 to Appropriate
                    elements of the NIST                                    Elements of the NIST
                    framework in a manner                                   Framework
                    that achieves consistency                               (EVL-2016-003,
                    with other federal financial                            March 28, 2016)
                    regulators.




                           Semiannual Report to the Congress • October 1, 2018­–March 31, 2019    97
 Specific Risk to                                                            Report Name
                        Open Recommendation             Expected Impact
  be Mitigated                                                                and Date

Privacy              The FHFA Privacy                   Improved          Performance Audit of
Information and      Office should conduct a            protection        the Federal Housing
Data Protection      comprehensive business             of privacy        Finance Agency’s
                     process analysis to identify       information       (FHFA) Privacy
                     all FHFA business processes                          Program
                     that collect PII in electronic                       (AUD-2017-007,
                     and hardcopy form to build                           August 30, 2017)
                     an inventory of where PII is
                     stored.

                     The FHFA Privacy Office            Improved          Performance Audit of
                     should develop manual              protection        the Federal Housing
                     and automated processes to         of privacy        Finance Agency’s
                     maintain an accurate and           information       (FHFA) Privacy
                     complete inventory of where                          Program
                     PII is stored.                                       (AUD-2017-007,
                                                                          August 30, 2017)

                     The FHFA Privacy Office            Improved          Performance Audit of
                     should establish, implement,       protection        the Federal Housing
                     and train end users to apply       of privacy        Finance Agency’s
                     naming conventions to files        information       (FHFA) Privacy
                     and folders containing PII.                          Program
                                                                          (AUD-2017-007,
                                                                          August 30, 2017)

                     The FHFA Privacy Office            Improved          Performance Audit of
                     should conduct a feasibility       protection        the Federal Housing
                     study of available technologies    of privacy        Finance Agency’s
                     to supplement the manual           information       (FHFA) Privacy
                     and automated processes to                           Program
                     identify and secure PII at rest                      (AUD-2017-007,
                     and in transit.                                      August 30, 2017)

FHFA                 Because information in             Improved          Performance Audit of
Information          this report could be used to       information       the Federal Housing
Technology           circumvent FHFA’s internal         security          Finance Agency’s
Security             controls, it has not been                            Information Security
                     released publicly.                                   Program Fiscal Year
                                                                          2018
                                                                          (AUD-2019-001,
                                                                          October 24, 2018)




98   Federal Housing Finance Agency Office of Inspector General
 Specific Risk to                                                               Report Name
                       Open Recommendation             Expected Impact
  be Mitigated                                                                   and Date

                    Because information in            Improved              Performance Audit of
                    this report could be used to      information           the Federal Housing
                    circumvent FHFA’s internal        security              Finance Agency’s
                    controls, it has not been                               Information Security
                    released publicly.                                      Program Fiscal Year
                                                                            2018
                                                                            (AUD-2019-001,
                                                                            October 24, 2018)

                    FHFA should ensure planned     Improved                 External Penetration
                    systems replacements meet      information              Test of FHFA’s
                    NIST Special Publication 800- security                  Network and Systems
                    52 Revision 1 requirements for                          During 2018
                    encryption.                                             (AUD-2019-003,
                                                                            February 11, 2019)

                    FHFA should emphasize             Improved              External Penetration
                    to employees the need to          information           Test of FHFA’s
                    [redacted] in emails and report   security              Network and Systems
                    suspicious emails.                                      During 2018
                                                                            (AUD-2019-003,
                                                                            February 11, 2019)

                    FHFA should continue to           Improved              External Penetration
                    perform periodic phishing         information           Test of FHFA’s
                    email tests.                      security              Network and Systems
                                                                            During 2018
                                                                            (AUD-2019-003,
                                                                            February 11, 2019)

Agency Operations

Oversight of   FHFA should regularly                  Improved              Women and
FHFA Workforce analyze Agency workforce               opportunities and     Minorities in FHFA’s
Matters        data and assess trends                 oversight             Workforce
               in hiring, awards, and                                       (EVL-2015-003,
               promotions.                                                  January 13, 2015)




                           Semiannual Report to the Congress • October 1, 2018­–March 31, 2019   99
 Specific Risk to                                                             Report Name
                       Open Recommendation             Expected Impact
  be Mitigated                                                                 and Date

                    FHFA should develop and          Improved              FHFA’s Offboarding
                    implement written procedures opportunities and         Controls over Access
                    for all offboarding activities,  oversight             Cards, Sensitive IT
                    to include procedures for the                          Assets, and Records
                    collection and deactivation of                         Were Not Always
                    access cards for FHFA facilities                       Documented or
                    and the collection and transfer                        Followed During
                    of Enterprise access cards.                            2016 and 2017
                                                                           (AUD-2019-004,
                                                                           March 13, 2019)

                    FHFA should ensure that            Improved            FHFA’s Offboarding
                    PIV cards are collected, and       opportunities and   Controls over Access
                    building access is deactivated,    oversight           Cards, Sensitive IT
                    for all separated and departed                         Assets, and Records
                    individuals to whom cards                              Were Not Always
                    were issued. For unaccounted/                          Documented or
                    lost PIV cards, ensure that                            Followed During
                    building access associated                             2016 and 2017
                    with those cards is promptly                           (AUD-2019-004,
                    deactivated.                                           March 13, 2019)

                    FHFA should implement           Improved               FHFA’s Offboarding
                    controls to ensure all departed opportunities and      Controls over Access
                    contractor employees complete oversight                Cards, Sensitive IT
                    applicable offboarding                                 Assets, and Records
                    requirements.                                          Were Not Always
                                                                           Documented or
                                                                           Followed During
                                                                           2016 and 2017
                                                                           (AUD-2019-004,
                                                                           March 13, 2019)




100   Federal Housing Finance Agency Office of Inspector General
Specific Risk to                                                               Report Name
                      Open Recommendation              Expected Impact
 be Mitigated                                                                   and Date

                   FHFA should reinforce,              Improved            FHFA’s Offboarding
                   through training and                opportunities and   Controls over Access
                   supervision, that offices with      oversight           Cards, Sensitive IT
                   offboarding responsibilities                            Assets, and Records
                   ensure offboarding forms are                            Were Not Always
                   properly completed.                                     Documented or
                                                                           Followed During
                                                                           2016 and 2017
                                                                           (AUD-2019-004,
                                                                           March 13, 2019)

                   FHFA should ensure that             Improved            FHFA’s Offboarding
                   offboarding documentation is        opportunities and   Controls over Access
                   maintained in accordance with       oversight           Cards, Sensitive IT
                   FHFA’s retention requirement.                           Assets, and Records
                                                                           Were Not Always
                                                                           Documented or
                                                                           Followed During
                                                                           2016 and 2017
                                                                           (AUD-2019-004,
                                                                           March 13, 2019)

                   FHFA should develop,                Prevent the         FHFA Must
                   implement, and circulate to         improper hiring     Strengthen its
                   all FHFA employees a written        of relatives        Controls over the
                   policy to promote compliance        of Agency           Hiring of Pathways
                   with laws and regulations           employees           Interns to Prevent
                   regarding the hiring of relatives                       Improper Hiring of
                   of agency employees, including                          Relatives of Agency
                   for summer internship                                   Employees
                   positions. That policy ought to                         (OIG-2019-004,
                   clearly explain the scope of the                        March 26, 2019)
                   prohibition on advocating or
                   otherwise interceding on behalf
                   of a relative and on preferential
                   treatment in the hiring of
                   a relative of an Agency
                   employee.




                        Semiannual Report to the Congress • October 1, 2018­–March 31, 2019   101
 Specific Risk to                                                           Report Name
                       Open Recommendation             Expected Impact
  be Mitigated                                                               and Date

                    FHFA should provide training       Prevent the       FHFA Must
                    on the operation of its written    improper hiring   Strengthen its
                    policy [on the hiring of           of relatives      Controls over the
                    relatives], with examples, to      of Agency         Hiring of Pathways
                    educate FHFA employees on          employees         Interns to Prevent
                    the limitations on the hiring of                     Improper Hiring of
                    relatives.                                           Relatives of Agency
                                                                         Employees
                                                                         (OIG-2019-004,
                                                                         March 26, 2019)

                    FHFA should reinforce the          Prevent the       FHFA Must
                    written policy on the hiring       improper hiring   Strengthen its
                    of relatives in the annual         of relatives      Controls over the
                    email to FHFA employees            of Agency         Hiring of Pathways
                    about summer internship            employees         Interns to Prevent
                    opportunities.                                       Improper Hiring of
                                                                         Relatives of Agency
                                                                         Employees
                                                                         (OIG-2019-004,
                                                                         March 26, 2019)




102   Federal Housing Finance Agency Office of Inspector General
Specific Risk to                                                               Report Name
                      Open Recommendation               Expected Impact
 be Mitigated                                                                   and Date

                   FHFA should require written          Prevent the        FHFA Must
                   certifications from hiring           improper hiring    Strengthen its
                   officials and human resources        of relatives       Controls over the
                   officials regarding the              of Agency          Hiring of Pathways
                   proposed hiring of a relative        employees          Interns to Prevent
                   of an FHFA employee for a                               Improper Hiring of
                   summer internship, prior to the                         Relatives of Agency
                   extension of an internship offer                        Employees
                   to a selectee, in which each                            (OIG-2019-004,
                   official certifies, to the best of                      March 26, 2019)
                   his or her knowledge:
                   a. After reasonable inquiry,
                   there is no evidence that an
                   FHFA employee advocated or
                   otherwise interceded on behalf
                   of a relative for a summer
                   internship position;
                   b. After reasonable inquiry,
                   there is no evidence that
                   the hiring official provided
                   preferential treatment to a
                   relative of an FHFA employee
                   for a summer internship
                   position.

                   FHFA should execute                  Prevent the        FHFA Must
                   Participant Agreements with          improper hiring    Strengthen its
                   each Pathways intern in              of relatives       Controls over the
                   accordance with 5 C.F.R. §           of Agency          Hiring of Pathways
                   362.106.                             employees          Interns to Prevent
                                                                           Improper Hiring of
                                                                           Relatives of Agency
                                                                           Employees
                                                                           (OIG-2019-004,
                                                                           March 26, 2019)




                        Semiannual Report to the Congress • October 1, 2018­–March 31, 2019   103
 Specific Risk to                                                           Report Name
                       Open Recommendation             Expected Impact
  be Mitigated                                                               and Date

                    FHFA should determine              Prevent the       FHFA Must
                    the appropriateness of the         improper hiring   Strengthen its
                    exclusive referral system          of relatives      Controls over the
                    established and relied upon by     of Agency         Hiring of Pathways
                    an FHFA hiring official.           employees         Interns to Prevent
                                                                         Improper Hiring of
                                                                         Relatives of Agency
                                                                         Employees
                                                                         (OIG-2019-004,
                                                                         March 26, 2019)

Management of    FHFA should develop,              Improved              FHFA Needs to
Agency Resources document, and implement           management of         Strengthen Controls
                 control activities to ensure      resources             over its Employee
                 that (a) only current FHFA                              Transportation
                 employees are receiving                                 Benefits Programs
                 transportation benefits, (b)                            (AUD-2018-013,
                 no employee is improperly                               September 25, 2018)
                 participating in both
                 transportation benefit
                 programs, (c) FHFA’s Transit
                 Benefits System has a record/
                 certification for each employee
                 who receives a transportation
                 benefit, and (d) SmarTrip®
                 cards are physically controlled.
                 Such control activities include
                 periodic reconciliation of
                 approved transit subsidy
                 recipients in [the] Transit
                 Benefits System to FHFA
                 transit subsidy recipients listed
                 on Washington Metropolitan
                 Area Transit Authority
                 Monthly Activity Reports;
                 periodic reconciliation of
                 approved transit subsidy
                 recipients to active parking
                 permit recipients; and periodic
                 inventory counts of SmarTrip®
                 cards registered to FHFA and
                 undistributed parking permits.




104   Federal Housing Finance Agency Office of Inspector General
Specific Risk to                                                               Report Name
                      Open Recommendation            Expected Impact
 be Mitigated                                                                   and Date

                   FHFA should ensure that           Improved              FHFA Needs to
                   FHFA’s Transit Benefits           management of         Strengthen Controls
                   System has accurate and up-       resources             over its Employee
                   to-date records of, and current                         Transportation
                   certifications for, each FHFA                           Benefits Programs
                   employee who receives a                                 (AUD-2018-013,
                   transportation benefit.                                 September 25, 2018)

                   Should FHFA identify, through Improved                  FHFA Needs to
                   these newly implemented       management of             Strengthen Controls
                   controls, any individuals     resources                 over its Employee
                   who improperly used transit                             Transportation
                   subsidies to which they were                            Benefits Programs
                   not entitled, FHFA should                               (AUD-2018-013,
                   determine whether to recover                            September 25, 2018)
                   the amounts (taking cost/
                   benefit into consideration).




                        Semiannual Report to the Congress • October 1, 2018­–March 31, 2019   105
 Specific Risk to                                                            Report Name
                       Open Recommendation              Expected Impact
  be Mitigated                                                                and Date

                    FHFA should reinforce               Improved          Audit of FHFA’s
                    FHFA’s government travel            management of     Fiscal Year 2017
                    card policies and procedures        resources         Government Travel
                    through periodic reminders                            Card Program: FHFA
                    to, and training of, FHFA                             Needs to Emphasize
                    travelers and approving                               Certain Program
                    officials, including                                  Requirements
                    requirements to ensure:                               to Travelers and
                                                                          Approving Officials
                     •	 Travel card holders do not                        (AUD-2018-014,
                        pay lodging taxes in states                       September 25, 2018)
                        that exempt government
                        issued travel cards from
                        taxes;
                     •	 Employees submit
                        vouchers within five
                        working days after
                        employees complete
                        their travel, initiate
                        travel only after their
                        travel authorizations are
                        approved, and submit
                        required receipts with
                        travel vouchers;
                     •	 Employees use their
                        government-issued travel
                        cards for all official travel
                        expenses; and
                     •	 Employees use travel
                        cards only for official
                        travel.




106   Federal Housing Finance Agency Office of Inspector General
Figure 7.

Summary of Closed, Unimplemented Recommendations

 Specific Risk to     Closed, Unimplemented                                    Report Name
                                                     Expected Impact
  be Mitigated           Recommendation                                         and Date

Property            FHFA should direct the        Improved quality         FHFA Oversight of
Inspection          Enterprises to establish                               Enterprise Controls
Quality Controls    uniform pre-foreclosure                                Over Pre-Foreclosure
                    inspection quality standards                           Property Inspections
                    and quality control processes                          (AUD-2014-012,
                    for inspectors.                                        March 25, 2014)

Improperly          FHFA should direct Fannie        Improved accuracy FHFA Oversight
Reimbursed          Mae to obtain a refund from                        of Fannie Mae’s
Property            servicers for improperly                           Reimbursement
Inspection Claims   reimbursed property                                Process for Pre-
                    inspection claims, resulting                       Foreclosure Property
                    in estimated funds put to                          Inspections
                    better use of $5,015,505.                          (AUD-2014-005,
                                                                       January 15, 2014)

Seller/Servicer     FHFA should promptly           Improved                FHFA Oversight of
Resolution of       quantify the potential benefit oversight               Enterprise Handling
Aged Repurchase     of implementing a repurchase                           of Aged Repurchase
Demands             late fee program at Fannie                             Demands
                    Mae, and then determine                                (AUD-2014-009,
                    whether the potential cost                             February 12, 2014)
                    of from $500,000 to $5.4
                    million still outweighs the
                    potential benefit.




                         Semiannual Report to the Congress • October 1, 2018­–March 31, 2019   107
 Specific Risk to      Closed, Unimplemented                                 Report Name
                                                        Expected Impact
  be Mitigated            Recommendation                                      and Date

Oversight of         FHFA should perform a           Improved             FHFA’s
Enterprise           comprehensive analysis to       framework            Representation and
Implementation       assess whether financial        management           Warranty Framework
of Representation    risks associated with the new                        (AUD-2014-016,
and Warranty         representation and warranty                          September 17, 2014)
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.

Seller/Servicer      FHFA should direct Fannie         Improved           FHFA’s Oversight
Compliance with      Mae and Freddie Mac               compliance         of Risks Associated
Guidance             to assess the cost/benefit                           with the Enterprises
                     of a risk-based approach                             Relying on
                     to requiring their sellers                           Counterparties to
                     and servicers to provide                             Comply with Selling
                     independent, third-party                             and Servicing
                     attestation reports on                               Guidelines (AUD-
                     compliance with Enterprise                           2014-018, September
                     origination and servicing                            26, 2014)
                     guidance.

Collection of        FHFA should publish Fannie        Improved           Evaluation of Fannie
Funds from           Mae’s reduction targets and       transparency       Mae’s Servicer
Servicers            overpayment findings.                                Reimbursement
                                                                          Operations for
                                                                          Delinquency
                                                                          Expenses
                                                                          (EVL-2013-012,
                                                                          September 18, 2013)




108    Federal Housing Finance Agency Office of Inspector General
 Specific Risk to     Closed, Unimplemented                                    Report Name
                                                     Expected Impact
  be Mitigated           Recommendation                                         and Date

Examination of      DER should adopt a              Improved               Evaluation of the
Recordkeeping       comprehensive examination efficiency                   Division of Enterprise
Practices           workpaper index and                                    Regulation’s 2013
                    standardize electronic                                 Examination Records:
                    workpaper folder structures                            Successes and
                    and naming conventions                                 Opportunities
                    between the two Core                                   (EVL-2015-001,
                    Teams. In addition, FHFA                               October 6, 2014)
                    and DER should upgrade
                    recordkeeping practices as
                    necessary to enhance the
                    identification and retrieval of
                    critical workpapers.

Oversight of        FHFA should develop a           Improved               Compliance
Enterprise          strategy to enhance the         oversight              Review of FHFA’s
Executive           Executive Compensation                                 Oversight of
Compensation        Branch’s capacity to                                   Enterprise Executive
                    review the reasonableness                              Compensation
                    and justification of the                               Based on Corporate
                    Enterprises’ annual                                    Scorecard
                    proposals to compensate                                Performance
                    their executives based                                 (COM-2016-002,
                    on Corporate Scorecard                                 March 17, 2016)
                    performance. To this end,
                    FHFA should ensure that: the
                    Enterprises submit proposals
                    containing information
                    sufficient to facilitate a
                    comprehensive review by
                    the Executive Compensation
                    Branch; the Executive
                    Compensation Branch tests
                    and verifies the information
                    in the Enterprises’
                    proposals, perhaps on a
                    randomized basis; and the
                    Executive Compensation
                    Branch follows up with the
                    Enterprises to resolve any
                    proposals that do not appear
                    to be reasonable and justified.




                         Semiannual Report to the Congress • October 1, 2018­–March 31, 2019   109
 Specific Risk to      Closed, Unimplemented                                Report Name
                                                       Expected Impact
  be Mitigated            Recommendation                                     and Date

                    FHFA should develop a          Improved              Compliance
                    policy under which it is       oversight             Review of FHFA’s
                    required to notify OIG                               Oversight of
                    within 10 days of its decision                       Enterprise Executive
                    not to fully implement,                              Compensation
                    substantially alter, or                              Based on Corporate
                    abandon a corrective action                          Scorecard
                    that served as the basis for                         Performance
                    OIG’s decision to close a                            (COM-2016-002,
                    recommendation.                                      March 17, 2016)

                    FHFA should re-assess the      Improved              FHFA’s Approval
                    appropriateness of the annual governance             of Senior Executive
                    compensation package of $3.6                         Succession Planning
                    million to the Fannie Mae                            at Fannie Mae Acted
                    President with consideration                         to Circumvent the
                    paid to the following factors:                       Congressionally
                    the congressional intent                             Mandated Cap on
                    behind the statutory cap on                          CEO Compensation
                    compensation; Fannie Mae’s                           (EVL-2019-001,
                    continued conservatorship                            March 26, 2019)
                    status and the burdens
                    imposed on the taxpayers
                    from that status; and the
                    10-year practice at Fannie
                    Mae where one individual
                    executed the responsibilities
                    of both the CEO and
                    President positions, with
                    annual compensation capped
                    at $600,000 since 2015.




110   Federal Housing Finance Agency Office of Inspector General
 Specific Risk to     Closed, Unimplemented                                    Report Name
                                                     Expected Impact
  be Mitigated           Recommendation                                         and Date

                    FHFA should re-assess           Improved               FHFA’s Approval
                    the appropriateness of          governance             of Senior Executive
                    the annual compensation                                Succession Planning
                    package of $3.25 million to                            at Freddie Mac Acted
                    the Freddie Mac President                              to Circumvent the
                    with consideration paid                                Congressionally
                    to the following factors:                              Mandated Cap on
                    the congressional intent                               CEO Compensation
                    behind the statutory cap on                            (EVL-2019-002,
                    compensation; Freddie Mac’s                            March 26, 2019)
                    continued conservatorship
                    status and the burdens
                    imposed on the taxpayers
                    from that status; the 10-year
                    practice at Freddie Mac where
                    one individual executed the
                    CEO responsibilities with
                    annual compensation capped
                    at $600,000 since 2015; and
                    the temporary nature of the
                    position of President, in light
                    of FHFA’s representation
                    that Candidate A will leave
                    Freddie Mac if he is not
                    selected for the CEO position.

Oversight           FHFA’s Division of Housing      Improved               FHFA’s Oversight
of Servicing        Mission and Goals Deputy        servicing              of the Servicing
Alignment           Director should establish       compliance and         Alignment Initiative
Initiative          an ongoing process              minimized losses       (EVL-2014-003,
                    to evaluate servicers’                                 February 12, 2014)
                    Servicing Alignment
                    Initiative compliance and
                    the effectiveness of the
                    Enterprises’ remediation
                    efforts.




                         Semiannual Report to the Congress • October 1, 2018­–March 31, 2019   111
 Specific Risk to      Closed, Unimplemented                                Report Name
                                                       Expected Impact
  be Mitigated            Recommendation                                     and Date

                    FHFA’s Division of Housing        Improved           FHFA’s Oversight
                    Mission and Goals Deputy          servicing          of the Servicing
                    Director should direct the        compliance and     Alignment Initiative
                    Enterprises to provide            minimized losses   (EVL-2014-003,
                    routinely their internal                             February 12, 2014)
                    reports and reviews for the
                    Division of Housing Mission
                    and Goals’ assessment.

                    FHFA’s Division of Housing        Improved           FHFA’s Oversight
                    Mission and Goals Deputy          servicing          of the Servicing
                    Director should regularly         compliance and     Alignment Initiative
                    review Servicing Alignment        minimized losses   (EVL-2014-003,
                    Initiative-related guidelines                        February 12, 2014)
                    for enhancements or
                    revisions, as necessary, based
                    on servicers’ actual versus
                    expected performance.




112   Federal Housing Finance Agency Office of Inspector General
 Specific Risk to    Closed, Unimplemented                                     Report Name
                                                     Expected Impact
  be Mitigated          Recommendation                                          and Date

Targeted            FHFA should revise           Improved                  FHFA’s Targeted Ex-
Examinations        existing guidance to require supervision               aminations of Freddie
Completed           examiners to prepare                                   Mac: Just Over Half
                    complete documentation of                              of the Targeted Ex-
                    supervisory activities and                             aminations Planned
                    maintain such documentation                            for 2012 through
                    in the official system of                              2015 Were Complet-
                    record, and train DER                                  ed (AUD-2016-007,
                    examiners on this guidance.                            September 30, 2016);
                                                                           FHFA’s Targeted Ex-
                                                                           aminations of Fannie
                                                                           Mae: Less than Half
                                                                           of the Targeted Exam-
                                                                           inations Planned for
                                                                           2012 through 2015
                                                                           Were Completed and
                                                                           No Examinations
                                                                           Planned for 2015
                                                                           Were Completed
                                                                           Before the Report of
                                                                           Examination Issued
                                                                           (AUD-2016-006,
                                                                           September 30, 2016);
                                                                           FHFA’s Supervisory
                                                                           Planning Process
                                                                           for the Enterprises:
                                                                           Roughly Half of FH-
                                                                           FA’s 2014 and 2015
                                                                           High-Priority Planned
                                                                           Targeted Examina-
                                                                           tions Did Not Trace
                                                                           to Risk Assessments
                                                                           and Most High-Pri-
                                                                           ority Planned Exam-
                                                                           inations Were Not
                                                                           Completed (AUD-
                                                                           2016-005, September
                                                                           30, 2016)




                         Semiannual Report to the Congress • October 1, 2018­–March 31, 2019   113
 Specific Risk to      Closed, Unimplemented                                Report Name
                                                       Expected Impact
  be Mitigated            Recommendation                                     and Date

Oversight of        FHFA should review FHFA’s Improved                   FHFA’s Examiners
Enterprise          existing requirements,       remediation of          Did Not Meet
Remediation of      guidance, and processes      deficiencies            Requirements
Deficiencies        regarding MRAs against the                           and Guidance
                    requirements, guidance, and                          for Oversight of
                    processes adopted by the                             an Enterprise’s
                    Office of the Comptroller                            Remediation of
                    of the Currency, the                                 Serious Deficiencies
                    Board of Governors of the                            (EVL-2016-004,
                    Federal Reserve System,                              March 29, 2016)
                    and other federal financial
                    regulators including, but
                    not limited to, content of
                    an MRA; standards for
                    proposed remediation
                    plans; approval authority
                    for proposed remediation
                    plans; real-time assessments
                    at regular intervals of the
                    effectiveness and timeliness
                    of an Enterprise’s MRA
                    remediation efforts;
                    final assessment of the
                    effectiveness and timeliness
                    of an Enterprise’s MRA
                    remediation efforts; and
                    required documentation for
                    examiner oversight of MRA
                    remediation.

                    Based on the results of the       Improved           FHFA’s Examiners
                    review in recommendation          remediation of     Did Not Meet
                    1, FHFA should assess             deficiencies       Requirements
                    whether any of the existing                          and Guidance
                    requirements, guidance, and                          for Oversight of
                    processes adopted by FHFA                            an Enterprise’s
                    should be enhanced, and                              Remediation of
                    make such enhancements.                              Serious Deficiencies
                                                                         (EVL-2016-004,
                                                                         March 29, 2016)




114   Federal Housing Finance Agency Office of Inspector General
 Specific Risk to    Closed, Unimplemented                                     Report Name
                                                     Expected Impact
  be Mitigated          Recommendation                                          and Date

Communication       FHFA should revise its        Improved Board           FHFA’s Supervisory
of Deficiencies     supervision guidance to       oversight                Standards for
to Enterprise       require DER to provide the                             Communication of
Boards              Chair of the Audit Committee                           Serious Deficiencies
                    of an Enterprise Board                                 to Enterprise
                    with each plan submitted                               Boards and for
                    by Enterprise management                               Board Oversight
                    to remediate an MRA with                               of Management’s
                    associated timetables and the                          Remediation Efforts
                    response by DER.                                       are Inadequate
                                                                           (EVL-2016-005,
                                                                           March 31, 2016)

                    FHFA should direct DER to Improved Board               FHFA Failed to
                    develop detailed guidance     oversight                Consistently Deliver
                    and promulgate that guidance                           Timely Reports of
                    to each Enterprise’s board of                          Examination to the
                    directors that explains:                               Enterprise Boards
                                                                           and Obtain Written
                     •	 The purpose for DER’s                              Responses from the
                        annual presentation to                             Boards Regarding
                        each Enterprise board                              Remediation of
                        of directors on the ROE                            Supervisory Concerns
                        results, conclusions, and                          Identified in those
                        supervisory concerns                               Reports
                        and the opportunity for                            (EVL-2016-009, July
                        directors to ask questions                         14, 2016)
                        and discuss ROE
                        examination conclusions
                        and supervisory concerns
                        at that presentation; and
                     •	 The requirement that
                        each Enterprise board
                        of directors submit a
                        written response to the
                        annual ROE to DER and
                        the expected level of
                        detail regarding ongoing
                        and contemplated
                        remediation in that
                        written response.




                         Semiannual Report to the Congress • October 1, 2018­–March 31, 2019   115
 Specific Risk to      Closed, Unimplemented                                Report Name
                                                       Expected Impact
  be Mitigated            Recommendation                                     and Date

                    FHFA should direct the       Improved Board          FHFA Failed to
                    Enterprises’ boards to amend oversight               Consistently Deliver
                    their charters to require                            Timely Reports of
                    review by each director of                           Examination to the
                    each annual ROE and review                           Enterprise Boards
                    and approval of the written                          and Obtain Written
                    response to DER in response                          Responses from the
                    to each annual ROE.                                  Boards Regarding
                                                                         Remediation of
                                                                         Supervisory Concerns
                                                                         Identified in those
                                                                         Reports
                                                                         (EVL-2016-009, July
                                                                         14, 2016)

Assessing           FHFA should ensure that           Improved           FHFA’s Inconsistent
Remediation of      the underlying remediation        remediation of     Practices in
Deficiencies        documents, including the          deficiencies       Assessing Enterprise
                    Procedures Document, are                             Remediation of
                    readily available by direct                          Serious Deficiencies
                    link or other means, through                         and Weaknesses
                    DER’s MRA tracking                                   in its Tracking
                    system(s).                                           Systems Limit the
                                                                         Effectiveness of
                                                                         FHFA’s Supervision
                                                                         of the Enterprises
                                                                         (EVL-2016-007, July
                                                                         14, 2016)

                    FHFA should require DER           Improved           FHFA’s Inconsistent
                    to track interim milestones       remediation of     Practices in
                    and to independently assess       deficiencies       Assessing Enterprise
                    and document the timeliness                          Remediation of
                    and adequacy of Enterprise                           Serious Deficiencies
                    remediation of MRAs on a                             and Weaknesses
                    regular basis.                                       in its Tracking
                                                                         Systems Limit the
                                                                         Effectiveness of
                                                                         FHFA’s Supervision
                                                                         of the Enterprises
                                                                         (EVL-2016-007, July
                                                                         14, 2016)




116   Federal Housing Finance Agency Office of Inspector General
Specific Risk to     Closed, Unimplemented                                    Report Name
                                                    Expected Impact
 be Mitigated           Recommendation                                         and Date

                   FHFA should require the         Improved               FHFA’s Inconsistent
                   Enterprises to provide, in      remediation of         Practices in
                   their remediation plans, the    deficiencies           Assessing Enterprise
                   target date in which their                             Remediation of
                   internal audit departments                             Serious Deficiencies
                   expect to validate                                     and Weaknesses
                   management’s remediation                               in its Tracking
                   of MRAs, and require                                   Systems Limit the
                   examiners to enter that date                           Effectiveness of
                   into a dedicated field in the                          FHFA’s Supervision
                   MRA tracking system.                                   of the Enterprises
                                                                          (EVL-2016-007, July
                                                                          14, 2016)

                   FHFA should periodically        Improved               FHFA Requires
                   conclude, based upon            remediation of         the Enterprises’
                   sufficient examination work,    deficiencies           Internal Audit
                   on the overall effectiveness                           Functions to Validate
                   of the Internal Audit                                  Remediation of
                   functions at Fannie Mae and                            Serious Deficiencies
                   Freddie Mac.                                           but Provides
                                                                          No Guidance
                                                                          and Imposes No
                                                                          Preconditions on
                                                                          Examiners’ Use of
                                                                          that Validation Work
                                                                          (EVL-2018-002,
                                                                          March 28, 2018)




                        Semiannual Report to the Congress • October 1, 2018­–March 31, 2019   117
 Specific Risk to      Closed, Unimplemented                                Report Name
                                                       Expected Impact
  be Mitigated            Recommendation                                     and Date

                    FHFA should direct that           Improved           FHFA Requires
                    examiners can use Internal        remediation of     the Enterprises’
                    Audit work to assess              deficiencies       Internal Audit
                    the adequacy of MRA                                  Functions to Validate
                    remediation only if FHFA                             Remediation of
                    has concluded that the                               Serious Deficiencies
                    Internal Audit function is                           but Provides
                    effective overall.                                   No Guidance
                                                                         and Imposes No
                                                                         Preconditions on
                                                                         Examiners’ Use of
                                                                         that Validation Work
                                                                         (EVL-2018-002,
                                                                         March 28, 2018)

Identification      FHFA should direct DER        Improved Board         FHFA’s Failure to
of Deficiencies     to revise its guidance to     oversight              Consistently Identify
and Their Root      require ROEs to focus the                            Specific Deficiencies
Causes              boards’ attention of the                             and Their Root
                    most critical and time-                              Causes in Its Reports
                    sensitive supervisory                                of Examination
                    concerns through (1) the                             Constrains the Ability
                    prioritization of examination                        of the Enterprise
                    findings and conclusions                             Boards to Exercise
                    and (2) identification of                            Effective Oversight
                    deficiencies and MRAs in the                         of Management’s
                    ROE and discussion of their                          Remediation of
                    root causes.                                         Supervisory Concerns
                                                                         (EVL-2016-008, July
                                                                         14, 2016)




118   Federal Housing Finance Agency Office of Inspector General
 Specific Risk to     Closed, Unimplemented                                    Report Name
                                                     Expected Impact
  be Mitigated           Recommendation                                         and Date

Oversight of        FHFA should ensure that it      Improved               Management Alert:
Fannie Mae          has adequate internal staff,    oversight              Need for Increased
Headquarters        outside contractors, or both,                          Oversight by FHFA,
Consolidation       who have the professional                              as Conservator
and Relocation      expertise and experience in                            of Fannie Mae,
                    commercial construction to                             of the Projected
                    oversee the buildout plans                             Costs Associated
                    and associated budget(s),                              with Fannie Mae’s
                    as Fannie Mae continues to                             Headquarters
                    revise and refine them.                                Consolidation and
                                                                           Relocation Project
                                                                           (COM-2016-004,
                                                                           June 16, 2016)

                    FHFA should direct Fannie     Improved                 Management Alert:
                    Mae to provide regular        oversight                Need for Increased
                    updates and formal budgetary                           Oversight by FHFA,
                    reports to DOC for its review                          as Conservator
                    and for FHFA approval                                  of Fannie Mae,
                    through the design and                                 of the Projected
                    construction of Fannie Mae’s                           Costs Associated
                    leased space in Midtown                                with Fannie Mae’s
                    Center.                                                Headquarters
                                                                           Consolidation and
                                                                           Relocation Project
                                                                           (COM-2016-004,
                                                                           June 16, 2016)

Oversight of        To reduce the waste from        Reduced waste          Consolidation and
Fannie Mae          Option C (the option Fannie                            Relocation of Fannie
Northern Virginia   Mae selected for its future                            Mae’s Northern
Consolidation       operations in Northern                                 Virginia Workforce
and Relocation      Virginia), FHFA, consistent                            (OIG-2018-004,
                    with its duties as conservator,                        September 6, 2018)
                    should cause Fannie Mae to
                    calculate the net present value
                    for a Status Quo Option, and
                    calculate the costs associated
                    with terminating the lease
                    with Boston Properties.




                         Semiannual Report to the Congress • October 1, 2018­–March 31, 2019   119
 Specific Risk to      Closed, Unimplemented                                  Report Name
                                                        Expected Impact
  be Mitigated            Recommendation                                       and Date

                     To reduce the waste from          Reduced waste      Consolidation and
                     Option C, FHFA, consistent                           Relocation of Fannie
                     with its duties as conservator,                      Mae’s Northern
                     should direct Fannie Mae to                          Virginia Workforce
                     terminate the lease, cancel                          (OIG-2018-004,
                     the sale of the three owned                          September 6, 2018)
                     buildings, and implement the
                     Status Quo Option, should
                     the net present value for a
                     Status Quo Option and the
                     termination costs be lower
                     than the adjusted net present
                     value for Option C.

Conflicts of         Take appropriate action to    Improved               Administrative
Interest             address conflicts of interest oversight              Investigation
                     issue involving an entity                            into Anonymous
                     within FHFA’s oversight                              Hotline Complaints
                     authority. Public release by                         Concerning
                     OIG of certain information                           Timeliness and
                     in the Management Alert and                          Completeness of
                     accompanying expert report is                        Disclosures Regarding
                     prohibited by the Privacy Act                        a Potential Conflict of
                     of 1974 (Pub.L. 93–579, 88                           Interest by a Senior
                     Stat. 1896, enacted December                         Executive Officer of
                     31, 1974, 5 U.S.C. § 552a).                          an Enterprise
                                                                          (OIG-2017-004,
                                                                          March 23, 2017)




120    Federal Housing Finance Agency Office of Inspector General
 Specific Risk to    Closed, Unimplemented                                     Report Name
                                                     Expected Impact
  be Mitigated          Recommendation                                          and Date

                    Take appropriate action to    Improved                 Administrative
                    address conflicts of interest oversight                Investigation
                    issue involving an entity                              into Anonymous
                    within FHFA’s oversight                                Hotline Complaints
                    authority. Public release by                           Concerning
                    OIG of certain information                             Timeliness and
                    in the Management Alert and                            Completeness
                    accompanying expert report                             of Disclosures
                    is prohibited by the Privacy                           Regarding a Potential
                    Act of 1974 (Pub.L. 93–579,                            Conflict of Interest
                    88 Stat. 1896, enacted                                 by a Senior Executive
                    December 31, 1974, 5 U.S.C.                            Officer of an
                    § 552a).                                               Enterprise
                                                                           (OIG-2017-004,
                                                                           March 23, 2017)

Management of    FHFA should determine         Improved                    Audit of FHFA’s
Agency Resources and pay the vendor the        compliance                  Fiscal Year 2017
                 interest penalties owed                                   Government Purchase
                 under the Prompt Payment                                  Card Program Found
                 Act regulations for the late                              Several Deficiencies
                 payments of the leased                                    with Leased Holiday
                 seasonal decorations received                             Decorations,
                 by FHFA for the 2015, 2016,                               and the Need for
                 and 2017 holiday seasons.                                 Greater Attention
                                                                           by Cardholders
                                                                           and Approving
                                                                           Officials to Program
                                                                           Requirements
                                                                           (AUD-2018-011,
                                                                           September 6, 2018)




                         Semiannual Report to the Congress • October 1, 2018­–March 31, 2019   121
Appendix C: OI                                      In condo conversion and builder bailout
                                                    schemes, the sellers or developers wrongfully
Publicly Reportable                                 conceal from prospective lenders the incentives
Investigative                                       they have offered to investors and the true
                                                    value of the properties. The lenders, acting on
Outcomes Involving                                  this misinformation, make loans that are far
                                                    riskier than they have been led to believe. Such
Condo Conversion                                    loans often default and go into foreclosure,
and Builder Bailout                                 causing the lenders to suffer large losses.
                                                    Below are the names of the defendants in these
Schemes                                             schemes, their roles, the most recent actions in
                                                    the cases, and the date of those actions.




Sentencing in Condo Conversion Scheme, Illinois
Defendant        Role                   Most Recent Action                     Date
Alexander        Licensed Mortgage      Sentenced to 1 day in prison and       March 18, 2019
Shapiro          Broker/Real Estate     ordered to pay $1,030,769 in
                 Developer              restitution.


Sentencing in $21 Million Builder Bailout Fraud Scheme, California
Defendant        Role                   Most Recent Action                     Date
Jacqueline       Escrow Agent/          Sentenced to 4 months in prison,       March 11, 2019
Burchell         Business Operator      4 months of home confinement,
                                        3 years of supervised release, and
                                        ordered to pay $17,723,048 in
                                        restitution, joint and several.




122   Federal Housing Finance Agency Office of Inspector General
Real Estate Broker and Business Partner Sentenced in Mortgage Scheme, Florida
Defendant        Role               Most Recent Action                        Date
Geo Geovanni     Real Estate Agent/ Sentenced to 37 months in prison,         March 4, 2019
                 Investor           3 years of supervised release,
                                    and ordered to pay $736,791
                                    in restitution and $56,948 in
                                    forfeiture, joint and several.
Elizabeth        Business Partner     Sentenced to 1 day in prison, 6         March 4, 2019
Longerbone                            months home detention, 3 years
                                      of supervised release, and ordered
                                      to pay $313,200 in restitution and
                                      $56,948 in forfeiture, joint and
                                      several.


Sentencing of Real Estate Investor/Recruiter in Builder-Bailout Scheme, Florida
Defendant        Role                  Most Recent Action                 Date
Henry Frierson   Real Estate           Sentenced to 1 day in prison, 6    February 22, 2019
                 Investor/Recruiter    months home detention, 3 years of
                                       supervised release, and ordered to
                                       pay $974,745 in restitution, joint
                                       and several.


Sentencings of Real Estate Developer and Attorney in Builder Bailout Scheme, Illinois
Defendant        Role                  Most Recent Action                     Date
Warren Barr, III Real Estate           Sentenced to 87 months in prison,      February 1, 2019
                 Developer             2 years of supervised release, and
                                       ordered to pay $12,423,627 in
                                       restitution, joint and several.
Robert Lattas    Attorney              Sentenced to 63 months in prison October 2, 2018
                                       and ordered to pay $12,840,319 in
                                       restitution, joint and several.




                         Semiannual Report to the Congress • October 1, 2018­–March 31, 2019   123
Four Indicted in Condominium Conversion/Builder Bailout Scheme, Illinois
Defendant         Role                   Most Recent Action              Date
Igor              Real Estate            Charged by indictment with bank January 29, 2019
Krivoruchko       Developer              fraud.
Lily Harutunian Title Company            Charged by indictment with bank January 29, 2019
                Owner                    fraud.
Oksana Chura      Real Estate Agent/     Charged by indictment with bank January 29, 2019
                  Loan Officer           fraud.
Kimberly          Closer                 Charged by indictment with bank January 29, 2019
Dierking                                 fraud.


Sentencings in Builder Bailout Fraud Scheme, Illinois
Defendant         Role                   Most Recent Action               Date
Walter Vali       Mortgage Broker        Sentenced to 3 months in prison, January 17, 2019
                                         2 years of supervised release,
                                         and ordered to pay $5,982,730 in
                                         restitution, joint and several.
Vince             Developer              Sentenced to 24 months in            December 20, 2018
Manglardi                                prison, 3 years of supervised
                                         release, and ordered to pay
                                         $14,614,302 in restitution, joint
                                         and several.
Karin Ganser      Real Estate            Sentenced to 1 day in prison, 6      November 6, 2018
                  Salesperson            months of home incarceration, 2
                                         years of supervised release, and
                                         ordered to pay $1,540,755 in
                                         restitution, joint and several.
Nunzio Grieco     Director of            Sentenced to 3 years of probation October 11, 2018
                  Contract               and ordered to pay $589,905 in
                  Administration         restitution, joint and several.
David Belconis    Attorney               Sentenced to 1 day in prison, 6      October 9, 2018
                                         months of home incarceration, 2
                                         years of supervised release, and
                                         ordered to pay a fine of $10,000
                                         and $190,485 in restitution, joint
                                         and several.




124    Federal Housing Finance Agency Office of Inspector General
Restitution Ordered for Co-Defendants in Condominium Scheme, Florida
Defendant       Role                  Most Recent Action                     Date
George Heaton   Real Estate           Ordered to pay $3,038,249 in           January 9, 2019
                Developer             restitution, joint and several.
Eric Granitur   Attorney/Escrow       Ordered to pay $1,637,423 in           October 22, 2018
                Agent                 restitution, joint and several.
Stephen         Straw Buyer           Ordered to pay $1,407,806 in           October 22, 2018
McKenzie                              restitution, joint and several.
Debra Dentry-   Accountant            Ordered to pay $257,570 in             October 22, 2018
Baggett                               restitution.


Sentencing and Restitution Ordered for Real Estate Broker/Recruiter in Condominium
Fraud Scheme, Florida
Defendant       Role                Most Recent Action                       Date
Emily           Real Estate Broker/ Sentenced to 18 months in prison         November 16,
Echavarria      Recruiter           and 5 years of supervised release,       2018 & February
                                    and ordered to pay $1,426,325 in         1, 2019
                                    restitution, joint and several.




                        Semiannual Report to the Congress • October 1, 2018­–March 31, 2019    125
Appendix D: OI                                    Loan or mortgage origination schemes are the
                                                  most common type of mortgage fraud. They
Publicly Reportable                               typically involve falsifying borrowers’ income,
Investigative                                     assets, employment histories, and credit profiles
                                                  to make them more attractive to lenders.
Outcomes Involving                                Perpetrators often employ bogus Social Security
                                                  numbers and fake or altered documents, such
Loan Origination                                  as W-2s and bank statements, to cause lenders
Schemes                                           to make loans they would not otherwise make.
                                                  Below are the names of the defendants in these
                                                  schemes, their roles, the most recent actions in
                                                  the cases, and the date of those actions.




Guilty Plea of Bank Vice President in Loan Origination Fraud Scheme, Mississippi
Defendant         Role                  Most Recent Action                   Date
Max Miller        Vice President        Pled guilty to conspiracy to         March 12, 2019
                                        commit bank fraud.


Sentencings of Loan Officer and Cook County Judge convicted in Mortgage Fraud
Scheme, Illinois
Defendant         Role                  Most Recent Action                   Date
Maria Bartko      Loan Officer          Sentenced to 7 months in prison,     February 26, 2019
                                        2 years of supervised release,
                                        and ordered to pay $1,335,500 in
                                        restitution, joint and several.
Jessica Arong     Judge/ Loan           Sentenced to 366 days in prison,     December 20, 2018
O’Brien           Officer/ Real         2 years of supervised release,
                  Estate Agent          and ordered to pay $660,000 in
                                        restitution, joint and several.




126   Federal Housing Finance Agency Office of Inspector General
Co-Conspirators Previously Convicted for Their Roles in Defrauding Mortgage Lending
Institutions Receive Criminal Money Judgements and Sentencing, New York
Defendant        Role                 Most Recent Action                     Date
Barthelemy       Straw Buyer          Ordered to pay $100,000 in             February 14, 2019
Adjavehoude                           forfeiture.
Michelle Baker   Title Agent          Ordered to pay $1,105,426 in           December 12, 2018
                                      restitution, joint and several, and
                                      $4,225 in forfeiture.
James Bayfield   Mortgage             Sentenced to 21 months in prison,      October 26, 2018
                 Specialist           3 years of supervised release,
                                      and ordered to pay $184,651 in
                                      forfeiture.

Two Indicted for Targeting Elderly in Reverse Mortgage Loan Origination Fraud, New
Jersey
Defendant        Role                 Most Recent Action                     Date
Rafael Peralta   Loan Officer/        Charged by indictment with             February 8, 2019
                 Business Owner       conspiracy to commit bank fraud
                                      and bank fraud.
Philip Puccio,   Business Owner       Charged by indictment with             February 8, 2019
Jr.                                   conspiracy to commit bank fraud
                                      and bank fraud.

Guilty Plea in Appraisal Fraud Scheme, Ohio
Defendant        Role                 Most Recent Action                     Date
Cynthia          Business Owner       Charged by information and pled        January 30, 2019
Faulkner                              guilty to misprision of felony.




                        Semiannual Report to the Congress • October 1, 2018­–March 31, 2019   127
Appendix E: OI                                       Short sales occur when a lender allows a
                                                     borrower who is “underwater” on his/her
Publicly Reportable                                  loan—that is, the borrower owes more than
Investigative                                        the property is worth—to sell his/her property
                                                     for less than the debt owed. Short sale fraud
Outcomes                                             usually involves a borrower who intentionally
                                                     misrepresents or fails to disclose material
Involving Short                                      facts to induce a lender to agree to a short sale.
                                                     Below are the names of the defendants in these
Sale Schemes                                         schemes, their roles, the most recent actions in
                                                     the cases, and the date of those actions.




Guilty Pleas in Short Sale Fraud Scheme, North Carolina
Defendant          Role                   Most Recent Action                Date
Starr Ilzhoefer    Business Owner         Pled guilty to conspiracy to make February 25, 2019
                                          a false statement.
Aaron Guido        Business Owner         Pled guilty to conspiracy to make February 25, 2019
                                          a false statement.


Sentencings of Real Estate Professionals in Short Sale Fraud Scheme, Arizona
Defendant          Role                  Most Recent Action                 Date
Andrew             Real Estate           Sentenced to 2 years of probation. February 13, 2019
Jemmett            Employee
Jason Poyner       Real Estate Broker Sentenced to 2 years of probation. February 13, 2019
David Dziedzic     Real Estate Broker Sentenced to 30 months in prison, December 17, 2018
                                      3 years of supervised release,
                                      and ordered to pay $107,280
                                      in restitution and $142,000 in
                                      forfeiture.
Heather            Real Estate Broker Sentenced to 2 years of probation. December 17, 2018
Dziedzic




128    Federal Housing Finance Agency Office of Inspector General
Indictment of Real Estate Agent/Investor in Short Sale Fraud Scheme, New Jersey
Defendant      Role                  Most Recent Action                     Date
Anthony Garvin Real Estate Agent/    Charged by indictment with             January 11, 2019
               Investor              conspiracy to commit bank fraud
                                     and bank fraud.


Guilty Plea in $6 Million Fraud Scheme, New Jersey
Defendant       Role                 Most Recent Action                     Date
Mehdi Kassai    Participant          Pled guilty to charges of bank         December 18, 2018
                                     fraud, wire fraud, and money
                                     laundering.


Guilty Pleas of Real Estate Broker and Employee in a Buy-and-Bail Scheme, Michigan
Defendant       Role               Most Recent Action                       Date
William Elias   Business Owner/    Pled guilty to bank fraud and            October 10, 2018
                Real Estate Broker money laundering.
Kimberly Doren Processing            Pled guilty to bank fraud.             October 10, 2018
               Manager/Real
               Estate Salesperson




                       Semiannual Report to the Congress • October 1, 2018­–March 31, 2019   129
Appendix F: OI                                      Loan modification and property disposition
                                                    schemes prey on homeowners. Businesses
Publicly Reportable                                 typically advertise that they can secure
Investigative Outcomes                              loan modifications if the homeowners pay
                                                    significant upfront fees or take other action
Involving Loan                                      that enriches the defendant. Typically, these
                                                    businesses take little or no action, leaving
Modification and                                    homeowners in a worse position. Below are
Property Disposition                                the names of the defendants in these schemes,
                                                    their roles, the most recent actions in the
Schemes                                             cases, and the date of those actions.




Sentencings of Licensed Real Estate Agent and Loan Modification Scheme Operator,
Virginia
Defendant         Role                   Most Recent Action                Date
Rodrigo Pardo     Licensed Real          Sentenced to 21 months in prison, March 1, 2019
                  Estate Agent           3 years of supervised release,
                                         and ordered to pay $401,103 in
                                         restitution, joint and several.
Lorena Medina     Loan Modification      Sentenced to 21 months in prison, March 1, 2019
                  Scheme Operator        3 years of supervised release,
                                         and ordered to pay $401,103 in
                                         restitution, joint and several.


Sentencing of Notary/Bankruptcy Filing Preparer in Loan Modification Fraud Scheme,
California
Defendant         Role              Most Recent Action                      Date
Prakashkumar      Notary/Bankruptcy Sentenced to 7 years and 8              February 13, 2019
Bhakta            Filing Preparer   months in prison and ordered to
                                    pay $256,494 in restitution, joint
                                    and several.




130   Federal Housing Finance Agency Office of Inspector General
Sentencings in Nationwide Loan Modification Scheme Operator, California
Defendant      Role                   Most Recent Action                 Date
Kevin Suleiman Participant            Sentenced to 338 days in prison December 14, 2018
                                      and 3 years of supervised release.
Rosa Barraza    Participant           Charged by third superseding       November 15, 2018
                                      information, pled guilty to
                                      burglary and loan modification
                                      unlawful advance fee, and
                                      sentenced to 5 years of probation.


Sentencings and Court Ordered Forfeiture and Restitution for Defendants in $20 Million
Mortgage Fraud Scheme, California
Defendant       Role                  Most Recent Action                Date
Ryu Goeku       Participant           Sentenced to 32 months in prison, March 25, 2019
                                      3 years of supervised release,
                                      and ordered to pay $9,978,360 in
                                      restitution, joint and several.
Jane Matsuba-   Participant           Sentenced to 57 months in prison, December 3, 2018
Garcia                                3 years of supervised release,
                                      ordered to pay $12,208,992 in
                                      restitution, joint and several, and
                                      $200,446 in forfeiture.
Dorothy         Participant           Ordered to pay $12,208,992 in         October 17, 2018
Matsuba                               restitution, joint and several, and
                                      $12,505,213 in forfeiture.
Jamie Matsuba   Participant           Ordered to pay $12,208,992 in         October 17, 2018
                                      restitution, joint and several, and
                                      $2,040,840 in forfeiture.
Takaharo        Participant           Ordered to pay $12,208,992 in         October 17, 2018
Thomas                                restitution, joint and several, and
Matsuba                               $1,780,922 in forfeiture.




                        Semiannual Report to the Congress • October 1, 2018­–March 31, 2019   131
Loan Modification Operators Sentenced in Foreclosure Prevention Fraud Scheme,
Maryland
Defendant       Role                    Most Recent Action                Date
Michelle Jordan CEO/Director of         Sentenced to 57 months in prison, December 3, 2018
                Company                 3 years of supervised release,
                                        and ordered to pay $491,036 in
                                        restitution, joint and several.
Michael Welsh    President/Vice         Sentenced to 46 months in prison, December 3, 2018
                 President and          3 years of supervised release,
                 Director of            and ordered to pay $491,036 in
                 Company                restitution, joint and several.
Carrol Jackson   Owner/Manager of Sentenced to time served, 9            December 3, 2018
                 Company          months of home detention, 3
                                  years of supervised release,
                                  and ordered to pay $491,036 in
                                  restitution, joint and several.




132   Federal Housing Finance Agency Office of Inspector General
Appendix G: OI                                    Numerous foreclosures left the Enterprises
                                                  with an inventory of REO properties. The REO
Publicly Reportable                               inventory has sparked a number of different
Investigative                                     schemes to either defraud the Enterprises,
                                                  which use contractors to secure, maintain
Outcomes Involving                                and repair, price, and ultimately sell their
                                                  properties, or defraud individuals seeking to
Property Management                               purchase REO properties from the Enterprises.
                                                  Below are the names of the defendants in these
and REO Schemes                                   schemes, their roles, the most recent actions in
                                                  the cases, and the date of those actions.




Guilty Verdict at Trial of Fannie Mae Employee and Plea of Broker in REO Scheme,
California
Defendant         Role                 Most Recent Action                    Date
Shirene           Fannie Mae Sales     Found guilty at trial on charges      February 13, 2019
Hernandez         Representative       of wire fraud and deprivation of
                                       honest services.
Peter Michno      REO Broker           Charged by information and pled       January 7, 2019
                                       guilty to conspiracy to commit
                                       wire fraud involving deprivation
                                       of honest services.


Licensed Real Estate Broker Sentenced for Fannie Mae Fraud, Florida
Defendant         Role                 Most Recent Action                     Date
Hollie Dustin     Licensed Real        Sentenced to 6 months in prison,       December 6, 2018
                  Estate Broker        3 years of supervised release,
                                       and ordered to pay $34,001
                                       in restitution and $34,001 in
                                       forfeiture.


Trial Conviction in REO Deed Fraud Scheme, Florida
Defendant         Role                 Most Recent Action                     Date
Robert Tribble,   Participant          Convicted at trial for organized       November 30, 2018
Jr.                                    scheme to defraud.




                         Semiannual Report to the Congress • October 1, 2018­–March 31, 2019   133
Appendix H: OI                                       Adverse possession schemes use illegal
                                                     adverse possession (also known as “home
Publicly Reportable                                  squatting”) or fraudulent documentation to
Investigative Outcomes                               control distressed homes, foreclosed homes,
                                                     and REO properties. In distressed property
Involving Adverse                                    schemes, perpetrators falsely purport to assist
                                                     struggling homeowners seeking to delay or
Possession and                                       avoid foreclosure. They use fraudulent tactics,
Distressed Property                                  such as filing false bankruptcy petitions,
                                                     while collecting significant fees from the
Schemes                                              homeowners. Below are the names of the
                                                     defendants in these schemes, their roles, the
                                                     most recent actions in the cases, and the date
                                                     of those actions.




Sentencing of Participant and Indictment of Mortgage Broker in Multi-State Deed Fraud
Scheme, Texas
Defendant         Role                   Most Recent Action                   Date
Arlando Jacobs    Participant            Sentenced to 51 months in prison     March 15, 2019
                                         and 5 years of supervised release.
Clarence          Mortgage Broker        Charged by indictment with           December 12, 2018
Roland, III                              conspiracy to commit wire fraud
                                         affecting a financial institution.


11 Individuals and Three Entities Charged in National Foreclosure Relief Scheme, Ohio
Defendant          Role                  Most Recent Action                  Date
Lorin Buckner      Owner                 Charged by indictment with          March 6, 2019
                                         conspiracy to commit mail and
                                         wire fraud, mail fraud, wire fraud,
                                         bankruptcy fraud, bank fraud, and
                                         aggravated identity theft.
Joel Harvey        Owner                 Charged by indictment with          March 6, 2019
                                         conspiracy to commit mail and
                                         wire fraud, mail fraud, wire fraud,
                                         and bankruptcy fraud.
Garrett            Owner                 Charged by indictment with           March 6, 2019
Stevenson                                conspiracy to commit mail
                                         and wire fraud, mail fraud and
                                         bankruptcy fraud.



134    Federal Housing Finance Agency Office of Inspector General
Damien Byrd      Owner                 Charged by indictment with        March 6, 2019
                                       conspiracy to commit mail and
                                       wire fraud, mail fraud, wire
                                       fraud, bank fraud, and aggravated
                                       identity theft.
Dessalines Sealy National Sales        Charged by indictment with          March 6, 2019
                 Director/Manager      conspiracy to commit mail and
                                       wire fraud, mail fraud, wire fraud,
                                       and bankruptcy fraud.
Stacy Kay        Sales Director/       Charged by indictment with          March 6, 2019
Slaughter        Manager               conspiracy to commit mail and
                                       wire fraud, mail fraud, wire fraud,
                                       and bankruptcy fraud.
Marcus           CEO/Acquisition       Charged by indictment with          March 6, 2019
Mullings, Jr.    Director              conspiracy to commit mail and
                                       wire fraud, mail fraud, wire fraud,
                                       and bankruptcy fraud.
Talia Stephen-   Managing              Charged by indictment with          March 6, 2019
Mullings         Member                conspiracy to commit mail and
                                       wire fraud, mail fraud, wire fraud,
                                       and bankruptcy fraud.
Amal             CEO                   Charged by indictment with          March 6, 2019
Balmacoon                              conspiracy to commit mail and
                                       wire fraud, mail fraud, wire fraud,
                                       and bankruptcy fraud.
John Nelson      Chief Counsel/        Charged by indictment with             March 6, 2019
                 Director of           conspiracy to commit mail and
                 Litigation            wire fraud, mail fraud, and
                                       bankruptcy fraud.
Rafiq Bashir     National Affiliate    Charged by indictment with          March 6, 2019
                 Director/National     conspiracy to commit mail and
                 Marketing             wire fraud, mail fraud, wire fraud,
                 Director              and bankruptcy fraud.
MVP Home         Entity                Charged by indictment with          March 6, 2019
Solutions                              conspiracy to commit mail and
                                       wire fraud, mail fraud, wire fraud,
                                       and bankruptcy fraud.
Bolden Pinnacle Entity                 Charged by indictment with          March 6, 2019
Group Corp.                            conspiracy to commit mail and
                                       wire fraud, mail fraud, wire fraud,
                                       and bankruptcy fraud.


                          Semiannual Report to the Congress • October 1, 2018­–March 31, 2019   135
Silverstein &      Entity                Charged by indictment with          March 6, 2019
Wolf Corp.                               conspiracy to commit mail and
                                         wire fraud, mail fraud, wire fraud,
                                         and bankruptcy fraud.



Indictment in Deed Fraud Theft Scheme, Texas
Defendant         Role                   Most Recent Action                  Date
Arnoldo           Participant            Indicted on charges of forgery of   March 1, 2019
Antonio Ortiz                            a financial instrument, tampering
                                         with a government record, and
                                         theft of property.


Sentencing in $2 Million Mortgage Fraud Scheme, California
Defendant         Role                   Most Recent Action                  Date
Andrew            Participant            Sentenced to 40 months in prison    January 7, 2019
Millman                                  and ordered to pay $126,786 in
                                         restitution.


Sentencing of Real Estate Agent in Scheme to Defraud Fannie Mae, Florida
Defendant         Role                   Most Recent Action                  Date
David Morgan      Real Estate Agent      Sentenced to 6 months of            November 27, 2018
                                         home detention, 60 months of
                                         probation, and ordered to pay
                                         $16,271 in restitution.


Indictment of Business Owner/Fraudulent Bankruptcy Petition Filer, Florida
Defendant          Role                   Most Recent Action               Date
Christopher        Business Owner         Charged by superseding           October 10, 2018
Coburn                                    indictment with bankruptcy fraud
                                          and falsification of records in
                                          bankruptcy.




136    Federal Housing Finance Agency Office of Inspector General
Appendix I: OI                                   Investigations in this category can involve a
                                                 variety of fraud schemes that relate to loans
Publicly Reportable                              purchased by the Enterprises to finance
Investigative Outcomes                           multifamily properties. Multifamily properties
                                                 have five or more units and are primarily
Involving Multifamily                            rental apartment communities. Below are the
                                                 names of the defendants in these schemes,
Schemes                                          their roles, the most recent actions in the
                                                 cases, and the date of those actions.




Managing Director and VP of Real Estate Management Company Plead Guilty in
Multi-Million Dollar Mortgage Fraud Scheme, New York
Defendant        Role              Most Recent Action                       Date
Patrick Ogiony   Managing Director Charged by Information and pled          March 15, 2019
                                   guilty to conspiracy to commit
                                   bank fraud.
Kevin Morgan     VP of Real Estate    Charged by Information and pled       December 21, 2018
                 Management           guilty to conspiracy to commit
                 Company              bank fraud.




                        Semiannual Report to the Congress • October 1, 2018­–March 31, 2019   137
Appendix J: OI                                      Investigations in this category include a
                                                    variety of schemes involving Fannie Mae,
Publicly Reportable                                 Freddie Mac, the FHLBanks, or members
Investigative                                       of FHLBanks. Below are the names of the
                                                    defendants in these schemes, their roles, the
Outcomes Involving                                  most recent actions in the cases, and the date
                                                    of those actions.
Fraud Affecting
the Enterprises,
the FHLBanks, or
FHLBank Member
Institutions


Siblings Charged in Bankruptcy Estate Fraud Scheme, Illinois
Defendant        Role                   Most Recent Action                    Date
Robert           Attorney/              Charged by indictment with            March 28, 2019
Kowalski         Business Owner         concealment of assets and
                                        bankruptcy fraud.
Jan Kowalski     Attorney               Charged by indictment with            March 28, 2019
                                        concealment of assets and
                                        bankruptcy fraud.


Sentencings of Owner and Finance Manager in Visa and Tax Fraud Scheme, New York
Defendant        Role                   Most Recent Action                    Date
Sowrabh          Owner                  Sentenced to 15 months in prison      March 27, 2019
Sharma                                  and one year of supervised
                                        release.
Shikha Mohta     Finance Manager        Sentenced to 5 years of probation October 25, 2018
                                        and ordered to pay a $4,000 fine.


Business Owner Charged with Bank Fraud, Maryland
Defendant      Role              Most Recent Action                           Date
Mehul          Business Owner    Charged by information with                  March 21, 2019
Khatiwala                        conspiracy to commit bank fraud
                                 and bank fraud.



138   Federal Housing Finance Agency Office of Inspector General
Sentencings of Credit Union Employees in Bank Fraud Scheme, Florida
Defendant        Role                Most Recent Action                      Date
Devin Williams   Credit Union        Sentenced to 12 months of               March 5, 2019
                 Employee            probation and ordered to pay
                                     $113,195 in restitution, joint and
                                     several.
Jamelah          Credit Union        Sentenced to 5 years of supervised December 19, 2018
Martinez         Employee            release and ordered to pay
                                     $115,487 in restitution, joint and
                                     several.


Couple and Business Owner Plead Guilty for Roles in Freddie Mac Foreclosure Fraud
Scheme, Massachusetts
Defendant        Role                 Most Recent Action                     Date
Joanne Murray    Real Estate          Charged by information and pled        February 11, 2019
                 Professional         guilty to conspiracy to commit
                                      mail fraud, aggravated identity
                                      theft, and tax evasion.
James Murray     Business Owner       Charged by information and pled        February 11, 2019
                                      guilty to conspiracy to commit
                                      mail fraud, aggravated identity
                                      theft, and tax evasion.
Talal Soffan     Business Owner       Pled guilty to making false            February 5, 2019
                                      statements to a federally insured
                                      financial institution, wire
                                      fraud, aggravated identity theft,
                                      conspiracy, and bank fraud.




                        Semiannual Report to the Congress • October 1, 2018­–March 31, 2019   139
Four Charged in Alleged $364 Million Ponzi Scheme with Over 400 Victims Nationwide,
Maryland
Defendant          Role                  Most Recent Action                   Date
Kevin Merrill      Participant           Charged by superseding               January 8, 2019
                                         indictment on charges of
                                         conspiracy to commit wire fraud,
                                         wire fraud, identity theft, money
                                         laundering conspiracy, financial
                                         transactions over $10,000 in
                                         criminally derived property, and
                                         conspiracy to obstruct justice.
Jay Ledford        Participant           Charged by superseding               January 8, 2019
                                         indictment on charges of
                                         conspiracy to commit wire
                                         fraud, wire fraud, identity theft,
                                         money laundering conspiracy,
                                         and financial transactions over
                                         $10,000 in criminally derived
                                         property
Cameron            Participant           Charged by superseding               January 8, 2019
Jezierski                                indictment on charges of
                                         conspiracy to commit wire fraud
                                         and wire fraud.
Amanda Merrill Participant               Charged by superseding               January 8, 2019
                                         indictment with conspiracy to
                                         obstruct justice.


Former Business Owner Sentenced to 17 Years in Federal Prison for Bank Fraud of More
Than $49 Million, Maryland
Defendant          Role                  Most Recent Action                   Date
Mark Gaver         Former Business       Sentenced to 17 years in prison,     December 13, 2018
                   Owner                 3 years of supervised release,
                                         and ordered to pay $48,774,308
                                         in restitution and $49,215,606 in
                                         forfeiture.




140    Federal Housing Finance Agency Office of Inspector General
Pastor and Co-Conspirators Indicted for Scheme to Defraud FHLBank Affordable
Housing Program, South Carolina
Defendant        Role               Most Recent Action                      Date
Tommy Quick      Pastor/Non-Profit Charged by indictment with               December 12, 2018
                 Executive Director conspiracy.
Isaac Quick      Non-Profit           Charged by indictment with            December 12, 2018
                 Program Manager      conspiracy.
John Bagwell,    General Contractor Charged by indictment with              December 12, 2018
Jr.                                 conspiracy.


Sentencing and Trial Conviction in $1 Million Fictitious Car Loan Scheme, North Carolina
Defendant        Role                 Most Recent Action                Date
Brian Lyles      Participant          Sentenced to 15 months in prison, November 28,
                                      3 years of supervised release,    2018
                                      and ordered to pay $674,974 in
                                      restitution, joint and several.
Kimberlie        Participant          Convicted at trial on charges of      October 16, 2018
Flemings                              conspiracy to commit wire and
                                      bank fraud, wire fraud affecting
                                      financial institutions, and financial
                                      institution fraud.

Restitution Ordered in Mortgage Refinancing Ponzi Scheme, Ohio
Defendant        Role                 Most Recent Action                     Date
Erick Parker     Business Owner       Ordered to pay $1,229,773 in           October 16, 2018
                                      restitution.


Former CEO and Chief Loan Officer of Failed Sonoma Valley Bank and Attorney
Ordered to Pay Restitution for Bank Fraud and Other Crimes, California
Defendant        Role                 Most Recent Action                     Date
Sean Cutting     Former CEO           Ordered to pay $19,196,000 in          October 4, 2018
                                      restitution, joint and several.
Brian Melland    Former Chief Loan Ordered to pay $19,196,000 in             October 4, 2018
                 Officer           restitution, joint and several.
David Lonich     Attorney             Ordered to pay $19,196,000 in          October 4, 2018
                                      restitution, joint and several.




                        Semiannual Report to the Congress • October 1, 2018­–March 31, 2019    141
Appendix K: Glossary                                  funds to lenders so they may make loans to
                                                      home buyers.
and Acronyms
                                                      Federal Home Loan Bank System: The
Glossary of Terms                                     FHLBanks are 11 regional cooperative
                                                      banks that U.S. lending institutions use to
Bankruptcy: A legal procedure for resolving           finance housing and economic development
debt problems of individuals and businesses;          in their communities. Created by Congress,
specifically, a case filed under one of the           the FHLBanks have been the largest source
chapters of Title 11 of the U.S. Code.                of funding for community lending for eight
                                                      decades. The FHLBanks provide loans (or
Conservatorship: A legal procedure for the            “advances”) to their member banks but do not
management of financial institutions for an           lend directly to individual borrowers.
interim period during which the institution’s
conservator assumes responsibility for                Fiscal Year 2019: OIG’s FY 2019 covers
operating the institution and conserving its          October 1, 2018, through September 30,
assets. Under the Housing and Economic                2019.
Recovery Act of 2008, the Enterprises were
placed into conservatorships overseen by              Foreclosure: A legal process used by a lender
FHFA. As conservator, FHFA has undertaken             to obtain possession of a mortgaged property
to preserve and conserve the assets of the            in order to repay part or all of the debt.
Enterprises and restore them to safety and
soundness. FHFA also has assumed the                  Freddie Mac: A federally chartered
powers of the boards of directors, officers,          corporation that purchases residential
and shareholders; however, the day-to-day             mortgages and pools them into securities that
operational decision making of each company           are sold to investors. By purchasing mortgages,
is delegated by FHFA to the Enterprises’              Freddie Mac supplies funds to lenders so they
existing management.                                  may make loans to home buyers.

Default: Occurs when a mortgagor misses               Guarantee: A pledge to investors that the
one or more payments.                                 guarantor will bear the default risk on a pool
                                                      of loans or other collateral.
Dodd-Frank Wall Street Reform and
Consumer Protection Act of 2010:                      Housing and Economic Recovery Act of
Legislation that intends to promote the               2008: Legislation that established FHFA
financial stability of the United States by           and OIG. HERA also expanded Treasury’s
improving accountability and transparency in          authority to provide financial support to
the financial system, to end “too big to fail,”       the regulated entities and enhanced FHFA’s
to protect the American taxpayer by ending            authority to act as conservator or receiver.
bailouts, and to protect consumers from
abusive financial services practices.                 Inspector General Act of 1978: Legislation
                                                      that authorized establishment of offices
Fannie Mae: A federally chartered corporation         of inspectors general, “independent and
that purchases residential mortgages and pools        objective units” within federal agencies,
them into securities that are sold to investors.      that: (1) conduct and supervise audits and
By purchasing mortgages, Fannie Mae supplies          investigations relating to the programs and



142     Federal Housing Finance Agency Office of Inspector General
operations of their agencies; (2) provide             Real Estate Owned: Foreclosed homes
leadership and coordination and recommend             owned by government agencies or financial
policies for activities designed to promote           institutions, such as the Enterprises or real
economy, efficiency, and effectiveness in             estate investors. REO homes represent
the administration of agency programs and             collateral seized to satisfy unpaid mortgage
to prevent and detect fraud, waste, or abuse          loans. The investor or its representative must
in such programs and operations; and (3)              then sell the property on its own.
provide a means for keeping the head of the
agency and Congress fully and currently               Securitization: A process whereby a financial
informed about problems and deficiencies              institution assembles pools of income-
relating to the administration of such                producing assets (such as loans) and then
programs and operations and the necessity for         sells securities representing an interest in the
and progress of corrective action.                    assets’ cash flows to investors.

Inspector General Reform Act of 2008:                 Senior Preferred Stock Purchase
Legislation that amended the Inspector General        Agreements: Entered into at the time the
Act to enhance the independence of inspectors         conservatorships were created, the PSPAs
general and to create the Council of the              authorize the Enterprises to request and obtain
Inspectors General on Integrity and Efficiency.       funds from Treasury, among other matters.
                                                      Under the PSPAs, the Enterprises agreed to
Internal Control: A process effected by               consult with Treasury concerning a variety
an entity’s oversight body, management,               of significant business activities, capital
and other personnel that provide reasonable           stock issuance, dividend payments, ending
assurance that the objectives of an entity will       the conservatorships, transferring assets, and
be achieved. These objectives and related             awarding executive compensation.
risks can be broadly classified into one or
more of the following three categories: (1)           Servicers: Intermediaries between mortgage
operations—effectiveness and efficiency               borrowers and owners of the loans, such as
of operations; (2) reporting—reliability of           the Enterprises or mortgage-backed securities
reporting for internal and external use; and          investors. Servicers collect the borrowers’
(3) compliance—compliance with applicable             mortgage payments, remit them to the
laws and regulations. Internal control                owners of the loans, maintain appropriate
comprises the plans, methods, policies,               records, and address delinquencies or
and procedures used to fulfill the mission,           defaults on behalf of the owners of the loans.
strategic plan, goals, and objectives of the          For their services, they typically receive a
entity. Internal control serves as the first line     percentage of the unpaid principal balance
of defense in safeguarding assets. In short,          of the mortgage loans they service. The
internal control helps managers achieve               recent financial crisis put more emphasis on
desired results through effective stewardship         servicers’ handling of defaults, modifications,
of resources.                                         short sales, and foreclosures, in addition to
                                                      their more traditional duty of collecting and
Mortgage-Backed Securities: Debt                      distributing monthly mortgage payments.
securities that represent interests in the cash
flows—anticipated principal and interest              Short Sale: The sale of a mortgaged property
payments—from pools of mortgage loans,                for less than what is owed on the mortgage.
most commonly on residential property.



                             Semiannual Report to the Congress • October 1, 2018­–March 31, 2019   143
Straw Buyer: A person whose credit
profile is used to serve as a cover in a loan
transaction. Straw buyers are chosen for their
ability to qualify for a mortgage loan, causing
loans that would ordinarily be declined to be
approved. Straw buyers are often paid a fee
for their involvement in purchasing a property
and usually do not intend to own or occupy
the property.

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

Upfront Fees: One-time payments made
by lenders when a loan is acquired by an
Enterprise. Fannie Mae refers to upfront
fees as “loan level pricing adjustments” and
Freddie Mac refers to them as “delivery fees.”




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

Blue Book     Quality Standards for            FIRREA              Financial Institutions
              Inspection and Evaluation                            Reform, Recovery, and
                                                                   Enforcement Act
CEO           Chief Executive Officer
                                               FISMA               Federal Information
CIGFO         Council of Inspectors                                Security Modernization
              General on Financial                                 Act of 2014
              Oversight
                                               FSOC                Financial Stability
CIGIE         Council of the Inspectors                            Oversight Council
              General on Integrity and
              Efficiency                       FY 2019             Fiscal Year 2019

CSP           Common Securitization            GAGAS               Generally Accepted
              Platform                                             Government Auditing
                                                                   Standards
DBR           Division of Federal Home
              Loan Bank Regulation             GAO                 Government
                                                                   Accountability Office
DER           Division of Enterprise
              Regulation                       HERA                Housing and Economic
                                                                   Recovery Act of 2008
DOC           Division of
              Conservatorship                  HUD-OIG             Department of Housing
                                                                   and Urban Development
DOJ           Department of Justice                                Office of Inspector General

DTI           Debt-to-income                   IG                  Inspector General

EIC           Examiner-in-Charge               IRS-CI              Internal Revenue Service-
                                                                   Criminal Investigation
Enterprises   Fannie Mae and Freddie
              Mac                              IT                  Information Technology

FBI           Federal Bureau of                LTV                 Loan-to-value
              Investigation
                                               MBS                 Mortgage-Backed
FDIC          Federal Deposit Insurance                            Securities
              Corporation
                                               MLIS                Mortgage Loan Integrated
                                                                   System



                      Semiannual Report to the Congress • October 1, 2018­–March 31, 2019   145
MRA	               Matter Requiring Attention         SA	             Special Agent

NMDB	              National Mortgage                  SEO	            Senior Executive Officer
                   Database
                                                      SGE	            Senior Government
NIST	              National Institute of                              Employee
                   Standards and Technology
                                                      SVP	            Senior Vice President
OA	                Office of Audits
                                                      TCRs	           Tips, Complaints, or
OCom	              Office of Compliance and                           Referrals
                   Special Projects
                                                      The Standards 	 The Standards of Ethical
OE	                Office of Evaluations                              Conduct for Employees of
                                                                      the Executive Branch
OI	                Office of Investigations
                                                      Treasury	       U.S. Department of the
OIG	               Federal Housing Finance                            Treasury
                   Agency Office of Inspector
                   General

OGC	               Office of General Counsel

ORA	               Office of Risk Analysis

OSC	               U.S. Office of Special
                   Counsel

PII	               Personally Identifiable
                   Information

PIV	               Personal Identity
                   Verification

PMO	               Project Management Office

PSPA	              Senior Preferred Stock
                   Purchase Agreement

REO	               Real Estate Owned

RMBS	              Residential Mortgage-
                   Backed Securities

ROE	               Report of Examination




146     Federal Housing Finance Agency Office of Inspector General
F e d er a l H ou s i n g F i n a n c e a gen c y
o FF i c e oF i n s pec tor g en er a l
S




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