oversight

Seventh Semiannual Report to the Congress

Published by the Federal Housing Finance Agency, Office of Inspector General on 2014-03-31.

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

Federal Housing Finance Agency
  Office of Inspector General

  Se m iann ual R ep ort to t he Cong r e ss
           October 1, 2013, through March 31, 2014
Federal Housing Finance Agency
 Office of Inspector General




 Semiannual Report           to the       Congress
       October 1, 2013, through March 31, 2014
ii   Federal Housing Finance Agency Office of Inspector General
Table of Contents	

OIG’s Mission	                                                                                      iv
OIG’s Accomplishments from 2010 to Present	                                                          v
A Message from the Acting Inspector General	                                                         1
Executive Summary	                                                                                   2
	   Overview	                                                                                        2
	   Section 1: OIG Description, Accomplishments, and Strategy	                                       2
	   Section 2: FHFA and GSE Operations	                                                              3
Section 1: OIG Description, Accomplishments, and Strategy	                                           4
	   Description	                                                                                     4
	   Leadership and Organization	                                                                     4
	   Accomplishments and Strategy	                                                                    4
	   Audits and Evaluations	                                                                          5
	   Recommendations	                                                                                18
	   Peer Reviews	                                                                                   18
	   Civil Fraud Initiative	                                                                         19
	   Audit and Evaluation Plan	                                                                      20
	   Investigations	                                                                                 20
	   Civil Cases	                                                                                    37
	   Investigations Strategy	                                                                        37
	   Regulatory Activities	                                                                          37
	   Communications and Outreach	                                                                    41
Section 2: FHFA and GSE Operations	                                                                 44
	   Overview	                                                                                       44
	   FHFA and the Enterprises	                                                                       44
	   Enterprises’ Financial Performance	                                                             46
	   Government Support	                                                                             50
	   FHLBank System	                                                                                 53
	   Selected FHFA and GSE Activities	                                                               56
Appendix A: Glossary and Acronyms	                                     64
Appendix B: OIG Recommendations	                                       76
Appendix C: Information Required by the Inspector General Act and 				
            Subpoenas Issued	                                        100
Appendix D: OIG Reports	                                              103
Appendix E: OIG Organizational Chart	                                 104
Appendix F: Description of OIG Offices and Strategic Plan	            105
Appendix G: Figure Sources	                                           108
Appendix H: Endnotes	                                                 112



                               Semiannual Report to the Congress • October 1, 2013–March 31, 2014   iii
OIG’s Mission
The mission of the Federal Housing Finance Agency Office of Inspector General (OIG) is to: promote the
economy, efficiency, and effectiveness of the programs and operations of the Federal Housing Finance Agency
(FHFA or Agency); prevent and detect fraud, waste, and abuse in FHFA’s programs and operations; review
and, if appropriate, comment on pending legislation and regulations; and seek administrative sanctions, civil
recoveries, and criminal prosecutions of those responsible for fraud, waste, or abuse in connection with the
programs and operations of FHFA.

In carrying out this mission, OIG conducts independent and objective audits, evaluations, investigations,
surveys, and risk assessments of FHFA’s programs and operations; keeps the head of FHFA, Congress, and
the American people fully and currently informed of problems and deficiencies relating to such programs and
operations; and works collaboratively with FHFA staff and program participants to ensure the effectiveness,
efficiency, and integrity of FHFA’s programs and operations.




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




iv   Federal Housing Finance Agency Office of Inspector General
OIG’s Accomplishments from 2010 to Present

                     39                  27                     5                   5                  373                    4
                                                                                                                                    Systemic
                                                                    Evaluation                                                     Implication
                          Audits              Evaluations                               White Papers     Investigations
                                                                     Surveys                                                      Reports (SIRs)



                                                               Reports by Subject Area
       Work                                                                                                                                        Results

         80                                                                                                                                     $3.6 billion
       Reports                                                                                                                                     Restitutions

        198                                                                                                                                     $2.8 billion
  Recommendations                  Conservatorship and                  FHLBank System                   FHFA Internal                             Recoveries
                                   Enterprise Oversight                    Oversight                      Operations
        373                                                                                                                                        $9 billion
    Investigations                                                                                                                           Financial Settlements
                                        Conservatorship                       Advances                   Conservatorship
                                          9 Evaluations                     2 Evaluations                    1 Audit
        183                           3 Evaluation Surveys                                                                                    $28.4 million
     Subpoenas                           3 White Papers                      Credit Risk                 Operational Risk                            Other*
                                                                              2 Audits                       16 Audits
                                                                            2 Evaluations               1 Evaluation Survey
        310                               Credit Risk
                                           9 Audits
                                                                                1 SIR                                                      *Other is comprised of funds
                                                                                                                                           put to better use, questioned
 Indictments/Charges                     4 Evaluations                                                                                     costs, unsupported costs,
                                                                     Housing Mission and Goals                                             and fines.
                                                                            1 Evaluation
        184                           Interest Rate Risk
  Convictions/Pleas                       1 Evaluation
                                      1 Evaluation Survey
         33                              1 White Paper
 Regulatory Activities                  Operational Risk
                                           2 Audits
          6                              3 Evaluations
  Additional Actions                         1 SIR
                                      Real Estate Owned
                                           2 Audits
                                        1 White Paper
                                            1 SIR
                                   Housing Mission and Goals
                                         2 Evaluations

                                      Mortgage Servicing
                                           7 Audits
                                        3 Evaluations
                                            1 SIR




                                                      Semiannual Report to the Congress • October 1, 2013–March 31, 2014                                                   v
vi   Federal Housing Finance Agency Office of Inspector General
A Message from the Acting Inspector General
I am pleased to present OIG’s seventh Semiannual Report to the Congress,
which covers our activities and operations from October 1, 2013, to
March 31, 2014.
During this semiannual reporting period, OIG continued to promote the
effectiveness, integrity, and transparency of FHFA’s programs and operations.
On one hand, OIG’s findings credit FHFA for effectuating positive change
in selected areas. Most notably, Fannie Mae and Freddie Mac (collectively,
the Enterprises) reported positive financial results, and notably, dividend
payments from the Enterprises to the Department of the Treasury (Treasury)
now exceed the amount of assistance they received. On the other hand, OIG
has provided several recommendations to improve the effectiveness of FHFA
programs. An equally important event for the Agency was the change in
leadership when Melvin L. Watt was sworn in to a five-year term as Director
on January 6, 2014. We look forward to working with the Director and
Agency staff in identifying ways to facilitate the mission and goals of FHFA.
                                                                                     Michael P. Stephens
OIG has continued to assess high-risk areas at FHFA, the government-                 Acting Inspector General of the
sponsored enterprises (GSEs), and their counterparties, and to offer                 Federal Housing Finance Agency
recommendations for improvement. This semiannual period we issued 17
audit and evaluation reports focusing on key mission areas affecting the nation’s housing finance system. These
reports address a range of topics from better use of appraisal data, to reducing the risk of loss and improving
loan quality, to overpayments for pre-foreclosure property inspections, to FHFA compliance with requirements
in the Housing and Economic Recovery Act (HERA) to report on Federal Home Loan Bank (FHLBank)
director expenses. I am also pleased to report our Office of Audits recently completed its first peer review and
received the highest opinion provided on its quality control with no deficiencies identified.
OIG also remains active on the law enforcement front. During this period, OIG’s investigative efforts
resulted in the indictment of 82 individuals and the conviction of 62 individuals, as well as the award
of more than $46 million in criminal fines and restitution orders. Many of our investigations produced
significant results. For example, OIG along with other federal and state agencies reached a $13 billion
settlement with JPMorgan. And, in Denver, the subject of an OIG investigation was sentenced to 14 years
in prison for an illegal scheme to take control of foreclosed homes through “home squatting.”
In closing, I want to thank all of the dedicated employees at OIG for their efforts in making this report
possible. Their efforts ensure that our important public service mission is fulfilled.
Michael P. Stephens
Acting Inspector General
April 30, 2014




                                      Semiannual Report to the Congress • October 1, 2013–March 31, 2014          1
Executive Summary

Overview                                                   resulting in lower returns on interest-bearing assets,
                                                           which contributed to a decline in the FHLBanks’ net
This Semiannual Report discusses OIG operations            income for the year ended December 31, 2013.
and FHFA developments from October 1, 2013, to             Exploring these and other issues, this report is
March 31, 2014.1                                           organized as follows. Section 1, OIG Description,
During this semiannual reporting period, OIG issued        Accomplishments, and Strategy, highlights several OIG
17 audit and evaluation reports and investigative          audits, evaluations, and investigations relating to the
efforts resulted in the indictment of 82 individuals       programs and operations of FHFA. Section 2, FHFA
and the conviction of 62 individuals. FHFA also            and GSE Operations, provides a closer look at FHFA
issued a few key directives and welcomed new               and GSE developments during this reporting period.
leadership.

As the Enterprises began their sixth year in               Section 1: OIG Description,
conservatorships,* many of the conditions                  Accomplishments, and Strategy
identified in our prior Semiannual Report remained.
The Enterprises continued to occupy a sizeable             This section provides a brief overview of OIG’s
portion of the secondary mortgage market. Further,         organization and describes its oversight activities,
the Enterprises continued to report strong profits         including audits, evaluations, and investigations. It
stemming from stronger credit quality, guarantee           also discusses OIG’s priorities and goals.
fee income, increases in home prices, and reduced
defaults. Under the arrangement that sweeps these
                                                           For example, in this section we discuss:
profits back to Treasury, as of the end of the first       •	 FHFA’s Oversight of the Servicing Alignment
quarter of 2014, the Enterprises have paid more to            Initiative (EVL-2014-003, February 12, 2014),
Treasury in dividends than the amount of assistance           in which we examined how FHFA oversees the
they received.                                                Servicing Alignment Initiative—an initiative
Meanwhile, throughout 2013, the FHLBanks                      it established to improve mortgage servicers’
continued to experience demand for advances,                  performance in managing delinquent loans and
particularly by large-asset members. However,                 limit the Enterprises’ financial losses.
average short-term interest rates generally decreased,     •	 Update on FHFA’s Efforts to Strengthen its Capacity
                                                              to Examine the Enterprises (EVL-2014-002,
    *Terms and phrases in bold are defined in                 December 19, 2013), in which we evaluated
    Appendix A, Glossary and Acronyms. If you                 FHFA’s efforts to address the concerns from
    are reading an electronic version of this                 our prior report on the Agency’s ability to meet
    Semiannual Report, then simply move your                  critical responsibilities, including lacking a
    cursor to the term or phrase and click for                sufficient number of examiners and assigning
    the definition.                                           many examiners without professional commission
                                                              program accreditation.

2    Federal Housing Finance Agency Office of Inspector General
•	 Fannie Mae’s Controls Over Short Sale Eligibility       Section 2: FHFA and GSE
   Determinations Should be Strengthened (AUD-             Operations
   2014-003, November 20, 2013), in which
   we assessed FHFA’s oversight of Fannie Mae’s            This section describes the organization and operations
   controls over borrower eligibility requirements for     of FHFA, the Enterprises, and the FHLBanks, as well
   its short sale program.                                 as key developments for each during the reporting
•	 FHFA Oversight of Fannie Mae’s Remediation Plan         period.
   to Refund Contributions to Borrowers for the Short      Among the most notable developments during the
   Sale of Properties (AUD-2014-004, January 15,           semiannual period was the change in leadership at
   2014), in which we analyzed how FHFA is                 FHFA when Melvin L. Watt was sworn in to a five-
   overseeing Fannie Mae’s efforts to refund certain       year term as director. He is the first FHFA Director
   inappropriately collected borrower short sale           to be confirmed by the Senate.
   contributions that came to light in the audit
                                                           This section goes on to detail the continued
   mentioned above.
                                                           improvement in the Enterprises’ financial results.
We also discuss numerous OIG investigations that           It also discusses the Enterprises’ joint venture to
resulted in indictments and convictions of individuals     build and operate a new common securitization
responsible for fraud, waste, or abuse in connection       infrastructure for residential mortgage-backed
with FHFA’s and the regulated entities’ programs and       securities (RMBS) and FHFA’s changes to mortgage
operations, and in fines and restitution orders totaling   insurance master policy requirements.
more than $46 million.
                                                           Additionally, during this time period, FHFA and
Further, this section addresses our:                       other federal financial agencies issued a final rule
                                                           exempting some higher-priced mortgage loans from
•	 Audit and Evaluation Plan, which focuses on             certain appraisal requirements; FHFA directed the
   areas of FHFA operations posing the greatest risks      Enterprises to delay implementation of planned
   to the Agency and to Fannie Mae, Freddie Mac,           mortgage guarantee fee increases; the Agency solicited
   and the FHLBanks (collectively, the GSEs);              public input on a proposal to reduce loan limits;
                                                           the Enterprises announced transactions conducted
•	 Regulatory Activities, which include our
                                                           in line with FHFA’s initiative to transfer credit risk
   assessment of proposed legislation, regulations,
                                                           to the private sector; and the Agency terminated
   and policies related to FHFA; and
                                                           the Enterprises’ pension plans. These and other
•	 Communications and Outreach Efforts, which              developments and OIG’s efforts in relation to them
   educate stakeholders—FHFA, Congress,                    are summarized in Section 2.
   policymakers, and the public—about OIG,
   FHFA, and GSE developments, as well as broader
   issues of fraud, waste, and abuse.


                                       Semiannual Report to the Congress • October 1, 2013–March 31, 2014         3
Section 1: OIG Description, Accomplishments,
and Strategy

Description                                                            2010. Mr. Linick resigned on September 29, 2013,
                                                                       and his Principal Deputy Inspector General, Michael
OIG began operations on October 12, 2010. It was                       P. Stephens, commenced acting in the capacity of
established by HERA, which amended the Inspector                       Inspector General pursuant to 5 U.S.C. § 3345(a)(1).
General Act. OIG conducts audits, evaluations,                         Mr. Stephens was appointed as Principal Deputy
investigations, and other law enforcement activities                   Inspector General in September 2011. Prior to
relating to FHFA’s programs and operations.                            his joining OIG, Mr. Stephens served as Acting
OIG’s operations are funded by annual assessments                      Inspector General and Deputy Inspector General
that FHFA levies on the Enterprises and the                            for the Department of Housing and Urban
FHLBanks pursuant to 12 U.S.C. § 4516. For fiscal                      Development (HUD). Earlier, he was the Deputy
year 2014, OIG’s operating budget (see Figure 1,                       Assistant Inspector General for Investigations for the
below) was $48 million, with 150 full-time-                            Department of Veterans Affairs and a senior criminal
equivalent staff.                                                      investigator for the Office of Inspector General for
                                                                       the Resolution Trust Corporation. Each of these
Figure 1. OIG’s Operating Budget for Fiscal Year
                                                                       appointments followed a distinguished 20-year
2014
                Supplies and Materials
                                                                       career with the Secret Service, during which he held
                         1%
                                           Travel and Transportation
                                                                       the distinction of being assigned to the Presidential
    Equipment
       3%
                                                   of Things
                                                      2%
                                                                       Protection Division at the White House, along with
                                                                       various supervisory positions within the agency.

                 Contracts                                             OIG consists of the Acting Inspector General, his
                   18%
                                                                       senior staff, and OIG offices, principally: the Office
                                                                       of Audits (OA), the Office of Evaluations (OE), and
                   Fixed
                 Operational
                                         61%                           the Office of Investigations (OI). Additionally, OIG’s
                   Costs a
                    15%                                                Executive Office and the Office of Administration
                                                                       provide organization-wide supervision and support.
                                                                       (See Appendix E for OIG’s organizational chart and
                                                                       Appendix F for a detailed description of OIG’s offices
                                                                       and strategic goals.)
a
 Fixed operational costs include items such as space rent,
shared service agreements with other federal agencies to
provide information technology and administrative services,
printing, and the hotline.                                             Accomplishments and Strategy
Leadership and Organization                                            From October 1, 2013, to March 31, 2014, OIG’s
                                                                       significant accomplishments included: (1) issuing
On April 12, 2010, President Barack Obama                              17 audit and evaluation reports; (2) participating in
nominated FHFA’s first Inspector General, Steve A.                     a number of criminal and civil investigations; and
Linick, who was sworn into office on October 12,                       (3) reviewing and commenting on FHFA rules.

        Figure_1_OIG’sOperatingBudgetFiscalYr2013

4      Federal Housing Finance Agency Office of Inspector General
Audits and Evaluations                                       property preservation contractor whose company
                                                             created and submitted fraudulent property inspection
During this semiannual period, OIG released 17 audit         reports to servicers for reimbursement. The possibility
and evaluation reports, which are summarized below.          of other property inspection vendors engaging in
                                                             the same practice presents a potential risk to the
Audits                                                       Enterprises.

FHFA Oversight of Enterprise Controls Over                   OIG found that the pre-foreclosure property
Pre-Foreclosure Property Inspections (AUD-2014-              inspection process needs improvement to ensure that
012, March 25, 2014)                                         pre-foreclosure inspection objectives are achieved in
                                                             the most effective manner. There is limited assurance
Fannie Mae and its servicers use property inspections,
                                                             that the Enterprises have effective controls in place
referred to as pre-foreclosure property inspections,
                                                             to ensure the quality of inspections conducted
when a borrower becomes delinquent. One of the
                                                             and that inspectors issue reports consistent with
inspections’ objectives is to help minimize credit
                                                             contractual requirements. Overall, several servicers
losses and identify any apparent safety hazards.
                                                             reviewed during the audit did not have quality
Fannie Mae requires servicers to perform a monthly
                                                             controls in place to ensure contractors provided
inspection on all properties where borrowers have
                                                             accurate, complete, and consistent information
become delinquent, subject to reimbursement
                                                             in property inspection reports. Specifically, OIG
limits per loan. The Enterprises reimbursed servicers
                                                             identified inspection reports with inconsistent
approximately $91.2 million in 2011-2012 for
                                                             and inaccurate information, missing or blurry
property inspections performed by contractors related
                                                             photographs, and manipulated date and time stamps
to delinquent loans.
                                                             on the photographs (see Figure 2, below). OIG
The severity of risk in the property inspection business     also identified unnecessary inspections that did not
was recently highlighted by the conviction of a              provide useful information about the properties.

Figure 2. Blurry and Manipulated Inspection Photographs




 •	The inspector used a 2007 picture   •	The inspector changed the date on         •	The inspector submitted a report
    for a 2012 inspection report.         the picture so it appears each picture     wherein each picture was blurry
                                          was taken eight days earlier.              and the date on the picture was
                                                                                     not adequately visible.



                                       Semiannual Report to the Congress • October 1, 2013–March 31, 2014               5
Further, the servicers reviewed by OIG inconsistently     may be “improper” in one or more respects. For
adopted requirements for inspectors to complete and       example, they may be made to the wrong recipients,
pass criminal background checks.                          in the wrong amounts, at the wrong times, or for the
                                                          wrong reasons. Additionally, for improper payments
These deficiencies in the pre-foreclosure property
                                                          estimated in excess of $10 million, the agency must
inspection process occurred, in part, because of
                                                          report the potential actions it is taking to reduce and
minimal attention and oversight provided by both
                                                          recapture improper payments.
FHFA and the Enterprises, along with limited
Enterprise quality standards for inspections              OIG is required to review FHFA’s improper
conducted by inspectors under contract with               payment reporting in its annual Performance and
servicers.                                                Accountability Report (PAR) to determine whether
                                                          FHFA is in compliance with IPIA and to report
OIG recommended that FHFA direct the Enterprises
                                                          this and other findings. However, not all IPIA
to assess jointly the effectiveness of their pre-
                                                          requirements are applicable to FHFA. In fact, the
foreclosure property inspection processes. Based on
                                                          Agency stated that most requirements of IPIA and
this assessment, FHFA should direct the Enterprises
                                                          implementing guidance are not applicable to them, as
to establish uniform pre-foreclosure inspection
                                                          noted in Figure 3 (see page 7).
quality standards and quality control processes for
inspectors.                                               After reviewing applicable statutes, executive orders,
                                                          and other compliance requirements related to
FHFA identified corrective actions that address OIG’s
                                                          improper payments; reviewing various Government
recommendations.
                                                          Accountability Office (GAO) audit reports;
FHFA’s Controls to Detect and Prevent Improper            interviewing key FHFA officials; obtaining sufficient
Payments FY 2013 (AUD-2014-011, March 20,                 and appropriate evidence regarding compliance
2014)                                                     actions taken; and reviewing and assessing improper
                                                          payment element requirements and related activities,
The Improper Payments Information Act of 2002             we concluded that FHFA complied with the
(IPIA) initiated the legislation that provides for        applicable statutory improper payment requirements,
estimates and reports of improper payments by             as well as related Office of Management and Budget
federal agencies. It was followed by amendments           (OMB) criteria. FHFA opined that the remaining
in 2010 and 2012 to help prevent the further loss         requirements were not applicable. OIG recognized
of billions in taxpayer dollars. IPIA requires federal    that FHFA is acting to achieve the intent of IPIA and
agencies to periodically review, determine, estimate,     related OMB criteria in spite of its determination
and report programs and activities that may be            that it is not required to do so.
susceptible to significant improper payments. For
simplicity, this report referred to the original act      FHFA responded to a draft of this report offering no
and all its amendments as IPIA. We conducted a            objection to its conclusions.
performance audit to assess FHFA’s compliance with
                                                          FHFA’s Use of Government Travel Cards
IPIA and other financial criteria for fiscal year 2013.
                                                          (AUD-2014-010, March 20, 2014)
Federal agencies regularly make payments to program
                                                          The Government Charge Card Abuse Prevention
beneficiaries (or on behalf of them), grantees,
                                                          Act of 2012 (Charge Card Act) requires all
vendors, and contractors. Some of these payments
                                                          executive branch agencies to establish and maintain

6   Federal Housing Finance Agency Office of Inspector General
safeguards and internal controls for charge                Under the Charge Card Act, inspectors general must
cards. OMB provided supplemental guidance                  assess the risk of fraud or inappropriate charges and
through Memorandum M-13-21, Implementation                 additionally can perform audits at their discretion.
of the Government Charge Card Abuse Prevention             Agencies with more than $10 million in purchase
Act of 2012, dated September 6, 2013. OMB’s                card spending must jointly report with its office
memorandum requires each agency head to provide            of inspector general to OMB every six months on
an annual certification that all policies and controls     employee violations of card use per the agency’s
are in place or that corrective actions have been taken    policies. FHFA’s purchase and travel card spending
to mitigate the risk.                                      was less than $10 million for fiscal year 2013, so it


Figure 3. FHFA’s Status of IPIA Compliance for Fiscal Year 2013

                   Compliance Element                                         OIG Conclusion
(A) The agency has published an annual PAR or             FHFA published the 2013 PAR and included relevant
financial statement for the most recent fiscal year and   information pertaining to improper payments.
posted that report and any accompanying materials
required under guidance of OMB on the agency
website.
(B) If required, the agency has conducted a program-      FHFA determined that section 2(a) of IPIA is not
specific risk assessment for each program or activity     applicable because FHFA funds are not federal funds
that conforms with section 2(a) of IPIA (31 U.S.C. §      for purposes of this provision.
3321 note).
(C) The agency has published improper payments            FHFA determined that section 2(b) of IPIA is not
estimates for programs and activities identified as       applicable because FHFA funds are not federal funds
susceptible to significant improper payments under its    for purposes of this provision.
risk assessment (if required).
(D) The agency has published programmatic corrective      FHFA determined that section 2(c) of IPIA is not
action plans in the PAR or Agency Financial Report (if    applicable because FHFA funds are not federal funds
required).                                                for purposes of this provision.
(E) The agency published, and has met, improper           FHFA determined that section 2(c) of IPIA is not
payments reduction targets established under              applicable because FHFA funds are not federal funds
section 2(c) of IPIA (31 U.S.C. § 3321 note) in the       for purposes of this provision.
accompanying materials to the annual financial
statement for each program assessed to be at risk and
measured for improper payments.
(F) The agency has reported a gross improper payment      FHFA determined that section 2(b) of IPIA is not
rate of less than 10% for each program and activity for   applicable because FHFA funds are not federal funds
which an estimate was obtained and published in the       for purposes of this provision.
PAR or Agency Financial Report.
(G) The agency has reported information on its efforts    FHFA stated in its PAR that it has established and
to recapture improper payments.                           maintains internal control procedures for handling
                                                          improper payments. Furthermore, FHFA stated it
                                                          pursues the recovery of any improper payments with its
                                                          vendors. Also, it should be noted that OIG completed
                                                          an audit of FHFA’s use of government purchase
                                                          cards and a subsequent audit of government travel
                                                          cards. These audits include procedures to identify
                                                          inappropriate purchase and travel card spending and
                                                          to assess FHFA’s internal controls in place to prevent
                                                          and/or detect inappropriate card use.2


                                      Semiannual Report to the Congress • October 1, 2013–March 31, 2014        7
was not subject to mandatory semiannual reporting.          FHFA Oversight of Enterprise Handling of Aged
OIG determined audits of FHFA’s purchase and                Repurchase Demands (AUD-2014-009,
travel card spending were warranted precisely because       February 12, 2014)
of the absence of targeted audit coverage. This audit
                                                            In January 2012, as part of its larger effort to
report reflects the ongoing efforts of OIG to monitor
                                                            harmonize the Enterprises’ operations, FHFA
FHFA’s compliance with the Charge Card Act.
                                                            directed the Enterprises to develop “consistent
OIG did not identify misuse or fraudulent travel card       timelines and collection standards” for fees, penalties,
transactions during the audit. We further note that         and remedies. However, the Agency’s published
with limited exceptions, FHFA has implemented               guidance for aged repurchase demands, essentially, let
adequate safeguards and internal controls with respect      each Enterprise establish its own model for penalizing
to travel cards. The audit did identify several instances   seller-servicers. As a result, Freddie Mac continued to
of minor noncompliance with applicable travel               employ its existing contractual right to assess late fees
regulations, policies, and procedures. For example:         on seller-​servicers for not resolving repurchase
                                                            demands timely. Fannie Mae, which does not have an
•	 FHFA travelers did not always obtain trip
                                                            equivalent penalty, did not utilize repurchase late fees.
   authorizations prior to traveling and incurring
   travel expenses;                                         FHFA allowed Fannie Mae to continue without
                                                            the ability to assess repurchase late fees because the
•	 FHFA travelers did not always create and
                                                            Enterprise claimed that setting up such a program
   submit travel vouchers in a timely manner upon
                                                            could cost up to $5.4 million. However, the
   completion of travel; and
                                                            Enterprise’s analysis did not consider the potential
•	 Cash advances using the travel cards exceeded            benefits of the program, including a continuous
   FHFA limits and did not always correspond in             stream of penalty fees. As an indication of the
   timing to the travel dates.                              program’s potential, Freddie Mac could have assessed
                                                            as much as $284 million from 2009 through 2012
OIG recommended that FHFA enhance travel card               using its existing right to assess late fees. Further, for
controls to improve compliance with applicable              much of that time period, Fannie Mae had a larger
regulations, policies, and procedures by: (1) notifying     volume of unresolved repurchase demands than
employees that all travelers should have a properly         Freddie Mac. Specifically, as of July 2013, more than
approved authorization prior to commencing travel;          10,000 of Fannie Mae’s repurchase demands, totaling
(2) notifying employees to complete travel vouchers         $2.5 billion, had been unresolved for at least 120
in a timely manner upon completion of travel;               days. OIG concluded that FHFA should promptly
(3) performing a periodic review of travel cardholder       quantify the potential benefit of implementing a
ATM limits; and (4) notifying employees that                repurchase late fee program at Fannie Mae, and then
they should obtain cash advances either during or           determine whether the potential cost outweighs the
immediately preceding travel.                               potential benefit.
FHFA provided comments agreeing with these                  OIG also concluded that Freddie Mac’s assessment
recommendations.                                            of repurchase late fees could benefit from stronger
                                                            Agency supervision. By inconsistently waiving,
                                                            enforcing, and excepting late fees through 2012, the



8   Federal Housing Finance Agency Office of Inspector General
Figure 4. Repurchase Late Fees Foregone Versus Assessed by Freddie Mac 2009 Through 2012
($ millions)

                    $16

                    $14

                    $12

                    $10

                     $8

                     $6
                                        $284 million
                     $4

                     $2

                     $0

                                                        11
                      09




                                       10




                                                                        12
                                                       20
                    20




                                     20




                                                                      20

Enterprise missed assessing up to $284 million (see      Freddie Mac’s repurchase late fee program more
Figure 4, above). Those fees are now unlikely to be      effectively.
collected—losses that taxpayers ultimately bore. In
                                                         Finally, FHFA is not including any uncollected
part, OIG traced the missed assessments to the need
                                                         repurchase late fees in settlement negotiations
for robust FHFA oversight. Before its harmonization
                                                         with seller-​servicers over defective loans that were
work, the Agency largely left the assessment of
                                                         sold to or serviced for the Enterprises. Such loans
repurchase late fees unsupervised. Currently, the
                                                         contributed to the Enterprises’ financial difficulties
Agency does not receive sufficient information from
                                                         and placement under FHFA conservatorships.
Freddie Mac to oversee and assess this part of the
                                                         Increased Agency oversight can result in additional
Enterprise’s business.
                     Figure_3_RepurchaseLateFeesForegoneVsAssessedbyFM_2009-2012
                                                         future recoveries as repurchases are settled. FHFA
OIG recommended that FHFA direct Freddie Mac             should direct Freddie Mac to provide the Agency
to develop a repurchase late fee report and routinely    with information on assessed but uncollected late
provide the report to the Agency. The report should      fees associated with the repurchase claims included
expand the information currently provided by             in the 2013 bulk settlements. FHFA should consider
adding summary information concerning the seller         the information provided by Freddie Mac in its
of outstanding repurchases, the aging of repurchases,    negotiations and document the information in
late fees assessed and collected, discretionary late fee accordance with the Office of Conservatorship
waivers, and global late fee exclusions. Such a report   Operations’ Settlement Policy.
would provide Freddie Mac and FHFA management
                                                         FHFA provided comments agreeing with the
with needed information to manage and assess
                                                         recommendations in this report.


                                     Semiannual Report to the Congress • October 1, 2013–March 31, 2014       9
FHFA’s Oversight of the Enterprises’ Use of                Specifically:
Appraisal Data Before They Buy Single-Family
                                                           •	 From January 2013 through June 2013, Fannie
Mortgages (AUD-2014-008, February 6, 2014)
                                                              Mae spent $13 billion buying over 56,000
Assessing the value of collateral securing mortgage           loans even though the portal’s analysis of the
loans is one of the pillars in making sound                   associated appraisals warned the Enterprise that
underwriting decisions. Before loans are presented            the appraisals were potentially in violation of its
for the relevant Enterprise to buy, appraisal and             underwriting requirements; and
appraiser information is collected through a uniform
                                                         •	 From June 2013 through September 2013, Freddie
collateral data portal system (portal). If the portal
                                                            Mac spent $6.7 billion buying over 29,000 loans
finds signs that the appraisals violate the Enterprises’
                                                            despite the portal warning the Enterprise that
requirements, it alerts them and the lenders to the
                                                            either no property value could be provided or the
problem(s). By using the portal, the Enterprises are
                                                            value of the property was in question.
striving to improve data quality, ensure compliance
with their loan eligibility guidelines,                                     In addition, the Enterprises bought
enhance loan reviews, and lower                                             nearly $88 billion in loans although
the number of loans that must                 In 2013, the                  system logic errors in the portal
be bought back by sellers (i.e.,                                            did not allow them to determine if
repurchased) for not meeting their            Enterprises                   the appraiser was properly licensed.
standards.                                                                  Specifically, the portal alerted
FHFA directed the Enterprises to
                                              purchased over                the Enterprises and lenders that
                                                                            some appraisers were suspended;
develop the portal in 2010. As of
                                              $19 billion worth however, the Enterprises set the
March 2012, the portal analyzes
                                                                            portal to automatically override
all appraisals for single-family              of loans that the             the messages and accepted the
loans before the Enterprises can
                                                                            submitted appraisals. Based on
buy the loans. This is a significant          appraisal portal              OIG’s work and the Enterprises’
undertaking since, in 2012
                                                                            responsive actions, 23 loans, valued
alone, the Enterprises collectively           warned may be                 at $3.4 million, may be repurchased
purchased and guaranteed
                                              supported by                  based on the “suspended” status of
approximately six million single-
                                                                            the appraiser, which is a violation of
family residential mortgages, valued
at $1.3 trillion.                             noncompliant                  requirements.

                                                                            OIG made 14 recommendations to
While the Enterprises have                    appraisals.                   help the Enterprises use appraisal
progressed in establishing the
                                                                            data to improve loan quality
portal and collecting appraisal
                                                                            and to reduce the risk of loss. In
data, more remains to be done
                                                         general, the recommendations are geared to improve
to use the portal’s data to minimize the risk of loss.
                                                         FHFA’s oversight of how the Enterprises use the
OIG concluded that increased FHFA oversight can
                                                         portal according to the Agency’s directive. OIG also
enhance the Enterprises’ use of the portal’s appraisal
                                                         recommended that the Enterprises require lenders
data before they buy single-family mortgages and
                                                         to resolve key warning messages generated by the
reduce collateral risk.


10    Federal Housing Finance Agency Office of Inspector General
portal’s analyses of their submitted appraisal data        must be submitted to OMB by January 31, 2014,
before buying the associated loans.                        for compilation and transmission to Congress and
                                                           the Comptroller General of the United States. This
FHFA provided comments agreeing with the
                                                           audit report supported our efforts to fulfill these
recommendations in this report.
                                                           requirements.
FHFA’s Implementation of Active Directory
                                                           OIG did not identify any instances of
(AUD-2014-007, January 31, 2014)
                                                           noncompliance with applicable laws and regulations
FHFA has implemented Microsoft’s Active Directory          or fraudulent or inappropriate charge card practices.
to manage access by FHFA and external users,               With limited exceptions, FHFA implemented
groups of users, computer systems, and services            adequate purchase card internal controls. OIG noted
on its network. Active Directory plays a major             that FHFA could improve existing controls to ensure
role in assuring the confidentiality, integrity, and       purchase cards are used in an efficient, effective, and
availability of critical FHFA information and systems      economical manner and not for illegal, improper, or
by ensuring user authentication and access control         erroneous purchases by documenting policies and
to FHFA’s network and systems. Accordingly,                procedures regarding the:
this audit’s objective was to determine whether
                                                           •	 Solicitation of multiple bids and/or completion of
FHFA has implemented an Active Directory
                                                              sole-source justifications in conjunction with the
security infrastructure that effectively protects the
                                                              purchase of employee training in excess of $5,000;
confidentiality, integrity, and availability of critical
systems and information. Because information in this       •	 Execution of Continued Service Agreements for
report could be used to circumvent FHFA’s internal            high-cost employee training;
controls, its contents have not been released publicly.
                                                           •	 Approval of temporary increases in dollar limits
FHFA’s Use of Government Purchase Cards                       on cardholder purchase authority; and
(AUD-2014-006, January 31, 2014)
                                                           •	 Granting and removing of exceptions for card
On October 5, 2012, the President signed into                 purchases in Merchant Category Codes (MCCs)
law the Charge Card Act, Public Law 112-194.                  not otherwise authorized.
The Charge Card Act requires all executive branch
                                                           OIG recommended that FHFA document purchase
agencies to establish and maintain safeguards and
                                                           card policies and procedures related to: (1) purchase of
internal controls for charge cards. OMB provided
                                                           training above the $5,000 micro-purchase threshold;
supplemental guidance through Memorandum
                                                           (2) use of employee Continued Service Agreements
M-13-21, Implementation of the Government
                                                           for high-cost training; (3) approval and resetting
Charge Card Abuse Prevention Act of 2012, dated
                                                           of temporary increases in transactions limits in a
September 6, 2013.
                                                           cardholder’s purchase authority; and (4) management
Under the Charge Card Act, inspectors general              of MCC exceptions, which should be allowed only on
are required to conduct periodic risk assessments          a case-by-case basis and removed in a timely manner
of agency purchase card programs to analyze the            after the allowed purchase is transacted.
risks of illegal, improper, or erroneous purchases.
                                                           FHFA provided comments agreeing with the
Status reports on an inspector general’s purchase
                                                           recommendations in this report.
and travel card audit recommendations, if any,


                                    Semiannual Report to the Congress • October 1, 2013–March 31, 2014         11
Figure 5. Total Overpayments and Related Mortgage Loans 2011 Through 2012

  $3,500,000                                                40,000

  $3,000,000                                                35,000
                                                            30,000
  $2,500,000
                                                            25,000
  $2,000,000
                                                            20,000
  $1,500,000          $3,151,746                                               35,296
                                                            15,000
  $1,000,000                               $1,863,759                                               21,637
                                                            10,000
     $500,000                                                5,000
          $0                                                     0
                        Dollar Amount Exceeding Limit                         Number of Loans Exceeding Limit

                            $60 Limit   $200 Limit                                 $60 Limit   $200 Limit




FHFA Oversight of Fannie Mae’s Reimbursement               Enterprise to overpay servicers by approximately
Process for Pre-Foreclosure Property Inspections           $5 million in 2011 and 2012 for pre-foreclosure
(AUD-2014-005, January 15, 2014)                           property inspection claims in excess of established
                                                           reimbursement limits (see Figure 5, above).
Fannie Mae and its servicers use property inspections,
referred to as pre-foreclosure property inspections,           OIG recommended that FHFA direct Fannie Mae to:
when a borrower becomes delinquent. One of the                 (1) obtain a refund from servicers for overpayments
objectives of the inspections is to help protect the           of property inspection claims; (2) implement system
Enterprise’s interest in the mortgaged property from           controls to reject property inspection claims over
                           Figure_4_TotalOverpaymentsAndRelatedMortgageLoans_2011-2012
physical conditions that may result in additional              established tolerance limits; and (3) issue guidance
credit loss. Fannie Mae requires servicers to perform a        to all servicers concerning requirements to adhere
monthly inspection on all properties where borrowers           to reimbursement limits for property inspection
have become delinquent, subject to reimbursement               claims. OIG also recommended that FHFA assess
limits per loan.                                               the need for additional examination coverage of
                                                               Fannie Mae’s pre-foreclosure property inspection
Overall, OIG concluded that additional FHFA
                                                               reimbursement process. FHFA is taking action that is
oversight is needed regarding pre-foreclosure property
                                                               generally responsive to the recommendations except
inspection claims. Specifically, Fannie Mae’s process
                                                               for obtaining refunds for overpayments of property
for paying servicer property inspection claims has
                                                               inspection claims.
significant control deficiencies. Further, Fannie
Mae does not have system controls to automatically             FHFA disagreed with three of the four
approve, curtail, or reject claims based on Fannie             recommendations in this report; however, FHFA is
Mae’s established reimbursement limits. As a result,           taking action that OIG considers responsive to the
Fannie Mae approved inspection claims incorrectly              recommendations except for obtaining refunds for
by using processing procedures for other types                 overpayments of property inspection claims.
of reimbursements. These deficiencies caused the




12     Federal Housing Finance Agency Office of Inspector General
FHFA Oversight of Fannie Mae’s Remediation                           after January 1, 2011, and HAFA short sales where
Plan to Refund Contributions to Borrowers for                        borrower contributions were collected. FHFA is
the Short Sale of Properties (AUD-2014-004,                          currently reviewing Fannie Mae’s remediation plan
January 15, 2014)                                                    to ensure that borrowers are protected and made
                                                                     whole due to inappropriate borrower contributions.
Through its review of closed short sale transactions
                                                                     Additionally, FHFA will determine if similar
in another audit on short sale borrower eligibility
                                                                     conditions exist at Freddie Mac, since it uses most
(Fannie Mae’s Controls Over Short Sale Eligibility
                                                                     of the same servicers as Fannie Mae and also handles
Determinations Should be Strengthened, AUD-2014-
                                                                     defaulted loans in California.
003, November 20, 2013), OIG found that Fannie
Mae and its servicers may have improperly collected                  Fannie Mae stated that the decision to pursue refunds
borrower contributions for short sales of properties in              rests with each servicer that reviews the identified
the state of California and under Fannie Mae’s Home                  cases where improper borrower contributions may
Affordable Foreclosure Alternatives (HAFA) program.                  have been collected. If the servicer validates that a
The collection of these borrower contributions                       contribution was not collected or if the servicer has a
prompted Fannie Mae to initiate a remediation plan                   reasonable basis to support the contribution, Fannie
to return up to $3,173,249 to borrowers who may                      Mae may not require a borrower refund. The servicers
have been impacted from the short sale of properties                 would also presumably decide whether they believe
located in California (see Figure 6, below) and up to                there was a reasonable basis to collect contributions
$53,000 for HAFA short sales.                                        made while the California law was unclear. As a
                                                                     result, the current remediation plan may not provide
Based on OIG’s work, Fannie Mae developed a
                                                                     for consistent treatment of borrowers by servicers
remediation plan. The plan was finalized in October
                                                                     even if borrower circumstances are similar.
2013 and requires Fannie Mae to notify its servicers
to refund borrowers the amount of any improper                       OIG recommended that the Agency review Fannie
contributions for the short sale of properties. The                  Mae’s remediation plan and ensure contributions are
remediation plan will address improper contributions                 refunded according to a good faith effort and in a
for properties located in California closed on or                    consistent manner for borrowers. In addition, OIG


Figure 6. Borrower Contributions for California Short Sales

                                                                                                          Total Amount
                              Contribution Type                                 No. of Contributions
                                                                                                            Collected
    Cash – Delegateda                                                                   900                $1,903,880
    Cash – Nondelegated                                                                 288                  $897,311
    Promissory Note   b
                                                                                         34                  $372,058
    Total Contributions for Properties Located in California                           1,222               $3,173,249

a
  Fannie Mae has two categories of servicers, nondelegated and delegated. Nondelegated servicers have no authority to make
short sale decisions on behalf of Fannie Mae. Their role is limited to collecting short sale information and forwarding the
information to Fannie Mae for consideration. Delegated servicers have been granted authority to make short sale determinations
and complete short sales on behalf of Fannie Mae subject to certain limitations in Fannie Mae’s Servicing Guide.
b
    Cash contributions were also paid by the borrowers for six of these short sales.




                                           Semiannual Report to the Congress • October 1, 2013–March 31, 2014             13
recommended that FHFA issue guidance for Fannie           financial resources sold multiple non-owner-occupied
Mae to execute the remediation plan, if necessary,        properties through one of Fannie Mae’s programs.
and that the Agency review Freddie Mac’s controls
                                                          OIG recommended that FHFA direct Fannie Mae
over borrower contributions in California and issue
                                                          to strengthen controls over its short sale eligibility
guidance, if appropriate.
                                                          processes, including: enforce servicer submission of
FHFA stated it agreed with OIG’s three                    all required documentation; ensure sufficient servicer
recommendations; while two of the                         eligibility reviews; consider quality in compensating
recommendations are resolved, OIG considers               servicers for their eligibility reviews; and improve
one of the recommendations as unresolved.                 controls over borrower data collected and considered
                                                          in the eligibility decision. Additionally, OIG
Fannie Mae’s Controls Over Short Sale Eligibility
                                                          recommended FHFA consider whether one of
Determinations Should be Strengthened
                                                          Fannie Mae’s short sale programs should be available
(AUD-2014-003, November 20, 2013)
                                                          for non-owner-occupied properties, along with
Short sales are part of Fannie Mae’s loss mitigation      increasing its examination coverage of short sales.
strategy to pursue foreclosure alternatives to help
                                                          FHFA provided comments agreeing with the
minimize the severity of losses it incurs because of
                                                          recommendations in the report.
loan defaults. Borrowers may be eligible for a short
sale if they are experiencing a financial hardship        Kearney & Company, P.C.’s Independent
that prevents them from making their mortgage             Evaluation of the Federal Housing Finance
payments, and can be expected to have difficulty          Agency’s Office of Inspector General’s Information
in selling their homes because the current value          Security Program-2013 (AUD-2014-002,
is less than the amount owed on the mortgage.             October 31, 2013)
Fannie Mae depends upon its servicers to collect
                                                          The Federal Information Security Management Act
financial information from borrowers and utilize
                                                          of 2002 (FISMA) requires FHFA to undergo an
that information to consider whether borrowers are
                                                          annual independent evaluation of its information
eligible for a short sale. During 2012, Fannie Mae
                                                          security program, as well as an assessment of its
and its servicers approved over 73,000 short sales.
                                                          compliance with FISMA requirements. OIG elected
OIG assessed the Agency’s oversight of Fannie Mae’s       to have an evaluation performed of our information
borrower eligibility controls. Based on a review of 41    security program since our program is independent
short sale transactions involving multiple Fannie Mae     of FHFA’s information security program.
servicers, OIG found that Fannie Mae’s servicers did      Accordingly, this audit’s objective was to evaluate
not always collect all of the required documentation      OIG’s information security program and practices,
before determining eligibility or forwarding the          including OIG’s compliance with FISMA and related
information to Fannie Mae. In addition, servicers         information security policies, procedures, standards,
did not always conduct adequate reviews supporting        and guidelines. Because information in this report
borrower eligibility determinations. Further, OIG         could be used to circumvent OIG’s internal controls,
found that borrowers with potentially significant         its contents have not been released publicly.




14    Federal Housing Finance Agency Office of Inspector General
Kearney & Company, P.C.’s Independent                     doing so with its 2013 annual report, which will
Evaluation of the Federal Housing Finance                 be published in 2014. By reporting information
Agency’s Information Security Program-2013                about FHLBank director expenses, along with
(AUD-2014-001, October 3, 2013)                           meeting its statutory requirement, FHFA will
                                                          increase transparency and may deter questionable
According to FISMA, FHFA is required to have an
                                                          expenditures.
annual independent evaluation of its information
security program. Accordingly, this audit’s objective     We recommended that FHFA: (1) review the 2013
was to evaluate the Agency’s information security         director expense data submitted by the FHLBanks
program and practices, including its compliance           to identify and correct any inconsistencies and
with FISMA and related information security               inaccuracies prior to the publication of the 2013
policies, procedures, standards, and guidelines.          annual report, to the extent feasible, and disclose
Because information in this report could be used to       in the report any remaining data limitations; and
circumvent FHFA’s internal controls, its contents         (2) issue guidance to ensure the consistency and
have not been released publicly.                          utility of the director expense data submitted to the
                                                          Agency.
Evaluations
                                                          FHFA essentially agreed with these recommendations.
FHFA’s Reporting of Federal Home Loan Bank
Director Expenses (EVL-2014-005, March 20,                Update on FHFA’s Oversight of the Enterprises’
2014)                                                     Non-Executive Compensation Practices
                                                          (EVL-2014-004, February 25, 2014)
This evaluation assessed FHFA’s reporting of expenses
incurred by the members of the boards of directors of     In December 2012, OIG published an evaluation
the FHLBanks, in light of a statutory requirement for     report on FHFA’s oversight of the Enterprises’
the Agency to include information about FHLBank           compensation of their nearly 2,100 highest-paid
director expenses in its annual reports to Congress.      employees, i.e., about 90 executives and 2,000
We found that FHFA had not met this requirement           non-executive senior professionals. We observed
to date.                                                  that FHFA had increased its control and oversight
                                                          of the Enterprises’ executive compensation practices
We noted that FHFA does require the FHLBanks to           in 2012, but its oversight of non-executive pay
submit director expenses to the Agency; accordingly,      practices was comparatively limited. For example,
the Agency receives information that it could use to      the Agency had not reviewed, examined, or tested
comply with the reporting requirement. However,           the structures, processes, or controls by which the
we determined that FHFA had not been reviewing            Enterprises compensate their senior professionals.
the FHLBanks’ data submissions. In addition, we           Enterprise compensation costs for senior professionals
found that the FHLBanks used differing approaches         were $454.6 million in 2011, roughly five times that
in submitting the data, thus diminishing the utility of   of their executives’ compensation of $91.8 million.
the information.                                          We recommended that FHFA develop a plan
An FHFA official told us that during the course of        to strengthen its oversight of the Enterprises’
our evaluation, the Agency realized it should have        compensation of their senior professionals through
been reporting this information, and it would begin       reviews or examinations.



                                    Semiannual Report to the Congress • October 1, 2013–March 31, 2014       15
In this memorandum report, we provided an update         FHFA’s Oversight of the Servicing Alignment
on FHFA’s oversight of the Enterprises’ non-executive    Initiative (EVL-2014-003, February 12, 2014)
compensation practices. In accordance with our
                                                         As the Enterprises’ conservator, FHFA established
recommendation from the 2012 study, FHFA
                                                                            the Servicing Alignment Initiative
conducted examinations in 2013
                                                                            (SAI) in April 2011 to improve
of the Enterprises’ compliance with
                                                                            servicers’ performance and thereby
the Agency’s directive to freeze           In accordance                    limit the Enterprises’ financial
employee pay during 2011 and
                                                                            losses.
2012. FHFA examiners found                 with OIG’s
deficiencies in the Enterprises’                                            SAI consists of a series of FHFA
compliance with the directive and          recommendation,                  directives that set forth contractual
with their controls over senior                                             requirements that the Enterprises
professional compensation. In              FHFA       conducted             must incorporate into their
response to these deficiencies, the                                         servicing guidelines. Servicers
Agency undertook corrective action         examinations         of          must comply with these guidelines
by issuing binding supervisory                                              when managing the accounts of
directives to the Enterprises.             the   Enterprises’               financially distressed borrowers.
For example, FHFA directed                                                  For example, servicers are required
Fannie Mae to improve “its
                                           compliance       with            to respond to borrowers’ requests
policies, procedures, supporting                                            for assistance within specified
documentation, and governance
                                           the   Agency’s
                                                                            time frames, and conduct loan
over compensation programs                 directive to freeze              modifications and foreclosures
in a manner that will ensure its                                            pursuant to procedures and
ability to demonstrate that these          employee pay and deadlines prescribed by FHFA.
programs are being implemented
in an appropriate, consistent, and         found deficiencies Our evaluation assessed FHFA’s
transparent manner.”                                                        oversight of SAI since the
                                           with compliance                  establishment of the program in
The Agency also instituted a limited                                        2011. Specifically, we evaluated
oversight regimen for Enterprise           of the directive                 FHFA’s monitoring of Enterprise
senior professional compensation                                            servicers’ compliance with SAI
in 2013. Specifically, FHFA reviews        and controls over                guidelines and found it to be
quarterly reports prepared by the                                           limited.
Enterprises in which the salaries          senior professional
paid to new hires and recently                                              FHFA’s Division of Housing
promoted employees are compared            compensation.                    Mission and Goals (DHMG),
to the median pay offered to                                                which established SAI, has primary
similar private-sector positions.                                           responsibility within the Agency for
We observed that this procedure is a step in the right                      overseeing the program. DHMG
direction in that it provides FHFA with some ability     reviewed the Enterprises’ servicing guidelines prior
to assess Enterprise senior professional compensation    to publication in 2011 to ensure that FHFA’s SAI-
practices going forward.                                 related directives were incorporated.


16    Federal Housing Finance Agency Office of Inspector General
However, DHMG’s SAI oversight has significant              Update on FHFA’s Efforts to Strengthen its
limitations. DHMG has neither reviewed nor                 Capacity to Examine the Enterprises (EVL-2014-
evaluated the servicers’ overall compliance with           002, December 19, 2013)
SAI’s numerous requirements since establishing
                                                           FHFA’s examination program is a primary means by
the program in 2011. Moreover, DHMG does not
                                                           which the Agency oversees the GSEs. In a September
require the Enterprises to submit for its routine
                                                           2011 evaluation report, we concluded that the
review and assessment their critical reports on servicer
                                                           Agency lacked a sufficient number of examiners and
compliance with SAI’s requirements. Consequently,
                                                           that many of its examiners had not been accredited
DHMG has not determined whether the servicers are
                                                           through a professional commission program. In this
complying with SAI or if the initiative is achieving its
                                                           follow-up evaluation, we provided an update on
intended purpose.
                                                           FHFA’s efforts to address the issues raised previously.
We analyzed the reports by which the Enterprises
                                                           Since the 2011 report, FHFA had taken initiatives
monitor their servicers’ compliance with SAI. The
                                                           to strengthen its examination capacity, such as
reports identified servicer compliance deficiencies
                                                           restructuring its examination program under new
in key SAI areas, such as responding to borrower
                                                           leadership, increasing the number of examiners,
requests for assistance and executing loan
                                                           and initiating a commission program to provide
modifications. DHMG has not received these reports
                                                           standardized training for its examiners. These changes
on a regular basis. Consequently, DHMG has missed
                                                           have the potential to enhance FHFA’s oversight, but it
opportunities to learn about servicer compliance
                                                           was too early to assess their effectiveness. Additionally,
deficiencies that could undermine SAI’s effectiveness.
                                                           we found that the Agency had not yet developed a
It has also compromised FHFA’s ability to oversee
                                                           systematic process to determine the appropriate size
the Enterprises’ efforts to correct their servicers’ SAI
                                                           of its examination teams for the Enterprises.
compliance deficiencies.
                                                           We conducted a limited assessment of FHFA’s
We recommended that DHMG’s Deputy Director:
                                                           implementation of its 2013 examination plans
(1) establish an ongoing process to evaluate
                                                           for the Enterprises and found many of FHFA’s
servicers’ SAI compliance and the effectiveness of
                                                           planned activities were either completed or in
the Enterprises’ remediation efforts; (2) direct the
                                                           process. However, about 40% of FHFA’s targeted
Enterprises to provide their internal reports and
                                                           examinations for one Enterprise were rescheduled
reviews for DHMG’s assessment; and (3) regularly
                                                           to begin during the fourth quarter of 2013; some
review SAI-related guidelines for enhancements
                                                           were not anticipated to conclude until 2014. FHFA
or revisions, as necessary, based on servicers’ actual
                                                           officials said that examination plans are subject to
versus expected performance.
                                                           revision due to changing priorities and resource
FHFA partially agreed with all recommendations             requirements; however, without a systematic process
and committed to providing related documents               to set the size of its teams, FHFA cannot be assured
by February 15, 2015. We concluded from the                that its examinations are adequately staffed. Indeed,
Agency’s response, however, that the Agency did            FHFA’s Examiners-in-Charge for both Enterprises said
not plan to alter substantively its limited oversight      that limited examination resources and staff turnover
of SAI. We remain concerned as to the Agency’s             adversely affected their operations during 2013.
practices in this regard.



                                     Semiannual Report to the Congress • October 1, 2013–March 31, 2014          17
Accordingly, we recommended that FHFA:                      At the same time, we found that implementation
(1) review its implementation of the 2013 Enterprise        of Dodd-Frank was not uniformly applied to all
examination plans and document the extent to                regulated entities. In contrast to its oversight of the
which resource limitations, among other things,             FHLBanks, FHFA did not issue to the Enterprises an
may have impeded their timely and thorough                  Advisory Bulletin providing regulatory guidance for
execution; (2) develop a process that links annual          the implementation of Dodd-Frank.
Enterprise examination plans with core team resource
                                                            We recommended that FHFA’s Advisory Bulletins
requirements; and (3) establish a strategy to ensure
                                                            that provide guidance regarding implementation
that the necessary resources are in place to ensure
                                                            of critical regulatory changes be issued to all the
timely and effective Enterprise examination oversight.
                                                            impacted regulated entities.
FHFA essentially agreed with these recommendations.
                                                            FHFA generally agreed with our recommendation.
FHFA’s Oversight of Derivative Counterparty Risk
(ESR-2014-001, November 20, 2013)                           Recommendations
The Enterprises’ combined capital markets businesses
manage portfolios of more than $1 trillion of               A complete list of OIG’s audit and evaluation
mortgage-related assets. Among other capital markets        recommendations is provided in Appendix B.
activities, the Enterprises enter into a variety of
complex financial instruments known as derivatives          Peer Reviews
contracts. A derivative contract is, essentially, an
agreement providing parties to the agreement with           In addition to its audits and evaluations, OIG
the obligation or choice to buy, sell, or exchange          participated in external peer review activities.
something at a future date. It can be used to offset
other risks in a portfolio, such as the interest rate and   Audit organizations that perform audits of federal
prepayment risks associated with the Enterprises’           government programs and operations are required
mortgage assets. Derivative counterparty risk refers        by Generally Accepted Government Auditing Standards
to the risk that one’s counterparty in a derivative         (GAGAS) to undergo an external peer review every
contract may be unable to pay the amount due at             three years. The objectives of an external peer review
a specified date. OIG conducted this evaluation             are to determine, during the period under review,
to assess FHFA’s oversight of the Enterprises’              whether: (1) the audit organization’s system of quality
management of counterparty risk associated with             control was suitably designed and (2) the audit
their investments in derivatives.                           organization was complying with its own quality
                                                            control system to provide reasonable assurance that it
We considered FHFA’s oversight of the Enterprises’          was conforming to applicable professional standards.
management of derivative counterparty risk in               Federal audit organizations can receive a peer review
conjunction with the mitigation of that risk resulting      rating of pass, pass with deficiencies, or fail.
from the implementation of the central clearing
mandate under Title VII of the Dodd-Frank Wall              The Inspector General Act of 1978, as amended
Street Reform and Consumer Protection Act of                by Dodd-Frank, mandates that offices of inspector
2010 (Dodd-Frank). We concluded that FHFA’s                 general report semiannually the results of peer reviews
oversight is such that no additional study of this topic    of their operations conducted by other offices of
is needed.                                                  inspector general, the date and results of the last peer

18    Federal Housing Finance Agency Office of Inspector General
review, outstanding recommendations from peer               quality control plan related to the review of all
reviews, and peer reviews conducted by the inspector        GAGAS requirements for selected performance
general of another office of inspector general. Peer        audits. OIG agreed with the benefit of such
reviews of federal offices of inspector general are         reviews and included the reviews as an annual
conducted by member organizations of the Council            quality control review requirement in its Quality
of the Inspectors General on Integrity and Efficiency       Control Plan for fiscal years 2014-2016 published
(CIGIE). Offices of inspector general are required          in August 2013. Additionally, OIG announced
to include in their semiannual reports the following        the first annual review and will consider the
information:                                                recommendation closed upon its completion
                                                            scheduled for June 30, 2014.
•	 The results of any peer review conducted by
   another office of inspector general during the      •	 Ongoing OIG audit peer review activity.
   reporting period.                                                           No external peer reviews
   The Federal Communications                                                  of another federal audit
   Commission Office of                OIG received a peer                     organization were conducted
   Inspector General (FCC                                                      by OIG during this semiannual
   OIG) conducted an external          review rating of pass, reporting period. OIG is
   peer review of OIG’s OA                                                     preparing to conduct a peer
   and issued a final System           the best rating an                      review of the audit organization
   Review Report on March 20,                                                  of the Legal Services
   2014. OIG received a peer           audit organization                      Corporation Office of Inspector
   review rating of pass, the best                                             General. We will report the
   rating an audit organization        can    receive.                         results of that review in an
   can receive. No deficiencies                                                upcoming semiannual report.
   were identified in OIG’s
   audit operations and the System Review Report       Civil Fraud Initiative
   contained no recommendations. FCC OIG
   identified one enhancement in a Letter of
                                                       OA launched its Civil Fraud Initiative in June
   Comment accompanying its System Review
                                                       2013. OA, with support from OI and the Office of
   Report. Copies of the System Review Report
                                                       Counsel, conducts civil fraud reviews (also known
   and Letter of Comment can be viewed at www.
                                                       as nonaudit services) to identify fraud and make
   fhfaoig.gov/Content/Files/FHFA-OIG%20
                                                       referrals for civil actions and administrative sanctions
   audit%20peer%20review_0.pdf.
                                                       against entities and individuals who commit fraud
•	 Outstanding recommendations from any peer           against FHFA, Fannie Mae, Freddie Mac, or the
   review conducted by another office of inspector     FHLBanks.
   general that have not been fully implemented,
                                                       Currently, OA is working with various Assistant U.S.
   including a statement describing the status of
                                                       Attorneys on reviews of lenders’ loan origination
   the implementation and why implementation
                                                       practices to determine their compliance with
   is not complete. In its Letter of Comment dated
                                                       Enterprise requirements. Lenders are considered for
   March 20, 2014, FCC OIG concluded that
                                                       review through the use of data-mining techniques
   OIG can enhance its quality control monitoring
                                                       and requests from government agencies.
   activities by ensuring full implementation of its

                                   Semiannual Report to the Congress • October 1, 2013–March 31, 2014      19
Audit and Evaluation Plan                                 Figure 7. Criminal and Civil Recoveries from
                                                          October 1, 2013, Through March 31, 2014

OIG maintains an Audit and Evaluation Plan                                 Criminal            Civil
that focuses strategically on the areas of FHFA’s                         Recoveries        Recoveries
operations that pose the greatest risks to the Agency      Fines         $2,468,757.26                  $-
and the GSEs. The plan responds to current events          Settlements               $- $9,000,000,000.00
and feedback from FHFA officials, members of               Restitutions $44,090,151.01                  $-
Congress, and others. The plan is available for            Total        $46,558,908.27 $9,000,000,000.00
inspection at www.fhfaoig.gov/Content/Files/
audit%26evaluation%20plan_0.pdf.
                                                          Fannie Mae Insider Removes/Sells Personal
                                                          Identifying Information, Dallas, Texas
Investigations
                                                          On January 21, 2014, Spetial Collins pled guilty to
                                                          one count of conspiracy to commit bank fraud in
During the semiannual period, OIG investigators
                                                          the U.S. District Court for the Northern District
participated in numerous criminal, civil, and
                                                          of Texas. Then on February 7, 2014, a federal
administrative investigations, which resulted in the
                                                          indictment was unsealed in the same district charging
indictment of 82 individuals and the conviction
                                                          seven more individuals as follows:
of 62 individuals. In many of these investigations,
we worked with other law enforcement agencies,            •	 Anthony Minor was charged with conspiracy
such as the Department of Justice (DOJ), the                 to commit bank fraud, bank fraud (six counts),
Office of the Special Inspector General for the              conspiracy to commit fraud and related activity
Troubled Asset Relief Program (SIGTARP), the                 in connection with identification documents,
Postal Inspection Service (USPIS), the FBI, the              using or trafficking an unauthorized access device,
Department of Housing and Urban Development                  and aggravated identification theft (two counts);
Office of Inspector General (HUD-OIG), the Secret
                                                          •	 Tilisha Morrison was charged with conspiracy
Service, and state and local entities nationwide.
                                                             to commit bank fraud, bank fraud (three
Further, in several investigations, OIG investigative
                                                             counts), and conspiracy to commit fraud and
counsels were appointed as Special Assistant U.S.
                                                             related activity in connection with identification
Attorneys and supported prosecutions. Figure 7 (see
                                                             documents;
above) summarizes the criminal and civil recoveries
from our investigations. Although most of these           •	 Kario Butler was charged with conspiracy to
investigations remain confidential, details about            commit bank fraud and bank fraud;
several of them have been publicly disclosed and are
summarized below.                                         •	 Jamilah Karriem was charged with conspiracy to
                                                             commit bank fraud and bank fraud;
Fraud Committed Against the Enterprises,
FHLBanks, or FHLBank Member                               •	 Karen Mendoza was charged with conspiracy to
Institutions                                                 commit bank fraud and bank fraud;

Investigations in this category involved multiple         •	 Katrina Thomas was charged with conspiracy
schemes that targeted Fannie Mae, Freddie Mac, the           to commit bank fraud, conspiracy to commit
FHLBanks, or members of FHLBanks.

20    Federal Housing Finance Agency Office of Inspector General
  fraud, and related activity in connection with          forgave the previous $10,000 loan, to try and increase
  identification documents; and                           a second loan from La Jolla Bank to a Sliuman
                                                          company by approximately $600,000.
•	 Cyrus Pritchett was charged with conspiracy to
   commit bank fraud and bank fraud.                      During 2008, Ortuondo worked as Sliuman’s
                                                          assistant and allegedly helped prepare fraudulent tax
Between October 2009 and July 2013, the
                                                          lien releases to help Sliuman obtain the La Jolla Bank
indictment alleges Minor and Morrison led a
                                                          loans. Ortuondo then allegedly lied to investigators
conspiracy that resulted in the theft of the personal
                                                          about preparing the lien releases and the destruction
identifying information (PII) of over 1,000 Fannie
                                                          of a laptop that contained incriminating information.
Mae customers and others, and caused monetary
damages to involved financial institutions, including    La Jolla Bank was a member of the FHLBank of
JPMorgan Chase and Bank of                                                San Francisco until February
America. As part of this conspiracy,                                      2010, when it failed and was
Minor and Morrison purchased                                              taken over by the Federal Deposit
PII that Thomas illegally obtained          Minor and                     Insurance Corporation (FDIC).
in the course of her employment                                           At the time of failure, La Jolla
at Fannie Mae. They then utilized           Morrison     led  a           Bank had outstanding debt of over
other co-conspirators to misuse the                                       $1 billion, including approximately
PII to commit bank fraud.
                                            conspiracy     that           $700 million in outstanding
                                                                          advances from the FHLBank of San
This ongoing investigation is being         resulted in the               Francisco.
worked jointly with the Secret
Service Dallas Field Office and the         theft of PII of over This was a joint investigation
Dallas County District Attorney’s                                         with the FBI, Federal Deposit
Office.                                     1,000     Fannie   Mae        Insurance Corporation Office of
                                                                          Inspector General (FDIC-OIG),
Fraud at Failed FHLBank Member
                                            customers     and             Small Business Administration
Bank, San Diego, California                                               Office of Inspector General, and
                                            others.
On October 8, 2013, Annand                                                Treasury Inspector General for Tax
Sliuman pled guilty to bank                                               Administration.
bribery charges in the U.S. District Court for the
Southern District of California. A few weeks later,       Property Management and REO Schemes
on October 22, 2013, Laura Ortuondo was indicted          The wave of foreclosures following the housing crisis
by a grand jury in the same district for alleging false   left the Enterprises holding a large inventory of
statement.                                                real estate owned (REO) properties. To minimize
                                                          losses associated with REO, the GSEs rely heavily on
From late 2007 to early 2008, Sliuman loaned
                                                          contractors to secure, maintain and repair, price, and
$10,000 to a La Jolla Bank manager in an endeavor
                                                          ultimately sell their properties. In addition, they also
to corruptly increase a loan from La Jolla Bank to
                                                          count on realtors to sell the REO properties and thus
Sliuman’s company by $100,000. Sliuman then
                                                          have contracts with those realtors.
gave the same manager an additional $15,000, and



                                     Semiannual Report to the Congress • October 1, 2013–March 31, 2014       21
Fannie Mae Employee Receives Kickback in                  Enterprises for maintenance services not rendered
Exchange for Listings, Los Angeles, California            and collected kickbacks from real estate brokers for
On March 14, 2014, Armando Granillo was                   steering properties to them. Enterprise losses in this
convicted of three counts of wire fraud and               scheme were $989,400.
deprivation of honest services in the U.S. District       This was a joint investigation with the FBI and the
Court for the Central District of California after a      Wayne County Prosecutor’s Office.
jury trial.

From November 2012 to March 2013, Granillo,               Condo Conversion and Builder Bailout
a former foreclosure specialist/REO sales associate       Schemes
for Fannie Mae, attempted to enrich himself by            These schemes begin with sellers or developers
soliciting payments of at least $11,000 in exchange       seeking out investors with good credit who want
for favorable arrangements. Granillo then offered         low-risk investment opportunities. Investors are
to increase the number of REO listings assigned to        offered deals on properties with no money down
particular realtors in exchange for 20% of the real       and other lucrative incentives, such as cash back and
estate sales commission received at closing when          guaranteed and immediate rent collection. To fund
the properties sold. After monitored meetings in          these incentives, the sellers use complicit appraisers to
which Granillo solicited and accepted $11,200 in a        inflate the sales price. The incentives are not disclosed
kickback, he was arrested and found in possession of      to lenders, who are defrauded into making loans far
the funds.                                                exceeding property values. When the properties go
                                                          into foreclosure, lenders suffer large losses.
Fannie Mae REO Realtor Defrauds Enterprises,
Detroit, Michigan                                         Builder Bailout Defendants Plead Guilty, Dallas,
                                                          Texas
On October 1, 2013, in a court of the state of
Michigan, Samer Salami pled nolo contendere to            On March 19, 2014, Anthony Jones was sentenced
one count each of conducting a criminal enterprise,       to 27 months of incarceration, 5 years of supervised
embezzlement, and computer crimes and two counts          release, forfeiture of $152,795.83, and ordered to pay
of false pretenses. On January 29, 2014, Salami was       restitution of $348,918.44. He had previously pled
ordered to pay $1 million in restitution, and on          guilty to one count of bank fraud on October 23,
February 19, 2014, he was sentenced to 1 year in the      2013, in the U.S. District Court for the Eastern
Wayne County Jail and 5 years of probation.               District of Texas. On February 18, 2014, Herbert
                                                          Williams pled guilty to two counts of conspiracy to
From 2006 to 2010, Salami, an REO broker for the
                                                          commit bank fraud and three counts of aggravated
Enterprises, misrepresented the value of foreclosed
                                                          identity theft in the U.S. District Court for the
properties he sold for the Enterprises. He sold
                                                          Eastern District of Texas.
them to companies his family and friends owned
or controlled before flipping them to legitimate          From on or about September 2007 through October
purchasers and keeping the illicit profit. He also        2007, Jones conspired with Williams to inflate the
collected an extra round of real estate commissions       sales prices of two homes Jones sold and kicked
in this scheme. In addition, Salami falsely billed the    back a portion of the proceeds to the buyers, who




22    Federal Housing Finance Agency Office of Inspector General
were recruited by Williams. One of these homes was        Luis Michael Mendez and Marie Mendez are
purchased by Jones using a stolen identity and sold to    alleged to have submitted their own fraudulent
two separate buyers within a week of each other. The      loan applications for two condominiums, and they,
scheme caused a loss of approximately $456,601.68         as well as Luis Mendez and Stavroula Mendez,
to the financial institutions involved. The loss          advanced the buyers cash to close the transactions.
included approximately $272,300 of loss exposure to       After the loans were funded, the defendants allegedly
the Enterprises, which bought or secured mortgages        caused fraudulent payments to be made from
on two of these transactions. Williams participated in    the loan proceeds to pay kickbacks through shell
a scheme without Jones on four other properties. The      companies to the brokers, recruiters, and straw
scheme caused a loss of approximately $636,257.01         buyers, as well as to pay the mortgages to conceal
to involved financial institutions, which included        the conspiracy. Eventually, the conspirators were
approximately $435,802.19 of loss exposure to the         unable to make mortgage payments, causing many
Enterprises.                                              of the condominium units to go into foreclosure
                                                          and leading to losses by the lenders. In total, the
This was a joint investigation with the Secret Service.
                                                          scheme caused losses of over $20 million, including
                                                          loss exposure to Fannie Mae of approximately
Seven Indicted in Condo Conversion Scheme,
                                                          $5,216,873.14 and loss exposure to Freddie Mac of
Miami, Florida
                                                          approximately $5,646,264.02.
On March 13, 2014, Luis Mendez, Luis Michael
Mendez, Stavroula Mendez, Lazaro Mendez, Marie            This is a joint investigation with HUD-OIG.
Mendez, Enrique Angulo, and Wilkie Perez were
                                                          Charges Filed in Builder Bailout Scheme, Houston,
indicted in the U.S. District Court for the Southern
                                                          Texas
District of Florida for bank and wire fraud and
conspiracy to commit bank and wire fraud.                 On January 22, 2014, Theodoros Ezanidis,
                                                          Christopher Hopper, and Robert Rendino, co-owners
Between mid-2006 and December 2010, Luis
                                                          of Flatiron Development, were indicted in the U.S.
Mendez and co-conspirators owned or controlled
                                                          District Court for the Southern District of Texas for
various real estate properties in the Miami area.
                                                          conspiracy to commit wire fraud. On January 31,
They allegedly enlisted mortgage brokers and
                                                          2014, Susan Rendino was charged with making a
other individuals, including Perez and Angulo, to
                                                          false statement in the same district. On February 7,
recruit straw buyers to act as qualifying mortgage
                                                          2014, she pled guilty to the false statement charge.
applicants to fraudulently purchase condominiums at
the various properties. The defendants prepared and       In the scheme, Rendino purchased a home from
caused to be prepared loan documents containing           homebuilder Flatiron Development. Flatiron and its
false statements and representations relating to          corporate directors were selling homes to straw buyers
the buyers’ income, assets, and other information         at inflated prices. These homes quickly fell into
necessary to enable lenders to assess the buyers’         foreclosure, causing losses to lending institutions of
qualifications to borrow money, which induced the         approximately $5.7 million. The loss to Freddie Mac
lenders to make loans to finance the condominiums.        was $590,989.64.

                                                          This is a joint investigation with the Secret Service.




                                    Semiannual Report to the Congress • October 1, 2013–March 31, 2014         23
Developer Sentenced to 42 Months, Dallas, Texas            approximately 23 fraudulent loan transactions that
On December 16, 2013, Larry Reisman was                    caused a loss of roughly $3,675,839 to involved
sentenced to 42 months of imprisonment and                 institutions. The loss to Fannie Mae was estimated at
ordered to pay restitution of                              $199,000, and Freddie Mac’s loss was $1,362,684.
$1,500,000; he paid the full                                                This was a joint investigation with
amount to the court on that day.                                            the FBI and the Florida Office of
                                           Developer pays                   Financial Regulation.
From January 2006 to October
2008, Reisman inflated the sales           $1,500,000 in                    Defendant Sentenced to Over
prices of 53 homes he built and
                                                                            16 Years in $39 Million Florida
then kicked back a portion of              restitution and                  Builder Bailout Fraud,
the proceeds to recruiters and
                                                                            Ft. Lauderdale, Florida
buyers. The scheme caused a loss           is sentenced
of approximately $5.5 million to                                            On October 16, 2013, in the U.S.
involved financial institutions,           to 42 months                     District Court for the Southern
including losses of over $500,000                                           District of Florida, Quelyory Rigal
to the Enterprises, which bought or        incarceration.                   was sentenced to 16 years and 8
secured mortgages on four of these                                          months of incarceration and 3 years
homes.                                                                      of supervised release.

This was a joint investigation with HUD-OIG, IRS-          Rigal and others participated in condo conversion
Criminal Investigation (IRS-CI), the FBI, the Secret       schemes in the Florida cities of Ft. Lauderdale,
Service, and USPIS.                                        Orlando, and Tampa. Of the 165 transactions
                                                           involved in their schemes, 131 have been foreclosed
Condo Conversion/Builder Bailout Scheme,                   and another 26 are in foreclosure. The targeted
Orlando, Florida                                           lenders have lost $34 million of the $39 million
On November 14, 2013, Avi Levy was charged with            loaned. Freddie Mac’s loss exposure is $8.5 million.
one count of conspiracy to commit wire fraud in
                                                           Two Plead in Condo Conversion Scheme, West
the U.S. District Court for the Middle District of
                                                           Palm Beach, Florida
Florida. On December 4, 2013, Levy entered a plea
of guilty before a U.S. Magistrate in the same district.   On October 7, 2013, Jose Aller and Ernesto
                                                           Rodriguez pled guilty to conspiracy to commit bank
From March 2008 through January 2009, Levy
                                                           fraud in the U.S. District Court for the Southern
and co-conspirators provided false information to
                                                           District of Florida. Aller and Rodriguez were
financial institutions to obtain mortgage loans for
                                                           co-owners of JAER Guaranteed Investments.
buyers to purchase condominiums at inflated prices.
The proceeds from the condominium sales were used          Between February and December 2008, Aller
to pay undisclosed incentives and bonuses to buyers,       and Rodriguez conspired with others to provide
brokers, and other real estate professionals involved      condominium buyers at Kensington of Royal Palm
in the transaction. The undisclosed disbursements          Beach with incentives that were not disclosed on the
were not reflected on the HUD-1 form submitted             HUD-1 forms. Financial institutions were unaware
to the financial institution. Levy was involved in         of the incentives and funded mortgage loans based


24    Federal Housing Finance Agency Office of Inspector General
on materially false and fraudulent information. The                possession, notice of claim of title to real estate,
mortgages were sold to Freddie Mac by the financial                mechanic’s lien, and notice of non-abandonment and
institutions. The scheme caused losses to Freddie Mac              secured interest of property with the Cook County
and Wells Fargo in the amount of $2.78 million.                    Recorder of Deeds. This property was owned by
                                                                   Fannie Mae, and the recording of the documents on
This ongoing investigation is being worked jointly
                                                                   the property made the title “cloudy,” thus making
with the FBI.
                                                                   it difficult for Fannie Mae to sell the property. The
                                                                   scheme caused an unknown exposure to Fannie Mae
Adverse Possession Schemes
                                                                   at the time, as Fannie Mae was in negotiations to sell
Adverse possession schemes occur when individuals                  the property until the title became unclear and the
or entities illegally use adverse possession (also known           negotiations ceased.
as “home squatting”) or fraudulent documentation
to control distressed homes, foreclosed homes, and                 This was a joint investigation with the Cook County
REO properties.                                                    State’s Attorney’s Office, Chicago Police Department,
                                                                   and FBI Chicago Field Office.
Title Fraud, Chicago, Illinois
                                                                   Colorado Adverse Possession Scheme,
On January 17, 2014, Anatoly Moore was indicted                    Denver, Colorado
in the State of Illinois Circuit Court of Cook County
for one count of burglary and one count of theft by                On January 16, 2014, Alfonso Carrillo was found
deception.                                                         guilty on 18 of 24 counts in a Colorado State court,
                                                                   including racketeering, conspiracy to commit theft,
On May 3, 2013, Moore filed an apparently                          criminal trespass, burglary, forgery, and attempts to
fraudulent affidavit/notice, affidavit of adverse




On February 3, 2014, in Denver, Colorado, OIG presented plaques to the Denver District Attorney’s Office investigators and
attorneys for their outstanding contributions in the prosecution of Alfonso Carrillo and for their support of the OIG mission. From
left to right: Criminal Investigator Brad Uyemura, Criminal Investigator (Retired) Dan Chun, Criminal Investigator Ruben Fragoso,
OIG Acting Inspector General Michael P. Stephens, Deputy District Attorney Darryl Shockley, Deputy District Attorney Phillip
Geigle, Denver District Attorney Mitch Morrissey, and OIG Special Agent David Riordon.


                                         Semiannual Report to the Congress • October 1, 2013–March 31, 2014                   25
influence public servants. Maria Carrillo (wife of         Tribble and Revoller-Chavez are alleged to have
Alfonso Carrillo) was found not guilty of all counts.      engaged in a conspiracy to commit deed fraud on
                                                           properties owned by the Enterprises. The conspiracy
These charges stemmed from Carrillo’s and other
                                                           involved the filing of fraudulent quit claim deeds on
unindicted co-conspirators’ illegal use of adverse
                                                           properties and then targeting victims who believed
possession of distressed homes, foreclosed homes, and
                                                           that they were purchasing the properties via a rent-
REO in order to rent or sell the homes to unwitting
                                                           to-own agreement. Tribble and Revoller-Chavez
victims. Many of these properties were owned by or
                                                           never legally owned the properties and allegedly
had mortgages secured by the Enterprises. The total
                                                           misappropriated the money paid to them by victims.
harm to the victims was approximately $200,000.
                                                           The scheme targeted at least 11 Enterprise-owned
This was a joint investigation with the Denver             properties with unpaid principal balances of
District Attorney’s Office.                                $2.47 million. Losses are undetermined at this time.

                                                           This is a joint investigation with the Florida
Home Squatting, Broward County, Florida
                                                           Department of Law Enforcement.
On January 14, 2014, Wonsik Paul and Marlene Jean
Baptiste were charged in the 17th Judicial Circuit         Adverse Possession Scheme, Broward County,
Court of Florida with grand theft, filing of false         Florida
documents, and identity theft.
                                                           On December 12, 2013, Louis Lewis was charged
Paul and Baptiste are Sovereign Citizens who are           via complaint in the 17th Judicial Circuit Court of
alleged to have been illegally residing in a Fannie        Florida with grand theft, filing of false documents,
Mae REO property since late 2012, after the filing         and identity theft.
of a fraudulent quit claim deed on the property
                                                           Lewis is alleged to have submitted fraudulent
in Broward County, Florida, on December 20,
                                                           special warranty and quit claim deeds on numerous
2012. Paul has appeared before a Broward County
                                                           properties throughout the state of Florida utilizing
Foreclosure Magistrate Judge in support of being
                                                           different fraudulent “trusts.” Lewis allegedly filed the
able to remain in the property. The unpaid principal
                                                           false deeds with the local county register’s office and
balance on the property is $223,771. The loss to
                                                           then attempted to locate a buyer and sell the property
Fannie Mae is undetermined at this time.
                                                           in an all-cash deal within a very short turnaround
This is a joint investigation with the Broward Sheriff’s   time. This process was all completed in a manner
Office Economic Crimes Unit.                               to circumvent the property recording system and
                                                           have the property “sold” in an all-cash transaction,
Two Charged in Adverse Possession/Rent to Own              before it was discovered to have been filed under a
Scheme, Martin County, Florida                             fraudulent deed. The scheme targeted at least three
                                                           Fannie Mae properties with unpaid principal balances
On January 2, 2014, Robert Allen Tribble and Mary
                                                           of $664,250; the loss is undetermined at this time.
Revoller-Chavez were charged via complaint in the
19th Judicial Circuit Court of Florida with operating      This is a joint investigation with the Florida
an organized scheme to defraud, criminal use of            Department of Law Enforcement, St. Lucie
personal identification, and money laundering.             County Sheriff’s Office, Martin County Sheriff’s




26    Federal Housing Finance Agency Office of Inspector General
Office, Broward Sheriff’s Office, Florida Statewide      occupancy information. The estimated loss to Fannie
Prosecutor’s Office (State Attorney General), and        Mae is $967,989.43, and the estimated loss to
Broward County State Attorney’s Office Economic          Freddie Mac is $130,265.
Crime Unit.
                                                         This was a joint investigation with the FBI.
Loan Origination Schemes
                                                         Loan Officer Indicted, St. Louis, Missouri
Loan or mortgage origination schemes are the most
                                                         On March 19, 2014, Robert Poynter was indicted
common type of mortgage fraud. These schemes
                                                         in the U.S. District Court for the Eastern District of
typically involve misrepresentations of buyers’
                                                         Missouri on one count of wire fraud and one count
income, assets, employment, and credit profile to
                                                         of making false statements.
make them more attractive to lenders. Bogus Social
Security numbers and fake or altered documents           Poynter is a former mortgage broker who operated
such as W-2 forms and bank statements are often          the net branch office of First Continental Mortgage
used. These schemes are designed to defraud lenders      and also owned America One Finance and A-1
into making loans they would not otherwise make.         Closing Services. In February 2010, Poynter
Perpetrators pocket origination fees or inflate home     allegedly diverted $38,000 in loan proceeds to
prices and divert proceeds.                              be used as a down payment by the borrower for
                                                         the same transaction. The loan was funded by
Four Guilty Pleas in Loan Origination Scheme,            Freddie Mac, and unbeknownst to Freddie Mac
Eastern District, Texas                                  and the lender, Freddie Mac had already foreclosed
Lawrence Day, Michael Edwards, Scott Sherman,            on the property and held the mortgage. Poynter
and Donald Mattox all pled guilty to conspiracy          also allegedly made false statements on a Federal
to commit mail and wire fraud affecting a financial      Housing Administration (FHA) loan by arranging
institution in the U.S. District Court for the Eastern   for false employment and income documents to be
District of Texas on March 25, 2014; October 22,         used. The alleged fraudulent activity caused losses of
2013; February 11, 2014; and October 3, 2013,            approximately $300,000.
respectively.
                                                         This was a joint investigation with HUD-OIG.
From September 2005 through July 2008, the above
subjects conspired to defraud lending institutions       Appraiser Convicted, Chicago, Illinois
by inducing them to fund mortgage loans by using         On March 17, 2014, Olabode Rotibi pled guilty
material misrepresentations and omissions of fact on     to wire fraud in the U.S. District Court for the
the HUD-1 forms, loan applications, and other loan       Northern District of Illinois.
documents. There were approximately 28 properties
involved in this investigation. The HUD-1 forms          From 2007 to 2008, Rotibi was a licensed appraiser
reflected false purchase prices, disbursements, and      who produced fraudulent appraisal reports as part
falsely indicated the buyers had provided the down       of a mortgage fraud scheme to sell condominium
payment funds. With the assistance of loan officer       units at 1351 N. Ashland Ave., Chicago, Illinois.
Michael Edwards, false information was submitted on      The individuals who participated in the scheme
loan applications, including the buyers’ employment,     made misrepresentations in loan applications of
income, assets, rental property information, and         straw buyers, leading lenders to approve loans they



                                    Semiannual Report to the Congress • October 1, 2013–March 31, 2014       27
would not normally approve. The scheme caused               conspiracy to commit wire fraud. On the same
loss exposure of over $1 million to the GSEs, with          day, Johnson also pled guilty to one count of
no actual loss at this time. Other properties were          making false statements to a bank.
involved in the investigation, with higher exposure
                                                          •	 On December 18, 2013, Peter Ligate and
and potential loss to the GSEs.
                                                             Mwihava were indicted in the U.S. District
This is a joint investigation with the U.S. Attorney’s       Court for the District of Maryland for conspiracy
Office, the Northern District of Illinois, and the FBI       to commit wire fraud, wire fraud, and aiding and
Chicago Field Office.                                        abetting.

                                                          •	 On October 21, 2013, Mrisho Mseze and
Numerous Indictments and Pleas in $3.5 Million
                                                             Wambura were indicted in the U.S. District
Loan Origination Fraud, Baltimore, Maryland
                                                             Court for the District of Maryland for wire fraud,
The defendants listed below allegedly participated in        conspiracy to commit wire fraud, mail fraud, and
schemes to fraudulently obtain residential mortgage          aggravated identity theft.
loans for properties in Maryland. They allegedly
diverted $3.5 million in funds, which resulted in         This was a joint investigation with HUD-OIG,
losses of over $1 million to lenders, FHA, Fannie         the Secret Service, IRS-CI, the Department of
Mae, and Freddie Mac.                                     the Treasury Office of the Inspector General, and
                                                          Immigration and Customs Enforcement-Homeland
•	 On March 6, 2014, Flavia Makundi pled guilty           Security Investigations.
   in the U.S. District Court for the District of
   Maryland to conspiracy to commit wire fraud.           Plea in $2 Million Loan Origination Fraud Scheme,
                                                          Newark, New Jersey
•	 On February 24, 2014, Larry Johnson was
   sentenced to 8 months of imprisonment, 3               On February 4, 2014, Klary Arcentales pled guilty in
   years of supervised release, and ordered to pay        the U.S. District Court for the District of New Jersey
   $352,091 in restitution.                               to conspiracy to commit bank fraud and four counts
                                                          of bank fraud.
•	 On February 12, 2014, Mokorya Wambura pled
   guilty to aggravated identity theft and conspiracy     From March 2007 until September 2012, Arcentales,
   to commit wire fraud.                                  a loan officer at Premier Mortgage Services, conspired
                                                          with others to defraud numerous mortgage lenders
•	 On January 27, 2014, Abdallah Kitwara,
                                                          of over $2 million by utilizing straw buyers and
   Raymond Abraham, Annika Boas, Cane
                                                          causing fraudulent loan applications containing false
   Mwihava, Carmen Johnson, Makundi, and
                                                          misrepresentations of inflated assets, employment
   Ayoub Luziga were all indicted in the U.S.
                                                          and rental incomes, and fraudulent HUD-1 forms
   District Court for the District of Maryland on
                                                          to be submitted to financial institutions. Arcentales
   charges of conspiracy to commit wire fraud, wire
                                                          profited illegally in this loan origination fraud scheme
   fraud, and aiding and abetting.
                                                          by receiving a commission from Premier Mortgage
•	 On December 30, 2013, Edgar Tibakweitira pled          Services for each mortgage loan she closed, and
   guilty in the U.S. District Court for the District     by diverting portions of the fraudulently obtained
   of Maryland to aggravated identity theft and           mortgage proceeds for herself. The Enterprises



28    Federal Housing Finance Agency Office of Inspector General
purchased over $1,150,000 in loans associated with       Plea in Loan Origination Fraud, Sacramento,
this investigation.                                      California

This was a joint investigation with the FBI and IRS.     On January 17, 2014, Shing Yuan Yang (also known
                                                         as Jack Yang) pled guilty to one count of conspiracy
Defendants Sentenced in Fraud Involving Inflated         to commit wire fraud in the U.S. District Court for
Loans and Kickbacks, Dallas, Texas                       the Central District of California.

On January 22, 2014, Christi Wyatt was sentenced         Starting in late 2006 and continuing until early
to 37 months of imprisonment and 3 years of              2007, co-conspirator SH, whom Yang knew from
supervised release for her earlier plea to one count     previous business dealings, approached Yang and
of conspiracy to commit mail fraud. She was              asked if SH could use Yang’s company, Red Gate
also ordered to pay restitution in the amount of         Enterprises, for false verification of employment for
$1,032,650. On February 6, 2014, Ronzell Mitchell        home buyers applying for home loans. Yang agreed
was sentenced to 46 months of imprisonment,              and subsequently forwarded all lender employment
3 years of supervised release, and ordered to pay        verification calls to SH’s cell phone number. Using
$1,408,402.96 in restitution. On February 26, 2014,      Red Gate Enterprises, SH was able to have two
Lacie Devine pled to one count of conspiracy to          additional co-conspirators act as straw buyers and
commit mail fraud. All dispositions occurred in the      obtain loans on eight properties. The plea details one
U.S. District Court for the Eastern District of Texas.   of the straw buyers and four properties purchased by
                                                         the straw buyer. The loss to the lenders on the four
From about March 2008 through February 2010,
                                                         properties is approximately $1.24 million. One of
Devine conspired with others to recruit buyers to
                                                         the eight loans was purchased by Freddie Mac, which
purchase properties from sellers at inflated sales
                                                         suffered a loss of approximately $245,000.
prices, to help the buyers obtain mortgage loans
based on these inflated sales prices, to cause the       Former Loan Officer Falsifies Loan Documents,
sellers to kickback portions of the loan proceeds,       St. Louis, Missouri
to pay portions of the loan proceeds to the buyers,
and to cause the escrow officer not to disclose          On December 23, 2013, Michael Wallis, a former
these payments to the lender. Devine was involved        loan officer, pled guilty to one count of conspiracy to
with fraudulent transactions on 28 homes, Wyatt          commit bank fraud and one count of making false
was involved with fraudulent transactions on 8           statements in the U.S. District Court for the Eastern
homes, and Mitchell was involved with fraudulent         District of Missouri.
transactions on 7 other homes. The scheme caused         Wallis admitted in his plea that from early 2007
a loss of approximately $3,718,702 to involved           through January 2010, he conspired to cause false
financial institutions, which included losses of         statements to be submitted to FHA, Fannie Mae, and
approximately $1,555,484 to Fannie Mae and               FDIC-insured banks. Specifically, Wallis admitted
$239,989 to Freddie Mac.                                 to causing the submission of false gift letters and
The case resulted from a joint investigation with        false invoices that disguised the nature of the down
the FBI, HUD-OIG, and the Texas Department of            payment and the destination of the proceeds. Wallis
Insurance Fraud Unit.                                    conspired with two others who worked in the
                                                         St. Louis real estate market. Wallis’ activity caused



                                   Semiannual Report to the Congress • October 1, 2013–March 31, 2014        29
losses of approximately $800,000 to the United States      A $100 Million Nationwide Loan Origination Fraud,
and financial institutions. The scheme involved over       San Diego, California
14 Enterprise loans and 21 FHA loans.                      On December 2, 2013, Audrey Yeboah was
This was a joint investigation with HUD-OIG and            sentenced to 3 years of probation, 15 months of
USPIS.                                                     home confinement, and ordered to pay a $2,500 fine.
                                                           On December 9, 2013, Justin Mensen was sentenced
Two Sentenced in $5 Million Loan Origination               to 5 years of probation. On January 3, 2014, Teresa
Fraud, Newark, New Jersey                                  Rose was sentenced to 15 months of incarceration
                                                           and 36 months of supervised release. Mensen and
On December 20, 2013, in the U.S. District Court
                                                           Rose, along with another co-defendant, are also
for the District of New Jersey, Christopher Woods
                                                           jointly and severally liable for restitution in the
and Matthew Amento were each sentenced to 18
                                                           amount of $532,687. The pleas occurred in the U.S.
months of incarceration, 3 years of supervised release,
                                                           District Court for the Southern District of California.
and ordered to pay $1,267,851.51
in restitution jointly and severally.                                        Rose (a realtor), Yeboah,
The pair previously pled guilty                                              and Mensen (a loan broker)
to committing wire fraud and
                                          Realtor         sentenced          participated in a nationwide loan
conspiracy to commit wire fraud.                                             origination fraud and kickback
                                           to 15 months
                                                                             scheme, defrauding lenders
From March 2008 to February
2010, Woods, owner of Champs                incarceration and                through the sale of $100 million
                                                                             of real estate at inflated prices.
Construction; Amento, owner
of Residential Real Estate
                                            ordered to pay                   Purchasers of the fraudulently
                                                                             originated loans, including the
Construction; and other
individuals conspired to defraud
                                            over $500,000 in                 Enterprises, suffered losses of up to
                                                                             $20 million.
numerous mortgage lenders                   restitution.
of over $5 million in a loan                                             This was a joint investigation with
origination and property flipping                                        the FBI.
scheme. They used fraudulent
loan applications and HUD-1 forms containing           Mortgage Company Employees Sentenced for
misrepresentations, including borrowers having cash    Loan Origination Fraud, Allentown, Pennsylvania
down payments, inflated assets and incomes, and        On November 21, 2013, Angela Diaz was sentenced
nonexistent liens listed on the HUD-1 forms. Three     to 5 years of probation, 60 hours of community
fraudulent mortgages were sold to the Enterprises      service, and ordered to pay $227,000 in restitution.
for $1,519,000. The Enterprises required all three     On December 18, 2013, Ghovanna Gonzalez
lenders to make them whole. Defaults on mortgages      was sentenced to 7 days of incarceration, 3 years
associated with this investigation caused a loss of    of probation, and ordered to pay $762,616.20 in
$1,267,851.51 to various financial institutions.       restitution. Both were employed as loan processers
This was a joint investigation with HUD-OIG,               at Madison Funding. On December 20, 2013,
USPIS, the FBI, and SIGTARP.                               bank representative Princess Rosario and realtors
                                                           Jose Antigua and Melquisidec Caraballo were



30    Federal Housing Finance Agency Office of Inspector General
charged with conspiracy. On January 15, 2014,           From July 2008 through August 2010, Burnham
Caraballo pled guilty to one count of conspiracy.       and Carr conspired with others, including the seller
On January 24, 2014, Rosario pled guilty to one         of a property, to sell the property at an inflated price
count of conspiracy. On January 31, 2014, Antigua       to straw buyers. Burnham and Carr supplied straw
pled guilty to one count of conspiracy, and Jason       buyers with down payment funds needed to close the
Boggs, a branch manager at Madison Funding, was         transactions. The seller received his proceeds after the
sentenced to 16 months of incarceration, 3 years        closing on the property and kicked back a portion
of probation, and ordered to pay $383,384.21 in         of the proceeds to Burnham outside of closing.
restitution, of which $20,368.13 will go to Fannie      Burnham then paid a portion of the funds to Carr
Mae and $97,380.52 to Freddie Mac. On March 27,         outside of closing. Burnham and Carr were involved
2014, Florentina Peralta was sentenced to 3 months      in similar fraudulent transactions on seven other
of incarceration, 12 months of supervised release,      homes. The scheme caused a loss of $1,393,129.91
and ordered to pay $586,705.95 in restitution, of       to involved financial institutions, including losses
which $251,455.95 will be paid to Fannie Mae. All       of approximately $1,125,907.69 to the Enterprises,
dispositions were in the U.S. District Court for the    which bought or secured mortgages on six of these
Eastern District of Pennsylvania.                       properties.

From October 2006 until at least June 2008,             This indictment resulted from a joint investigation
numerous individuals conspired to defraud mortgage      with HUD-OIG.
lenders by submitting loan applications supported
by falsified, forged, and altered documents. Over 60    Suspended Real Estate Agent Pleads Guilty and
loans originated during the fraud scheme were sold to   Six Co-conspirators Sentenced, Kansas City,
the Enterprises. Defaults on these mortgages caused     Kansas
losses of over $1 million to the Enterprises.           On November 5, 2013, in the U.S. District Court
This was a joint investigation with HUD-OIG and         for the District of Kansas, Manjur Alam, a suspended
FDIC-OIG.                                               real estate agent, pled guilty to conspiracy to commit
                                                        wire and bank fraud. On November 25, 2013, in the
Defendant Charged and Sentenced in $1 Million           same court, his co-conspirators were sentenced to
Bank Fraud Conspiracy, Dallas, Texas                    time served, 2 years of supervised release, and ordered
                                                        to pay restitution as follows:
On November 13, 2013, Marcus Carr was indicted
for conspiracy to commit bank fraud in the U.S.         •	 Henry Pearson Sr., $55,180;
District Court for the Eastern District of Texas.
                                                        •	 Chris Ginyard, $40,000;
On February 6, 2014, Michael Burnham was
                                                        •	 Henry Pearson Jr., $50,000;
sentenced to 4 years and 3 months of imprisonment,
5 years of supervised release, and restitution in the   •	 Allen Dykes, $14,872; and
amount of $1,393,129.91.
                                                        •	 Steven Pelz, $31,924.
On February 13, 2014, Carr pled guilty to conspiracy
to commit bank fraud in the U.S. District Court for     On March 5, 2014, Janice Young was sentenced in
the Eastern District of Texas.                          the same court to time served, 5 years of supervised
                                                        release, and ordered to pay $60,332 in restitution.


                                   Semiannual Report to the Congress • October 1, 2013–March 31, 2014       31
From 2006 to present, Alam’s co-conspirators              institutions of more than $7 million. In his plea,
agreed to be straw buyers in a scheme in which false      McDade admitted to knowingly submitting a
employment, income, and other documents would             loan application containing materially false and
be used to qualify them for residential mortgage          fraudulent information, including inflated income.
loans. The listed individuals pled guilty to knowingly    As a result of the false statements, a loan was funded
submitting false loan applications and various other      for $880,000. One property in this case was sold to
false documents in order to qualify for conventional      Fannie Mae, which lost approximately $185,000 on
mortgage loans, including loans purchased by Fannie       the transaction.
Mae (nine) and Freddie Mac (two), as well as loans
                                                          This was a joint investigation with the FBI and the
insured by FHA. Losses to financial institutions
                                                          Stanislaus County District Attorney’s Office.
related to this scheme exceeded $795,000.

This was a joint investigation with IRS-CI and            Loan Officer Indicted for Money Laundering,
HUD-OIG.                                                  Dallas, Texas

                                                       On October 9, 2013, loan officer Euneisha Hearns
Realtor Pleads Guilty in                                               was indicted for conspiracy to
$7 Million Loan Origination Fraud,                                     commit money laundering in the
Sacramento, California                    Real    estate               U.S. District Court for the Eastern
On October 21, 2013, James                                             District of Texas.
Lee Lankford pled guilty to                broker sentenced
                                                                             During April 2008, Hearns and
seven counts of mail fraud. On
January 27, 2014, Lankford
                                           to 10 years                       others allegedly conspired to
                                                                             launder proceeds from fraudulent
was sentenced to 10 years and 1
month in prison, 36 months of
                                           incarceration and                 real estate transactions. The
                                                                             fraudulent real estate transactions
supervised release, and ordered            ordered to pay                    scheme caused a loss of $865,940
to pay $986,826 in restitution.
                                                                             to involved financial institutions,
Also on January 27, 2014, Jon              nearly $1,000,000                 including the Enterprises, which
McDade was sentenced to 5 years
                                                                             purchased mortgages that funded
of supervised release and ordered to       in restitution.                   the fraudulent transactions.
pay $1,443,826 in restitution after
his conviction for bank fraud. All                                           This was a joint investigation with
proceedings took place in the U.S.                                           IRS-CI.
District Court for the Eastern District of California.
                                                          Real Estate Agent and Loan Officer Indicted for
In his plea, Lankford admitted that, while working
                                                          Money Laundering, Dallas, Texas
as a realtor and broker, he fraudulently induced
elderly property owners to sell their homes to him        On October 9, 2013, Hoa Lee Perkins and Briggette
and provide seller-backed financing. Unbeknownst          Ellis were indicted in the U.S. District Court for the
to the elderly sellers, Lankford would also obtain        Eastern District of Texas for conspiracy to commit
mortgages from lending institutions by making             money laundering.
material misstatements on the loan applications.
                                                          From December 2006 through November 2008,
Lankford caused an estimated loss to lending
                                                          Perkins, a real estate agent; Ellis, a loan officer; and

32    Federal Housing Finance Agency Office of Inspector General
others were involved in an illegal property flipping      the District of Connecticut, Dressler pled guilty to
scheme. Perkins would purchase homes in north             conspiracy to commit mail, wire, and bank fraud.
Texas cities in her name or in her associate’s parents’   On November 19, 2013, in the same court, attorney
names at market value. The homes were then flipped        Genevieve Salvatore pled guilty to mail fraud. On
using straw buyers with bogus appraisals reflecting       March 11, 2014, Salvatore was sentenced to 24
much higher values. False notarized loan documents        months of incarceration, 3 years of supervised release,
were submitted to lenders, and Perkins paid the down      and ordered to forfeit $19,000.
payment, which was not disclosed on HUD-1 forms.
                                                          From December 2006 to February 2008, Dressler,
The loan proceeds were paid to Perkins through an
                                                          Salvatore, and others conspired to defraud mortgage
entity she controlled, Manda Homes LLC. Perkins
                                                          lenders and financial institutions by obtaining
and her co-conspirators flipped 26 properties,
                                                          over $10 million in fraudulent mortgages for the
resulting in fraudulent loans totaling over $8 million.
                                                          purchase of 20 multifamily properties in New Haven,
All of the properties were foreclosed or sold by short
                                                          Connecticut. The Enterprises purchased or secured
sale. The scheme caused a loss of approximately
                                                          mortgages for multiple homes.
$2,041,439 to Fannie Mae and $4,308,000 to
Freddie Mac.                                                                This was a joint investigation with
                                                                            the FBI, USPIS, and HUD-OIG.
This indictment resulted from a           Attorney sentenced
joint investigation with the FBI and
                                                                            Realtor Assists Homeowner in
IRS-CI.                                   to 20 months                      Committing Short Sale Fraud,
                                                                            Sacramento, California
Short Sale Schemes                        incarceration
                                                                          On December 19, 2013, in the
Short sales occur when a lender
allows a borrower who is
                                            and ordered to                U.S. District Court for the Eastern
                                                                          District of California, Minerva
“underwater” on his/her loan—               pay more than                 Sanchez was indicted for one count
that is, the borrower owes more
                                                                          of conspiracy to commit bank
than the property is worth—to sell          $400,000 in                   fraud.
his/her property for less than the
debt owed. Short sale fraud usually         restitution.                  In March 2010, Sanchez, a licensed
involves a borrower intentionally                                         real estate agent, represented
misrepresenting or not disclosing                                         Agustin Simon in the sale of his
material facts to induce a lender to agree to a short  home in Patterson, California; Simon also pled
sale to which they would not otherwise agree.          guilty to conspiracy to commit bank fraud in June
                                                       2013. Sanchez allegedly recommended that Simon
Attorneys Sentenced in Short Sale Fraud, New           undertake a short sale of his home using her son
Haven, Connecticut                                     as a straw buyer. Simon submitted to Tri Counties
On March 20, 2014, attorney Lawrence Dressler          Bank and Freddie Mac alleged fraudulent short
was sentenced to 20 months of incarceration, 3 years   sale applications that caused them to approve the
of supervised release, ordered to pay $403,450.75      charge off of funds for the sale of his home. Sanchez
in restitution, and ordered to forfeit $5,100. On      allegedly claimed falsely that the transaction was
October 3, 2013, in the U.S. District Court for        “arm’s length” and allegedly assisted Simon in making
                                                       false statements about Simon’s assets and ownership

                                    Semiannual Report to the Congress • October 1, 2013–March 31, 2014       33
of other real estate. Sanchez wrote a “hardship letter”   From 2008 to 2013, Wendy Thomas, operator of
for Simon to include with the short sale application      Home Support Solutions, and her co-conspirators are
that misrepresented his inability to make monthly         alleged to have devised a scheme to acquire control of
mortgage payments. As a result of her conduct, Tri        distressed properties and negotiate with the respective
Counties Bank suffered a loss of $247,000, and            mortgage servicers using fraudulent documents to
Freddie Mac lost $107,348.                                acquire the properties at less than full market value.
                                                          The defendants then allegedly flipped the properties
This was a joint investigation with the FBI, IRS-CI,
                                                          for profit through the use of straw buyers. Some
and the Stanislaus County District Attorney’s Office.
                                                          properties were held in the Enterprises’ portfolios,
                                                          while others were insured by FHA. Overall, 18
Las Vegas Realtors Use Straw Buyer to Commit
                                                          properties flipped by the defendants were held in the
Short Sale Fraud, Las Vegas, Nevada
                                                          Enterprises’ portfolios. The alleged fraud resulted in
On November 26, 2013, Robert and Cynthia                  over $500,000 in losses on the properties, including
Hosbrook pled guilty to bank fraud in the U.S.            over $100,000 in theft of commissions for the
District Court for the District of Nevada.                fraudulent short sales.
On June 7, 2010, a short sale was approved for the        This was a joint investigation with the Colorado State
Hosbrooks’ personal residence based on fraudulent         Attorney General’s Office, the Colorado Bureau of
representations that the short sale was due to personal   Investigation, and HUD-OIG.
hardships, the transaction was arm’s length, the
sellers and buyers were not family members, and the       Escrow Diversion Schemes
seller would not remain in the property subsequent
                                                          An escrow diversion scheme relates to individuals,
to the sale. In contrast, the Hosbrooks, real estate
                                                          usually in positions of trust such as real estate
professionals, made a cash sale of their personal
                                                          attorneys or title agents, diverting funds from
residence to a relative acting as a straw buyer and
                                                          restrictive escrow accounts for their own benefit
remained in their home after the sale. Freddie Mac
                                                          rather than using the restricted funds for their
suffered a loss of $174,000 as a consequence of the
                                                          intended purposes, such as to pay property taxes.
short sale.

This was a joint investigation with the Nevada            Guilty Plea and Sentences in Multimillion Dollar
Attorney General’s Office.                                Diversion, Denver, Colorado

                                                          On November 4, 2013, Benjamin Velasquez pled
Nine Charged in Short Sale Fraud, Denver,                 guilty to forgery in the City and County of Denver
Colorado                                                  District Court and was sentenced to 18 months of
On November 7, 2013, Wendy Thomas, Christina              probation. On January 10, 2014, Michael Martinez
Nicole Smith, Kurt Smith, Sheila Gaston, Sheila           was sentenced to 5 years of incarceration and 5 years
Giberti, Duane Thomas, Christopher Consol, Janice         of probation (concurrent) in the same court.
Gardner, and Joseph Slowey were indicted by a grand
                                                          From 2010 to 2011, Martinez and a co-conspirator
jury sitting in the state of Colorado for the Denver
                                                          participated in a scheme to divert funds designated
District Court on charges of theft, forgery, and
                                                          for specific real estate transactions. The scheme
violations of the Colorado Organized Crime Control
                                                          resulted in over $2 million in losses by Quantum
Act.
                                                          Title. Velasquez committed loan origination fraud

34    Federal Housing Finance Agency Office of Inspector General
on three Enterprise-owned properties by acting as a      Loan Modification and Property
straw buyer and providing false employment, income,      Disposition Schemes
and residency documents to lenders. As a result, the
                                                         Many companies claim to be able to secure loan
Enterprises lost $201,000 collectively.
                                                         modifications for desperate homeowners. Some even
This was a joint investigation with the Colorado State   claim affiliation with the government. Unfortunately,
Attorney General’s Office.                               the offers usually come with upfront fees and
                                                         little action, leaving homeowners even worse off.
Mortgage Company Owner Sentenced for                     Additionally, various fraud schemes can impact sales
Diverting Over $18 Million Owed to Enterprises,          of Enterprise REO.
Ft. Lauderdale, Florida
                                                         Four Arrested in Mortgage Rescue/Bankruptcy
On October 17, 2013, in the U.S. District Court for
                                                         Scheme, Van Nuys, California
the Southern District of Florida, Patrick Mansell was
sentenced to 5 years of imprisonment to be followed On March 25, 2014, Efren Velasquez, Eugene
by 3 years of supervised release.                                  Fulmer, Panik Karikorian, and
                                                                   Shara Surabi (also known as Sean
Starting in April 2007, Mansell                                    Parsi) were arrested for their roles
used his position as vice president,      Vice president of        in a mortgage rescue scheme.
secretary, and director of Coastal                                 Arrest warrants had been issued on
States Mortgage Corporation to            mortgage company March 19, 2014, for the four and
defraud the Enterprises. Through                                   an additional fifth co-conspirator,
February 2012, Coastal States             sentenced                Juan Velasquez.
withheld mortgage loan payoffs
owed to the Enterprises for                 to 5 years                    Efren Velasquez, Juan Velasquez,
extended periods. Coastal States                                          Karikorian, and Surabi are each
used these funds for their own              incarceration.                charged with 1 count of conspiracy
business purposes and to make                                             and 25 counts of forgery, while
monthly mortgage payments on                                              Fulmer is charged with 1 count of
paid-off loans, misrepresenting them as performing     conspiracy and 2 counts of forgery. The individuals
loans. Payoffs fraudulently retained by Coastal        worked for and operated Trustee Sale Stoppers,
States were also used to remit funds owed to the       Property Assistance, Asset Help, and additional
Enterprises for previously withheld payoffs. Daily     businesses out of Los Angeles. The complaint alleges
and monthly servicing reports were supplied to the     that from early 2011 to present, the co-conspirators
Enterprises containing false information and altered   collected more than $2 million in proceeds from
loan-identifying numbers, which enabled the scheme     their foreclosure-delay and eviction-delay scheme,
to go undetected. The Enterprises lost more than       which involved hundreds of fraudulent bankruptcies
$18 million as a result.                               and deeds of trust. Fulmer, Karikorian, and Surabi
                                                       allegedly contacted homeowners who were in
The Florida Office of Financial Regulation provided    foreclosure and facing a trustee’s sale and promised
assistance to OIG during the initial stages of the     that they would delay the trustee’s sale for up to 36
investigation.                                         months for an initial payment ranging from $750 to
                                                       over $1,000 and a fee of $750 per month thereafter.


                                   Semiannual Report to the Congress • October 1, 2013–March 31, 2014      35
The same three also allegedly caused a series of          This is a joint investigation with the Stanislaus
fraudulent bankruptcies to be filed in order to delay     County District Attorney’s Office and the California
the trustee’s sales, in addition to filing backdated      Attorney General’s Office.
short-form deed of trust and assignment of rent
documents against the clients’ homes; Efren and           Defendants Sentenced in $1.3 Million Mortgage
Juan Velasquez were listed as beneficiaries on these      Rescue Scheme, Los Angeles, California
documents.                                                On November 5, 2013, Stephen Benjamin (also
The overall exposure to financial institutions is         known as Steven Benjamin) was sentenced in the
approximately $4.4 million. At least 11 of the            U.S. District Court for the Central District of
properties involved were owned by Freddie Mac,            California to 3 years of probation and 40 hours of
resulting in a loss of $817,955.                          community service.

This is a joint investigation with the Alameda County     On February 24, 2014, Jeremy Lloyd was sentenced
District Attorney’s Office and the FBI.                   in the U.S. District Court for the Central District of
                                                          California to 6 months of home confinement, 5 years
Two Defendants Sentenced in Mortgage Rescue               of probation, 100 hours of community service, and a
Scheme, San Bernardino, California                        $4,000 fine.

On March 18, 2014, in the Stanislaus County               From July 2011 through August 2012, Benjamin,
Superior Court, Blas Arreola pled nolo contendere         Lloyd, and others conspired to commit bankruptcy
to one count of offering false/forged instruments for     fraud and operated businesses that falsely purported
filing and was sentenced to 1 year of imprisonment,       to provide assistance to homeowners seeking to delay
5 years of probation, and a fine of $300. On the same     or avoid foreclosure and/or eviction proceedings.
date in the same jurisdiction, Nancy Arreola pled         They would advise homeowners that, for a fee, they
nolo contendere to one count of identity theft and        could assist the clients in delaying such proceedings.
was sentenced to 60 days of imprisonment, 3 years of      After receiving fees from clients, Benjamin and
probation, and a fine of $150.                            others would cause false documents to be prepared in
                                                          order to make it appear as if a tenant resided at the
Personnel at Document Recovery Forensic,
                                                          property owned by the client/homeowner. Benjamin
LLC, assisted the Arreolas with the preparation
                                                          would also cause false bankruptcy petitions to be
of numerous fraudulent documents to include
                                                          prepared, signed, and filed in the names of the
several fractional interest grant deeds to unknown
                                                          fictitious tenants with the bankruptcy court. In total,
individuals who were in bankruptcy, a scheme
                                                          Benjamin and others collected over $1.3 million
referred to as “bankruptcy dumping.” The
                                                          in upfront fees and targeted approximately 250
bankruptcy dumping allowed the Arreolas to keep
                                                          homeowners, including homeowners whose
possession of their homes, while not paying their
                                                          mortgages were owned by Fannie Mae.
mortgages. The Arreolas paid Document Recovery
Forensic at least $6,000 in fees and continued filing     This is a joint investigation with the FBI and the
fraudulent documents despite being warned by              U.S. Attorney’s Office for the Central District of
local law enforcement of their illegality. The scheme     California.
resulted in a loss to Freddie Mac of $125,738. The
investigation of Document Recovery Forensic is
continuing.

36    Federal Housing Finance Agency Office of Inspector General
Civil Cases                                                 the Financial Institutions Reform, Recovery and
                                                            Enforcement Act of 1989 (FIRREA).
During the reporting period, OIG continued to             In October 2013, a federal jury in New York
actively participate in the RMBS Working Group,           found Bank of America, Countrywide, and one of
which was established by the President in 2012            Countrywide’s former executives liable in a civil
to investigate those responsible for misconduct           proceeding brought under FIRREA alleging that the
contributing to the financial crisis through the          defendants had engaged in a scheme to defraud the
pooling and sale of RMBS. The Working Group is a          Enterprises in connection with the sales of mortgage
collaborative effort of dozens of federal and state law   loans. OIG agents and attorneys supported the U.S.
enforcement agencies.                                     Attorney for the Southern District of New York in
OIG’s participation has included acting as a source       investigating the case.
of information about the secondary
finance market, providing strategic                                         Investigations
litigation advice, supporting witness     JPMorgan Chase                    Strategy
interviews, and obtaining and
reviewing documents and other             agreed to pay a                   OIG has developed and intends
evidence. To date, OIG has played
                                                                            to further develop close working
a significant role in investigations      total of $13 billion
                                                                            relationships with other law
undertaken by members of the
Working Group. The following              in order to settle                enforcement agencies, including
                                                                            DOJ and the U.S. Attorneys’
investigations have resulted in civil
settlements:
                                          charges of fraud                  Offices; state attorneys general;
                                                                            mortgage fraud working groups;
•	 The Working Group closed               in the RMBS                       the Secret Service; the FBI; HUD-
   its first investigation in the                                           OIG; the FDIC-OIG; the IRS-CI
   fourth quarter of 2013 when            markets.                          division; SIGTARP; the Financial
   JPMorgan Chase agreed to pay                                             Crimes Enforcement Network;
   a total of $13 billion in order                                          and other federal, state, and local
   to settle charges of fraud in the RMBS markets                           agencies.
   brought by the U.S. Attorneys for the Eastern
                                                      During this reporting period, OI provided 47 fraud
   District of California and the Eastern District of
                                                      awareness briefings to various audiences.
   Pennsylvania, the Civil Division of DOJ, FHFA,
   the New York Attorney General, and others;
                                                          Regulatory Activities
•	 The New York Attorney General also instituted
   a civil proceeding against Credit Suisse alleging      Consistent with the Inspector General Act, OIG
   fraud in connection with the sale of RMBS; and         assesses whether proposed legislation, regulations, and
•	 The U.S. Attorney for the Western District of          policies related to FHFA are efficient, economical,
   North Carolina instituted a civil proceeding           legal, and susceptible to fraud and abuse. During the
   against Bank of America alleging violations of         semiannual period, OIG advised FHFA that it had
                                                          not implemented the government-wide suspension


                                     Semiannual Report to the Congress • October 1, 2013–March 31, 2014      37
and debarment system and the Program Fraud                  whether it distributes funds, or whether it is
Civil Remedies Act of 1986 (PFCRA), and made                funded with taxpayer dollars. FHFA is an executive
substantive comments on a proposed rule and three           agency, and therefore, it is subject to the Executive
advisory bulletins. Additionally, FHFA published            Order and PFCRA. Yet, it has not implemented
a final rule that OIG had previously commented              either provision.
upon.3
                                                            OIG apprised FHFA of its responsibility to
1.	Implementation of the Government-wide                    implement the government-wide suspension and
   Suspension and Debarment System and                      debarment system and PFCRA, and requested that
   PFCRA                                                    the Agency advise what it intends to do to remedy
                                                            these deficiencies.
  The government-wide suspension and debarment
  system was established in 1986 by Executive Order         On April 2, 2014, FHFA advised OIG that
  12549. Section 1 of the Executive Order requires          it would implement PFCRA but would not
  agencies to participate in the nonprocurement             implement the government-wide suspension and
  suspension and debarment system, and section              debarment system. In the latter regard, FHFA
  3 provides that executive agencies “shall issue           explained that as a non-appropriated agency it is
  regulations governing their implementation” of it.4       not required to comply with FAR and that it does
  The regulations were to be issued no later than 12        not make grants, cooperative agreements, loans,
  months after OMB issued appropriate guidance              loan guarantees, or subsidies that invoke the
  to the agencies.5 OMB issued such guidance in             application of the Executive Order.
  1987.6 Thus, the requirement that agencies issue
                                                          2.	 Enforceability of Advisory Bulletins: Liquidity
  suspension and debarment regulations has been
                                                             Risk Management (AB 2014-01), Operational
  fully effective since at least 1988. Further, the
                                                             Risk Management (AB 2014-02), and
  Federal Acquisition Regulation (FAR) specifically
                                                             Collateralization of Advances and Other Credit
  directs agencies to “establish appropriate procedures
                                                             Products to Insurance Company Members
  to implement” FAR’s policies and procedures on
                                                             (AB 2013-09)
  procurement-related suspensions and debarments.7
                                                            FHFA forwarded to OIG draft advisory bulletins
  PFCRA provides agencies with an administrative
                                                            concerning liquidity and operational risk
  remedy for low-dollar frauds (i.e., $150,000
                                                            management and collateralization of advances and
  or less) involving false claims and statements.8
                                                            other credit products to insurance companies,
  PFCRA permits agencies to recover up to twice
                                                            and requested OIG’s comments on them. OIG
  the amount of the loss (i.e., potentially up to
                                                            responded that it is concerned that the bulletins are
  $300,000), plus a penalty per false claim or
                                                            not legally or practically enforceable. In the former
  statement. Section 3809 of Title 31 of the U.S.
                                                            regard, the bulletins were not issued in accordance
  Code requires agencies to “promulgate rules and
                                                            with the Administrative Procedure Act.9 They
  regulations necessary to implement” PFCRA
                                                            are not the output of adjudications, they are not
  within 180 days from the statute’s enactment in
                                                            legislative rules issued in compliance with notice-
  1986.
                                                            and-comment rulemaking procedures, and they are
  The applicability of Executive Order 12549 and            not interpretive rules that interpret law or clarify
  PFCRA do not hinge upon an agency’s size,                 duties found in existing statutes or regulations.10


38   Federal Housing Finance Agency Office of Inspector General
Yet, in spite of the lack of adjudication or               a manner that ensures their enforcement; some
notice-and-comment, and in contrast to merely              expectations can be expressed as guidance with
interpreting existing duties, the draft bulletins          the understanding that different subjects of
seek to establish guidelines reflecting the Agency’s       the supervision can satisfy Agency expectations
expectations for safe and sound operations. With           in different ways. However, it is plain to us
respect to practicality, OIG noted that the plentiful      that some things are so important that they
expectations included in the draft bulletins tend          warrant bright-line and inflexible requirements.
to be expressed equivocally. For example, the              Clearly, there are topics within the curricula of
liquidity risk management draft bulletin repeatedly        collateralization of advances and other credit
describes what an Enterprise “should” do, rather           products to insurance companies and liquidity or
than advising what it “must do” or “is required            operational risk management that are so important
to do”—over the course of six pages, “should” is           or well established that they are susceptible to an
used 73 times. This begs the question of whether           enforceable standard. Further, FHFA is not just a
a failure to abide by one of the 73 “shoulds” will         supervisor/regulator of the Enterprises; it is also a
warrant a sanction.                                        conservator, and thus, it has the authority—and,
                                                           in our view, a responsibility—to be more explicit
FHFA published the collateralization of advances
                                                           and insistent in its caretaking. Yet, as previously
and other credit products to insurance companies
                                                           reported by OIG, FHFA has often afforded undue
on December 23, 2013, and the liquidity and
                                                           deference to Enterprise decision making.11
operational risk management bulletins on
February 18, 2014, without making changes                3.	 Proposed Rule: Responsibilities of Boards of
to address OIG’s concerns. With respect to                  Directors, Corporate Practices and Corporate
the liquidity and operational risk management               Governance Matters (79 Fed. Reg. 4414
bulletins, FHFA explained that “Agency staff ... are        (January 28, 2014))
satisfied that advisory guidance, rather than a set
                                                           On December 17, 2013, OIG expressed its
of regulatory mandates, is the appropriate vehicle
                                                           concern regarding four sections of a draft version
to communicate the agency’s expectations with
                                                           of a proposed rule entitled Responsibilities of Boards
respect to the subject matter of the draft bulletins.”
                                                           of Directors, Corporate Practices and Corporate
In support of its position, FHFA advised that other
                                                           Governance Matters (RIN 2590-AA59). OIG
financial regulators often rely upon unenforceable
                                                           noted that the draft proposed rule was too vague
guidance and noted:
                                                           with regard to FHFA’s authority to limit or bar
   … modern financial institutions operate in              indemnification payments and failed to provide
   complex environments with many possible                 specific examples of circumstances under which
   sources of changing risk, and complex                   such action could be taken. FHFA did not propose
   operation that must be effectively managed.             an alternative standard to the draft standard that
   As a general proposition, it is the appropriate         allows FHFA to limit or prohibit indemnification
   competency and responsibility of financial              payments “in furtherance of safe and sound
   institution management, rather than                     operations of the regulated entity” or include any
   government, to determine how best to do that.           explanatory examples in the published version of
                                                           the proposed rule. It did, however, add a sentence
OIG appreciates that all Agency supervisory
                                                           to its preamble noting some examples under which
expectations do not have to be promulgated in


                                  Semiannual Report to the Congress • October 1, 2013–March 31, 2014         39
 FHFA could limit or prohibit indemnification               entities and to review the compensation policies
 payments.                                                  that those executives develop and implement for
                                                            the non-executive/senior professionals.
 OIG also recommended that as a condition
 of indemnification, FHFA consider requiring              4.	Final Rule: Removal of References to Credit
 directors, officers, and employees to purchase              Ratings in Certain Regulations Governing the
 a bond to protect the regulated entity in the               FHLBanks (78 Fed. Reg. 67,004 (November 8,
 event that an indemnification claim is declined.            2013))
 FHFA rejected this suggestion as contrary to
                                                            During this reporting cycle, FHFA published a
 industry practice and an inappropriate inclusion
                                                            final rule on the removal of references to credit
 in a rulemaking that is intended to merely carry
                                                            ratings in certain FHLBank regulations which,
 over predecessor regulations (i.e., according
                                                            aside from some technical adjustments, is the same
 to FHFA, the purpose of the rulemaking was
                                                            as the proposed rule which was published in the
 not to introduce significant changes in policy).
                                                            prior reporting cycle. OIG neither concurred nor
 Additionally, FHFA rejected OIG’s request that it
                                                            nonconcurred on the draft version of the final
 be specifically mentioned in the regulatory report
                                                            rule but reiterated the concerns it raised during
 section of the rule that requires the entities to file
                                                            the draft proposed rule phase. Specifically, OIG
 reports, information, and raw or summary data to
                                                            commented that the section implementing section
 determine compliance with laws, orders, rules, or
                                                            939A of Dodd-Frank lacked sufficient discussion
 regulations. FHFA claimed that OIG can obtain
                                                            about what factors the FHLBanks should consider
 the same information using its authority under
                                                            (and how) when assessing investing quality, and
 the Inspector General Act and that OIG has no
                                                            that the proposed rule did not include any criteria
 need for such information as it has no safety or
                                                            for assessing investment quality. The final rule does
 soundness responsibilities for the regulated entities.
                                                            not address OIG’s concerns.
 In contrast, OIG believes that, because the
                                                          5.	 Final Rule: Stress Testing of Regulated Entities
 Inspector General Act guarantees our access to
                                                             (78 Fed. Reg. 59,219 (September 26, 2013))12
 all information to which FHFA has access, it is
 more efficient to require filers to provide copies         As was evident from FHFA’s inclusion in its
 to OIG, and that OIG has a much better grasp               proposed rule (October 5, 2012) of a reporting
 of the information that it needs to carry out its          requirement for baseline, adverse, and severely
 mission. Likewise, FHFA rejected OIG’s request             adverse conditions, FHFA was aware that Dodd-
 that FHFA consider including non-executive/                Frank requires primary financial regulators for
 senior professionals in the proposed rule to               certain nonbank financial institutions to conduct
 ensure effective monitoring and enforceable                annual stress tests under “at least 3 different sets
 penalties for violators, particularly in light of          of conditions, including baseline, adverse, and
 an OIG evaluation report finding that FHFA                 severely adverse … [and] to publish a summary
 should enhance its current non-executive/senior            of the results of the required stress tests.” See
 professional compensation oversight. FHFA’s view           12 U.S.C. § 5365(i)(2)(C)(ii) and 5365(i)(2)
 is that it is sufficient to oversee the compensation       (C)(iv). Yet, after the FHLBanks and Freddie
 arrangements for the executives of the regulated           Mac requested that FHFA “conform with other



40   Federal Housing Finance Agency Office of Inspector General
  regulatory agencies” by changing the rule to          prosecutors, industry groups, and homeowners. The
  require the regulated entities to publish only the    presentations to law enforcement officials were made
  results of the severely adverse scenario, FHFA        to multiple mortgage fraud working groups across the
  dropped the baseline and adverse publication          country and individual federal agencies responsible
  requirements (purportedly because the results         for investigating mortgage fraud, such as HUD-
  of such scenarios could be misinterpreted as          OIG and USPIS. In addition, OI continued its
  earnings projections) in their draft final rule. On   partnership with the National Association of District
  July 15, 2013, OIG commented that although            Attorneys to train local and state law enforcement
  FHFA’s draft version of the final rule provided       officials and prosecutors throughout the country,
  for stress testing, it only required reporting of     putting on presentations in four cities: Austin, Texas;
  the severely adverse scenario. OIG expressed          Washington, DC; Columbus, Ohio; and Los Angeles,
  its concern that FHFA’s draft final rule did not      California.
  appear to be in compliance with
                                                                           With respect to presentations to
  section 165(i)(2) of Dodd-
                                                                           housing professionals, OIG staff
  Frank, which requires,                     Report fraud,                 made presentations to professional
  without exception, reporting
                                                                           organizations, such as the Mortgage
  in all three stress testing areas.         waste, or abuse               Bankers Association, bankruptcy
  The final rule published on
                                                                           trustee officials, and the National
  September 26, 2013, maintained             related to FHFA’s             Association of Realtors. The
  the requirement to publish
                                             programs and                  presentations focused on fraud
  results on only the most severely
                                                                           trends in the mortgage industry.
  adverse scenario.
                                         operations
                                                                          Hotline
Communications and                       by visiting                    OI operates a hotline that allows
Outreach                                                                concerned parties to report directly
                                         www.fhfaoig.gov                and in confidence information
A key component of OIG’s mission                                        regarding possible fraud, waste,
is to communicate clearly with           or calling (800)               or abuse related to FHFA or the
the GSEs, industry groups, other                                        GSEs. We honor all applicable
federal agencies, Congress, and          793-7724.
                                                                        whistleblower protections. As part
the public. OIG facilitates clear                                       of our effort to raise awareness of
communications through its                                              fraud and how to combat it, OIG
targeted outreach efforts, hotline,                  promotes the hotline through our website, posters,
coordination with other oversight organizations, and emails targeted to FHFA and GSE employees, and
congressional statements and testimony.              our semiannual reports.

Outreach                                                 During the reporting period, the hotline received
                                                         over 250 tips.
During the reporting period, OIG staff made over
35 presentations to law enforcement agencies,




                                  Semiannual Report to the Congress • October 1, 2013–March 31, 2014         41
Coordinating with Other Oversight                                   General Criminal Investigator Academy
Organizations                                                       training process for investigative personnel.
OIG shares oversight of federal housing program           •	 Council of Inspectors General on Financial
administration with several other federal agencies,          Oversight. The Council of Inspectors General
including HUD, the Department of Veterans Affairs,           on Financial Oversight (CIGFO) was created by
the Department of Agriculture, and Treasury’s Office         Dodd-Frank to oversee the Financial Stability
of Financial Stability (which manages the Troubled           Oversight Council (FSOC), which is charged
Asset Relief Program); their inspectors general; and         with strengthening the nation’s financial system.
other law enforcement organizations. To further              OIG is a permanent member of CIGFO,
the oversight mission, we coordinate with these              along with the inspectors general of Treasury,
entities to exchange best practices, case information,       the FDIC, the SEC, and others. FSOC has
and professional expertise. During the semiannual            issued a transparency policy that formalizes
period ended March 31, 2014, we participated in the          the commitment to conducting its business as
following cooperative activities:                            openly and transparently as practicable, given the
                                                             confidential supervisory and sensitive information
•	 RMBS Working Group. OIG continued to take
                                                             at the center of its work. OIG participates in a
   part in the activity of the RMBS Working Group,
                                                             CIGFO working group conducting a review of
   as discussed in “Civil Cases” (see page 37).
                                                             FSOC’s compliance with its transparency policy.
•	 CIGIE. OIG actively participates in several               The objective for this review is to assess the extent
   CIGIE committees and working groups.                      to which FSOC is operating consistent with the
                                                             expectations outlined in the transparency policy,
       űű The Inspection and Evaluation Committee
                                                             including such requirements as holding open
          established a working group to conduct a
                                                             meetings on an annual basis and recording all
          pilot “peer review” program for Inspection
                                                             votes on final and proposed rules, then reflecting
          and Evaluation units in the inspector
                                                             those votes in the FSOC minutes.
          general community. The peer review is
          designed to assess organizations’ work          •	 Mortgage Fraud Conference. In February
          under CIGIE’s Quality Standards for                2014, DOJ and FHFA sponsored a mortgage
          Inspection and Evaluation (January 2012)           fraud conference, and OIG supported it. The
          and to promote credibility of such work            conference was attended by approximately
          by validating the organizations’ work              125 representatives from various government
          processes and evaluating their objectivity,        regulators, DOJ prosecutors, and assorted law
          independence, and rigorous adherence to            enforcement officials, and included presentations
          applicable standards.                              on all aspects of mortgage fraud—from
                                                             loan origination to securitization. OIG
       űű The Investigation Committee advises the
                                                             representatives made presentations on fraud
          inspector general community on issues
                                                             investigation in the primary and secondary
          involving criminal investigations, criminal
                                                             markets; the Taylor, Bean, & Whitaker
          investigations personnel, and establishing
                                                             investigation; investigative techniques; and the
          criminal investigative guidelines. During
                                                             RMBS Working Group.
          this semiannual period, the committee
          considered modifications to the Inspector


42    Federal Housing Finance Agency Office of Inspector General
Communicating with Congress
In fulfilling our mission, OIG works in close
partnership with Congress and is committed to
keeping it fully apprised of our oversight of FHFA.
OIG met regularly with members of Congress
and provided briefings to key congressional
committees and offices. Briefing topics included
recommendations from OIG reports and FHFA’s
progress in implementing them, themes emerging in
OIG’s body of work, OIG’s organization and strategy,
and areas of ongoing work.

Additionally, we endeavor to inform Congress
through responses to numerous technical assistance
and information requests, as well as replies to formal
written inquiries from members of Congress on
various topics.

Copies of the Inspector General’s written testimony
to Congress are available at www.fhfaoig.gov/
testimony.




                                    Semiannual Report to the Congress • October 1, 2013–March 31, 2014   43
Section 2: FHFA and GSE Operations

Overview                                                  The Enterprises were chartered by Congress to
                                                          provide stability and liquidity in the secondary
In July 2008, HERA created FHFA to oversee                market for home mortgages. They fulfill this charter
vital components of our nation’s secondary                by purchasing residential loans from loan originators
mortgage market.13 FHFA is responsible for the            that can use the sales proceeds to make additional
effective supervision, regulation, and housing            loans.
mission oversight of Fannie Mae, Freddie Mac, the         Under HERA, the Enterprises receive financial
FHLBanks, and the FHLBanks’ Office of Finance to          support from Treasury to prevent their liabilities from
promote their safety and soundness and to support         exceeding their assets, subject to a cap.17
housing finance, affordable housing, and a stable and
liquid market.14                                          FHFA and the Enterprises’ Role in Housing
In this section, we provide an overview of FHFA and       Finance
its relationship with the GSEs; a brief discussion of     As the regulator of the Enterprises, FHFA has a
the GSEs’ business models and the primary reasons         statutory responsibility to ensure that they operate
for their improved financial results; and a summary of    in a safe and sound manner and that their activities
selected FHFA and GSE activities.                         support a stable and liquid housing finance market.18

                                                          As Figure 8 (see page 45) illustrates, the Enterprises
FHFA and the Enterprises                                  support the nation’s housing finance system by
                                                          providing liquidity to the secondary mortgage
Under HERA, FHFA was appointed conservator of             market. Liquidity is created when the Enterprises
the Enterprises on September 6, 2008, and it serves       purchase mortgages that lenders—such as
as their regulator and conservator. As regulator, the     banks, credit unions, and other retail financial
Agency’s mission is to ensure the Enterprises operate     institutions—originated for homeowners.
in a safe and sound manner and that their operations
and activities contribute to a liquid, efficient,         These mortgages are securitized by pooling and
competitive, and resilient housing finance market.15      packaging them into mortgage-backed securities
As conservator, the Agency seeks to conserve and          (MBS) and are either sold or kept by the Enterprises
preserve Enterprise assets.                               as an investment. As part of this process, the
                                                          Enterprises—for a fee—guarantee payment of
FHFA accomplishes its mission by performing               principal and interest on the mortgages.
onsite examinations of the Enterprises; coordinating
congressional, public, and consumer inquiries;            Historically, the Enterprises have benefited from
assisting the Enterprises with foreclosure prevention     an implied guarantee that the federal government
actions; and developing and implementing a                would prevent default on their financial obligations,
strategic plan for the future of the Enterprises’         and the Enterprises assumed dominant positions in
conservatorships.16                                       the residential housing finance market.19



44    Federal Housing Finance Agency Office of Inspector General
Figure 8. Overview of the Enterprises and FHFA’s Role



         Primary                                                                                      Applies for
         Mortgage Market                                                                               Mortgage

         Market in which financial                                                                                       BORROWER
         institutions provide                                     LENDER
         mortgage loans to
                                                                                                       Provides
         homebuyers                                                                                      Loan
                                              Sells Loans that
                                              Meet Underwriting
                                                and Product
                                                 Standards


                                                                                    Buys
                                                                                  Mortgages
         Secondary
         Mortgage Market                                     FANNIE MAE and
         Market in which                                                                                 Conservator
                                                             FREDDIE MAC
         existing mortgages and
         MBS are traded
                                                             Credit          Portfolio
                                                           Guarantee       Investment
                                                           Business         Business                 Ensures Financial
                                                                                                        Safety and
                                                                                                        Soundness
                                                  Issues                 Issues
                                                   MBS                    Debt




                                                                  Buys                        Buys
                                                                  MBS                         Debt
                                       Sells
              INVESTORS              MBS & Debt

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




Enterprises’ Market Share of the                      crisis continued and private-sector financing for the
Secondary Market                                      secondary market nearly disappeared.20 Since entering
                                                      conservatorships in September 2008, the Enterprises
As Figure 9 (see page 46) illustrates, after losing
                                                      have bought and guaranteed approximately three
market share to nonagency competitors during
                                                      out of every four mortgages originated in the United
the housing boom from 2004 through 2007, the
                                                      States. By providing a majority of the liquidity to
Enterprises regained dominant positions in the
                                                      the housing finance market, the Enterprises (and,
residential housing finance market (with the federal
                                                      therefore, the taxpayers) own a majority of the
government’s financial support) as the financial
                                                      mortgageand
                        Figure 7. Overview of the Enterprises    creditFHFA’s
                                                                        risk.21 Role

                                          Semiannual Report to the Congress • October 1, 2013–March 31, 2014                        45
Figure 9. Primary Sources of MBS Issuances from 2000 to 2013 ($ trillions)


 $3.0



 $2.5



 $2.0



 $1.5



 $1.0



 $0.5



 $0.0
         00

                01

                      02

                             03

                                   04

                                          05

                                                06


                                                         07

                                                               08

                                                                     09

                                                                           10

                                                                                  11

                                                                                         12

                                                                                                13
        20

              20

                     20

                           20

                                  20

                                        20

                                               20


                                                        20

                                                              20

                                                                    20

                                                                          20

                                                                                20

                                                                                       20

                                                                                              20
                             Ginnie Mae MBS       Enterprise MBS      Nonagency MBS




Enterprises’ Financial                                   A key factor underlying the increase in both
Performance                                              Enterprises’ net income over the year ended
                                                         December 31, 2013, was the release of substantial
The Enterprises continued to report record profits       portions of their valuation allowances against
over the year ended December 31, 2013. Their profits     deferred tax assets—with Fannie Mae releasing the
have risen since 2012 (see Figure 10, page 47) and       majority of its valuation allowance and Freddie Mac
continue to offset the losses that began in 2007 (see    releasing its full valuation allowance. The Enterprises
Figure 11, page 47).22                                   are required to maintain valuation allowances for
                                                         deferred tax assets that they determine may not be
As shown in Figure 12 (see page 47), Fannie Mae
                                                         realized. This caused them to establish substantial
reported net income of $84 billion for the year ended
                                                         valuation allowances during the years that they
December 31, 2013, compared with net income of
                                                         experienced net losses.25
$17.2 billion for the same period in 2012.23 Freddie
                           Figure_9_PrimarySourcesMBSIssuances_2000-2013_4.17.14
Mac reported net income of $48.7 billion for the       During the first quarter of 2013, however, Fannie
year ended December 31, 2013, compared with net        Mae determined that the factors in favor of releasing
income of $11 billion for the same period in 2012. 24
                                                       the allowance outweighed the factors in favor of


46   Federal Housing Finance Agency Office of Inspector General
Figure 10. Enterprises’ Annual Net Income                                                    Figure 11. Enterprises’ Combined Losses from
(Loss) 2006 to 2013 ($ billions)                                                             2007 Through 2011 and Combined Profits from
                                                                                             2012 Through 2013 ($ billions)

  $140                                                                                       $300
  $120
  $100                                                                                       $250
   $80
   $60
                                                                                             $200
   $40
   $20
    $0                                                                                       $150
                                                                                                                 $258
                                                                                                                 $300
 ($20)
 ($40)                                                                                       $100
 ($60)                                                                                                                                        $161
 ($80)                                                                                        $50
($100)
($120)                                                                                         $0
               06        07        08        09        10         11        12        13
          20        20        20        20        20         20        20        20
                                   Fannie Mae     Freddie Mac                                                             Losses    Profits




maintaining it. Therefore, Fannie Mae released a                                             Freddie Mac will continue to evaluate its ability to
substantial portion of its valuation allowance during                                        realize their deferred tax assets and will reestablish
this period, which resulted in the recognition of                                            a valuation allowance should it determine that it
$45.4 billion as a federal income tax benefit for                                            is more likely the deferred tax assets will not be
the year ended December 31, 2013, but retained                                               realized.28
$525 million of its valuation allowance that pertains
                                                                                             Other key factors in the Enterprises’ continued
to capital loss carryforwards, which it believes
                                                                                             profitability are discussed below. These factors
will expire unused.26 Similarly, in the third quarter                                               Figure_10_EnterprisesCombinedLossess2007-2011Profits2012-2013
                                                                                             include:   (1) continued improvements in the single-
of 2013,   Freddie
      Figure        Mac released its entire valuation
             _9_EnterprisesAnnualNetIncome(Loss)_2006-2013
                                                                                             family business segment driven by stronger credit
allowance against its deferred tax assets, recognizing
                                                                                             quality, (2) increases in guarantee fee income as a
$23.3 billion as a federal income tax benefit, as
                                                                                             result of FHFA direction, (3) an increase in home
of December 31, 2013.27 For future quarters,


Figure 12. Enterprises’ Summary of Net Income for the Years Ended December 31, 2013 and 2012
($ billions)
                                                                                           Fannie Mae                             Freddie Mac
                                                                                       2013          2012                     2013          2012
    Net Interest Income                                                                  $22.4         $21.5                    $16.5         $17.6
    Credit-related Income (Expenses)                                                      11.8           1.1                      2.6          (1.9)
    Gain (Loss) on Derivative Agreements                                                   3.3          (3.6)a                    2.6          (2.4)
    Impairment of Securities Considered Other
                                                                                            (0.1)              (0.7)                (1.5)               (2.2)
      than Temporary
    Other Income (Expense)                                                                   1.2              (1.1)                  5.2              (1.6)
    Income Tax Benefit                                                                      45.4                 -                  23.3               1.5
    Net Income                                                                             $84.0             $17.2                 $48.7             $11.0
a
    Loss on derivatives referenced to Table 11, p. 76, in the Fannie Mae 2013 10-K Report.



                                                            Semiannual Report to the Congress • October 1, 2013–March 31, 2014                             47
prices causing a reduction in defaults, (4) derivative      Figure 13. Decline in Seriously Delinquent Loans
gains due to an increase in swap rates, and                 and REO Inventory
(5) additional non-interest income as a result of           1,000,000
settlement proceeds related to private-label securities
litigation and gains on securities.                          800,000



                                                             600,000

Continued Improvement in Credit Quality
of New Single-Family Business                                400,000




Fannie Mae’s credit-related income (comprised                200,000


of foreclosed property income and the benefit for                  0

credit losses) for the year ended December 31, 2013,




                                                                           12



                                                                                   12



                                                                                           12



                                                                                                      12



                                                                                                                   13



                                                                                                                            13



                                                                                                                                      13



                                                                                                                                              13
                                                                         20



                                                                                 20



                                                                                         20



                                                                                                    20



                                                                                                                 20



                                                                                                                          20



                                                                                                                                    20



                                                                                                                                            20
                                                                        1Q



                                                                                2Q



                                                                                        3Q



                                                                                                  4Q



                                                                                                            1Q



                                                                                                                        2Q



                                                                                                                                   3Q



                                                                                                                                           4Q
was $11.8 billion, compared with credit-related
                                                                                        Total Shadow Inventory     REO Inventory
income of $1.1 billion over the same period in
2012.29 Freddie Mac’s credit-related income for the
year ended December 31, 2013, was $2.6 billion,
                                                            present in their single-family books of business.
compared with credit-related expenses of $1.9 billion
                                                            As of December 31, 2013, loans acquired after
over the same period in 2012.30 The increase in
                                                            2008 comprised 77% and 75%, respectively, of
credit-related income is primarily the result of
                                                            Fannie Mae’s and Freddie Mac’s books of business.34
continued improvements in the credit quality of each                      Figure_12_DeclineSeriouslyDelinquentLoansREOInventory
                                                            Conversely, the legacy housing boom loans acquired
Enterprise’s single-family book of business—as higher
                                                            from 2005 through 2008, which have a higher
credit quality leads to fewer loan delinquencies—and
                                                            probability of credit defects, have declined to 15%
the increase in home prices.31
                                                            of the single-family book of business for Fannie Mae
The Enterprises’ single-family books of business            and 16% for Freddie Mac as of December 31, 2013,
consist of loans purchased and guaranteed that              compared with 22% and 24%, respectively, as of
generate interest and guarantee fee income. The             December 31, 2012.35
credit quality of the single-family loans acquired by
                                                            As the credit quality in the Enterprises’ single-family
the Enterprises beginning in 2009 is significantly
                                                            books of business has improved, the number of
better than that of loans acquired from 2005 to 2008,
                                                            seriously delinquent loans (also known as the shadow
as measured by loan-to-value (LTV) ratios, FICO
                                                            inventory) has declined (see Figure 13, above).36
scores, and the proportion of loans underwritten with
fully documented income.32                                  For the year ended December 31, 2013, the
                                                            Enterprises’ combined shadow inventory (loans that
This improved credit quality is attributed to:
                                                            are considered to be 180 or more days delinquent)
(1) more stringent credit policies and underwriting
                                                            totaled 519,156 loans, compared with 717,841
standards, (2) tighter mortgage insurers’ and lenders’
                                                            for the same period in 2012—a 28% decrease.37
underwriting practices, and (3) fewer purchases of
                                                            However, as the number of properties acquired
loans with higher-risk attributes (e.g., Alt-A, interest-
                                                            through foreclosure has declined, the disposition
only, credit scores below 620, and LTV ratios above
                                                            of total properties has also decreased. For the year
90%).33
                                                            ended December 31, 2013, Fannie Mae disposed
Further, the Enterprises are now holding more loans         of 146,821 single-family properties, compared with
with higher credit quality acquired from 2009 to            187,341 for the same period in 2012.38 For the year

48    Federal Housing Finance Agency Office of Inspector General
ended December 31, 2013, Freddie Mac disposed                          Additionally, Fannie Mae’s guarantee fee income
of 72,445 single-family properties, compared with                      increase for the year ended December 31, 2013, is a
94,276 for the same period in 2012.39                                  result of liquidating loans with lower guarantee fees
                                                                       while adding loans with higher guarantee fees to their
Increase in Guarantee Fee Prices                                       multifamily book of business.44
A significant source of income for the Enterprises                     Additional increases to the guarantee fees were
comes from receiving guarantee fees.40 The                             planned to take effect in March and April 2014.
Enterprises receive these fees for taking the risk of                  However, on January 8, 2014, FHFA announced that
loan default and providing MBS investors with a                        it directed the Enterprises to delay these increases
guarantee for the principal and interest payment.41 In                 until further evaluation could be completed.45
2012, FHFA directed the Enterprises to increase their
guarantee fees.42 As a result, guarantee fee income                    Impact of Home Prices on Credit Losses
increased for the year ended December 31, 2013.
                                                                       Another factor positively influencing credit-related
Fannie Mae’s combined single-family and                                expenses, i.e., credit losses, is home prices. An
multifamily guarantee fee income for the year ended                    increase in home prices can decrease the likelihood
December 31, 2013, was $11.7 billion, compared                         that loans will default and reduce the estimated
with $9.2 billion for the same period in 2012—a                        credit losses on the loans that default.46 The
27% increase; Freddie Mac’s combined single-family                     S&P/Case-Shiller Home Price Index shows a decrease
and multifamily guarantee fee income for the                           in the index for each quarter in 2011; however,
year ended December 31, 2013, was $5.1 billion,                        it shows a steady increase in the index since the
compared with $4.5 billion for the same period in                      first quarter of 2012 through 2013 (see Figure 14,
2012—a 13% increase.43                                                 below).47


Figure 14. Home Price Index 2011 Through 2013

                        170
                        168
                        166
                        164
                        162
                        160
                        158
                        156
        Housing Index




                        154
                        152
                        150
                        148
                        146
                        144
                        142
                        140
                        138
                        136
                        134
                        132
                        130
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                                              Semiannual Report to the Congress • October 1, 2013–March 31, 2014         49
Higher Increases in Swap Rates Lead to                      income statement. The proceeds from the settlement
Derivative Gains                                            agreements contributed to the Enterprises’ continued
The Enterprises use derivative instruments to               financial improvement.53
manage the interest rate and prepayment risk
                                                            Fannie Mae’s non-interest income for the year ended
associated with their investments in mortgage
                                                            December 31, 2013, was $8.1 billion, compared with
loans and mortgage-related securities.48 Derivative
                                                            a loss of $2 billion for the same period in 2012.54
instruments include written options, interest rate
                                                            Freddie Mac’s non-interest income for the year ended
guarantees, and short-term default guarantee
                                                            December 31, 2013, was $8.5 billion, compared with
commitments.49
                                                            a loss of $4.1 billion for the same period in 2012.55
Fannie Mae’s derivative gains for the year ended            These non-interest income amounts do not include
December 31, 2013, were $3.3 billion, compared              the valuation allowance (income tax benefit) released
with a loss of $3.6 billion for the same period in          against the deferred tax assets.
2012. Freddie Mac’s derivative gains for the year
                                                            Additionally, gains on sales of securities increased
ended December 31, 2013, were $2.6 billion,
                                                            substantially. As a result, available-for-sale securities
compared with a loss of $2.4 billion for the same
                                                            gains increased significantly, adding additional
period in 2012.50
                                                            income for the Enterprises.56
These overall derivative gains were primarily
                                                            For the year ended December 31, 2013, Fannie Mae
due to gains in risk management derivatives and
                                                            realized gains of $1.6 billion on sales of securities,
mortgage commitment derivatives. The gains in risk
                                                            compared with $40 million for the same period
management derivatives were a result of increases on
                                                            in 2012; likewise, Freddie Mac realized gains of
swap rates. The increases in mortgage commitment
                                                            $1.9 billion on sales of securities, compared with
derivatives were a result of gains on commitments to
                                                            $152 million.57
sell mortgage-related securities, as a consequence of a
decrease in prices as interest rates increased during the
commitment period.51                                        Government Support

Proceeds from Private-Label Securities                      Due to their continued profitability, as of March 31,
Litigation and Gains on Securities                          2014, the Enterprises did not request a draw from
In 2011, FHFA, on behalf of the Enterprises,                Treasury in 2013 or 2014 to date and are paying
initiated litigation against 18 financial institutions      significant dividends.
alleging private-label securities violations. FHFA
recovered $7.5 billion from six of these financial
                                                            Draw Requests and Dividend Payments
institutions through litigation settlements in 2013.
                                                            Due Under the Senior Preferred Stock
In addition, FHFA, on behalf of Freddie Mac,
                                                            Purchase Agreements
recovered $335 million from a private-label securities      In August 2012, FHFA and Treasury agreed to a
non-litigation settlement in 2013—separate from the         third amendment to the Senior Preferred Stock
18 lawsuits initiated in 2011.52                            Purchase Agreements (PSPAs) that, among
                                                            other things, replaced the fixed dividend rate the
Settlement proceeds related to private-label securities
                                                            Enterprises pay as of the first quarter of 2013. The
litigation are recorded as other non-interest income
                                                            modification called for a full net worth sweep of all
and affect the non-interest income portion of the

50    Federal Housing Finance Agency Office of Inspector General
future Enterprise earnings, with a quarterly sweep                    Freddie Mac’s net worth as of December 31, 2013,
of every dollar of net worth, instead of a fixed                      was $12.8 billion, resulting from comprehensive
percentage dividend payment. This was intended to                     net income of $51.6 billion for the year ended
end the circular practice of the Enterprises drawing                  December 31, 2013, and a beginning equity balance
funds from Treasury in order to pay dividends back                    of $8.8 billion less $47.6 billion paid to Treasury in
to Treasury. The Enterprises’ net worth (above a                      senior preferred stock dividends during 2013. As
specified initial buffer amount, which was $3 billion)                a result, Freddie Mac did not request a draw from
is now effectively distributed to Treasury; for the                   Treasury in 2013 under the PSPA.60
year ended December 31, 2013, approximately
                                                                      For the first quarter of 2014, Fannie Mae and Freddie
$130.1 billion was distributed, with an additional
                                                                      Mac made additional payments of $7.2 billion
$17.6 billion paid in the first quarter of 2014.58
                                                                      and $10.4 billion, respectively, under the terms
Fannie Mae’s net worth as of December 31,                             of the PSPAs. As of March 31, 2014, Fannie Mae
2013, was approximately $9.5 billion, resulting                       and Freddie Mac have paid Treasury a total of
from comprehensive net income of $84.8 billion                        $121.1 billion and $81.8 billion, respectively, in
for the year ended December 31, 2013, and a                           dividends on the senior preferred stock.61 These
beginning equity balance of $7.2 billion—i.e., the                    dividend payments do not reduce the principal
Enterprise’s net worth as of December 31, 2012—less                   balance of Treasury’s investments in the Enterprises.62
$82.5 billion paid to Treasury in senior preferred
                                                                      Since the conservatorships began in 2008 through
stock dividends during 2013. As a result, Fannie
                                                                      March 31, 2014, the Enterprises have drawn a
Mae did not request a draw from Treasury in 2013
                                                                      total of $187.5 billion from Treasury and paid
under the PSPA.59
                                                                      $202.9 billion in dividends (see Figure 15, below).


Figure 15. Enterprises’ Treasury Draws and Dividend Payments Due Under PSPAs ($ billions)

                 $140

                 $120
                                              Dividends Paid: $202.9 billion
                                       Treasury's Investment: $187.5 billion
                 $100

                   $80
                                                                                            130.1
                   $60

                   $40
                                        66.1
                          59.8
                   $20                                             33.6
                                                     28.0
                                                            13.5          16.1     18.8                  17.6
                                 0.2           6.6
                    $0
                                                                      11



                                                                                  12



                                                                                           13



                                                                                                     14
                             08



                                           09



                                                        10




                                                                                 20



                                                                                          20



                                                                                                    20
                                         20



                                                      20



                                                                    20
                           20




                                       Total Enterprise Draws                Total Enterprise Dividends



                                       Semiannual Report to the Congress • October 1, 2013–March 31, 2014                51
As of March 31, 2014, Fannie Mae’s total draws from          whereas, under the new full net worth sweep, the
Treasury under the PSPA remain at $116.2 billion             Enterprises paid more than five times that amount—
and Freddie Mac’s remain at $71.3 billion.63                 or $147.7 billion (see Figure 17, page 53).66

                                                             Changes in the valuation allowance impact the
Return on Treasury’s Investment
                                                             income tax benefits, which in turn influence net
The full net worth sweep set up by the third                 income and the quarterly dividend payments to
amendment to the PSPAs may result in Treasury                Treasury.67 The Enterprises’ large 2013 cumulative
receiving a larger sum than it would have under the          dividend payments were driven by the release of their
previous 10% dividend structure, making a speedier           valuation allowances, resulting in year-end income
gain on Treasury’s investment possible (see Figure           tax benefits of $68.7 billion. Because the release of
16, below, and Figure 17, page 53).64 Beginning in           the valuation allowances played a significant part in
2013, the Enterprises began paying dividends equal           the Enterprises’ record 2013 profits, it is anticipated
to their net worth over a specified buffer, and at least     that the income tax benefits and dividend payment
for 2013, the Enterprises paid Treasury significantly        levels will not be sustainable over the long term.68
more than would have been required prior to the
August 2012 PSPA amendments (see Figure 16,                  Additionally, the full net worth sweep makes it
below).65 For comparison, using the fixed dividend           impossible for the Enterprises to build up any capital
rate of 10% for the year ended December 31, 2013,            because their net worth, except for the specified
and the three months ended March 31, 2014, the               buffer amount, will be zero after they make each
Enterprises would have paid Treasury $23.7 billion,          quarterly dividend payment to Treasury. For each



Figure 16. Enterprises’ Advance on Treasury’s Investment as of March 31, 2014 ($ billions)

             $250


             $200
                           Treasury's Investment: $187.5 billion
                                  Dividends Paid: $202.9 billion
             $150


             $100

                                                                         $202.9 billion
               $50
                        59.8       66.1
                                              28.0         33.6
                 $0
                        08



                                   09



                                              10



                                                           11



                                                                    12



                                                                              13



                                                                                         14
                      20



                                 20



                                            20



                                                       20



                                                                  20



                                                                            20



                                                                                       20




        Cumulative Enterprise Dividends           Total Enterprise Draws       Treasury’s Investment Level




52    Federal Housing Finance Agency Office of Inspector General
   Figure 17. Enterprises’ Full Net Worth Sweep                                                                       Market Trading Desk at the Federal Reserve Bank
   Versus 10% Dividend Structure 2013 Through                                                                         of New York at a pace of $30 billion a month. This
   First Quarter 2014 ($ billions)                                                                                    pace does not include purchases to replace paid down
                                          $160
                                                                                                                      principal.72
Cumulative Enterprise Dividend Payments




                                          $140

                                          $120
                                                                                                                      FHLBank System
                                          $100

                                           $80
                                                                                                                      The FHLBanks are GSEs, federally chartered but
                                           $60

                                           $40
                                                                                                                      privately capitalized and independently managed.
                                           $20
                                                                                                                      The 12 regional FHLBanks together with the Office
                                            $0                                                                        of Finance, the fiscal agent of the FHLBanks,
                                                      13




                                                                13




                                                                                  13




                                                                                                13




                                                                                                                 14
                                                                                                                      comprise the FHLBank System. All FHLBanks
                                                  20




                                                            20




                                                                              20




                                                                                              20




                                                                                                                20
                                                 1Q




                                                           2Q




                                                                             3Q




                                                                                           4Q




                                                                                                            1Q


                                                           Net Worth Sweep             10% Dividend Structure
                                                                                                                      operate under the supervisory and regulatory
                                                                                                                      framework of FHFA.73 FHFA’s stated mission with
                                                                                                                      respect to the FHLBanks is to provide effective
                                                                                                                      supervision, regulation, and housing mission
   Enterprise, the buffer was initially set at $3 billion
                                                                                                                      oversight to promote the FHLBanks’ safety and
   but will be reduced by $600 million every year until
                                                                                                                      soundness, support housing finance and affordable
   2018—i.e., the buffer will reach zero in five years. For
                                                                                                                      housing, and facilitate a stable and liquid mortgage
   2014,    the buffer has been reduced to $2.4 billion.69
     Figure_17_EnterprisesNetWorthSweepVersusDividendPymnt2013-2014_1stQrtr
                                                                                                                      market.74

   Additional Government Support                                                                                      The FHLBank System was created in 1932 to
   The Enterprises also benefited from extraordinary                                                                  improve the availability of funds for home ownership,
   government measures to support the housing                                                                         and its mission is to provide local lenders with readily
   market overall. During the period from September                                                                   available, low-cost funding to finance housing, jobs,
   2008 through March 2010, the Federal Reserve                                                                       and economic growth.75 The 12 FHLBanks fulfill
   and Treasury purchased more than $1.3 trillion in                                                                  this mission primarily by providing secured loans
   Enterprise MBS through the GSE MBS Purchase                                                                        known as advances to their members, resulting in
   Facility. Additionally, the Federal Reserve purchased
                                                                                                                      an increased availability of credit for residential
   $135 billion of bonds issued by the Enterprises.70                                                                 mortgages, community investments, and other
   The Federal Reserve became the predominant                                                                         housing and community development services.76
   purchaser of MBS during its purchase programs, and                                                                 The FHLBanks are cooperatives that are owned
   its purchases helped to prime the nation’s housing                                                                 privately and wholly by their members. Each
   finance system.71                                                                                                  FHLBank operates as a separate entity within a
   Treasury’s last purchase of Enterprise MBS, through                                                                defined geographic region of the country, known
   the purchase facility, was in December 2009, while                                                                 as its district, with its own board of directors,
   the Federal Reserve last purchased Enterprise MBS                                                                  management, and employees. Each member of
   through the same facility in March 2010. However,                                                                  an FHLBank must purchase and maintain capital
   as of March 31, 2014, the Federal Reserve continues                                                                stock as a condition of its membership.77 FHLBank
   to purchase Enterprise MBS through the Open                                                                        members include financial institutions such as



                                                                                          Semiannual Report to the Congress • October 1, 2013–March 31, 2014              53
commercial banks, thrifts, insurance companies,            to those associated with Treasury bonds) stemming
and credit unions. Figure 18 (see below) provides a
                   78
                                                           from an implicit government guarantee of its
map of the districts of the 12 FHLBanks.                   consolidated obligations.81

The primary business of the FHLBanks is to raise           The FHLBanks’ Combined Financial
funds in the capital markets by issuing debt, known        Performance
as consolidated obligations, through the Office of
Finance and to use the consolidated obligations to         The regional housing markets affect the FHLBanks’
provide their members with advances. The primary           demands for advances from member institutions
source of each FHLBank’s earnings is net interest          to fund residential mortgage loans. During 2013,
income, which is the interest earned on advances,          FHLBank members’ borrowing increased, but
investments, and mortgage loans, less the interest         remained below historical levels due in part to a slow
paid on consolidated obligations, deposits, and other      economic recovery combined with higher consumer
borrowings.79                                              deposits and weakened lending. Further, during
                                                           this period, the demand for advances continued to
In the event of a default on a consolidated obligation,    increase due to high member borrowing, particularly
each FHLBank is jointly and severally liable for           by large-asset members. However, many member
losses, which means that each individual FHLBank           institutions continue to experience high deposit levels
is responsible for the principal and interest on all       and low loan demand. Although the average balances
consolidated obligations issued by the FHLBanks.80         of advances increased, the demand was generally in
However, like the Enterprises, the FHLBank System          lower-yielding advances, which contributed to the
has historically enjoyed benefits (e.g., debt costs akin   overall decline in interest income.82

Figure 18. Regional FHLBanks




54    Federal Housing Finance Agency Office of Inspector General
The main source of the FHLBanks’ income is interest           Figure 19. FHLBanks’ Net Income for the Years
earned on advances, mortgage loans, and investments           Ended December 31, 2013 and 2012 ($ millions)
(i.e., assets).83 Fluctuations in short-term interest rates                                           2013       2012
affect the FHLBanks’ interest income and expense                  Net Interest Income                $3,415      $4,052
because a considerable portion of the FHLBanks’                   Reversal of (Provision for)
                                                                                                          19         (21)
assets and liabilities are either directly or indirectly            Credit Losses
tied to short-term interest rates.84                              Other-than-Temporary
                                                                                                         (15)       (112)
                                                                    Impairment Lossesa
For the year ended December 31, 2013, compared                    Derivative and Hedging Gains          416           47
with the same period in 2012, average short-term                  Other Income (Loss)                    (72)        (89)
                                                                  Total Non-interest Expense           (943)       (975)
interest rates generally decreased, resulting in
                                                                  Total Assessments                    (293)       (296)
lower returns on mortgage loans, advances, and
                                                                  Net Income                         $2,527      $2,606
investments. This was partially offset by lower interest
expense on interest-bearing liabilities that were the         a
                                                               Of the other-than-temporary impairment losses, private-label
                                                              MBS comprised $14 million and $109 million for the years
result of the issuance of new consolidated obligations,       ended December 31, 2013 and 2012, respectively.
including the effect of redemptions and refinancings
of higher-cost consolidated obligations.85 These
combined effects contributed to the 3% decrease in            On the other hand, a decrease in interest expense
the FHLBanks’ net income.86                                   from $6.1 billion to $5 billion—or 18%—
As shown in Figure 19 (see above), during 2013, the           prevented additional declines in net interest
FHLBanks experienced a decrease in profitability,             income. The decrease was driven by lower yields
compared with the same period in 2012. Their                  on new consolidated obligations, including the
net income was $2.5 billion for the year ended                effect of redemptions and refinancings of higher-
December 31, 2013, a decrease of approximately                cost consolidated obligations. The refinancing of
$80 million, compared with the same period in                 consolidated obligations, which resulted in lower
2012.87                                                       interest payments, was a key contributor to this
                                                              decline. Due to these lower payments, consolidated
Lower returns on interest-earning assets—the main             obligation expenses decreased from $6 billion
factor influencing net income—largely derive from             to $4.8 billion—or 21%—for the year ended
decreases in interest income on advances, held-to-            December 31, 2013, compared with the same period
maturity securities, prepayment fees, and mortgage            in 2012.89
loans. Interest income on advances decreased from
$3.1 billion to $2.5 billion—or 18%—and interest              The FHLBanks are exposed to interest rate risk
income on held-to-maturity securities decreased from          primarily from the effect of interest rate changes on
$2.6 billion to $2.2 billion—a 16% decline—for                their interest-earning assets, as well as the funding
the year ended December 31, 2013, compared with               sources for these assets. The goal of the FHLBanks
the same period in 2012. Also during this period,             is not to eliminate interest rate risk entirely but to
interest income on prepayment fees was reduced                manage it within appropriate limits. To achieve this
from $341 million to $138 million—or 60%—and                  goal, the FHLBanks use derivatives (e.g., interest
                                                              rate swaps, options, and swaptions), which help
interest income on mortgage loans decreased from
$2.2 billion to $1.9 billion—a 15% decline—                   reduce funding costs, maintain favorable interest
compared with the same period in 2012.88                      rates, and manage overall assets and liabilities.90


                                      Semiannual Report to the Congress • October 1, 2013–March 31, 2014               55
Figure 20. FHLBanks’ Retained Year-end                     Selected FHFA and GSE Activities
Earnings 2007 Through 2013 ($ billions)

$14                                                        Over the last six months, there were several notable
                                                           FHFA and GSE developments related to: the
$12
                                                           confirmation of a new FHFA Director; FHFA’s
$10
                                                           progress toward developing a common securitization
 $8                                                        infrastructure; new mortgage insurance policy
                                                  12.21
 $6                                                        requirements; requirements for appraisal management
                                          10.52
 $4                         7.54
                                   8.58                    companies and exemptions to appraisal requirements
                    6.02
                                                           for higher-priced mortgages; guarantee fee changes;
 $2   3.69
             2.94
                                                           a proposed decrease of the Enterprises’ loan purchase
 $0
                                                           limits; sharing credit risk with private investors;
       07



              08



                     09



                            10



                                    11



                                           12



                                                   13
      20



             20



                    20



                           20



                                   20



                                          20



                                                  20
                                                           the recovery of Enterprise losses; and tracking GSE
                                                           performance. These developments and OIG’s efforts
                                                           in relation to them are summarized below.
Derivative and hedging activities gains accounted
for additional non-interest income of $416 million
                                                           FHFA Leadership
for the year ended December 31, 2013, compared
with $47 million for the same period in 2012—a             Melvin L. Watt Sworn In as FHFA Director
substantial increase.91
                                                             On January 6, 2014, Melvin L. Watt was sworn
As shown in Figure 20 (see above), the FHLBanks’             in for a five-year term as the director of FHFA.
combined year-end retained                                                        Watt, 68, served more than 21
earnings have increased every                                                     years in the U.S. Congress as
year for the last  six years and                  Melvin L. Watt
              Figure_19_FHLBanksRetainedEarnings2007-2013                         the representative from North
now exceed $12 billion as of                                                      Carolina’s 12th congressional
December 31, 2013. As long
                         92
                                                  sworn in as the                 district. He was a member of
as the FHLBanks are profitable,                                                   the House Judiciary Committee,
retained earnings should continue                 director of FHFA.               the Committee on Financial
to increase because of the joint                                                  Services, and its Subcommittee on
capital enhancement plan                                                          Capital Markets and Government
provisions adopted by the FHLBanks in 2011. The              Sponsored Enterprises. He is the first FHFA Director
plan calls for the FHLBanks to set aside 20% of              to be confirmed by the Senate.95
their net income into a separate, restricted retained
earnings account.93 The joint capital enhancements           FHFA Announces Departure of Edward J. DeMarco
help to provide members’ access to liquidity during          In March 2014, FHFA announced that Edward
times of economic stress, create an additional buffer        J. DeMarco had submitted a letter indicating he
to absorb FHLBank losses, provide protection on              will depart the Agency at the end of April 2014.
members’ capital investments, and provide additional         DeMarco was appointed acting director of FHFA on
assurance that the FHLBanks will meet their                  August 25, 2009, by President Obama and served
consolidated obligations.94                                  in that role until Director Watt was sworn in on
                                                           January 6, 2014.96

56    Federal Housing Finance Agency Office of Inspector General
Mortgage Industry Standards                              additional documentation; setting standards for
                                                         determining the timing and circumstances when
Common Securitization Infrastructure                     coverage under the mortgage insurance policy must
In October 2013, FHFA reported progress in the           be maintained and when it may be revoked; and
Enterprises’ joint venture to build and operate the      promoting information sharing among mortgage
Common Securitization Platform (CSP). The joint          insurers, servicers, and the Enterprises.99 The
venture, which is called Common Securitization           mortgage insurance overhaul was one of the targets
Solutions, LLC (CSS), was formally established as a      set forth in FHFA’s Conservatorship Strategic Plan:
limited liability company in the state of Delaware.      Performance Goals for 2013. Specifically, it called for
Officials from the Enterprises also signed a lease for   the development of “counterparty risk management
office space for CSS in Bethesda, Maryland, and          standards for mortgage insurers that include uniform
an executive recruitment firm was hired to identify      master policies and eligibility requirements.”100
candidates to serve as CSS’s CEO and Chairman of
                                                         FHFA Directs the Enterprises to Restrict Lender-
the Board of Managers.97
                                                         Placed Insurance Practices
CSS will own the CSP currently being developed.
                                                         In November 2013, FHFA directed the Enterprises to
FHFA states that the CSP will consist of integrated
                                                         prohibit servicers from receiving reimbursement for
hardware architecture and software applications
                                                         expenses involving lender-placed insurance policies,
that the Enterprises will use—and private firms may
                                                         i.e., policies that involve imposing property insurance
use—to perform aspects of the securitization process.
                                                         on a property that lacks the coverage required by their
FHFA reported that the team that is building the
                                                         mortgage instruments.101
platform has been making progress in developing
the design, scope, and functional requirements for       In March 2013, FHFA issued a notice in the Federal
the CSP’s five modules—data acceptance, security         Register regarding lender-placed insurance. The
issuance, disclosure, master servicing, and bond         notice provided that the Enterprises would prohibit
administration.98                                        sellers and servicers from receiving payments for
                                                         placing coverage with particular insurance providers.
Mortgage Insurance                                       Additionally, the Enterprises would prohibit sellers
Overhaul of the Enterprises’ Mortgage Insurance          and servicers from receiving payments associated with
Master Policy Requirements                               an insurance provider ceding premiums to a reinsurer
                                                         owned or affiliated with the sellers or servicers.102
In December 2013, FHFA announced an overhaul of
the mortgage insurance master policy requirements        Requirements for Appraisal Management
for the Enterprises. The Agency claims the new           Companies
requirements will, among other things, facilitate
                                                         In March 2014, FHFA and five other federal agencies
timely and consistent claims processing. Additionally,
                                                         jointly issued a proposed rule that would implement
FHFA believes that these changes will result in
                                                         minimum requirements for state registration and
improvements such as requiring master policies to
                                                         supervision of appraisal management companies
support loss mitigation strategies that were developed
                                                         (AMCs). An AMC is an entity that serves as an
during the housing crisis; establishing specific time
                                                         intermediary between appraisers and lenders and
frames for processing claims, including requests for
                                                         provides appraisal management services.103


                                    Semiannual Report to the Congress • October 1, 2013–March 31, 2014       57
Under Dodd-Frank, the minimum requirements in             Guarantee Fees
the proposed rule would apply to states that elect        On January 8, 2014, FHFA directed the Enterprises
to establish an appraiser-certifying and -licensing       to delay implementation of planned increases in the
agency with the authority to register and supervise       guarantee fees that they charge for mortgages.107 The
AMCs. The proposed rule would not compel a state          base guarantee fee had been scheduled to rise by 10
to establish an AMC registration and supervision          basis points; the upfront guarantee fee grid was to
program, and there is no penalty imposed on a             have been updated to better align pricing with the
state that does not establish a regulatory structure      credit risk characteristics of the borrower; and the
for AMCs. Additionally, under the proposed rule,          upfront 25 basis point adverse market fee was to have
an AMC would be barred from providing appraisal           been eliminated except in New York, Florida, New
management services for federally related transactions    Jersey, and Connecticut.108
in a state that has not established such a regulatory
structure.104                                             When announcing the delay in implementation,
                                                          the FHFA Director said he wanted to conduct a
Appraisal Requirements for Higher-Priced                  thorough evaluation of the proposed increases and
Mortgages                                                 would give no less than 120 days’ notice before
                                                          implementing any changes.109
In December 2013, FHFA and five other federal
financial agencies jointly issued a final rule            The proposed fee increases were announced
exempting some higher-priced mortgage loans from          following FHFA’s A Strategic Plan for Enterprise
certain appraisal requirements. Mortgage loans are        Conservatorships, which called for gradually
considered higher priced if they are secured by a         contracting the Enterprises’ dominant presence in the
consumer’s home and have interest rates above a           marketplace while simplifying and shrinking their
certain threshold. The agencies explained that the        operations.110
exemptions are intended to save borrowers time
and money while still ensuring that the loans are         In July 2013, OIG released an evaluation report
financially sound. The appraisal requirements were        entitled FHFA’s Initiative to Reduce the Enterprises’
established as part of Dodd-Frank, which requires         Dominant Position in the Housing Finance System
creditors to obtain a written appraisal based on a        by Raising Gradually Their Guarantee Fees. OIG
physical visit to the home’s interior.105                 performed this evaluation to: (1) provide an
                                                          independent analysis of FHFA’s initiative to increase
The final rule provides that loans of $25,000             private-sector investment in mortgage credit risk
or less and some “streamlined” refinancings are           and reduce the Enterprises’ dominant position
exempt from the appraisal requirements, which             in housing finance through gradual increases in
took effect January 18, 2014. The requirements            guarantee fees, and (2) assess FHFA’s communication
involving manufactured homes will not take effect         and interaction with FHA on pricing initiatives.
until July 18, 2015, when loans secured by a new          OIG concluded that FHFA’s initiative to encourage
manufactured home and land will be exempt from            private-sector investment in mortgage credit risk
the requirement that the appraiser visit the home’s       and reduce the Enterprises’ dominant presence
interior. For loans secured by manufactured homes         in the housing finance system through guarantee
without land, creditors will be allowed to use other      fee increases has the potential to reduce taxpayer
valuation methods, such as third-party valuation          exposure to mortgage-related losses by spreading risk
services or “book values.”106                             to private-sector participants. However, the initiative

58    Federal Housing Finance Agency Office of Inspector General
faces trade-offs and external challenges that FHFA         Freddie Mac priced its second credit risk sharing
will have to address to help ensure success.111            transaction in November 2013, selling $630 million
                                                           in Structured Agency Credit Risk (STACR) securities
Loan Purchase Limits                                       notes, tied to a reference pool of single-family
In December 2013, FHFA sought public input on              mortgage loans with an outstanding unpaid principal
a proposal to reduce the maximum size of loans that        balance of $23.3 billion. Freddie Mac had previously
the Enterprises may purchase. The proposal would           sold $500 million in STACR notes in July.117 Like
reduce the statutory maximum loan limit for one-           the Fannie Mae C-deal notes, STACR notes transfer
unit properties by approximately 4%. In areas where        some credit risk to private investors. The notes are
the maximum is $417,000, the plan would reduce             unsecured and unguaranteed bonds issued by Freddie
the loan purchase limit to $400,000, and in areas          Mac, whose principal payments are determined by
where the current limit is $625,500, the new limit         the delinquency and principal payment experience
would be set at $600,000.112                               on a reference pool of mortgages.118 Freddie Mac also
                                                           completed a risk-sharing transaction in November
According to FHFA, lowering the Enterprises’ loan          by purchasing an insurance policy underwritten by
purchase limits would help to reduce the market            Arch Reinsurance Ltd. to cover up to $77.4 million
presence of the Enterprises, which is a key objective      of credit losses.119
of the Agency’s strategic plan for the conservatorships.
It also addresses President Obama’s August 2013            The Enterprises completed these risk-sharing
request that FHFA reduce the loan limits in order to       transactions to meet FHFA’s Conservatorship Strategic
shrink the government’s footprint in the mortgage          Plan: Performance Goals for 2013, which called on
market.113                                                 each Enterprise to test the viability of multiple types
                                                           of risk transfer transactions involving single-family
Risk Reduction Initiatives                                 mortgages.120

In October 2013, Fannie Mae completed its first risk- Lawsuits/Settlements
sharing transaction that provided mortgage insurance
coverage on a pool of more than $5 billion in single- FHFA Private-Label MBS Lawsuits
family mortgages.114 The Enterprise
                                                                      As of March 2014, FHFA had
also priced its first Connecticut
                                                                      recovered nearly $16 billion on
Avenue Securities (C-deals) series        FHFA has                    behalf of taxpayers in 2013 and
transaction—a $675 million note
                                                                      2014 through settlements with
offering. C-deal notes are unsecured      recovered nearly            financial institutions that sold
and unguaranteed bonds issued
                                                                      private-label securities to the
by Fannie Mae that transfer some          $16 billion                 Enterprises between 2005 and 2007
credit risk to private investors.115
                                                                      (see Figure 21, page 60). FHFA
The amount of periodic principal          through private-            had sued 18 institutions alleging
repayment is determined by the
                                          label securities            securities law violations, and in
performance of a reference pool of
                                                                      some cases, fraud.121
more than 112,000 single-family
mortgage loans with an outstanding        litigation.                 Three institutions reached
unpaid principal balance of                                           settlements during the fourth
$27 billion. 116



                                    Semiannual Report to the Congress • October 1, 2013–March 31, 2014         59
Figure 21. FHFA’s Private-Label Securities Settlements to Date
                                                                            Settlement          Settlement Announcement
                               Bank
                                                                             Amount                        Date
    General Electric Company                                                      $6.25 million       January 2013
    CitiGroup Inc.                                                                $250 million          May 2013
    UBS Americas Inc.                                                             $885 million          July 2013
    Wells Fargo Bank, N.A.a                                                    $335.23 million       September 2013
    JPMorgan Chase & Co.                                                             $4 billion       October 2013
    Ally Financial Inc.                                                           $475 million        October 2013
    Deutsche Bank AG                                                             $1.925 billion      December 2013
    Morgan Stanley                                                                $1.25 billion       February 2014
    Société Générale                                                              $122 million        February 2014
    Credit Suisse                                                                 $885 million         March 2014
    Bank of America Corp.                                                         $5.83 billion        March 2014
    Total                                                                        $15.96 billion
a
    The Wells Fargo Bank settlement is a non-litigation private-label securities settlement.




quarter of 2013: JPMorgan Chase & Co., which                          to a $1.25 billion settlement, and French bank
paid a $5.1 billion settlement, including $4 billion                  Société Générale agreed to pay $122 million in a
to address claims of alleged violations of state and                  settlement.124
federal securities laws in connection with private-label
residential mortgages; Deutsche Bank AG, which                        Enterprise Lawsuits Concerning the
agreed to pay $1.925 billion; and Ally Financial                      Conservatorships and the PSPAs
Inc., which agreed to pay $475 million. Earlier in                    Between June 2013 and February 2014, several
2013, three other institutions agreed to settlements:                 lawsuits were filed by Enterprise shareholders against
General Electric Company, CitiGroup Inc., and                         FHFA disputing the 2012 PSPA amendments. In
UBS Americas Inc. Further, Wells Fargo Bank,                          particular, the lawsuits challenge the net worth sweep
N.A., reached a non-litigation private-label securities               dividend provisions.125
settlement and agreed to pay $335.23 million.122

In the first quarter of 2014, additional settlements                  FHFA and GSE Performance and
were made. Bank of America Corp. reached an                           Accountability
agreement to pay approximately $5.83 billion to                       In order to assess FHFA’s and the GSEs’ performance,
settle cases involving Bank of America, Countrywide                   OIG reviews and analyzes FHFA’s strategic goals and
Financial, and Merrill Lynch. Bank of America                         accountability reports. For this period, FHFA released
now owns Countrywide and Merrill Lynch. The                           the 2013 Performance and Accountability Report and
agreement provides for an aggregate payment of                        the Progress Report on the Implementation of FHFA’s
approximately $9.33 billion by Bank of America that                   Strategic Plan for Enterprise Conservatorships. The key
includes litigation resolution, as well as a purchase of              results of these reports, as well as summaries of two
securities by Bank of America from the Enterprises.123                notable FHFA directives related to performance and
In addition, Swiss bank Credit Suisse agreed to pay                   accountability, are discussed below.
$885 million in a settlement, Morgan Stanley agreed


60       Federal Housing Finance Agency Office of Inspector General
FHFA’s 2013 Performance and Accountability               •	 FHFA and the Enterprises have made progress
Report                                                      in the development and initial testing of the
FHFA’s 2013 Performance and Accountability Report           CSP; however, challenges remain before full
discusses the Agency’s accomplishments, challenges,         implementation, including necessary changes
and ongoing initiatives. The following is a list of         to the Enterprises’ technology and business
accomplishments FHFA reported for the fiscal year:          processes;

•	 Provided results and conclusions of 2012              •	 The Enterprises have formally established CSS
   examinations of the Enterprises. The Enterprises         as the joint venture that will own the CSP and
   were both deemed “critical concerns” but                 related business and operational functions;
   generated positive annual income for the first        •	 The Enterprises have each executed multiple
   time since 2006.                                         risk-sharing transactions totaling more than
•	 Established CSS, which will manage the                   $30 billion;
   development of the CSP and associated data and        •	 The Enterprises have been gradually reducing the
   legal infrastructure.                                    less liquid portions of their retained portfolios;
•	 Achieved FHFA 2013 Scorecard goals, including            and
   the Enterprises’ execution of multiple risk-sharing   •	 The Enterprises have completed a review of
   transactions.                                            pre-conservatorship loan acquisitions and have
•	 Worked with the Enterprises to complete more             recovered more than $18 billion in restitution
   than 2.97 million foreclosure prevention actions         for breaches of selling representations and
   and launched a national public awareness                 warranties.127
   campaign to educate homeowners about the
                                                         Termination of the Enterprises’ Pension Plans
   Home Affordable Refinance Program to increase
   refinancings.                                         In October 2013, FHFA directed the Enterprises
                                                         to terminate their defined benefit retirement plans
•	 Achieved third consecutive year of profitability
                                                         effective December 31, 2013. The plans were
   for all 12 FHLBanks in fiscal year 2013.126
                                                         previously closed to new entrants. FHFA explained
                                                         that it terminated the pension plans to reduce risk to
FHFA’s Progress Report on the Implementation of
                                                         the Enterprises and to help conserve the Enterprises’
Its Strategic Plan for Enterprise Conservatorships
                                                         assets.128
In November 2013, FHFA released a progress report
on the implementation of initiatives outlined in A
Strategic Plan for Enterprise Conservatorships and the
Conservatorship Strategic Plan: Performance Goals for
2013. FHFA summarized the progress that has been
made including:




                                    Semiannual Report to the Congress • October 1, 2013–March 31, 2014      61
Dodd-Frank Stress Tests

In November 2013, FHFA sent orders to the GSEs
requiring them to report on the results of annual
stress tests to determine whether the entities have
the capital necessary to absorb losses as a result of
adverse economic conditions. Dodd-Frank requires
these tests annually for financial companies that have
total consolidated assets of $10 billion or more and
are regulated by a primary federal financial regulatory
agency.129

The GSEs are required to submit the results of stress
tests based on three scenarios: baseline, adverse, and
severely adverse. The Enterprises and FHLBanks
are required to publish their results by April 30,
2014, and July 30, 2014, respectively. For 2013, the
Enterprises were also required to conduct additional
FHFA-required stress tests—the results of which will
be released in the second quarter of 2014.130




62    Federal Housing Finance Agency Office of Inspector General
Semiannual Report to the Congress • October 1, 2013–March 31, 2014   63
Appendices

Appendix A:                                                shareholders’ equity, loss reserves, and retained
                                                           earnings. Bank capitalization plays a critical role in
Glossary and Acronyms                                      the safety and soundness of individual banks and the
                                                           banking system. In most cases, federal regulators set
                                                           requirements for adequate bank capitalization.
Glossary of Terms
                                                           Carryforwards: A provision of tax law that allows
Alternative A: A classification of mortgages in which
                                                           current losses or certain tax credits to be utilized in
the risk profile falls between prime and subprime.         future tax returns.
Alternative A (also known as Alt-A) mortgages are          Collateral: Assets used as security for a loan that can
generally considered higher risk than prime due to         be seized by the lender if the borrower fails to repay
factors that may include higher loan-to-value and          the loan.
debt-to-income ratios or limited documentation of
the borrower’s income.                                     Commercial Banks: Commercial banks are
                                                           establishments primarily engaged in accepting
Bankruptcy: A legal procedure for resolving debt           demand and other deposits and making commercial,
problems of individuals and businesses; specifically, a    industrial, and consumer loans. Commercial banks
case filed under one of the chapters of Title 11 of the    provide significant services in originating, servicing,
U.S. Code.                                                 and enhancing the liquidity and quality of credit that
Basis Points: A hundredth of 1 percentage point.
                                                           is ultimately funded elsewhere.
For example, 1 basis point is equivalent to 1/100 of 1     Conforming Loan Limit: A conforming loan is a
percentage point.                                          conventional loan with an origination balance that
Bonds: Obligations by a borrower to eventually
                                                           does not exceed a specified amount (i.e., conforming
repay money obtained from a lender. The buyer of           loan limit). The Enterprises are restricted by law to
the bond (or “bondholder”) is entitled to receive          purchasing conforming loans, with the loan limits
payments from the borrower.                                varying by unit size and region, e.g., high-cost areas.
                                                           The loan limits for 2014 remain unchanged from
Capital Gain (Loss): When a capital asset (e.g.,           2013. For 2014, the maximum general loan limit for
stocks or bonds held as investments) is sold, the          a single-family one-unit dwelling is $417,000, while
difference between the amount paid for the asset           the maximum high-cost area loan limit for a single-
and the amount it is sold for is a capital gain or loss.   family one-unit dwelling is $625,500.
Capital gains occur when the asset sells for more than
                                                           Conservatorship: Conservatorship is a legal
paid, while capital losses occur when the asset is sold
for less than the purchase price.                          procedure for the management of financial
                                                           institutions for an interim period during which the
Capitalization: In the context of bank supervision,        institution’s conservator assumes responsibility for
capitalization refers to the funds a bank holds            operating the institution and conserving its assets.
as a buffer against unexpected losses. It includes         Under the Housing and Economic Recovery Act of


64    Federal Housing Finance Agency Office of Inspector General
2008, the Enterprises entered into conservatorships        something at a future date. They may be used to
overseen by FHFA. As conservator, FHFA has                 hedge interest rate or other risks related to holding a
undertaken to preserve and conserve the assets of the      mortgage.
Enterprises and restore them to safety and soundness.
                                                           Derivative Gains (Losses): The Enterprises acquire
FHFA also has assumed the powers of the boards of
                                                           and guarantee primarily longer-term mortgages and
directors, officers, and shareholders; however, the day-
                                                           securities that are funded with debt instruments. The
to-day operational decision making of each company
                                                           companies manage the interest rate risk associated
is delegated by FHFA to the Enterprises’ existing
                                                           with these investments and funding activities with
management.
                                                           derivative agreements. The gains (losses) on derivative
Credit-Related Income (Expense): Comprised of              agreements are caused by changes in interest rates
foreclosed property income (expense) and the benefit       that, in turn, cause a net increase (decrease) in the fair
(provision) for credit losses.                             value of these agreements.

Credit Unions: Member-owned, not-for-profit                Dodd-Frank Wall Street Reform and Consumer
financial cooperatives that provide savings, credit,       Protection Act of 2010: Legislation that intends to
and other financial services to their members. Credit      promote the financial stability of the United States
unions pool their members’ savings deposits and            by improving accountability and transparency in the
shares to finance their own loan portfolios rather than    financial system, ending “too big to fail,” protecting
rely on outside capital. Members benefit from higher       the American taxpayer by ending bailouts, and
returns on savings, lower rates on loans, and fewer        protecting consumers from abusive financial services
fees on average.                                           practices.

Default: Occurs when a mortgagor misses one or             Emergency Economic Stabilization Act of 2008:
more payments.                                             Legislation that authorizes Treasury to undertake
                                                           specific measures to provide stability and prevent
Deferred Tax Assets: Deferred tax assets are
                                                           disruption in the financial system and the economy.
recognized for temporary differences that will result      It also provides funds to preserve homeownership.
in deductible amounts and for carryforwards. For
example, a temporary difference is created between         Fannie Mae: A federally chartered corporation that
the reported amount and the tax basis of a liability       purchases residential mortgages and pools them into
for estimated expenses if, for tax purposes, those         securities that are sold to investors; by purchasing
estimated expenses are not deductible until a future       mortgages, Fannie Mae supplies funds to lenders so
year.                                                      they may make loans to homebuyers.

Derivatives: A financial contract whose value              Federal Home Loan Banks: The FHLBanks are
depends on that of another asset, such as a stock          12 regional cooperative banks that U.S. lending
or bond. A derivative contract is, essentially, an         institutions use to finance housing and economic
agreement providing parties to the agreement with          development in their communities. Created by
the obligation or the choice to buy, sell, or exchange     Congress, the FHLBanks have been the largest


                                    Semiannual Report to the Congress • October 1, 2013–March 31, 2014           65
source of funding for community lending for                 Guarantee: A pledge to investors that the guarantor
eight decades. The FHLBanks provide loans (or               will bear the default risk on a pool of loans or other
“advances”) to their member banks but do not lend           collateral.
directly to individual borrowers.
                                                            Hedging: The practice of taking an additional step,
Federal Housing Administration: Part of HUD,                such as buying or selling a derivative, to offset certain
FHA insures residential mortgages made by approved          risks associated with holding a particular investment,
lenders against payment losses. It is the largest insurer   such as MBS.
of mortgages in the world, insuring over 34 million
                                                            Held-to-Maturity Security: A debt security
properties since its inception in 1934.
                                                            (obligation or liability) that management intends to
Foreclosure: A legal process used by a lender to            hold to its maturity or payment date and whose cash
obtain possession of a mortgaged property in order to       value is not needed until that date.
repay part or all of the debt.
                                                            Housing and Economic Recovery Act of 2008:
Freddie Mac: A federally chartered corporation that         Legislation that establishes OIG and FHFA, which
purchases residential mortgages, pools them into            oversee the GSEs’ operations. HERA also expanded
securities, and sells them to investors. By purchasing      Treasury’s authority to provide financial support to
mortgages, Freddie Mac supplies funds to lenders so         the GSEs.
they make loans to homebuyers.
                                                            Implied Guarantee: The assumption, prevalent in
Ginnie Mae: A government-owned corporation                  the financial markets, that the federal government
within HUD. Ginnie Mae guarantees investors the             will cover Enterprise debt obligations.
timely payment of principal and interest on privately
                                                            Inspector General Act of 1978: Legislation that
issued MBS backed by pools of government-insured
                                                            authorizes establishment of offices of inspectors
and -guaranteed mortgages.
                                                            general, “independent and objective units” within
Government-Sponsored Enterprises: Business                  federal agencies, that: (1) conduct and supervise
organizations chartered and sponsored by the federal        audits and investigations relating to the programs and
government.                                                 operations of their agencies; (2) provide leadership
                                                            and coordination and recommend policies for
Government-Sponsored Enterprise Mortgage-
                                                            activities designed to promote economy, efficiency,
Backed Securities Purchase Facility: The
                                                            and effectiveness in the administration of agency
function of the GSE MBS Purchase Facility was
                                                            programs and to prevent and detect fraud, waste,
to help improve the availability of mortgage credit
                                                            or abuse in such programs and operations; and
to American homebuyers and mitigate pressures
                                                            (3) provide a means for keeping the head of the
on mortgage rates. To promote the stability of the
                                                            agency and Congress fully and currently informed
mortgage market, Treasury purchased GSE MBS in
                                                            about problems and deficiencies relating to the
the secondary market. By purchasing these securities,
                                                            administration of such programs and operations and
Treasury sought to broaden access to mortgage
                                                            the necessity for and progress of corrective action.
funding for current and prospective homeowners, as
well as to promote market stability.                        Inspector General Reform Act of 2008:
                                                            Legislation that amends the Inspector General Act to
                                                            enhance the independence of inspectors general and


66    Federal Housing Finance Agency Office of Inspector General
to create the Council of the Inspectors General on          loan-to-value (also known as LTV), the less cash a
Integrity and Efficiency.                                   borrower is required to pay as down payment.

Insurance Company: A company whose primary                  Mortgage-Backed Securities: MBS are debt
and predominant business activity is the writing            securities that represent interests in the cash flows—
of insurance and issuing or underwriting “covered           anticipated principal and interest payments—from
products.”                                                  pools of mortgage loans, most commonly on
                                                            residential property.
Interest Rate Swap: An interest rate swap is
an agreement in which two parties make interest             Operational Risk: Exposure to loss resulting from
payments to each other for a set period based upon          inadequate or failed internal processes, people, and
a notional principal. The notional principal is only        systems or from external events (including legal
used to calculate the interest payments; no risk is         events).
attached to it. Interest rate swaps commonly involve
                                                            Options: Contracts that give the buyer the right, but
exchanging payments based on a fixed interest rate
                                                            not the obligation, to buy or sell a specified quantity
for payments based on a floating rate (e.g., London
                                                            of a commodity or other instrument at a specific
Interbank Offered Rate). The fixed rate is known as
                                                            price within a specified period of time, regardless of
the swap rate.
                                                            the market price of that instrument.
Internal Controls: Internal controls are an integral
                                                            Preferred Stock: A security that usually pays a fixed
component of an organization’s management that
                                                            dividend and gives the holder a claim on corporate
provide reasonable assurance that the following
                                                            earnings and assets superior to that of holders of
objectives are achieved: (1) effectiveness and efficiency
                                                            common stock but inferior to that of investors in the
of operations, (2) reliability of financial reports, and
                                                            corporation’s debt securities.
(3) compliance with applicable laws and regulations.
Internal controls relate to management’s plans,             Private-Label Mortgage-Backed Securities: MBS
methods, and procedures used to meet its mission,           issued or guaranteed by entities other than GSEs or
goals, and objectives and include the processes and         federal government agencies. They do not carry an
procedures for planning, organizing, directing, and         explicit or implicit government guarantee, and the
controlling program operations as well as the systems       private-label MBS investor bears the risk of losses on
for measuring, reporting, and monitoring program            its investment.
performance.
                                                            Real Estate Owned: Foreclosed homes owned by
Joint and Several Liability: The concept of joint           government agencies or financial institutions, such as
and several liability provides that each member in          the Enterprises or real estate investors. REO homes
a group is responsible for the debts of all in that         represent collateral seized to satisfy unpaid mortgage
group. In the case of the FHLBanks, if any individual       loans. The investor or its representative then must sell
FHLBank were unable to pay a creditor, the other            the property on its own.
11—or any 1 or more of them—would be required
to step in and cover that debt.                             Securitization: A process whereby a financial
                                                            institution assembles pools of income-producing
Loan-to-Value: A percentage calculated by dividing          assets (such as loans) and then sells securities
the amount borrowed by the price or appraised               representing an interest in the assets’ cash flows to
value of the home to be purchased; the higher the           investors.

                                     Semiannual Report to the Congress • October 1, 2013–March 31, 2014             67
Securitization Platform: A mechanism that                    Swaption: An option on a swap that gives the
connects capital market investors to borrowers by            holder the right, but not the obligation, to enter, for
bundling mortgages into securities and tracking loan         example, into an interest rate swap as either the payer
payments.                                                    or the receiver of the fixed side of the swap.

Senior Preferred Stock Purchase Agreements:                  Thrift: A financial institution that ordinarily possesses
Entered into at the time the conservatorships were           the same depository, credit, financial intermediary,
created, the PSPAs authorize the Enterprises to              and account transactional functions as a bank but
request and obtain funds from Treasury, among other          that is chiefly organized and primarily operates to
matters. Under the PSPAs, the Enterprises agreed             promote savings and home mortgage lending rather
to consult with Treasury concerning a variety of             than commercial lending.
significant business activities, capital stock issuance,
                                                             Underwater: Term used to describe situations in
dividend payments, ending the conservatorships,
                                                             which the homeowner’s equity is below zero (i.e., the
transferring assets, and awarding executive
                                                             home is worth less than the balance of the loan(s) it
compensation.
                                                             secures).
Servicers: Servicers act as intermediaries between
                                                             Underwriting: The process of analyzing a loan
mortgage borrowers and owners of the loans, such
                                                             application to determine the amount of risk
as the Enterprises or MBS investors. They collect the
                                                             involved in making the loan; it includes a review of
homeowners’ mortgage payments, remit them to the
                                                             the potential borrower’s credit worthiness and an
owners of the loans, maintain appropriate records,
                                                             assessment of the property value.
and address delinquencies or defaults on behalf
of the owners of the loans. For their services, they         Valuation Allowance: Method of lowering or raising
typically receive a percentage of the unpaid principal       an object’s current value by adjusting its acquisition
balance of the mortgage loans they service. The recent       cost to reflect its market value by offsetting another
financial crisis has put more emphasis on servicers’         account. A valuation allowance is recognized if, based
handling of defaults, modifications, short sales, and        on the weight of available evidence, it is more likely
foreclosures, in addition to their more traditional          than not that some portion or all of a deferred tax
duty of collecting and distributing monthly mortgage         asset will not be realized.
payments.

Short Sale: The sale of a mortgaged property for less
than what is owed on the mortgage.

Straw Buyer: A straw buyer is 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 may be paid
a fee for their involvement in purchasing a property
and usually never intend to own or occupy the
property.



68    Federal Housing Finance Agency Office of Inspector General
References                                               Census Bureau, 52211 Commercial Banking.
                                                         Accessed: March 17, 2014, at www.census.gov/
Federal Deposit Insurance Corporation, FDIC              econ/census02/naics/sector52/52211.htm.
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                                                         KeyTopics/Pages/Conforming-Loan-Limit.aspx.
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smm/a_f.htm#B.                                           Conservator of Fannie Mae and Freddie Mac.
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Federal Reserve Bank of San Francisco, What              Suspension of Capital Classifications During
is bank capital and what are the levels or tiers of      Conservatorship: Discloses Minimum and Risk-
capital? (September 2001). Accessed: March 17,           Based Capital Classifications as Undercapitalized
2014, at www.frbsf.org/education/activities/             for the Second Quarter 2008 for Fannie Mae and
drecon/2001/0109.html.                                   Freddie Mac (October 9, 2008). Accessed: April
Government Accountability Office, The Cooperative        24, 2014, at www.fhfa.gov/Media/PublicAffairs/
Model as a Potential Component of Structural Reform      Pages/FHFA-Announces-Suspension-of-Capital-
Options for Fannie Mae and Freddie Mac, GAO-11-          Classifications-During-Conservatorship-and-
33R (November 15, 2010). Accessed: March 17,             Discloses-Minimum-and-RiskBased-Cap.aspx.
2014, at www.gao.gov/new.items/d1133r.pdf.               Fannie Mae, “Credit-Related (Income) Expense,”
New York State Society of Certified Public               Form 10-K for the Fiscal Year Ended December 31,
Accountants, Glossary: Carryovers. Accessed: March       2013, at 78. Accessed: March 17, 2014, at www.
17, 2014, at www.nysscpa.org/glossary/term/153.          fanniemae.com/resources/file/ir/pdf/quarterly-
                                                         annual-results/2013/10k_2013.pdf.
Federal Home Loan Bank of Dallas, Glossary of
Common Terms. Accessed: March 17, 2014, at               World Council of Credit Unions, What is a Credit
www.fhlb.com/Glossary.html#C.                            Union? Accessed: March 17, 2014, at www.woccu.
                                                         org/about/creditunion.

                                    Semiannual Report to the Congress • October 1, 2013–March 31, 2014   69
Office of the Special Inspector General for the          Freddie Mac, About Freddie Mac. Accessed: March
Troubled Asset Relief Program, “Glossary of Terms,”      17, 2014, at www.freddiemac.com/corporate/
“Genesis and Passage of EESA,” SIGTARP: Initial          about_freddie.html.
Report to the Congress, at 111, 29, 114 (February 6,
                                                         Freddie Mac, “Who Issues Mortgage Securities?,”
2009). Accessed: March 17, 2014, at www.sigtarp.
                                                         “How Safe are Mortgage Securities?,” An Investor’s
gov/Quarterly%20Reports/SIGTARP_Initial_
                                                         Guide to Pass~Through and Collateralized Mortgage
Report_to_the_Congress.pdf.
                                                         Securities: Long-term income paid monthly, quarterly
Financial Accounting Standards Board, Summary            or semiannually, at 2, 12. Accessed: March 17, 2014,
of Statement No. 109. Accessed: March 17, 2014, at       at www.freddiemac.com/mbs/docs/about_MBS.pdf.
www.fasb.org/summary/stsum109.shtml.
                                                         W. Scott Frame and Lawrence J. White, Regulating
Department of Housing and Urban Development,             Housing GSEs: Thoughts on Institutional Structure
Glossary. Accessed: March 17, 2014, at http://portal.    and Authorities, Federal Reserve Bank of Atlanta:
hud.gov/hudportal/HUD?src=/program_offices/              Economic Review, Vol. Q2 2004, at 87 (2004).
housing/sfh/buying/glossary.                             Accessed: March 17, 2014, at www.frbatlanta.org/
                                                         filelegacydocs/er04_framewhite.pdf.
Federal Housing Finance Agency Office of Inspector
General, “Introduction,” FHFA’s Oversight of             Department of the Treasury, “Purpose of Program,”
Derivative Counterparty Risk, ESR-2014-001, at 3,        Housing Government Sponsored Enterprise Programs,
4 (November 20, 2013). Accessed: April 9, 2014, at       at 88. Accessed: March 17, 2014, at www.treasury.
www.fhfaoig.gov/Content/Files/ESR-2014-001.pdf.          gov/about/budget-performance/budget-in-brief/
                                                         Documents/Housing%20GSE%20FY11%20508.pdf.
Freddie Mac, “Derivative Gains (Losses),” Form
10-K for the Fiscal Year Ended December 31, 2011,        Freddie Mac, Glossary of Finance and Economic Terms.
at 90, 91. Accessed: March 17, 2014, at www.             Accessed: March 17, 2014, at www.freddiemac.com/
freddiemac.com/investors/er/pdf/10k_030912.pdf.          smm/g_m.htm.

Dodd-Frank Wall Street Reform and Consumer               NASDAQ, Financial Glossary: Hedging. Accessed:
Protection Act of 2010, Pub. L. No. 111-203.             March 17, 2014, at www.nasdaq.com/investing/
                                                         glossary/h/hedging.
Emergency Economic Stabilization Act of 2008,
Pub. L. No. 110-343.                                     New York State Society of Certified Public
                                                         Accountants, Glossary: Held-to-Maturity Security.
Federal Home Loan Banks, The Federal Home Loan
                                                         Accessed: March 17, 2014, at www.nysscpa.org/
Banks. Accessed: March 17, 2014, at www.fhlbanks.
                                                         glossary/term/832.
com/assets/pdfs/sidebar/FHLBanksWhitePaper.pdf.
                                                         Government Accountability Office, Management
Department of Housing and Urban Development,
                                                         Report: Opportunities for Improvements in FHFA’s
The Federal Housing Administration (FHA).
                                                         Internal Controls and Accounting Procedures, GAO-
Accessed: March 17, 2014, at http://portal.hud.gov/
                                                         10-587R, at 1 (June 3, 2010). Accessed: March 17,
hudportal/HUD?src=/program_offices/housing/
                                                         2014, at www.gao.gov/assets/100/96782.pdf.
fhahistory.




70   Federal Housing Finance Agency Office of Inspector General
Congressional Budget Office, Written Testimony            Freddie Mac, Glossary of Finance and Economic Terms.
of Douglas Holtz-Eakin, Director of CBO,                  Accessed: March 17, 2014, at www.freddiemac.com/
Regulation of the Housing Government-Sponsored            smm/n_r.htm#O.
Enterprises (October 23, 2003). Accessed: March 17,
                                                          Commodity Futures Trading Commission, CFTC
2014, at www.cbo.gov/sites/default/files/cbofiles/
                                                          Glossary. Accessed: March 17, 2014, at www.
ftpdocs/46xx/doc4642/10-23-gse.pdf.
                                                          cftc.gov/consumerprotection/educationcenter/
Inspector General Act of 1978, Pub. L. No. 95-452.        cftcglossary/glossary_o.

Inspector General Reform Act of 2008, Pub. L. No.         Office of the Special Inspector General for
110-409.                                                  the Troubled Asset Relief Program, “Recent
                                                          Developments,” SIGTARP: Quarterly Report to
Investment Company Act of 1940, Pub. L. No.
                                                          Congress, at 150 (October 26, 2010). Accessed:
76-768.
                                                          March 17, 2014, at www.sigtarp.gov/Quarterly%20
Department of the Treasury Financial Crimes               Reports/October2010_Quarterly_Report_to_
Enforcement Network, Frequently Asked Questions:          Congress.pdf.
Anti-Money Laundering Program and Suspicious
                                                          Freddie Mac, Our Business: Single-Family Credit
Activity Reporting Requirements for Insurance
                                                          Guarantee Business. Accessed: March 17, 2014, at
Companies, FIN-2008-G004, at 2 (March 20,
                                                          www.freddiemac.com/corporate/company_profile/
2008). Accessed: March 17, 2014, at www.fincen.
                                                          our_business/index.html.
gov/statutes_regs/guidance/pdf/fin-2008-g004.pdf.
                                                          Federal Housing Finance Agency, “Introduction,”
Reuters, Financial Glossary: Interest Rate Swap.
                                                          Building a New Infrastructure for the Secondary
Accessed: March 17, 2014, at http://glossary.reuters.
                                                          Mortgage Market, at 4 (October 4, 2012).
com/index.php?title=Interest_Rate_Swap.
                                                          Accessed: April 24, 2014, at www.fhfa.
Government Accountability Office, “Introduction,”         gov/PolicyProgramsResearch/Research/
“Internal Control Standards,” Internal Control:           PaperDocuments/FHFA_Securitization_White_
Standards for Internal Control in the Federal             Paper_N508L.pdf.
Government, GAO/AIMD-00-21.3.1, at 4, 6, 8
                                                          Federal Housing Finance Agency, Senior
(November 1999). Accessed: March 17, 2014, at
                                                          Preferred Stock Purchase Agreements.
www.gao.gov/special.pubs/ai00021p.pdf.
                                                          Accessed: April 24, 2014, at www.fhfa.gov/
Arizona State Legislature, 44-141. Joint and              senior-preferred-stock-purchase-agreements.
several liability of parties to joint obligations.
                                                          Federal Housing Finance Agency Office of
Accessed: March 17, 2014, at www.azleg.gov/
                                                          Inspector General, “Treasury Agreements,” White
FormatDocument.asp?inDoc=/ars/44/00141.
                                                          Paper: FHFA-OIG’s Current Assessment of FHFA’s
htm&Title=44&DocType=ARS.
                                                          Conservatorships of Fannie Mae and Freddie Mac,
Securities and Exchange Commission, Mortgage-             WPR-2012-001, at 19 (March 28, 2012). Accessed:
Backed Securities. Accessed: March 17, 2014, at           April 24, 2014, at www.fhfaoig.gov/Content/Files/
www.sec.gov/answers/mortgagesecurities.htm.               WPR-2012-001.pdf.




                                     Semiannual Report to the Congress • October 1, 2013–March 31, 2014   71
Letter from David H. Stevens, Assistant Secretary         Federal Deposit Insurance Corporation, Resolutions
of Housing, Department of Housing and Urban               Handbook: Glossary, at 98. Accessed: March
Development, to All Approved Mortgagees, FHA              17, 2014, at www.fdic.gov/bank/historical/
Refinance of Borrowers in Negative Equity Positions       reshandbook/glossary.pdf.
(August 6, 2010). Accessed: March 17, 2014,
                                                          Office of the Special Inspector General for the
at www.hud.gov/offices/adm/hudclips/letters/
                                                          Troubled Asset Relief Program, “Homeowner
mortgagee/files/10-23ml.pdf.
                                                          Support Programs,” SIGTARP: Quarterly Report
Freddie Mac, Glossary of Finance and Economic Terms.      to Congress, at 65 (January 26, 2011). Accessed:
Accessed: March 17, 2014, at www.freddiemac.com/          March 17, 2014, at www.sigtarp.gov/Quarterly%20
smm/s_z.htm#S.                                            Reports/January2011_Quarterly_Report_to_
                                                          Congress.pdf.
Freddie Mac, “Straw Buyers,” Shut the Door on
Mortgage Fraud: Information on How to Avoid               New York State Society of Certified Public
Mortgage Fraud, at 13, 15. Accessed: March 17,            Accountants, Glossary: Valuation Allowance.
2014, at www.freddiemac.com/singlefamily/                 Accessed: March 17, 2014, at www.nysscpa.org/
preventfraud/toolkit.html (scroll to “Shut the Door       glossary/term/645.
on Mortgage Fraud,” then click “English [PPT]”
under “Educational Presentation: Avoid Mortgage
Fraud,” then download the Power Point file).

Reuters, Financial Glossary: Swaption. Accessed:
March 17, 2014, at http://glossary.reuters.com/
index.php?title=Swaption.




72    Federal Housing Finance Agency Office of Inspector General
Acronyms and Abbreviations                             FHLBank	     Federal Home Loan Bank System
                                                       System	
Agency	      Federal Housing Finance Agency            FIRREA	      Financial Institutions Reform, 		
                                                       	            Recovery and Enforcement Act
AMC	         Appraisal Management Company
                                                       	            of 1989
ATSC	        Advanced Technology Systems, Inc.
                                                       FISMA	       Federal Information Security
Blue Book	 Quality Standards for Inspection and 	      	            Management Act of 2002
	Evaluation
                                                       FSOC	        Financial Stability Oversight Council
C-deals	     Connecticut Avenue Securities
                                                       GAGAS	       Generally Accepted Government 		
Charge 	     Government Charge Card Abuse              	            Auditing Standards
Card Act	    Prevention Act of 2012
                                                       GAO	         Government Accountability Office
CIGFO	       Council of Inspectors General on 		
                                                       GSEs	        Government-Sponsored Enterprises
	            Financial Oversight
                                                       HAFA	
                                                        Home Affordable Foreclosure 		
CIGIE	       Council of the Inspectors General on 	
                                                       	Alternatives
	            Integrity and Efficiency
                                                       HERA	        Housing and Economic Recovery Act 	
CSP	         Common Securitization Platform
                                                       	            of 2008
CSS	         Common Securitization Solutions, LLC
                                                       HUD	
                                                        Department of Housing and Urban 	
DHMG	        Division of Housing Mission and Goals     	Development

Dodd-Frank	 Dodd-Frank Wall Street Reform and 	        HUD-OIG	
                                                         Department of Housing and Urban 	
	            Consumer Protection Act of 2010           	 Development Office of Inspector 		
                                                       	General
DOJ	         Department of Justice
                                                       IPIA	
                                                        Improper Payments Information Act of 	
Enterprises	 Fannie Mae and Freddie Mac                	2002
EO	          Executive Office                          IRS-CI	      IRS-Criminal Investigation
FAR	         Federal Acquisition Regulation            LTV	Loan-to-Value
FCC OIG	     Federal Communications Commission 	       MBS	         Mortgage-Backed Securities
	            Office of Inspector General
                                                       MCC	         Merchant Category Code
FDIC	
 Federal Deposit Insurance 		
	Corporation                                           MSR	         Mortgage Servicing Rights

FDIC-OIG	    Federal Deposit Insurance Corporation 	   OA	          Office of Audits
	            Office of Inspector General
                                                       OAd	         Office of Administration
FHA	         Federal Housing Administration
                                                       OC	          Office of Counsel
FHFA	        Federal Housing Finance Agency
                                                       OE	          Office of Evaluations
FHLBanks	 Federal Home Loan Banks
                                                       OI	          Office of Investigations



                                  Semiannual Report to the Congress • October 1, 2013–March 31, 2014    73
OIG	          Federal Housing Finance Agency 		            REO	        Real Estate Owned
	             Office of Inspector General
                                                           RMBS	       Residential Mortgage-Backed Securities
OMB	          Office of Management and Budget
                                                           SAI	        Servicing Alignment Initiative
OQA	          Office of Quality Assurance
                                                           SEC 	       Securities and Exchange Commission
OR	           Office of Oversight and Review
                                                           SIGTARP	    Office of the Special Inspector General 	
PAR	          Performance and Accountability Report        	           for the Troubled Asset Relief Program
PFCRA	
 Program Fraud Civil Remedies Act of 	                     STACR	      Structured Agency Credit Risk
	1986
                                                           Treasury	   Department of the Treasury
PII	          Personal Identifying Information
                                                           USPIS	      Postal Inspection Service
PSPAs	
 Senior Preferred Stock Purchase 		
	Agreements                                                Yellow	     Government Auditing Standards
                                                           Book




74     Federal Housing Finance Agency Office of Inspector General
Semiannual Report to the Congress • October 1, 2013–March 31, 2014   75
Appendix B:                                               Agency’s operations and aid in the prevention and
                                                          detection of fraud, waste, or abuse. Figure 22 (see
OIG Recommendations                                       page 77) summarizes OIG’s formal recommendations
                                                          that were made, pending, or closed during the
In accordance with the provisions of the Inspector        reporting period. Figure 23 (see page 98) lists OIG’s
General Act, one of the key duties of OIG is to           audit and evaluation reports for which all of the
provide to FHFA recommendations that promote              recommendations were closed in prior semiannual
the transparency, efficiency, and effectiveness of the    periods.




76    Federal Housing Finance Agency Office of Inspector General
Figure 22. Summary of OIG Recommendations
       No.                     Recommendation                          Report                  Status
  AUD-2014-012-1   FHFA should direct the Enterprises to       FHFA Oversight of      Recommendation
                   jointly assess the effectiveness of their   Enterprise Controls    partially agreed to by
                   pre-foreclosure property inspection         Over Pre-Foreclosure   FHFA; implementation
                   processes. OIG identified several           Property Inspections   of recommendation
                   specific areas to review as part of the                            pending.
                   assessment, including: (1) identifying
                   pre-foreclosure property inspection
                   risk and objectives, (2) identifying
                   cost-effective control alternatives
                   for achieving the objective(s),
                   and (3) recommending inspection
                   standards and quality controls with
                   regard to the content and frequency of
                   inspections.

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

  AUD-2014-010-1   FHFA should enhance travel and travel       FHFA’s Use of          Recommendation
                   card controls to improve compliance         Government Travel      agreed to by FHFA;
                   with applicable regulations, policies,      Cards                  implementation of
                   and procedures by notifying employees                              recommendation
                   that all travel should have properly                               pending.
                   approved authorizations prior to
                   commencing travel.

  AUD-2014-010-2   FHFA should enhance travel and travel       FHFA’s Use of          Recommendation
                   card controls to improve compliance         Government Travel      agreed to by FHFA;
                   with applicable regulations, policies,      Cards                  implementation of
                   and procedures by notifying employees                              recommendation
                   to complete travel vouchers in a timely                            pending.
                   manner upon completion of travel.

  AUD-2014-010-3   FHFA should enhance travel and travel       FHFA’s Use of          Recommendation
                   card controls to improve compliance         Government Travel      agreed to by FHFA;
                   with applicable regulations, policies,      Cards                  implementation of
                   and procedures by performing a                                     recommendation
                   periodic review of travel cardholder                               pending.
                   ATM limits.




                              Semiannual Report to the Congress • October 1, 2013–March 31, 2014           77
      No.                         Recommendation                          Report                Status
 AUD-2014-010-4        FHFA should enhance travel and travel      FHFA’s Use of         Recommendation
                       card controls to improve compliance        Government Travel     agreed to by FHFA;
                       with applicable regulations, policies,     Cards                 implementation of
                       and procedures by notifying employees                            recommendation
                       that they should obtain cash advances                            pending.
                       either during or immediately preceding
                       travel.

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

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

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




78   Federal Housing Finance Agency Office of Inspector General
     No.                     Recommendation                         Report                    Status
AUD-2014-008-1   FHFA should perform supervisory            FHFA’s Oversight of       Recommendation
                 review and follow-up to ensure that        the Enterprises’ Use of   agreed to by FHFA;
                 Fannie Mae takes action to change the      Appraisal Data Before     implementation of
                 portal message type from automatic         They Buy Single-Family    recommendation
                 override to manual override or fatal       Mortgages                 pending.
                 for the 25 proprietary messages
                 related to underwriting requirements,
                 which will require lenders to take
                 action to address the appraisal-
                 related messages warning of potential
                 underwriting violations prior to
                 delivering the loans.

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

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

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

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




                             Semiannual Report to the Congress • October 1, 2013–March 31, 2014            79
      No.                         Recommendation                          Report                    Status
 AUD-2014-008-6        FHFA should perform supervisory            FHFA’s Oversight of       Recommendation
                       review of both Enterprises to ensure       the Enterprises’ Use of   agreed to by FHFA;
                       that the portal tests whether              Appraisal Data Before     implementation of
                       appraisers are licensed and active at      They Buy Single-Family    recommendation
                       the time the appraisal is performed.       Mortgages                 pending.

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

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

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

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




80   Federal Housing Finance Agency Office of Inspector General
      No.                     Recommendation                        Report                    Status
AUD-2014-008-11   FHFA should perform supervisory           FHFA’s Oversight of       Recommendation
                  review and follow-up to ensure that       the Enterprises’ Use of   agreed to by FHFA;
                  Freddie Mac takes action to use the       Appraisal Data Before     implementation of
                  results of the review to repurchase       They Buy Single-Family    recommendation
                  the loans that contained appraisals       Mortgages                 pending.
                  that were performed by unlicensed
                  appraisers, as appropriate.

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

AUD-2014-008-13   FHFA should pursue having the             FHFA’s Oversight of       Recommendation
                  National Registry of Appraisers           the Enterprises’ Use of   agreed to by FHFA;
                  updated to reflect the status of state-   Appraisal Data Before     implementation of
                  certified and -licensed appraisers on a   They Buy Single-Family    recommendation
                  real-time basis.                          Mortgages                 pending.

AUD-2014-008-14   FHFA should perform supervisory           FHFA’s Oversight of       Recommendation
                  review and follow-up to ensure that the   the Enterprises’ Use of   agreed to by FHFA;
                  Enterprises develop and implement the     Appraisal Data Before     implementation of
                  portal as intended by FHFA’s uniform      They Buy Single-Family    recommendation
                  mortgage data program directive.          Mortgages                 pending.

AUD-2014-006-1    FHFA should document purchase card        FHFA’s Use of             Recommendation
                  policies and procedures related to the    Government Purchase       agreed to by FHFA;
                  purchase of training above the $5,000     Cards                     implementation of
                  micro-purchase threshold.                                           recommendation
                                                                                      pending.

AUD-2014-006-2    FHFA should document purchase card        FHFA’s Use of             Recommendation
                  policies and procedures related to the    Government Purchase       agreed to by FHFA;
                  use of employee Continued Service         Cards                     implementation of
                  Agreements for high-cost training.                                  recommendation
                                                                                      pending.

AUD-2014-006-3    FHFA should document purchase card        FHFA’s Use of             Recommendation
                  policies and procedures related to the    Government Purchase       agreed to by FHFA;
                  approval and resetting of temporary       Cards                     implementation of
                  increases in transactions limits in a                               recommendation
                  cardholder’s purchase authority.                                    pending.




                             Semiannual Report to the Congress • October 1, 2013–March 31, 2014            81
      No.                         Recommendation                      Report                        Status
 AUD-2014-006-4        FHFA should document purchase card     FHFA’s Use of                 Recommendation
                       policies and procedures related to the Government Purchase           agreed to by FHFA;
                       management of MCC exceptions, which Cards                            implementation of
                       should be allowed only on a case-by-                                 recommendation
                       case basis and removed in a timely                                   pending.
                       manner after the allowed purchase is
                       transacted.

 AUD-2014-005-1        FHFA should direct Fannie Mae to           FHFA Oversight            Closed—Final action
                       obtain a refund from servicers for         of Fannie Mae’s           taken by FHFA.
                       improperly reimbursed property             Reimbursement
                       inspection claims, resulting in            Process for Pre-
                       estimated funds put to better use of       Foreclosure Property
                       $5,015,505.                                Inspections

 AUD-2014-005-2        FHFA should direct Fannie Mae to           FHFA Oversight            Recommendation not
                       implement controls in the invoice          of Fannie Mae’s           accepted by FHFA;
                       management system to reject pre-           Reimbursement             recommendation
                       foreclosure property inspection claims     Process for Pre-          remains open and
                       over established tolerance limits.         Foreclosure Property      will continue to be
                                                                  Inspections               monitored.

 AUD-2014-005-3        FHFA should direct Fannie Mae to           FHFA Oversight            Closed—Final action
                       submit guidance to all servicers that      of Fannie Mae’s           taken by FHFA.
                       reminds them of requirements to            Reimbursement
                       adhere to reimbursement tolerance          Process for Pre-
                       limits for pre-foreclosure property        Foreclosure Property
                       inspection claims.                         Inspections

 AUD-2014-005-4        FHFA should assess the need for            FHFA Oversight            Closed—Final action
                       examination coverage related to            of Fannie Mae’s           taken by FHFA.
                       reimbursement of pre-foreclosure           Reimbursement
                       property inspection claims.                Process for Pre-
                                                                  Foreclosure Property
                                                                  Inspections

 AUD-2014-004-1        FHFA should review Fannie Mae’s            FHFA Oversight            Recommendation
                       remediation plan to ensure that            of Fannie Mae’s           agreed to by FHFA;
                       the plan provides for the return of        Remediation Plan to       implementation of
                       borrower contributions to borrowers in     Refund Contributions to   recommendation
                       a consistent manner by Fannie Mae          Borrowers for the Short   pending.
                       and its servicers, and issue guidance      Sale of Properties
                       as deemed appropriate regarding the
                       execution of the remediation plan.




82   Federal Housing Finance Agency Office of Inspector General
     No.                    Recommendation                           Report                   Status
AUD-2014-004-2   FHFA should oversee the execution          FHFA Oversight            Recommendation
                 of Fannie Mae’s remediation plan to        of Fannie Mae’s           agreed to by FHFA;
                 ensure that a good faith effort is made    Remediation Plan to       implementation of
                 to promptly refund inappropriately         Refund Contributions to   recommendation
                 collected borrower contributions to        Borrowers for the Short   pending.
                 borrowers.                                 Sale of Properties

AUD-2014-004-3   FHFA should examine Freddie Mac’s          FHFA Oversight            OIG deems
                 controls over the collection of borrower   of Fannie Mae’s           recommendation
                 contributions for the short sales of       Remediation Plan to       unresolved. Resolution
                 properties located in California, and      Refund Contributions to   is still pending, and
                 issue guidance to strengthen controls      Borrowers for the Short   recommendation is
                 as deemed appropriate based on the         Sale of Properties        still open.
                 results of the examination.

AUD-2014-003-1   To strengthen controls over short          Fannie Mae’s              Recommendation
                 sales, FHFA should direct Fannie           Controls Over Short       agreed to by FHFA;
                 Mae to enforce the requirement             Sale Eligibility          implementation of
                 that all borrowers not eligible for the    Determinations Should     recommendation
                 Streamlined Documentation Program          be Strengthened           pending.
                 provide a borrower-certified Uniform
                 Borrower Assistance Form and
                 supporting documentation in order to
                 make eligibility determinations and
                 assess borrower contributions.

AUD-2014-003-2   To strengthen controls over short          Fannie Mae’s              Recommendation
                 sales, FHFA should direct Fannie Mae       Controls Over Short       agreed to by FHFA;
                 to establish controls to identify and      Sale Eligibility          implementation of
                 resolve inconsistencies between the        Determinations Should     recommendation
                 Uniform Borrower Assistance Form and       be Strengthened           pending.
                 supporting information used in making
                 short sale eligibility determinations.

AUD-2014-003-3   To strengthen controls over short          Fannie Mae’s              Recommendation
                 sales, FHFA should direct Fannie Mae       Controls Over Short       agreed to by FHFA;
                 to assess its servicer compensation        Sale Eligibility          implementation of
                 structure to determine if it should        Determinations Should     recommendation
                 consider the quality of borrower           be Strengthened           pending.
                 eligibility determinations for short
                 sales and success in limiting losses
                 including through contributions by
                 borrowers with the ability to pay.




                            Semiannual Report to the Congress • October 1, 2013–March 31, 2014             83
      No.                           Recommendation                         Report                    Status
 AUD-2014-003-4        To strengthen controls over short          Fannie Mae’s               Recommendation
                       sales, FHFA should direct Fannie Mae       Controls Over Short        agreed to by FHFA;
                       to enhance controls over collection        Sale Eligibility           implementation of
                       and use of electronic information from     Determinations Should      recommendation
                       servicers on the financial condition of    be Strengthened            pending.
                       borrowers to ensure data is reliable
                       and effectively used in both borrower
                       eligibility and servicer performance
                       evaluation processes.

 AUD-2014-003-5        FHFA should review the Streamlined         Fannie Mae’s               Closed—Final action
                       Documentation Program to determine         Controls Over Short        taken by FHFA.
                       whether the program should be              Sale Eligibility
                       available to borrowers seeking             Determinations Should
                       approval to short sell non-owner-          be Strengthened
                       occupied properties.

 AUD-2014-003-6        FHFA should provide examination            Fannie Mae’s               Recommendation
                       coverage of Fannie Mae’s short sale        Controls Over Short        agreed to by FHFA;
                       activities with particular emphasis        Sale Eligibility           implementation of
                       on identifying systemic deficiencies       Determinations Should      recommendation
                       related to borrower submissions,           be Strengthened            pending.
                       Enterprise eligibility determinations,
                       servicer compensation structure, and
                       reliability of electronic information
                       used in managing short sales.

 AUD-2013-013-1        FHFA should update the policy of the       FHFA Can Strengthen        Recommendation
                       Office of Quality Assurance (OQA) to       Controls over Its Office   agreed to by FHFA;
                       require management to provide written      of Quality Assurance       implementation of
                       responses and corrective action                                       recommendation
                       timelines to OQA findings.                                            pending.

 AUD-2013-013-2        FHFA should track the corrective action FHFA Can Strengthen           Recommendation
                       timelines provided by management and Controls over Its Office         agreed to by FHFA;
                       follow up on corrective actions based   of Quality Assurance          implementation of
                       on those timelines.                                                   recommendation
                                                                                             pending.

 AUD-2013-013-3        FHFA should implement a policy to          FHFA Can Strengthen        Recommendation
                       escalate to the appropriate level of       Controls over Its Office   agreed to by FHFA;
                       management when corrective action          of Quality Assurance       implementation of
                       is not implemented by the reported                                    recommendation
                       deadline.                                                             pending.

 AUD-2013-013-4        FHFA should evaluate management            FHFA Can Strengthen        Recommendation
                       corrective actions and document            Controls over Its Office   agreed to by FHFA;
                       evidence supporting closure of its         of Quality Assurance       implementation of
                       recommendations.                                                      recommendation
                                                                                             pending.




84   Federal Housing Finance Agency Office of Inspector General
     No.                    Recommendation                            Report                    Status
AUD-2013-013-5   FHFA should evaluate the roles and          FHFA Can Strengthen        Recommendation
                 responsibilities of OQA across the          Controls over Its Office   agreed to by FHFA;
                 Agency and revise OQA’s charter             of Quality Assurance       implementation of
                 accordingly.                                                           recommendation
                                                                                        pending.

AUD-2013-013-6   FHFA should assess risks across all         FHFA Can Strengthen        Recommendation
                 Agency operations for purposes of           Controls over Its Office   agreed to by FHFA;
                 planning OQA review coverage.               of Quality Assurance       implementation of
                                                                                        recommendation
                                                                                        pending.

AUD-2013-013-7   FHFA should direct performance of           FHFA Can Strengthen        Recommendation
                 reviews of those areas that pose the        Controls over Its Office   agreed to by FHFA;
                 most significant risk to FHFA.              of Quality Assurance       implementation of
                                                                                        recommendation
                                                                                        pending.

AUD-2013-012-1   FHFA should establish verification          Additional FHFA            Closed—Final action
                 controls to ensure Enterprise               Oversight Can Improve      taken by FHFA.
                 contractors are performing in               the Real Estate Owned
                 accordance with agreed criteria and         Pilot Program
                 that any proposed waivers to the
                 criteria are documented and submitted
                 for FHFA review and approval.

AUD-2013-012-2   FHFA should clarify guidance regarding      Additional FHFA            Closed—Final action
                 submission of financial statements          Oversight Can Improve      taken by FHFA.
                 and explanation of adverse financial        the Real Estate Owned
                 events as part of the bidder                Pilot Program
                 qualification process.

AUD-2013-012-3   FHFA should issue formal guidance for       Additional FHFA            Recommendation
                 the REO disposition program, including      Oversight Can Improve      agreed to by FHFA;
                 the REO Pilot Program, requiring a          the Real Estate Owned      implementation of
                 program plan with clearly defined goals     Pilot Program              recommendation
                 and objectives, a program monitoring                                   pending.
                 and oversight mechanism, criteria
                 to measure and evaluate program
                 success, and the means to assess
                 alternative REO disposition strategies.

AUD-2013-010-1   FHFA should evaluate periodically the       FHFA Can Improve Its       Recommendation
                 efficiency and effectiveness of Freddie     Oversight of Freddie       agreed to by FHFA;
                 Mac’s deficiency recovery strategies for    Mac’s Recoveries           implementation of
                 the pursuit of borrowers with the ability   from Borrowers Who         recommendation
                 to repay.                                   Possess the Ability to     pending.
                                                             Repay Deficiencies




                            Semiannual Report to the Congress • October 1, 2013–March 31, 2014               85
      No.                          Recommendation                          Report                    Status
 AUD-2013-010-2        FHFA should review Freddie Mac’s            FHFA Can Improve Its      Closed—Final action
                       monitoring controls over its servicers,     Oversight of Freddie      taken by FHFA.
                       foreclosure attorneys, and collection       Mac’s Recoveries
                       vendors involved in deficiency recovery     from Borrowers Who
                       activities to ensure that oversight         Possess the Ability to
                       across these counterparties is              Repay Deficiencies
                       maintained.

 AUD-2013-010-3        FHFA should direct Freddie Mac to           FHFA Can Improve Its      Closed—Final action
                       enforce controls for its counterparties     Oversight of Freddie      taken by FHFA.
                       to deliver timely documents to              Mac’s Recoveries
                       deficiency recovery vendors necessary       from Borrowers Who
                       to calculate and pursue deficiencies,       Possess the Ability to
                       and provide for financial consequences      Repay Deficiencies
                       for counterparties that fail to meet
                       delivery deadlines.

 AUD-2013-010-4        FHFA should direct Freddie Mac to           FHFA Can Improve Its      Closed—Final action
                       implement a control to consider time        Oversight of Freddie      taken by FHFA.
                       frames in state statutes of limitations     Mac’s Recoveries
                       when prioritizing, coordinating, and        from Borrowers Who
                       monitoring deficiency collection activity   Possess the Ability to
                       for borrowers with the ability to repay.    Repay Deficiencies

 AUD-2013-009-1        To strengthen its Enterprise                Action Needed to          Recommendation
                       information security and privacy            Strengthen FHFA           agreed to by FHFA;
                       programs, FHFA should define and            Oversight of Enterprise   implementation of
                       issue Enterprise information security       Information Security      recommendation
                       and privacy program requirements.           and Privacy Programs      pending.

 AUD-2013-009-2        To strengthen its Enterprise                Action Needed to          Recommendation
                       information security and privacy            Strengthen FHFA           agreed to by FHFA;
                       programs, FHFA should implement the         Oversight of Enterprise   implementation of
                       workforce plan and ensure the plan          Information Security      recommendation
                       of action addresses the need to have        and Privacy Programs      pending.
                       an adequate number of information
                       technology examiners. Specifically,
                       FHFA should provide an appropriate
                       level of management oversight during
                       the annual supervisory examination
                       planning and execution processes
                       to ensure completion of the annual
                       plan and compliance with established
                       information technology examination
                       policies and procedures.




86   Federal Housing Finance Agency Office of Inspector General
     No.                    Recommendation                         Report                     Status
AUD-2013-009-3   To strengthen its Enterprise              Action Needed to           Closed—Final action
                 information security and privacy          Strengthen FHFA            taken by FHFA.
                 programs, FHFA should ensure              Oversight of Enterprise
                 that planning for future information      Information Security
                 technology examinations is based on       and Privacy Programs
                 fully executed risk assessments, as
                 required by FHFA policy.

AUD-2013-009-4   To strengthen its Enterprise              Action Needed to           Closed—Final action
                 information security and privacy          Strengthen FHFA            taken by FHFA.
                 programs, FHFA should consistently        Oversight of Enterprise
                 deploy the automated tools needed         Information Security
                 for ongoing monitoring and tracking       and Privacy Programs
                 of previously identified security and
                 privacy issues in order to enhance
                 the efficiency and effectiveness of the
                 examination process.

AUD-2013-009-5   To strengthen its Enterprise              Action Needed to           Recommendation
                 information security and privacy          Strengthen FHFA            agreed to by FHFA;
                 programs, FHFA should establish and       Oversight of Enterprise    implementation of
                 document a process for placing formal     Information Security       recommendation
                 reliance on the work of internal audit    and Privacy Programs       pending.
                 divisions at the Enterprises.

AUD-2013-008-1   FHFA should develop a risk-based plan     FHFA Should Develop        Recommendation
                 to monitor the Enterprises’ oversight     and Implement a            agreed to by FHFA;
                 of their counterparties’ compliance       Risk-Based Plan            implementation of
                 with contractual representations and      to Monitor the             recommendation
                 warranties, including those related to    Enterprises’ Oversight     pending.
                 federal consumer protection laws.         of Their Counterparties’
                                                           Compliance
                                                           with Contractual
                                                           Requirements Including
                                                           Consumer Protection
                                                           Laws

AUD-2013-007-1   To improve servicer compliance with       Enhanced FHFA              Recommendation
                 escalated case requirements, FHFA         Oversight Is               agreed to by FHFA;
                 should perform supervisory review         Needed to Improve          implementation of
                 and follow up to ensure that Freddie      Mortgage Servicer          recommendation
                 Mac requires its servicers to report      Compliance with            pending.
                 escalated consumer complaint              Consumer Complaint
                 information—to include a negative         Requirements
                 response if servicers have not received
                 any escalated complaints—on a
                 monthly basis.




                            Semiannual Report to the Congress • October 1, 2013–March 31, 2014             87
      No.                         Recommendation                          Report               Status
 AUD-2013-007-2        To improve servicer compliance with        Enhanced FHFA        Recommendation
                       escalated case requirements, FHFA          Oversight Is         agreed to by FHFA;
                       should perform supervisory review          Needed to Improve    implementation of
                       and follow up to ensure that Freddie       Mortgage Servicer    recommendation
                       Mac requires its servicers to resolve      Compliance with      pending.
                       escalated consumer complaint               Consumer Complaint
                       information within 30 days.                Requirements

 AUD-2013-007-3        To improve servicer compliance with        Enhanced FHFA        Recommendation
                       escalated case requirements, FHFA          Oversight Is         agreed to by FHFA;
                       should perform supervisory review and      Needed to Improve    implementation of
                       follow up to ensure that Freddie Mac       Mortgage Servicer    recommendation
                       requires its servicers to categorize       Compliance with      pending.
                       resolved escalated consumer                Consumer Complaint
                       complaint information in accordance        Requirements
                       with resolution categories defined in
                       the servicing guide.

 AUD-2013-007-4        To enhance Freddie Mac’s oversight         Enhanced FHFA        Recommendation
                       of its servicers, FHFA should perform      Oversight Is         agreed to by FHFA;
                       supervisory review and follow up to        Needed to Improve    implementation of
                       ensure that Freddie Mac includes           Mortgage Servicer    recommendation
                       testing of servicers’ performance          Compliance with      pending.
                       for handling and reporting escalated       Consumer Complaint
                       cases as part of its reviews of            Requirements
                       servicers’ performance.

 AUD-2013-007-5        To enhance Freddie Mac’s oversight         Enhanced FHFA        Recommendation
                       of its servicers, FHFA should perform      Oversight Is         agreed to by FHFA;
                       supervisory review and follow up to        Needed to Improve    implementation of
                       ensure that Freddie Mac identifies         Mortgage Servicer    recommendation
                       and addresses servicer operational         Compliance with      pending.
                       challenges with implementing the           Consumer Complaint
                       escalated case requirements as             Requirements
                       part of the testing of the servicers’
                       performance for handling and reporting
                       escalated cases.

 AUD-2013-007-6        To enhance Freddie Mac’s oversight         Enhanced FHFA        Recommendation
                       of its servicers, FHFA should perform      Oversight Is         agreed to by FHFA;
                       supervisory review and follow up to        Needed to Improve    implementation of
                       ensure that Freddie Mac establishes        Mortgage Servicer    recommendation
                       penalties in the servicing guide, such     Compliance with      pending.
                       as fines or fees, for servicers’ lack of   Consumer Complaint
                       reporting escalated cases.                 Requirements




88   Federal Housing Finance Agency Office of Inspector General
     No.                     Recommendation                        Report                Status
AUD-2013-007-7   To enhance Freddie Mac’s oversight        Enhanced FHFA         Recommendation
                 of its servicers, FHFA should perform     Oversight Is          agreed to by FHFA;
                 supervisory review and follow up to       Needed to Improve     implementation of
                 ensure that Freddie Mac expands           Mortgage Servicer     recommendation
                 the servicer scorecard and servicer       Compliance with       pending.
                 performance evaluations to include        Consumer Complaint
                 reporting of escalated cases.             Requirements

AUD-2013-007-8   To enhance Freddie Mac’s oversight        Enhanced FHFA         Recommendation
                 of its servicers, FHFA should perform     Oversight Is          agreed to by FHFA;
                 supervisory review and follow up to       Needed to Improve     implementation of
                 ensure that Freddie Mac provides          Mortgage Servicer     recommendation
                 information on escalated cases            Compliance with       pending.
                 received from servicers to internal       Consumer Complaint
                 staff (the counterparty operational       Requirements
                 risk evaluation team) responsible for
                 testing servicer performance.

AUD-2013-007-9   To improve its own oversight, FHFA        Enhanced FHFA         Closed—Final action
                 should develop and implement              Oversight Is          taken by FHFA.
                 FHFA examination guidance related         Needed to Improve
                 to Enterprise implementation and          Mortgage Servicer
                 compliance with FHFA directives.          Compliance with
                                                           Consumer Complaint
                                                           Requirements

AUD-2013-002-1   The FHFA contracting officer should       FHFA’s Oversight of   Recommendation
                 review the total unallowable payments     Contract No. FHF-     agreed to by FHFA;
                 of $256,343 made to Advanced              10-F-0007 with        implementation of
                 Technology Systems, Inc. (ATSC), under    Advanced Technology   recommendation
                 the contract/task order and recapture     Systems, Inc.         pending.
                 the amounts identified as not allocable
                 ($21,329), unreasonable ($47,743),
                 and unsupportable ($187,271).

AUD-2013-002-2   The FHFA contracting officer should       FHFA’s Oversight of   Recommendation
                 determine whether additional              Contract No. FHF-     agreed to by FHFA;
                 corrective actions are warranted to       10-F-0007 with        implementation of
                 recapture additional unreasonable         Advanced Technology   recommendation
                 costs billed by ATSC to FHFA after        Systems, Inc.         pending.
                 November 2011. (OIG did not review
                 charges submitted after November 30,
                 2011.)




                            Semiannual Report to the Congress • October 1, 2013–March 31, 2014        89
      No.                         Recommendation                          Report                Status
 AUD-2013-002-3        The FHFA contracting officer’s             FHFA’s Oversight of   Recommendation
                       representative should revisit this         Contract No. FHF-     agreed to by FHFA;
                       contract/task order and perform the        10-F-0007 with        implementation of
                       necessary analysis to ensure that          Advanced Technology   recommendation
                       ATSC employees had the education           Systems, Inc.         pending.
                       background and experience as
                       required under the General Services
                       Administration master contract.
                       The FHFA contracting officer should
                       recapture all expenses, when
                       applicable, paid to the contractor for
                       employees working in positions without
                       proper qualifications.

 AUD-2013-002-4        The Director of the Office of Budget       FHFA’s Oversight of   Closed—Final action
                       and Financial Management should            Contract No. FHF-     taken by FHFA.
                       issue guidance to all acquisition staff    10-F-0007 with
                       and approving officials, including         Advanced Technology
                       contracting officers and contracting       Systems, Inc.
                       officer’s representatives, on:
                       •	 cost allocation and proper
                           procedures for assigning costs
                           to contracts in accordance with
                           benefits received and based on the
                           appropriate cost objective;
                       •	 proper procedures for ensuring that
                           contract employees meet labor
                           category qualifications specified
                           in time and material/labor hour
                           contracts;
                       •	 proper procedures for obtaining
                           sufficient justification prior to
                           increasing funds, adjusting fixed
                           labor rates, and approving payments
                           on time and material contracts;
                       •	 appropriate procedures for
                           evaluating contractor price
                           proposals and documenting
                           the Agency’s pre-negotiation
                           position prior to awarding contract
                           modifications; and
                       •	 appropriate use of contractor
                           employees to substitute for internal
                           Agency positions and approving
                           invoices based on contractual terms
                           and provisions.




90   Federal Housing Finance Agency Office of Inspector General
     No.                      Recommendation                       Report                 Status
AUD-2013-002-5    The FHFA contracting officer should      FHFA’s Oversight of    Recommendation
                  remove the $105,000 of excess funds      Contract No. FHF-      agreed to by FHFA;
                  from contract line item number 1 to      10-F-0007 with         implementation of
                  account for technical writing services   Advanced Technology    recommendation
                  ATSC was no longer required to           Systems, Inc.          pending.
                  perform under the contract line item
                  number. Thereafter, the contracting
                  officer should compare the new
                  contract ceiling to the actual amount
                  ATSC billed against contract line
                  item number 1 and recapture any
                  unallowable costs that exceed the new
                  ceiling price.

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

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

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




                             Semiannual Report to the Congress • October 1, 2013–March 31, 2014        91
       No.                          Recommendation                        Report                 Status
 AUD-2012-008-3B       FHFA should evaluate Fannie Mae’s          FHFA’s Conservator     Closed—Final action
                       mortgage pool policy commutations          Approval Process       taken by FHFA.
                       to determine whether these                 for Fannie Mae and
                       transactions were appropriate and          Freddie Mac Business
                       in the best interest of the Enterprise     Decisions
                       and taxpayers. This evaluation should
                       include a full accounting and validation
                       of all of the cost components that
                       comprise each settlement discount
                       (risk in force minus fee charged), such
                       as insurance premiums and time value
                       of money applicable to each listed cost
                       component.

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

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

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

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

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




92   Federal Housing Finance Agency Office of Inspector General
     No.                    Recommendation                          Report                    Status
AUD-2012-008-9   FHFA should implement a risk-              FHFA’s Conservator        Recommendation
                 based examination plan to review           Approval Process          agreed to by FHFA;
                 the Enterprises’ execution of and          for Fannie Mae and        implementation of
                 adherence to conservatorship               Freddie Mac Business      recommendation
                 decisions.                                 Decisions                 pending.

EVL-2014-005-1   FHFA should review the 2013 director       FHFA’s Reporting of    Recommendation
                 expense data submitted by the              Federal Home Loan      agreed to by FHFA;
                 FHLBanks to identify and correct any       Bank Director Expenses implementation of
                 inconsistencies and inaccuracies prior                            recommendation
                 to the publication of the 2013 annual                             pending.
                 report, to the extent feasible, and
                 disclose in the report any remaining
                 data limitations.

EVL-2014-005-2   FHFA should issue guidance designed      FHFA’s Reporting of  Recommendation
                 to ensure the consistency and utility of Federal Home Loan    agreed to by FHFA;
                 the director expense data submitted to Bank Director Expenses implementation of
                 the Agency.                                                   recommendation
                                                                               pending.

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

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

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

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




                             Semiannual Report to the Congress • October 1, 2013–March 31, 2014            93
           No.                     Recommendation                            Report                   Status
     EVL-2014-002-2     FHFA should develop a process that          Update on FHFA’s          Recommendation
                        links annual Enterprise examination         Efforts to Strengthen     agreed to by FHFA;
                        plans with core team resource               its Capacity to Examine   implementation of
                        requirements.                               the Enterprises           recommendation
                                                                                              pending.

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

 ESR-2014-001-1         FHFA’s Advisory Bulletins that provide      FHFA’s Oversight of     Recommendation
                        guidance regarding implementation of        Derivative Counterparty agreed to by FHFA;
                        critical regulatory changes should be       Risk                    implementation of
                        issued to all the impacted regulated                                recommendation
                        entities.                                                           pending.

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

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

     EVL-2013-012-3     FHFA should publish Fannie Mae’s            Evaluation of Fannie      Recommendation not
                        reduction targets and overpayment           Mae’s Servicer            accepted by FHFA;
                        findings.                                   Reimbursement             recommendation
                                                                    Operations for            remains open and
                                                                    Delinquency Expenses      will continue to be
                                                                                              monitored.

     EVL-2013-009-1     FHFA should establish a formal              FHFA’s Oversight of       Recommendation
                        review process for compensatory fee         Fannie Mae’s 2013         agreed to by FHFA;
                        settlements and significant mortgage        Settlement with Bank      implementation of
                        servicing rights (MSR) transfers.           of America                recommendation
                                                                                              pending.




94    Federal Housing Finance Agency Office of Inspector General
      No.                    Recommendation                         Report                    Status
EVL-2013-008-1   FHFA’s Deputy Director, Division of        FHFA’s Oversight of the   Recommendation
                 Home Loan Bank Regulation, should          Federal Home Loan         agreed to by FHFA;
                 ensure that Agency examiners               Banks’ Compliance         implementation of
                 thoroughly assess FHLBank                  with Regulatory Limits    recommendation
                 compliance with matters requiring          on Extensions of          pending.
                 attention and other supervisory            Unsecured Credit
                 requirements to remediate unsecured
                 credit violations and risk management
                 deficiencies during the 2013 and 2014
                 examination cycles.

EVL-2013-008-2   FHFA’s Deputy Director, in consultation    FHFA’s Oversight of the   Recommendation
                 with the General Counsel and others,       Federal Home Loan         agreed to by FHFA;
                 should consider the use of informal        Banks’ Compliance         implementation of
                 or formal enforcement actions as           with Regulatory Limits    recommendation
                 appropriate to ensure the remediation      on Extensions of          pending.
                 of any further regulatory violations       Unsecured Credit
                 or failures to adhere to supervisory
                 requirements.

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

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




                            Semiannual Report to the Congress • October 1, 2013–March 31, 2014             95
           No.                      Recommendation                          Report                 Status
     EVL-2012-008-1     FHFA should consider revising FHFA’s       Evaluation of FHFA’s    Recommendation
                        delegation of authorities to require       Oversight of Fannie     agreed to by FHFA;
                        FHFA approval of unusual, high-cost,       Mae’s Transfer of       implementation of
                        new initiatives, like the High Touch       Mortgage Servicing      recommendation
                        Servicing Program.                         Rights from Bank of     pending.
                                                                   America to High Touch
                                                                   Servicers

     EVL-2012-008-2     FHFA should ensure that Fannie Mae         Evaluation of FHFA’s    Closed—Final action
                        does not have to pay a premium to          Oversight of Fannie     taken by FHFA.
                        transfer inadequately performing           Mae’s Transfer of
                        portfolios.                                Mortgage Servicing
                                                                   Rights from Bank of
                                                                   America to High Touch
                                                                   Servicers

     EVL-2012-008-3     Consistent with the control issues         Evaluation of FHFA’s    Closed—Final action
                        found in Fannie Mae’s internal audit       Oversight of Fannie     taken by FHFA.
                        report on the High Touch Servicing         Mae’s Transfer of
                        Program, FHFA should ensure that           Mortgage Servicing
                        Fannie Mae applies additional scrutiny     Rights from Bank of
                        and rigor to pricing significant MSR       America to High Touch
                        transactions. Specifically, FHFA should:   Servicers
                        •	 consider requiring Fannie Mae to
                            assess the valuation methods of
                            multiple MSR valuators in order to
                            discern best practices; and
                        •	 consider requiring two independent
                            valuations in the case of larger MSR
                            transactions (at a threshold to be
                            determined by FHFA).

     EVL-2012-008-4     FHFA should assess the efficacy of         Evaluation of FHFA’s    Closed—Final action
                        the program and direct any necessary       Oversight of Fannie     taken by FHFA.
                        modifications. As the portfolios           Mae’s Transfer of
                        purchased under the program approach       Mortgage Servicing
                        the five-year mark, FHFA should review     Rights from Bank of
                        both the underlying assumptions and        America to High Touch
                        the performance criteria for the High      Servicers
                        Touch Servicing Program.




96    Federal Housing Finance Agency Office of Inspector General
      No.                     Recommendation                          Report                 Status
EVL-2012-005-1   FHFA should continue its ongoing            FHFA’s Oversight        Closed—Final action
                 horizontal review of unsecured credit       of the Federal          taken by FHFA.
                 practices at the FHLBanks by:               Home Loan Banks’
                 •	 following up on any potential           Unsecured Credit Risk
                     evidence of violations of the           Management Practices
                     existing regulatory limits and taking
                     supervisory and enforcement
                     actions as warranted; and
                 •	 determining the extent to which
                     inadequate systems and controls
                     may compromise the FHLBanks’
                     capacity to comply with regulatory
                     limits and taking any supervisory
                     actions necessary to correct such
                     deficiencies as warranted.

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

EVL-2011-006-1   FHFA should promptly act on the             Evaluation of the       Recommendation
                 specific, significant concerns raised       Federal Housing         partially agreed to by
                 by FHFA staff and Freddie Mac internal      Finance Agency’s        FHFA; implementation
                 auditors about its loan review process.     Oversight of Freddie    of recommendation
                                                             Mac’s Repurchase        pending.
                                                             Settlement with Bank
                                                             of America

EVL-2011-006-2   FHFA should promptly initiate               Evaluation of the       Closed—Final action
                 management reforms to ensure that           Federal Housing         taken by FHFA.
                 senior managers are apprised of and         Finance Agency’s
                 timely act on significant concerns          Oversight of Freddie
                 brought to their attention, particularly    Mac’s Repurchase
                 when they receive reports that the          Settlement with Bank
                 normal reporting and supervisory            of America
                 process is not working properly.




                             Semiannual Report to the Congress • October 1, 2013–March 31, 2014           97
Figure 23. Summary of OIG Reports Where All Recommendations Are Closed
                                       Report                                           No. of Recommendations
FHFA Can Improve Its Oversight of Fannie Mae’s Recoveries from Borrowers Who                      1
Possess the Ability to Repay Deficiencies (AUD-2013-011)
FHFA Can Enhance Its Oversight of FHLBank Advances to Insurance Companies by                      2
Improving Communication with State Insurance Regulators and Standard-Setting
Groups (AUD-2013-006)

FHFA’s Oversight of the Asset Quality of Multifamily Housing Loans Financed by                    2
Fannie Mae and Freddie Mac (AUD-2013-004)
FHFA’s Oversight of the Enterprises’ Efforts to Recover Losses from Foreclosure Sales             3
(AUD-2013-001)
FHFA’s Oversight of the Enterprises’ Management of High-Risk Seller/Servicers                     2
(AUD-2012-007)
FHFA’s Call Report System (AUD-2012-006)                                                          3


FHFA’s Supervisory Risk Assessment for Single-Family Real Estate Owned (AUD-2012-                 1
005)
FHFA’s Supervisory Framework for Federal Home Loan Banks’ Advances and                            7
Collateral Risk Management (AUD-2012-004)
FHFA’s Oversight of Fannie Mae’s Single-Family Underwriting Standards (AUD-2012-                  2
003)
FHFA’s Supervision of Freddie Mac’s Controls over Mortgage Servicing Contractors                  5
(AUD-2012-001)
FHFA’s Oversight of Fannie Mae’s Default-Related Legal Services (AUD-2011-004)                    3


Clifton Gunderson LLP’s Independent Audit of the Federal Housing Finance Agency’s                 9
Privacy Program and Implementation - 2011 (AUD-2011-003)
Clifton Gunderson LLP’s Independent Audit of the Federal Housing Finance Agency’s                 5
Information Security Program - 2011 (AUD-2011-002)
Audit of the Federal Housing Finance Agency’s Consumer Complaints Process                         3
(AUD-2011-001)
FHFA’s Oversight of the Federal Home Loan Banks’ Affordable Housing Programs                      3
(EVL-2013-04)
Case Study: Freddie Mac’s Unsecured Lending to Lehman Brothers Prior to Lehman                    3
Brothers’ Bankruptcy (EVL-2013-03)
FHFA’s Oversight of the Enterprises’ Compensation of Their Executives and Senior                  1
Professionals (EVL-2013-001)
FHFA’s Oversight of Freddie Mac’s Investment in Inverse Floaters (EVL-2012-009)                   4


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




98   Federal Housing Finance Agency Office of Inspector General
                                       Report                                       No. of Recommendations
FHFA’s Certifications for the Preferred Stock Purchase Agreements (EVL-2012-006)              2


Fannie Mae’s and Freddie Mac’s Participation in the 2011 Mortgage Bankers                     2
Association Convention and Exposition (ESR-2012-004)
FHFA’s Oversight of the Enterprises’ Charitable Activities (ESR-2012-003)                     2


Evaluation of FHFA’s Management of Legal Fees for Indemnified Executives                      2
(EVL-2012-002)
FHFA’s Oversight of Troubled Federal Home Loan Banks (EVL-2012-001)                           3


Evaluation of Whether FHFA Has Sufficient Capacity to Examine the GSEs (EVL-2011-             4
005)
Evaluation of FHFA’s Oversight of Fannie Mae’s Management of Operational Risk                 3
(EVL-2011-004)
Evaluation of FHFA’s Role in Negotiating Fannie Mae’s and Freddie Mac’s                       1
Responsibilities in Treasury’s Making Home Affordable Program (EVL-2011-003)
Evaluation of Federal Housing Finance Agency’s Oversight of Fannie Mae’s and                  8
Freddie Mac’s Executive Compensation Programs (EVL-2011-002)
Federal Housing Finance Agency’s Exit Strategy and Planning Process for the                   2
Enterprises’ Structural Reform (EVL-2011-001)




                                    Semiannual Report to the Congress • October 1, 2013–March 31, 2014   99
Appendix C:                                                 September 30. Further, section 5(a) lists more than a
Information Required                                        dozen categories of information that we must include
                                                            in our semiannual reports.
by the Inspector                                            Below, OIG presents a table that directs the reader
General Act and                                             to the pages of this report where the information
Subpoenas Issued                                            required by the Inspector General Act may be found.

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


                                           Source/Requirement                                              Pages
Section 5(a)(1)- A description of significant problems, abuses, and deficiencies relating to the            5-18
administration of programs and operations of FHFA.
Section 5(a)(2)- A description of the recommendations for corrective action made by OIG with respect        5-18
to significant problems, abuses, or deficiencies.                                                          77-97
Section 5(a)(3)- An identification of each significant recommendation described in previous                84-91
semiannual reports on which corrective action has not been completed.                                      93-97
Section 5(a)(4)- A summary of matters referred to prosecutive authorities and the prosecutions and         20-37
convictions that have resulted.
Section 5(a)(5)- A summary of each report made to the Director of FHFA.                                    5-18
Section 5(a)(6)- A listing, subdivided according to subject matter, of each audit and evaluation report    5-18
issued by OIG during the reporting period and for each report, where applicable, the total dollar value    101
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.                                        5-18
Section 5(a)(8)- Statistical tables showing the total number of audit and evaluation reports and the       5-18
total dollar value of questioned and unsupported costs.                                                    101
Section 5(a)(9)- Statistical tables showing the total number of audit and evaluation reports and the       5-18
dollar value of recommendations that funds be put to better use by management.                             101
Section 5(a)(10)- A summary of each audit and evaluation report issued before the commencement              101
of the reporting period for which no management decision has been made by the end of the reporting
period.
Section 5(a)(11)- A description and explanation of the reasons for any significant revised management       101
decision made during the reporting period.
Section 5(a)(12)- Information concerning any significant management decision with which the                 101
Inspector General is in disagreement.
Section 5(a)(13)- The information described under section 05(b) of the Federal Financial Management         102
Improvement Act of 1996.



100    Federal Housing Finance Agency Office of Inspector General
Audit and Evaluation Reports                               Significantly Revised
with Recommendations of                                    Management Decisions
Questioned Costs, Unsupported
Costs, and Funds to Be Put to                              Section 5(a)(11) of the Inspector General Act, as
                                                           amended, requires that OIG report information
Better Use by Management
                                                           concerning the reasons for any significant revised
                                                           management decision made during the reporting
Section 5(a)(6) of the Inspector General Act, as
                                                           period. During the six-month reporting period
amended, requires that OIG list its reports during
                                                           ended March 31, 2014, FHFA significantly revised
the semiannual period that include questioned costs,
                                                           its management decisions on OIG’s July 16,
unsupported costs, and funds to be put to better
                                                           2013, evaluation titled FHFA’s Initiative to Reduce
use. Section 5(a)(8) and section 5(a)(9), respectively,
                                                           the Enterprises’ Dominant Position in the Housing
require OIG to publish statistical tables showing the
                                                           Finance System by Raising Gradually Their Guarantee
dollar value of questioned and unsupported costs,
                                                           Fees (EVL-2013-005). Management, which had
and of recommendations that funds be put to better
                                                           previously disagreed with OIG’s recommendations,
use by management. Figure 24 (see below) discloses
                                                           changed its position and has taken subsequent
OIG’s questioned and unsupported cost findings, and
                                                           actions accordingly.
recommendations that funds be put to better use for
the reporting period.
                                                           Significant Management Decision
Audit and Evaluation Reports                               with Which the Inspector General
with No Management Decision                                Disagrees

                                                           Section 5(a)(12) of the Inspector General Act, as
Section 5(a)(10) of the Inspector General Act,
                                                           amended, requires that OIG report information
as amended, requires that OIG report on each
                                                           concerning any significant management decision
audit and evaluation report issued before the
                                                           with which the Inspector General is in disagreement.
commencement of the reporting period for which
                                                           During the current reporting period, there were
no management decision has been made by the
                                                           no management decisions with which the Acting
end of the reporting period. There were no audit or
                                                           Inspector General disagreed.
evaluation reports issued before October 1, 2013,
that await a management decision.


Figure 24. Funds to Be Put to Better Use by Management, Questioned Costs, and Unsupported Costs
for the Period October 1, 2013, to March 31, 2014

                                                                         Potential Monetary Benefits
   Report Issued       Recommendation No.           Date         Questioned      Unsupported    Funds Put to
                                                                   Costs            Costs        Better Use
AUD-2014-005                     1              1/15/2014                   $-              $- $5,015,505
Total                                                                       $-              $- $5,015,505




                                  Semiannual Report to the Congress • October 1, 2013–March 31, 2014      101
Federal Financial Management                              Several OIG reports published during the semiannual
Improvement Act of 1996                                   period identified specific opportunities to strengthen
                                                          FHFA’s internal controls. These reports are
                                                          summarized on pages 5 through 18.
The provisions of HERA require FHFA to implement
and maintain financial management systems
that comply substantially with federal financial          Subpoenas Issued
management systems requirements, applicable federal
accounting standards, and the U.S. Government             During the reporting period, OIG issued 51
Standard General Ledger at the transaction level.         subpoenas as summarized in Figure 25 (see below).

For fiscal year 2013, FHFA received from GAO              Figure 25. Subpoenas Issued for the Period
an unqualified (clean) audit opinion on its annual        October 1, 2013–March 31, 2014
financial statements and internal control over
                                                                   Issuing Office      Number of Subpoenas
financial reporting. GAO also reported that it
                                                           OA                                  12
identified no material weaknesses in internal controls
                                                           OE                                   0
or reportable instances of noncompliance with laws         OI                                  39
or regulations. HERA requires GAO to conduct this          Total                               51
audit.




102     Federal Housing Finance Agency Office of Inspector General
Appendix D:                                             Kearney & Company, P.C.’s Independent Evaluation
                                                        of the Federal Housing Finance Agency’s Office of
OIG Reports                                             Inspector General’s Information Security Program-2013
                                                        (AUD-2014-002, October 31, 2013).
See www.fhfaoig.gov for OIG’s reports.
                                                        Kearney & Company, P.C.’s Independent Evaluation
                                                        of the Federal Housing Finance Agency’s Information
Audit Reports                                           Security Program-2013 (AUD-2014-001, October 3,
                                                        2013).
FHFA Oversight of Enterprise Controls Over Pre-
Foreclosure Property Inspections (AUD-2014-012,
                                                        Evaluation Reports
March 25, 2014).

FHFA’s Controls to Detect and Prevent Improper          FHFA’s Reporting of Federal Home Loan Bank Director
Payments FY 2013 (AUD-2014-011, March 20,               Expenses (EVL-2014-005, March 20, 2014).
2014).
                                                        Update on FHFA’s Oversight of the Enterprises’ Non-
FHFA’s Use of Government Travel Cards (AUD-2014-        Executive Compensation Practices (EVL-2014-004,
010, March 20, 2014).                                   February 25, 2014).

FHFA Oversight of Enterprise Handling of Aged           FHFA’s Oversight of the Servicing Alignment Initiative
Repurchase Demands (AUD-2014-009, February 12,          (EVL-2014-003, February 12, 2014).
2014).
                                                        Update on FHFA’s Efforts to Strengthen its Capacity to
FHFA’s Oversight of the Enterprises’ Use of Appraisal   Examine the Enterprises (EVL-2014-002,
Data Before They Buy Single-Family Mortgages            December 19, 2013).
(AUD-2014-008, February 6, 2014).
                                                        FHFA’s Oversight of Derivative Counterparty Risk
FHFA’s Implementation of Active Directory               (ESR-2014-001, November 20, 2013).
(AUD-2014-007, January 31, 2014).

FHFA’s Use of Government Purchase Cards                 Other Reports
(AUD-2014-006, January 31, 2014).
                                                        Strategic Plan: Fiscal Years 2015–2017 (February 26,
FHFA Oversight of Fannie Mae’s Reimbursement            2014).
Process for Pre-Foreclosure Property Inspections
(AUD-2014-005, January 15, 2014).

FHFA Oversight of Fannie Mae’s Remediation Plan to
Refund Contributions to Borrowers for the Short Sale
of Properties (AUD-2014-004, January 15, 2014).

Fannie Mae’s Controls Over Short Sale Eligibility
Determinations Should be Strengthened (AUD-2014-
003, November 20, 2013).



                                  Semiannual Report to the Congress • October 1, 2013–March 31, 2014    103
Appendix E: OIG Organizational Chart




                                                   Acting Inspector General
                                                     Michael P. Stephens



                     Chief of                                                                                   Director of
                                                                                            Chief Counsel
                      Staff                                                                                   Special Projects




     Director of                  Director of
   Communications               External Affairs




      Deputy                                  Deputy                               Deputy                        Deputy
 Inspector General                       Inspector General                    Inspector General             Inspector General
   Administration                             Audits                             Evaluations                  Investigations




104    Federal Housing Finance Agency Office of Inspector General
Appendix F:                                                 services across OIG. OR also produces special reports
                                                            and white papers that address complex housing
Description of OIG                                          finance issues.
Offices and Strategic                                       Office of Investigations
Plan                                                        OI investigates allegations of misconduct and fraud
                                                            involving FHFA and the GSEs in accordance with
                                                            CIGIE’s Quality Standards for Investigations and
OIG Offices
                                                            guidelines that the Attorney General issues.

                                                            OI’s investigations may address administrative, civil,
Office of Audits
                                                            and criminal violations of laws and regulations.
OA provides a full range of professional audit              Investigations may relate to FHFA or GSE
and attestation services for FHFA’s programs                employees, contractors, consultants, and any
and operations. Through its performance audits              alleged wrongdoing involving FHFA’s or the GSEs’
and attestation engagements, OA helps FHFA:                 programs and operations. Offenses investigated may
(1) promote economy, efficiency, and effectiveness;         include mail, wire, bank, accounting, securities, or
(2) detect and deter fraud, waste, and abuse; and           mortgage fraud, as well as violations of the tax code,
(3) ensure compliance with applicable laws and              obstruction of justice, and money laundering.
regulations. Under the Inspector General Act,
inspectors general are required to comply with GAO’s    To date, OI has opened over 370 criminal and
Government Auditing Standards, commonly referred        civil investigations, but by their nature, these
to as the “Yellow Book.” OA performs its audits         investigations and their resulting reports are not
and attestation engagements in                                              generally made public. However,
accordance with the Yellow Book.                                            if an investigation reveals criminal
                                                                            activity, OI refers the matter to
                                             Report fraud,                  DOJ for possible prosecution or
Office of Evaluations
                                             waste, or abuse                recovery of monetary damages and
OE provides independent and
                                                                            penalties. OI reports administrative
objective reviews, studies, survey
reports, and analyses of FHFA’s              related to FHFA’s              misconduct to management officials
                                                                            for consideration of disciplinary or
programs and operations. The
Inspector General Reform Act
                                             programs and                   remedial action.
of 2008 requires that inspectors                                              OI also manages OIG’s hotline
general adhere to the Quality
                                             operations
                                                                              that receives tips and complaints
Standards for Inspection and                 by visiting                      of fraud, waste, or abuse in FHFA’s
Evaluation, commonly referred to as                                           programs and operations. The
the “Blue Book,” issued by CIGIE.            www.fhfaoig.gov                  hotline allows concerned parties
OE performs its evaluations in                                                to report their allegations to OIG
accordance with the Blue Book.               or calling (800)                 directly and confidentially. OI
Included within OE is the Office of                                           honors all applicable whistleblower
Oversight and Review (OR), which             793-7724.                        protections. As part of its effort to
provides advice and consultation                                              raise awareness of fraud, OI actively

                                     Semiannual Report to the Congress • October 1, 2013–March 31, 2014       105
promotes the hotline through OIG’s website, posters,        people, with an emphasis on linking performance
emails to FHFA and GSE employees, and OIG’s                 planning and evaluation to organizational and
semiannual reports.                                         individual accomplishment of goals and objectives.
                                                            Regarding OIG’s budget and financial management,
Executive Office                                            OAd coordinates budget planning and execution and
The Executive Office (EO) provides leadership and           oversees all of OIG’s procedural guidance for financial
programmatic direction for OIG’s offices and activities.    management and procurement integrity.

EO includes the Office of Counsel (OC), which               OAd also administratively supports the Chief of Staff
serves as the chief legal advisor to the Acting Inspector   and the Deputy Inspector General for Audits as they
General and provides independent legal advice,              implement OIG’s Internal Management Assessment
counseling, and opinions to OIG about its programs          Program, which requires the routine inspection of
and operations. OC also reviews audit and evaluation        each OIG office to ensure that it complies with
reports for legal sufficiency and compliance with           applicable requirements.
OIG’s policies and priorities. Additionally, it reviews
drafts of FHFA regulations and policies and prepares        OIG’s Strategic Plan
comments as appropriate. OC also coordinates with
FHFA’s Office of General Counsel and manages OIG’s          OIG’s Strategic Plan for fiscal years 2015-2017 sets
responses to requests and appeals made under the            out OIG’s plan to ensure the integrity, transparency,
Freedom of Information Act and the Privacy Act.             effectiveness, and soundness of FHFA’s operations
                                                            and the operations of the organizations that FHFA
The Office of External Affairs is within EO, and it
                                                            oversees. OIG will continue to monitor events;
responds to inquiries from members of Congress.
                                                            make changes to the Strategic Plan as circumstances
The Office of Communications is within EO, and it           warrant; and strive to remain relevant regarding areas
responds to inquiries from the press and public.            of concern to FHFA, the GSEs, Congress, and the
                                                            American people.
OIG’s Equal Employment Opportunity Program is
also within EO.                                             Within the Strategic Plan, OIG has established
                                                            several goals that will be used as a blueprint for OIG’s
The Office of Special Projects is also within EO, and it
                                                            oversight of FHFA and independent reporting.
supports other OIG offices on high-impact projects.
                                                            Strategic Goal 1—Promote FHFA’s Effective
Office of Administration
                                                            Oversight of the GSEs’ Safety and Soundness and
The Office of Administration (OAd) manages                  Housing Missions
and oversees OIG administration, including
                                                            OIG will promote effective risk oversight by FHFA,
budget, human resources, safety, facilities, financial
                                                            assess FHFA’s oversight of the GSEs’ housing mission
management, information technology, and continuity
                                                            and goal responsibilities, and assess the effectiveness
of operations. For human resources, OAd develops
                                                            of FHFA’s operations.
policies to attract, develop, and retain exceptional




106     Federal Housing Finance Agency Office of Inspector General
Strategic Goal 2—Promote FHFA’s Effective                Organizational Guidance
Management and Conservatorship of the
Enterprises                                              OIG has developed and promulgated policies and
OIG will assess FHFA’s and the Enterprises’              procedural manuals for each of its offices. These
plans and progress on their strategic goals; assess      manuals set forth uniform standards and guidelines
FHFA’s effectiveness in controlling the costs of the     for the performance of each office’s essential
conservatorships; and detect and deter fraud, waste,     responsibilities and are intended to help ensure the
and abuse.                                               consistency and integrity of OIG’s operations.

Strategic Goal 3—Promote Effective FHFA
Internal Operations

OIG will detect and deter fraud, waste, and abuse.

Strategic Goal 4—Promote Effective OIG Internal
Operations

OIG will maintain workforce expertise and
collaboration to meet goals, maintain access and data
security protocols with FHFA and the GSEs, and
ensure reporting processes are useful to stakeholders.




                                  Semiannual Report to the Congress • October 1, 2013–March 31, 2014     107
Appendix G: Figure Sources
Figure 2. 	Federal Housing Finance Agency Office of Inspector General, “Inappropriate Property Inspection Reports and
           Photographs,” FHFA Oversight of Enterprise Controls Over Pre-Foreclosure Property Inspections, AUD-2014-012, at 19
           (March 25, 2014). Accessed: April 15, 2014, at www.fhfaoig.gov/Content/Files/AUD-2014-012.pdf.
Figure 3. 	Federal Housing Finance Agency Office of Inspector General, “OIG Conclusion,” FHFA’s Controls to Detect and
           Prevent Improper Payments FY 2013, AUD-2014-011, at 9, 10 (March 20, 2014). Accessed: March 20, 2014, at
           www.fhfaoig.gov/Content/Files/AUD-2014-011.pdf.
Figure 4.   Federal Housing Finance Agency Office of Inspector General, “FHFA Did Not Examine Freddie Mac’s Use of its
            Contractual Right to Assess Late Fees on Repurchase Demands Resulting in Missed Opportunities to Minimize
            Losses,” FHFA Oversight of Enterprise Handling of Aged Repurchase Demands, AUD-2014-009, at 20 (February 12,
            2014). Accessed: March 20, 2014, at www.fhfaoig.gov/Content/Files/AUD-2014-009.pdf.
	           Repurchase late fees calculated by OIG using Freddie Mac’s monthly outstanding repurchase reports from January
            2009 through December 2012 and applying repurchase late fee policies from Freddie Mac’s seller-servicer guide,
            chapter 72.3.
Figure 5.   Federal Housing Finance Agency Office of Inspector General, “Conclusion,” FHFA Oversight of Fannie Mae’s
            Reimbursement Process for Pre-Foreclosure Property Inspections, AUD-2014-005, at 12 (January 15, 2014).
            Accessed: March 20, 2014, at www.fhfaoig.gov/Content/Files/AUD%202014-005.pdf.
	           OIG calculations using Fannie Mae’s: (1) 571 Servicer Processing Guide and (2) 2011 and 2012 total
            disbursements.
Figure 6.   Federal Housing Finance Agency Office of Inspector General, “Finding: FHFA Should Oversee Fannie Mae’s
            Remediation Plan to Refund Contributions to Borrowers for the Short Sale of Properties,” FHFA Oversight of Fannie
            Mae’s Remediation Plan to Refund Contributions to Borrowers for the Short Sale of Properties, AUD-2014-004, at 4
            (January 15, 2014). Accessed: March 20, 2014, at www.fhfaoig.gov/Content/Files/AUD-2014-004_0.pdf.
Figure 8.   Federal Housing Finance Agency, “The Housing Government-Sponsored Enterprises,” 2011 Performance
            and Accountability Report, at 14. Accessed: April 24, 2014, at www.fhfa.gov/AboutUs/Reports/
            ReportDocuments/2011_PAR_508.pdf.
Figure 9.   Inside Mortgage Finance, “Mortgage & Asset Securities Issuance,” Mortgage Market Statistical Annual 2014
            Yearbook, at 106 (2014).
Figure 10. Federal Housing Finance Agency, “Table 3. Fannie Mae Earnings,” “Table 12. Freddie Mac Earnings,” 2012
           Report to Congress, at 80, 97 (June 13, 2013). Accessed: April 24, 2014, at www.fhfa.gov/AboutUs/Reports/
           ReportDocuments/2012_AnnualReportToCongress_508.pdf. Fannie Mae, “Table 7: Summary of Consolidated
           Results of Operations,” Form 10-K for the Fiscal Year Ended December 31, 2013, at 71. Accessed: March 7, 2014,
           at www.fanniemae.com/resources/file/ir/pdf/quarterly-annual-results/2013/10k_2013.pdf. Freddie Mac, “Table
           8 — Summary Consolidated Statements of Comprehensive Income,” Form 10-K for the Fiscal Year Ended December
           31, 2013, at 61. Accessed: March 7, 2014, at www.freddiemac.com/investors/er/pdf/10k_022714.pdf.
Figure 11. Federal Housing Finance Agency, “Table 3. Fannie Mae Earnings,” “Table 12. Freddie Mac Earnings,” 2012
           Report to Congress, at 80, 97 (June 13, 2013). Accessed: April 24, 2014, at www.fhfa.gov/AboutUs/Reports/
           ReportDocuments/2012_AnnualReportToCongress_508.pdf. Fannie Mae, “Table 7: Summary of Consolidated
           Results of Operations,” Form 10-K for the Fiscal Year Ended December 31, 2013, at 71. Accessed: March 7, 2014,
           at www.fanniemae.com/resources/file/ir/pdf/quarterly-annual-results/2013/10k_2013.pdf. Freddie Mac, “Table
           8 — Summary Consolidated Statements of Comprehensive Income,” Form 10-K for the Fiscal Year Ended December
           31, 2013, at 61. Accessed: March 7, 2014, at www.freddiemac.com/investors/er/pdf/10k_022714.pdf.
Figure 12. Fannie Mae, “Table 7: Summary of Consolidated Results of Operations,” “Table 11: Fair Value Gains (Losses), Net,”
           Form 10-K for the Fiscal Year Ended December 31, 2013, at 71, 76. Accessed: March 7, 2014, at www.fanniemae.
           com/resources/file/ir/pdf/quarterly-annual-results/2013/10k_2013.pdf. Freddie Mac, “Table 8 — Summary
           Consolidated Statements of Comprehensive Income,” Form 10-K for the Fiscal Year Ended December 31, 2013, at
           61. Accessed: March 7, 2014, at www.freddiemac.com/investors/er/pdf/10k_022714.pdf.
Figure 13. Federal Housing Finance Agency, “Enterprises Single-Family Book Profile - As of March 31, 2012,” Foreclosure
           Prevention Report, First Quarter 2012: FHFA Federal Property Manager’s Report, at 40. Accessed: April 24,
           2014, at www.fhfa.gov/AboutUs/Reports/ReportDocuments/20121Q_FPR_508.pdf. Federal Housing Finance
           Agency, “Enterprises Single-Family Book Profile - As of June 30, 2012,” Foreclosure Prevention Report, Second
           Quarter 2012: FHFA Federal Property Manager’s Report, at 40. Accessed: April 24, 2014, at www.fhfa.gov/
           AboutUs/Reports/ReportDocuments/20122Q_FPR_508.pdf. Federal Housing Finance Agency, “Enterprises
           Single-Family Book Profile - As of September 30, 2012,” Foreclosure Prevention Report, Third Quarter 2012:



108     Federal Housing Finance Agency Office of Inspector General
           FHFA Federal Property Manager’s Report, at 40. Accessed: April 24, 2014, at www.fhfa.gov/AboutUs/Reports/
           ReportDocuments/20123Q_FPR_508.pdf. Federal Housing Finance Agency, “Enterprises Single-Family Book Profile
           - As of December 31, 2012,” Foreclosure Prevention Report, Fourth Quarter 2012: FHFA Federal Property Manager’s
           Report, at 41. Accessed: April 24, 2014, at www.fhfa.gov/AboutUs/Reports/ReportDocuments/20124Q_FPR_
           N508.pdf. Federal Housing Finance Agency, “Enterprises Single-Family Book Profile - As of March 31, 2013,”
           Foreclosure Prevention Report, First Quarter 2013: FHFA Federal Property Manager’s Report, at 42. Accessed:
           April 24, 2014, at www.fhfa.gov/AboutUs/Reports/ReportDocuments/20131Q_FPR_N508.pdf. Federal Housing
           Finance Agency, “Enterprises Single-Family Book Profile - As of June 30, 2013,” Foreclosure Prevention Report,
           Second Quarter 2013: FHFA Federal Property Manager’s Report, at 41. Accessed: April 24, 2014, at www.fhfa.
           gov/AboutUs/Reports/ReportDocuments/20132Q_FPR_N508.pdf. Federal Housing Finance Agency, “Enterprises
           Single-Family Book Profile - As of September 30, 2013,” Foreclosure Prevention Report, Third Quarter 2013:
           FHFA Federal Property Manager’s Report, at 41. Accessed: April 24, 2014, at www.fhfa.gov/AboutUs/Reports/
           ReportDocuments/20133Q_FPR_508.pdf. Federal Housing Finance Agency, “Enterprises Single-Family Book Profile
           - As of December 31, 2013,” Foreclosure Prevention Report, Fourth Quarter 2013: FHFA Federal Property Manager’s
           Report, at 41. Accessed: April 24, 2014, at www.fhfa.gov/AboutUs/Reports/ReportDocuments/2013Q4_FPR_
           N508.pdf.
Figure 14. Standard & Poor’s Dow Jones Indices, S&P/Case-Shiller 20-City Composite Home Price Index (February 25, 2014).
           Accessed: March 7, 2014, at http://us.spindices.com/indices/real-estate/sp-case-shiller-20-city-composite-home-
           price-index (click on “Additional Info,” then click “Seasonally Adjusted Home Price Index Levels,” then download the
           Excel file).
Figure 15. Federal Housing Finance Agency, “Table 1: Quarterly Draws on Treasury Commitments to Fannie Mae and Freddie
           Mac per the Senior Preferred Stock Purchase Agreements,” “Table 2: Dividends on Enterprise Draws from
           Treasury,” Data as of April 1, 2014 on Treasury and Federal Reserve Purchase Programs for GSE and Mortgage-
           Related Securities, at 2, 3. Accessed: April 24, 2014, at www.fhfa.gov/DataTools/Documents/Market-Data/
           TSYSupport2014-04-06.pdf.
Figure 16. Federal Housing Finance Agency, “Table 1: Quarterly Draws on Treasury Commitments to Fannie Mae and Freddie
           Mac per the Senior Preferred Stock Purchase Agreements,” “Table 2: Dividends on Enterprise Draws from
           Treasury,” Data as of April 1, 2014 on Treasury and Federal Reserve Purchase Programs for GSE and Mortgage-
           Related Securities, at 2, 3. Accessed: April 24, 2014, at www.fhfa.gov/DataTools/Documents/Market-Data/
           TSYSupport2014-04-06.pdf.
Figure 17. Federal Housing Finance Agency, “Table 1: Quarterly Draws on Treasury Commitments to Fannie Mae and Freddie
           Mac per the Senior Preferred Stock Purchase Agreements,” “Table 2: Dividends on Enterprise Draws from
           Treasury,” Data as of April 1, 2014 on Treasury and Federal Reserve Purchase Programs for GSE and Mortgage-
           Related Securities, at 2, 3. Accessed: April 24, 2014, at www.fhfa.gov/DataTools/Documents/Market-Data/
           TSYSupport2014-04-06.pdf. Federal Housing Finance Agency, Senior Preferred Stock Purchase Agreements.
           Accessed: April 24, 2014, at www.fhfa.gov/senior-preferred-stock-purchase-agreements. Fannie Mae, “Table 7:
           Summary of Consolidated Results of Operations,” Form 10-K for the Fiscal Year Ended December 31, 2013, at 71.
           Accessed: March 7, 2014, at www.fanniemae.com/resources/file/ir/pdf/quarterly-annual-results/2013/10k_2013.
           pdf. Freddie Mac, “Table 8 — Summary Consolidated Statements of Comprehensive Income,” Form 10-K for the
           Fiscal Year Ended December 31, 2013, at 61. Accessed: March 7, 2014, at www.freddiemac.com/investors/er/
           pdf/10k_022714.pdf.
Figure 18. Federal Home Loan Bank of Boston, FHLB System. Accessed: January 9, 2014, at www.fhlbboston.com/aboutus/
           thebank/06_01_04_fhlb_system.jsp.
Figure 19. Federal Home Loan Banks Office of Finance, “Combined Statement of Income,” Combined Financial Report for
           the Year Ended December 31, 2013, at F-4. Accessed: April 18, 2014, at www.fhlb-of.com/ofweb_userWeb/
           resources/13yrend.pdf. Other-than-temporary impairment losses can be referenced to Table 33, p. 59, in the
           Federal Home Loan Banks Office of Finance’s Combined Financial Report for the Year Ended December 31, 2013.
Figure 20. Federal Home Loan Banks Office of Finance, “Selected Financial Data,” Combined Financial Report for the
           Year Ended December 31, 2011, at 34. Accessed: January 9, 2014, at www.fhlb-of.com/ofweb_userWeb/
           resources/11yrend.pdf. Federal Home Loan Banks Office of Finance, “Selected Financial Data,” Combined Financial
           Report for the Year Ended December 31, 2013, at 35. Accessed: April 17, 2014, at www.fhlb-of.com/ofweb_
           userWeb/resources/13yrend.pdf.
Figure 21. Federal Housing Finance Agency, FHFA Recovers Nearly $8 Billion for Taxpayers in 2013 Through Settlements
           (January 2, 2014). Accessed: April 24, 2014, at www.fhfa.gov/Media/PublicAffairs/Pages/FHFA-Recovers-Nearly-
           $8-Billion-for-Taxpayers-in-2013.aspx. Federal Housing Finance Agency, Federal Housing Finance Agency Update on
           Private-Label Securities Actions 2013 Settlements and Remaining Cases. Accessed: April 24, 2014, at www.fhfa.gov/
           Media/PublicAffairs/PublicAffairsDocuments/FHFA_Update_on_PLS_Actions_2013_Settlements_and_Cases.pdf.




                                      Semiannual Report to the Congress • October 1, 2013–March 31, 2014                 109
        Freddie Mac, “Non-Agency Mortgage-Related Security Issuers,” Form 10-K for the Fiscal Year Ended December 31,
        2013, at 247. Accessed: March 12, 2014, at www.freddiemac.com/investors/er/pdf/10k_022714.pdf. Fannie
        Mae, “FHFA Private-Label Mortgage-Related Securities Litigation,” Form 10-K for the Fiscal Year Ended December
        31, 2013, at 61. Accessed: March 12, 2014, at www.fanniemae.com/resources/file/ir/pdf/quarterly-annual-
        results/2013/10k_2013.pdf. Federal Housing Finance Agency, FHFA Announces Settlement with UBS (July 25,
        2013). Accessed: April 24, 2014, at www.fhfa.gov/Media/PublicAffairs/Pages/FHFA-Announces-Settlement-with-
        UBS.aspx. Federal Housing Finance Agency, FHFA Announces $5.1 Billion in Settlements with J.P. Morgan Chase
        & Co.; Settlements Include Private-Label Securities and Representation and Warranty Claims (October 25, 2013).
        Accessed: April 24, 2014, at www.fhfa.gov/Media/PublicAffairs/Pages/FHFA-Announces-$5-1-Billion-in-Settlements.
        aspx. Federal Housing Finance Agency, FHFA Announces $1.9 Billion Settlement With Deutsche Bank (December
        20, 2013). Accessed: April 24, 2014, at www.fhfa.gov/Media/PublicAffairs/Pages/FHFA-Announces-$1-9-Billion-
        Settlement-With-Deutsche-Bank.aspx. Federal Housing Finance Agency, FHFA Announces $1.25 Billion Settlement
        With Morgan Stanley (February 7, 2014). Accessed: April 24, 2014, at www.fhfa.gov/Media/PublicAffairs/Pages/
        FHFA-Announces-$1-25-Billion-Settlement-With-Morgan-Stanley.aspx. Federal Housing Finance Agency, FHFA
        Announces $122 Million Settlement With Société Générale (February 27, 2014). Accessed: April 24, 2014, at
        www.fhfa.gov/Media/PublicAffairs/Pages/FHFA-Announces-$122-Million-Settlement-With-Soci%C3%A9t%C3%A9-
        G%C3%A9n%C3%A9rale.aspx. Federal Housing Finance Agency, FHFA Announces $885 Million Settlement With Credit
        Suisse (March 21, 2014). Accessed: April 24, 2014, at www.fhfa.gov/Media/PublicAffairs/PublicAffairsDocuments/
        CORRECTEDCreditSuisseSettlement032114F.pdf. Federal Housing Finance Agency, FHFA Announces $9.3 Billion
        Settlement With Bank of America Corporation; Agreement Includes Private-label Securities Settlement As Well As
        Securities Purchases (March 26, 2014). Accessed: April 24, 2014, at www.fhfa.gov/Media/PublicAffairs/Pages/
        FHFA-Announces-$9-3-Billion-Settlement-With-Bank-of-America-Corporation.aspx.




110   Federal Housing Finance Agency Office of Inspector General
Semiannual Report to the Congress • October 1, 2013–March 31, 2014   111
Appendix H: Endnotes                                              2005). See Central Tex. Tel. Coop., 402 F.3d 212
                                                                  (citing Syncor Int’l Corp. v. Shalala, 127 F.3d 90,
                                                                  95 (D.C. Cir. 1997) and Hoctor v. U.S. Dept.
1	    The Inspector General Act of 1978, 5 U.S.C.
                                                                  of Agric., 82 F.3d 165 (7th Cir. 1996) (further
       App. 3 § 5, requires that each inspector general
                                                                  citation omitted)).
       compile a report of his or her office’s operations
       for each six-month period ending March 31 and
                                                            11	   S ee, e.g., Federal Housing Finance Agency
       September 30.
                                                                   Office of Inspector General, “OIG Operations,”
                                                                   Semiannual Report to the Congress: April 1, 2012,
2	    Federal Housing Finance Agency Office of
                                                                   through September 30, 2012, at 5. Accessed:
       Inspector General, FHFA’s Use of Government
                                                                   March 21, 2014, at www.fhfaoig.gov/Content/
       Purchase Cards, AUD-2014-006 (January 31,
                                                                   Files/FourthSemiannualReport_0.pdf. Federal
       2014). Accessed: March 20, 2014, at www.
                                                                   Housing Finance Agency Office of Inspector
       fhfaoig.gov/Content/Files/AUD-2014-006.
                                                                   General, “Verify: Independently Testing and
       pdf. Federal Housing Finance Agency Office of
                                                                   Validating Decision Making,” Semiannual
       Inspector General, FHFA’s Use of Government
                                                                   Report to the Congress: April 1, 2013, through
       Travel Cards, AUD-2014-010 (March 20, 2014).
                                                                   September 30, 2013, at 62. Accessed: March
       Accessed: March 20, 2014, at www.fhfaoig.gov/
                                                                   21, 2014, at www.fhfaoig.gov/Content/Files/
       Content/Files/AUD-2014-010.pdf.
                                                                   SixthSemiannualReport.pdf. Federal Housing
                                                                   Finance Agency Office of Inspector General,
3	    As a matter of policy, OIG notes that it has                Testimony of Steve A. Linick, Inspector General,
       commented on an unpublished draft rule during               Federal Housing Finance Agency, Before the
       the semiannual period when a comment is made,               Committee on Banking, Housing, and Urban
       and then OIG discusses the substance of its                 Affairs (April 18, 2013). Accessed: March
       comment in a later semiannual report once the               20, 2014, at www.fhfaoig.gov/Content/Files/
       rule is finalized and published.                            Linick%20testimony%20Senate%20Banking.
                                                                   pdf.
4	    Exec. Order No. 12,549 § 3 (1986).
                                                            12	    is discussion was inadvertently omitted from
                                                                  Th
5	    Exec. Order No. 12,549 §§ 3, 6 (1986).                      OIG’s sixth Semiannual Report.

6	    See 52 Fed. Reg. 20,360 (May 29, 1987).               13	    ederal Housing Finance Agency, About FHFA:
                                                                  F
                                                                  Who We Are & What We Do. Accessed: April 24,
7	    48 C.F.R. § 9.402(e).                                       2014, at www.fhfa.gov/AboutUs.

8	    31 U.S.C. §§ 3801-3812.                               14	    ederal Housing Finance Agency, “Message
                                                                  F
                                                                  from the Acting Director,” 2012 Performance
9	    See generally 5 U.S.C. § 551 et seq.                        and Accountability Report, at 4. Accessed: April
                                                                  24, 2014, at www.fhfa.gov/AboutUs/Reports/
10	   5 U.S.C. § 554. 5 U.S.C. § 553(a). Central Tex.            ReportDocuments/2012_PAR_508.pdf.
       Tel. Coop. v. FCC, 402 F.3d 205, 210 (D.C. Cir.


112       Federal Housing Finance Agency Office of Inspector General
15	   Id., “FHFA at a Glance,” at 10.                              2013 Financial Results,” Freddie Mac Reports
                                                                    Net Income of $48.7 Billion for Full-Year 2013;
16	   Id., “FY 2012 Profile,” at 11.                               Comprehensive Income of $51.6 Billion, at
                                                                    1 (February 27, 2014). Accessed: March 7,
17	   Id., “Fannie Mae and Freddie Mac (the                        2014, at www.freddiemac.com/investors/er/
       Enterprises),” at 15.                                        pdf/2013er-4q13_release.pdf. Federal Housing
                                                                    Finance Agency, “Table 3. Fannie Mae Earnings,”
                                                                    “Table 12. Freddie Mac Earnings,” 2012
18	   Id., “Regulator of the Enterprises and the
                                                                    Report to Congress, at 80, 97 (June 13, 2013).
       FHLBanks,” at 10.
                                                                    Accessed: April 24, 2014, at www.fhfa.gov/
                                                                    AboutUs/Reports/ReportDocuments/2012_
19	    epartment of the Treasury, Written Testimony
      D
                                                                    AnnualReportToCongress_508.pdf.
      by Secretary of the Treasury Timothy F. Geithner
      before the Senate Committee on Banking, Housing
                                                              23	    annie Mae, “Table 7: Summary of Consolidated
                                                                    F
      & Urban Affairs (March 15, 2011). Accessed:
                                                                    Results of Operations,” Form 10-K for the
      January 23, 2014, at www.treasury.gov/press-
                                                                    Fiscal Year Ended December 31, 2013, at 71.
      center/press-releases/Pages/tg1103.aspx.
                                                                    Accessed: March 7, 2014, at www.fanniemae.
                                                                    com/resources/file/ir/pdf/quarterly-annual-
20	    ederal Housing Finance Agency, “Executive
      F
                                                                    results/2013/10k_2013.pdf.
      Summary,” Conservator’s Report on the Enterprises’
      Financial Performance, Second Quarter 2010, at
                                                              24	    reddie Mac, “Table 8 — Summary Consolidated
                                                                    F
      3. Accessed: April 24, 2014, at www.fhfa.gov/
                                                                    Statements of Comprehensive Income,” Form
      AboutUs/Reports/ReportDocuments/2010-
                                                                    10-K for the Fiscal Year Ended December 31,
      2Q_ConservatorsRpt_508.pdf.
                                                                    2013, at 61. Accessed: March 7, 2014, at www.
                                                                    freddiemac.com/investors/er/pdf/10k_022714.
21	   Federal Housing Finance Agency, “Strategic
                                                                    pdf.
       Goal 2: Contracting Enterprise Operations,”
       A Strategic Plan for Enterprise Conservatorships:
                                                              25	    annie Mae, “Deferred Tax Assets and Liabilities,”
                                                                    F
       The Next Chapter in a Story that Needs an
                                                                    Form 10-K for the Fiscal Year Ended December 31,
       Ending, at 14 (February 21, 2012). Accessed:
                                                                    2013, at F-51, F-52. Accessed: March 7, 2014,
       April 24, 2014, at www.fhfa.gov/AboutUs/
                                                                    at www.fanniemae.com/resources/file/ir/pdf/
       Reports/ReportDocuments/20120221_
                                                                    quarterly-annual-results/2013/10k_2013.pdf.
       StrategicPlanConservatorships_508.pdf.

                                                              26	   Id.
22	   Fannie Mae, Fannie Mae Reports Comprehensive
       Income of $84.8 Billion for 2013 and $6.6
       Billion for Fourth Quarter 2013, at 1 (February        27	    reddie Mac, “Deferred Tax Assets and
                                                                    F
       21, 2014). Accessed: March 7, 2014, at www.                  Liabilities,” “Income Tax Benefit,” Form 10-K for
       fanniemae.com/resources/file/ir/pdf/quarterly-               the Fiscal Year Ended December 31, 2013, at 97,
       annual-results/2013/q42013_release.pdf.                      69. Accessed: March 7, 2014, at www.freddiemac.
       Freddie Mac, “Full-Year and Fourth Quarter                   com/investors/er/pdf/10k_022714.pdf.



                                        Semiannual Report to the Congress • October 1, 2013–March 31, 2014       113
28	   Id., “Valuation Allowance Against Net Deferred             pdf/10k_022714.pdf. Fannie Mae, “Credit Risk
       Tax Assets,” at 231, 232.                                  Profile,” “Single-Family Portfolio Diversification
                                                                  and Monitoring,” Form 10-K for the Fiscal
29	   Fannie Mae, “Credit-Related (Income) Expense,”             Year Ended December 31, 2013, at 4, 123.
       “Table 7: Summary of Consolidated Results of               Accessed: April 10, 2014, at www.fanniemae.
       Operations,” Form 10-K for the Fiscal Year Ended           com/resources/file/ir/pdf/quarterly-annual-
       December 31, 2013, at 78, 71. Accessed: March              results/2013/10k_2013.pdf.
       7, 2014, at www.fanniemae.com/resources/file/ir/
       pdf/quarterly-annual-results/2013/10k_2013.pdf.      34	    annie Mae, “Executive Summary,” Form 10-K
                                                                  F
                                                                  for the Fiscal Year Ended December 31, 2013, at 2.
30	   Freddie Mac, “Table 8 — Summary Consolidated               Accessed: March 10, 2014, at www.fanniemae.
       Statements of Comprehensive Income,” Form                  com/resources/file/ir/pdf/quarterly-annual-
       10-K for the Fiscal Year Ended December 31,                results/2013/10k_2013.pdf. Freddie Mac, “Table
       2013, at 61. Accessed: March 7, 2014, at www.              36 — Single-Family Credit Guarantee Portfolio
       freddiemac.com/investors/er/pdf/10k_022714.                Data by Year of Origination,” Form 10-K for the
       pdf.                                                       Fiscal Year Ended December 31, 2013, at 104.
                                                                  Accessed: March 10, 2014, at www.freddiemac.
31	   Id., “Benefit (Provision) for Credit Losses,” at           com/investors/er/pdf/10k_022714.pdf.
       64. Fannie Mae, “Comprehensive Income,”
       Form 10-K for the Fiscal Year Ended December 31,     35	    annie Mae, “Table 44: Single-Family
                                                                  F
       2013, at 3. Accessed: March 7, 2014, at www.               Conventional Serious Delinquent Loan
       fanniemae.com/resources/file/ir/pdf/quarterly-             Concentration Analysis,” Form 10-K for the
       annual-results/2013/10k_2013.pdf.                          Fiscal Year Ended December 31, 2013, at 132.
                                                                  Accessed: March 10, 2014, at www.fanniemae.
32	   Freddie Mac, “Single-Family Guarantee Segment              com/resources/file/ir/pdf/quarterly-annual-
       Strategies,” Form 10-K for the Fiscal Year Ended           results/2013/10k_2013.pdf. Freddie Mac, “Table
       December 31, 2013, at 5, 6. Accessed: April                36 — Single-Family Credit Guarantee Portfolio
       10, 2014, at www.freddiemac.com/investors/                 Data by Year of Origination,” Form 10-K for the
       er/pdf/10k_022714.pdf. Fannie Mae, “Credit                 Fiscal Year Ended December 31, 2013, at 104.
       Risk Profile,” “Guaranty Fees on Recently                  Accessed: March 10, 2014, at www.freddiemac.
       Acquired Single-Family Loans,” Form 10-K for               com/investors/er/pdf/10k_022714.pdf. Freddie
       the Fiscal Year Ended December 31, 2013, at 4,             Mac, “Maintaining Sound Credit Quality on
       5. Accessed: April 10, 2014, at www.fanniemae.             the Loans We Purchase or Guarantee,” Form
       com/resources/file/ir/pdf/quarterly-annual-                10-Q for the Quarterly Period Ended September
       results/2013/10k_2013.pdf.                                 30, 2013, at 5. Accessed: January 16, 2014, at
                                                                  http://api40.10kwizard.com/cgi/convert/pdf/
                                                                  FEDERALHOMELOANMORTGAGECORP-
33	   Freddie Mac, “Single-Family Guarantee Segment
                                                                  20131107-10Q-20130930.pdf?ipage=9212902
       Strategies,” “Competitive and Market Risks,”
                                                                  &xml=1&quest=1&rid=23&section=1&sequen
       Form 10-K for the Fiscal Year Ended December
                                                                  ce=-1&pdf=1&dn=1.
       31, 2013, at 5, 6, 40. Accessed: January 22,
       2014, at www.freddiemac.com/investors/er/


114       Federal Housing Finance Agency Office of Inspector General
36	   Fannie Mae, “REO Management,” Form 10-K                 fanniemae.com/resources/file/ir/pdf/quarterly-
       for the Fiscal Year Ended December 31, 2013,            annual-results/2013/10k_2013.pdf. Freddie Mac,
       at 135. Accessed: March 7, 2014, at www.                “Single-Family Guarantee Segment,” Form 10-K
       fanniemae.com/resources/file/ir/pdf/quarterly-          for the Fiscal Year Ended December 31, 2013, at
       annual-results/2013/10k_2013.pdf. Freddie Mac,          13. Accessed: April 11, 2014, at www.freddiemac.
       “Delinquencies,” Form 10-K for the Fiscal Year          com/investors/er/pdf/10k_022714.pdf.
       Ended December 31, 2013, at 121, 122. Accessed:
       April 11, 2014, at www.freddiemac.com/            41	    reddie Mac, “Glossary,” Form 10-K for the Fiscal
                                                               F
       investors/er/pdf/10k_022714.pdf.                        Year Ended December 31, 2013, at 319. Accessed:
                                                               March 7, 2014, at www.freddiemac.com/
37	    ederal Housing Finance Agency, “Enterprises
      F                                                        investors/er/pdf/10k_022714.pdf. Fannie Mae,
      Single-Family Book Profile - As of December              “Single-Family Business Results,” “Multifamily
      31, 2012,” Foreclosure Prevention Report,                Business Results,” Form 10-K for the Fiscal
      Fourth Quarter 2012: FHFA Federal Property               Year Ended December 31, 2013, at 89, 91, 92.
      Manager’s Report, at 41. Accessed: April 24,             Accessed: March 7, 2014, at www.fanniemae.
      2014, at www.fhfa.gov/AboutUs/Reports/                   com/resources/file/ir/pdf/quarterly-annual-
      ReportDocuments/20124Q_FPR_N508.pdf.                     results/2013/10k_2013.pdf.
      Federal Housing Finance Agency, “Enterprises
      Single-Family Book Profile - As of December        42	    ederal Housing Finance Agency Office of
                                                               F
      31, 2013,” Foreclosure Prevention Report,                Inspector General, “Preface,” FHFA’s Initiative
      Fourth Quarter 2013: FHFA Federal Property               to Reduce the Enterprises’ Dominant Position in
      Manager’s Report, at 41. Accessed: April 24,             the Housing Finance System by Raising Gradually
      2014, at www.fhfa.gov/AboutUs/Reports/                   Their Guarantee Fees, EVL-2013-005, at 9 (July
      ReportDocuments/2013Q4_FPR_N508.pdf.                     16, 2013). Accessed: January 22, 2014, at www.
                                                               fhfaoig.gov/Content/Files/EVL-2013-005.pdf.
38	    annie Mae, “Table 48: Single-Family Foreclosed
      F
      Properties,” Form 10-K for the Fiscal Year Ended   43	    annie Mae, “Table 20: Single-Family Business
                                                               F
      December 31, 2013, at 135. Accessed: April 2,            Results,” “Table 21: Multifamily Business
      2014, at www.fanniemae.com/resources/file/ir/            Results,” Form 10-K for the Fiscal Year Ended
      pdf/quarterly-annual-results/2013/10k_2013.pdf.          December 31, 2013, at 89, 92. Accessed: March
                                                               9, 2014, at www.fanniemae.com/resources/file/ir/
39	    reddie Mac, “Table 54 — REO Activity by
      F                                                        pdf/quarterly-annual-results/2013/10k_2013.pdf.
      Region,” Form 10-K for the Fiscal Year Ended             Freddie Mac, “Table 16 — Segment Earnings and
      December 31, 2013, at 131. Accessed: April 2,            Key Metrics — Single-Family Guarantee,” “Table
      2014, at www.freddiemac.com/investors/er/                19 — Segment Earnings and Key Metrics —
      pdf/10k_022714.pdf.                                      Multifamily,” Form 10-K for the Fiscal Year Ended
                                                               December 31, 2013, at 72, 81. Accessed: March
40	   Fannie Mae, “Single-Family Business Results,”           9, 2014, at www.freddiemac.com/investors/er/
       “Multifamily Business Results,” Form 10-K for           pdf/10k_022714.pdf.
       the Fiscal Year Ended December 31, 2013, at
       89, 91, 92. Accessed: March 7, 2014, at www.            Percent changes based on actual versus rounded
                                                               values.

                                   Semiannual Report to the Congress • October 1, 2013–March 31, 2014       115
44	    annie Mae, “Multifamily Business Results,”
      F                                                           Accessed: April 11, 2014, at www.fanniemae.
      Form 10-K for the Fiscal Year Ended December 31,            com/resources/file/ir/pdf/quarterly-annual-
      2013, at 93. Accessed: March 9, 2014, at www.               results/2013/10k_2013.pdf.
      fanniemae.com/resources/file/ir/pdf/quarterly-
      annual-results/2013/10k_2013.pdf.                     49	    reddie Mac, “Derivative Instruments,” Form
                                                                  F
                                                                  10-K for the Fiscal Year Ended December 31,
45	    ederal Housing Finance Agency, FHFA Directs
      F                                                           2013, at 239. Accessed: April 11, 2014, at www.
      Fannie Mae and Freddie Mac to Delay Guarantee               freddiemac.com/investors/er/pdf/10k_022714.
      Fee Changes (January 8, 2014). Accessed: April              pdf. Fannie Mae, “Derivative Instruments,”
      24, 2014, at www.fhfa.gov/Media/PublicAffairs/              Form 10-K for the Fiscal Year Ended December 31,
      Pages/FHFA-Directs-Fannie-Mae-and-Freddie-                  2013, at 153. Accessed: April 11, 2014, at www.
      Mac-To-Delay-Guarantee-Fee-Changes.aspx.                    fanniemae.com/resources/file/ir/pdf/quarterly-
                                                                  annual-results/2013/10k_2013.pdf.
46	    reddie Mac, “Full-Year Net Income and
      F
      Comprehensive Income (Loss),” Fourth                  50	    annie Mae, “Table 11: Fair Value Gains (Losses),
                                                                  F
      Quarter 2012 Financial Results Supplement, at               Net,” Form 10-K for the Fiscal Year Ended
      4 (February 28, 2013). Accessed: January 23,                December 31, 2013, at 76. Accessed: March 7,
      2014, at www.freddiemac.com/investors/er/pdf/               2014, at www.fanniemae.com/resources/file/ir/
      supplement_4q12.pdf. Fannie Mae, “Summary of                pdf/quarterly-annual-results/2013/10k_2013.pdf.
      Our Financial Performance for 2013,” Form 10-K              Freddie Mac, “Table 8 — Summary Consolidated
      for the Fiscal Year Ended December 31, 2013, at             Statements of Comprehensive Income,” Form
      3. Accessed: April 11, 2014, at www.fanniemae.              10-K for the Fiscal Year Ended December 31,
      com/resources/file/ir/pdf/quarterly-annual-                 2013, at 61. Accessed: March 7, 2014, at www.
      results/2013/10k_2013.pdf.                                  freddiemac.com/investors/er/pdf/10k_022714.
                                                                  pdf.
47	   S tandard & Poor’s Dow Jones Indices, S&P/
       Case-Shiller 20-City Composite Home Price Index      51	    annie Mae, “Table 11: Fair Value Gains (Losses),
                                                                  F
       (February 25, 2014). Accessed: March 7, 2014,              Net,” Form 10-K for the Fiscal Year Ended
       at http://us.spindices.com/indices/real-estate/            December 31, 2013, at 76. Accessed: March 7,
       sp-case-shiller-20-city-composite-home-price-              2014, at www.fanniemae.com/resources/file/ir/
       index (click on “Additional Info,” then click              pdf/quarterly-annual-results/2013/10k_2013.pdf.
       “Seasonally Adjusted Home Price Index Levels,”             Freddie Mac, “Derivative Gains (Losses),” Form
       then download the Excel file).                             10-K for the Fiscal Year Ended December 31, 2013,
                                                                  at 65, 66. Accessed: March 9, 2014, at www.
48	    reddie Mac, “Interest-Rate Risk and Other
      F                                                           freddiemac.com/investors/er/pdf/10k_022714.
      Market Risks,” Form 10-K for the Fiscal Year                pdf.
      Ended December 31, 2013, at 163. Accessed: April
      11, 2014, at www.freddiemac.com/investors/er/         52	    ederal Housing Finance Agency, FHFA Recovers
                                                                  F
      pdf/10k_022714.pdf. Fannie Mae, “Interest Rate              Nearly $8 Billion for Taxpayers in 2013 Through
      Risk Management Strategy,” Form 10-K for the                Settlements (January 2, 2014). Accessed: April
      Fiscal Year Ended December 31, 2013, at 152, 153.           24, 2014, at www.fhfa.gov/Media/PublicAffairs/


116       Federal Housing Finance Agency Office of Inspector General
      Pages/FHFA-Recovers-Nearly-$8-Billion-                   Form 10-K for the Fiscal Year Ended December 31,
      for-Taxpayers-in-2013.aspx. Federal Housing              2013, at 67. Accessed: March 9, 2014, at www.
      Finance Agency, Federal Housing Finance Agency           freddiemac.com/investors/er/pdf/10k_022714.
      Update on Private-Label Securities Actions 2013          pdf. Fannie Mae, “The Capital Markets Group’s
      Settlements and Remaining Cases. Accessed: April         Mortgage Portfolio,” Form 10-K for the Fiscal Year
      24, 2014, at www.fhfa.gov/Media/PublicAffairs/           Ended December 31, 2013, at 96. Accessed: March
      PublicAffairsDocuments/FHFA_Update_on_                   9, 2014, at www.fanniemae.com/resources/file/ir/
      PLS_Actions_2013_Settlements_and_Cases.pdf.              pdf/quarterly-annual-results/2013/10k_2013.pdf.
      Freddie Mac, “Non-Agency Mortgage-Related
      Security Issuers,” Form 10-K for the Fiscal Year   57	    annie Mae, “Available-for-Sale Securities,” Form
                                                               F
      Ended December 31, 2013, at 247. Accessed:               10-K for the Fiscal Year Ended December 31,
      March 12, 2014, at www.freddiemac.com/                   2013, at F-37. Accessed: March 9, 2014, at www.
      investors/er/pdf/10k_022714.pdf.                         fanniemae.com/resources/file/ir/pdf/quarterly-
                                                               annual-results/2013/10k_2013.pdf. Freddie Mac,
53	    reddie Mac, “Quarterly Financial Results,”
      F                                                        “Other Gains (Losses) on Investment Securities
      Third Quarter 2013 Financial Results Supplement,         Recognized in Earnings,” Form 10-K for the Fiscal
      at 3 (November 7, 2013). Accessed: March                 Year Ended December 31, 2013, at 67. Accessed:
      12, 2014, at www.freddiemac.com/investors/               March 9, 2014, at www.freddiemac.com/
      er/pdf/supplement_3q13.pdf. Fannie Mae,                  investors/er/pdf/10k_022714.pdf.
      “Comprehensive Income,” Form 10-K for the
      Fiscal Year Ended December 31, 2013, at 4.         58	    ederal Housing Finance Agency Office of
                                                               F
      Accessed: April 11, 2014, at www.fanniemae.              Inspector General, “Amendments to the PSPAs,”
      com/resources/file/ir/pdf/quarterly-annual-              Analysis of the 2012 Amendments to the Senior
      results/2013/10k_2013.pdf.                               Preferred Stock Purchase Agreements, WPR-
                                                               2013-002, at 10, 11, 12 (March 20, 2013).
54	    annie Mae, “Consolidated Statements of
      F                                                        Accessed: March 10, 2014, at www.fhfaoig.gov/
      Operations and Comprehensive Income (Loss),”             Content/Files/WPR-2013-002_2.pdf. Federal
      Form 10-K for the Fiscal Year Ended December 31,         Housing Finance Agency, “Table 2: Dividends
      2013, at F-4. Accessed: March 9, 2014, at www.           on Enterprise Draws from Treasury,” Data as
      fanniemae.com/resources/file/ir/pdf/quarterly-           of April 1, 2014 on Treasury and Federal Reserve
      annual-results/2013/10k_2013.pdf.                        Purchase Programs for GSE and Mortgage-Related
                                                               Securities, at 3. Accessed: April 24, 2014, at www.
55	    reddie Mac, “Table 8 — Summary Consolidated
      F                                                        fhfa.gov/DataTools/Documents/Market-Data/
      Statements of Comprehensive Income,” Form                TSYSupport2014-04-06.pdf.
      10-K for the Fiscal Year Ended December 31,
      2013, at 61. Accessed: March 9, 2014, at www.      59	    annie Mae, “Table 25: Summary of
                                                               F
      freddiemac.com/investors/er/pdf/10k_022714.              Consolidated Balance Sheets,” “Net Worth,”
      pdf.                                                     “Regulatory Capital Requirements,” Form 10-K
                                                               for the Fiscal Year Ended December 31, 2013, at
                                                               99, 4, F-73. Accessed: March 10, 2014, at www.
56	    reddie Mac, “Other Gains (Losses) on
      F
                                                               fanniemae.com/resources/file/ir/pdf/quarterly-
      Investment Securities Recognized in Earnings,”
                                                               annual-results/2013/10k_2013.pdf.

                                   Semiannual Report to the Congress • October 1, 2013–March 31, 2014        117
60	   Freddie Mac, “Total Equity (Deficit),” Form 10-K      65	    ederal Housing Finance Agency, “Table 1:
                                                                   F
       for the Fiscal Year Ended December 31, 2013,                Quarterly Draws on Treasury Commitments
       at 102. Accessed: March 10, 2014, at www.                   to Fannie Mae and Freddie Mac per the Senior
       freddiemac.com/investors/er/pdf/10k_022714.                 Preferred Stock Purchase Agreements,” “Table 2:
       pdf.                                                        Dividends on Enterprise Draws from Treasury,”
                                                                   Data as of April 1, 2014 on Treasury and Federal
61	   Federal Housing Finance Agency, “Table 2:                   Reserve Purchase Programs for GSE and Mortgage-
       Dividends on Enterprise Draws from Treasury,”               Related Securities, at 2, 3. Accessed: April 24,
       Data as of April 1, 2014 on Treasury and Federal            2014, at www.fhfa.gov/DataTools/Documents/
       Reserve Purchase Programs for GSE and Mortgage-             Market-Data/TSYSupport2014-04-06.pdf.
       Related Securities, at 3. Accessed: April 24, 2014,
       at www.fhfa.gov/DataTools/Documents/Market-           66	   I d., “Table 1: Quarterly Draws on Treasury
       Data/TSYSupport2014-04-06.pdf.                               Commitments to Fannie Mae and Freddie
                                                                    Mac per the Senior Preferred Stock Purchase
62	   Federal Housing Finance Agency, “Enterprises,”               Agreements,” at 2. Federal Housing Finance
       2012 Report to Congress, at iii (June 13, 2013).             Agency Office of Inspector General, “Changes
       Accessed: April 24, 2014, at www.fhfa.gov/                   to the Dividends,” “The Enterprises May Pay
       AboutUs/Reports/ReportDocuments/2012_                        More to Treasury than Under the Previous 10%
       AnnualReportToCongress_508.pdf.                              Dividend,” Analysis of the 2012 Amendments to the
                                                                    Senior Preferred Stock Purchase Agreements, WPR-
63	   Federal Housing Finance Agency, “Table 1:                    2013-002, at 11, 14 (March 20, 2013). Accessed:
       Quarterly Draws on Treasury Commitments                      March 13, 2014, at www.fhfaoig.gov/Content/
       to Fannie Mae and Freddie Mac per the Senior                 Files/WPR-2013-002_2.pdf.
       Preferred Stock Purchase Agreements,” “Table 2:
       Dividends on Enterprise Draws from Treasury,”         67	    reddie Mac, “Income Taxes,” Form 10-K for the
                                                                   F
       Data as of April 1, 2014 on Treasury and Federal            Fiscal Year Ended December 31, 2013, at 184.
       Reserve Purchase Programs for GSE and Mortgage-             Accessed: March 13, 2014, at www.freddiemac.
       Related Securities, at 2, 3. Accessed: April 24,            com/investors/er/pdf/10k_022714.pdf. Fannie
       2014, at www.fhfa.gov/DataTools/Documents/                  Mae, “2013 compared with 2012,” Form 10-K
       Market-Data/TSYSupport2014-04-06.pdf.                       for the Fiscal Year Ended December 31, 2013, at
                                                                   90, 93, 95. Accessed: April 11, 2014, at www.
64	   Federal Housing Finance Agency Office of                    fanniemae.com/resources/file/ir/pdf/quarterly-
       Inspector General, “The Enterprises May Pay                 annual-results/2013/10k_2013.pdf.
       More to Treasury than Under the Previous 10%
       Dividend,” Analysis of the 2012 Amendments to the     68	    reddie Mac, “Sustainability of Earnings,” Freddie
                                                                   F
       Senior Preferred Stock Purchase Agreements, WPR-            Mac Reports Net Income of $48.7 Billion for
       2013-002, at 14 (March 20, 2013). Accessed:                 Full-Year 2013; Comprehensive Income of $51.6
       January 28, 2014, at www.fhfaoig.gov/Content/               Billion, at 3 (February 27, 2014). Accessed:
       Files/WPR-2013-002_2.pdf.                                   March 12, 2014, at www.freddiemac.com/
                                                                   investors/er/pdf/2013er-4q13_release.pdf. Fannie



118       Federal Housing Finance Agency Office of Inspector General
      Mae, Fannie Mae Reports Comprehensive Income                 www.federalreserve.gov/pubs/feds/2011/201101/
      of $84.8 Billion for 2013 and $6.6 Billion for               index.html.
      Fourth Quarter 2013, at 1 (February 21, 2014).
      Accessed: March 12, 2014, at www.fanniemae.            72	    ederal Housing Finance Agency, “GSE
                                                                   F
      com/resources/file/ir/pdf/quarterly-annual-                  Mortgage-Backed Securities Purchase Facility,”
      results/2013/q42013_release.pdf. Fannie Mae,                 Mortgage Market Note 10-1 (Update of
      “Deferred Tax Assets and Liabilities,” Form 10-K             Mortgage Market Notes 09-1 and 09-1A), at 5
      for the Fiscal Year Ended December 31, 2013,                 (January 20, 2010). Accessed: April 24, 2014,
      at F-52. Accessed: March 13, 2014, at www.                   at www.fhfa.gov/PolicyProgramsResearch/
      fanniemae.com/resources/file/ir/pdf/quarterly-               Research/PaperDocuments/20100120_
      annual-results/2013/10k_2013.pdf. Freddie Mac,               MMNote_10-1_508.pdf. Federal Housing
      “Income Tax Benefit,” Form 10-K for the Fiscal               Finance Agency, “Table 4: Federal Reserve GSE
      Year Ended December 31, 2013, at 69. Accessed:               and Ginnie Mae MBS Purchase Program,” “Table
      March 13, 2014, at www.freddiemac.com/                       5: Federal Reserve Purchases of GSE Debt,”
      investors/er/pdf/10k_022714.pdf.                             Data as of April 1, 2014 on Treasury and Federal
                                                                   Reserve Purchase Programs for GSE and Mortgage-
69	   Federal Housing Finance Agency Office of                    Related Securities, at 5, 6, 7, 8. Accessed: April 24,
       Inspector General, “Amendments to the PSPAs,”               2014, at www.fhfa.gov/DataTools/Documents/
       Analysis of the 2012 Amendments to the Senior               Market-Data/TSYSupport2014-04-06.pdf.
       Preferred Stock Purchase Agreements, WPR-2013-              Federal Reserve Bank of New York, FAQs: Agency
       002, at 10 (March 20, 2013). Accessed: January              MBS Purchases. Accessed: March 12, 2014, at
       28, 2014, at www.fhfaoig.gov/Content/Files/                 www.newyorkfed.org/markets/ambs/ambs_faq.
       WPR-2013-002_2.pdf.                                         html. Board of Governors of the Federal Reserve
                                                                   System, Press Release (January 29, 2014).
70	   Federal Housing Finance Agency, “Table 3:                   Accessed: April 15, 2014, at www.federalreserve.
       Treasury Purchases of Freddie Mac and Fannie                gov/newsevents/press/monetary/20140129a.htm.
       Mae MBS,” “Table 4: Federal Reserve GSE and
       Ginnie Mae MBS Purchase Program,” “Table 5:           73	    ederal Home Loan Banks Office of Finance,
                                                                   F
       Federal Reserve Purchases of GSE Debt,” Data                “Overview,” Combined Financial Report for the
       as of April 1, 2014 on Treasury and Federal Reserve         Year Ended December 31, 2013, at 37. Accessed:
       Purchase Programs for GSE and Mortgage-Related              April 3, 2014, at www.fhlb-of.com/ofweb_
       Securities, at 4, 5, 6, 7, 8. Accessed: April 24,           userWeb/resources/13yrend.pdf.
       2014, at www.fhfa.gov/DataTools/Documents/
       Market-Data/TSYSupport2014-04-06.pdf.                 74	   Id., “Background Information,” at F-10.

71	   Diana Hancock and Wayne Passmore, Board               75	    ederal Home Loan Banks, Overview: The Federal
                                                                   F
       of Governors of the Federal Reserve System,                 Home Loan Banks. Accessed: January 23, 2014,
       “The Structure of the U.S. Secondary Mortgage               at www.fhlbanks.com/overview_whyfhlb.htm.
       Market: Late-2008 through Early 2010,” Did                  Federal Home Loan Banks Office of Finance,
       the Federal Reserve’s MBS Purchase Program Lower            “General Information,” Combined Financial
       Mortgage Rates? Accessed: March 10, 2014, at                Report for the Year Ended December 31, 2013, at


                                     Semiannual Report to the Congress • October 1, 2013–March 31, 2014            119
      2. Accessed: April 3, 2014, at www.fhlb-of.com/       84	   Id., “Interest Rate Levels and Volatility,” at 38.
      ofweb_userWeb/resources/13yrend.pdf.
                                                            85	   I d., “Interest Rate Levels and Volatility,” “Lower
76	    ederal Home Loan Banks Office of Finance,
      F                                                            Yields,” at 38, 57.
      “General Information,” Combined Financial
      Report for the Year Ended December 31, 2013, at       86	   Id., “Combined Statement of Income,” at F-4.
      2. Accessed: April 3, 2014, at www.fhlb-of.com/
      ofweb_userWeb/resources/13yrend.pdf.                        Percent changes based on actual versus rounded
                                                                  values.
77	   Id., “General Information,” at 3.
                                                            87	   I d., “Table 28 - Changes in Net Income,”
78	   Id., “Table 6 - Membership by Type of Member,”              “Combined Statement of Income,” at 54, F-4.
       at 31.
                                                            88	   I d., “Combined Results of Operations,”
79	   Id., “Overview,” “Net Income,” at 37, 54.                   “Combined Statement of Income,” at 39, F-4.

80	   Id., at cover page.                                        Percent changes based on actual versus rounded
                                                                  values.
81	    e FHLBank System can borrow at favorable
      Th
      rates due to the perception in financial markets      89	   Id.
      that the federal government will guarantee
      repayment of its debt even though such                      Percent changes based on actual versus rounded
      a guarantee has not been made explicitly.                   values.
      This phenomenon is known as the “implicit
      guarantee.” See Federal Housing Finance Agency        90	   I d., “Note 11 - Derivatives and Hedging
      Office of Inspector General, “Preface,” FHFA’s               Activities,” at F-45, F-46, F-47.
      Oversight of Troubled Federal Home Loan Banks,
      EVL-2012-001, at 6 (January 11, 2012).                91	   I d., “Gains (Losses) on Derivatives and Hedging
      Accessed: January 27, 2014, at www.fhfaoig.gov/              Activities,” at 60.
      Content/Files/Troubled%20Banks%20EVL-
      2012-001.pdf.                                         92	   I d., “Selected Financial Data,” at 35. Federal
                                                                   Home Loan Banks Office of Finance, “Selected
82	    ederal Home Loan Banks Office of Finance,
      F                                                            Financial Data,” Combined Financial Report
      “Economy and Financial Markets,” “Combined                   for the Year Ended December 31, 2011, at 34.
      Financial Condition,” “Average Balances,”                    Accessed: March 31, 2014, at www.fhlb-of.com/
      Combined Financial Report for the Year Ended                 ofweb_userWeb/resources/11yrend.pdf.
      December 31, 2013, at 38, 39, 58. Accessed:
      March 31, 2014, at www.fhlb-of.com/ofweb_             93	    ederal Home Loan Banks Office of Finance,
                                                                  F
      userWeb/resources/13yrend.pdf.                              FHLBanks Satisfy REFCORP Obligations;
                                                                  Launch Joint Capital Enhancement Agreement, at
83	   Id., “Net Income,” at 54.

120       Federal Housing Finance Agency Office of Inspector General
      1 (August 8, 2011). Accessed: March 31, 2014,               Reports/ReportDocuments/20131125_
      at www.fhlb-of.com/ofweb_userWeb/resources/                 ConservatorProgressRpt_N508.pdf.
      PR_20110808_FHLBank_System_Capital_
      Initiative_Launch.pdf.                               99	     ederal Housing Finance Agency, FHFA
                                                                  F
                                                                  Announces Overhaul of Fannie Mae and Freddie
94	   Federal Home Loan Bank of Dallas, “What                    Mac Mortgage Insurance Master Policy Requirements
       Are the Potential Benefits of the Agreement?,”             (December 2, 2013). Accessed: April 24, 2014,
       Joint Capital Enhancement Agreement Questions              at www.fhfa.gov/Media/PublicAffairs/Pages/
       and Answers, at 1 (March 1, 2011). Accessed:               FHFA-Announces-Overhaul-of-Fannie-Mae-and-
       March 31, 2014, at www.fhlb.com/data/                      Freddie-Mac-Mortgage-Insurance-Master-Policy-
       REFCORP_QA.pdf.                                            Requirements.aspx.

95	   Federal Housing Finance Agency, U.S.                100	    ederal Housing Finance Agency, “Maintain
                                                                  F
       Representative Melvin L. Watt Sworn in as                  Foreclosure Prevention Activities and Credit
       Director of Federal Housing Finance Agency                 Availability for New and Refinanced Mortgages,”
       (January 6, 2014). Accessed: April 24, 2014, at            Conservatorship Strategic Plan: Performance
       www.fhfa.gov/Media/PublicAffairs/Pages/U-S-                Goals for 2013, at 3. Accessed: April 24,
       Representative-Melvin-L-Watt-Sworn-In.aspx.                2014, at www.fhfa.gov/AboutUs/Reports/
                                                                  ReportDocuments/2013EnterpriseScorecard_508.
96	   Federal Housing Finance Agency, Federal Housing            pdf.
       Finance Agency Announces Departure of Edward
       J. DeMarco (March 24, 2014). Accessed: April        101	    ederal Housing Finance Agency, FHFA Directs
                                                                  F
       24, 2014, at www.fhfa.gov/Media/PublicAffairs/             Fannie Mae and Freddie Mac to Restrict Lender-
       Pages/Federal-Housing-Finance-Agency-                      Placed Insurance Practices (November 5, 2013).
       Announces-Departure-of-Edward-J--DeMarco.                  Accessed: April 24, 2014, at www.fhfa.gov/Media/
       aspx.                                                      PublicAffairs/Pages/FHFA-Directs-Fannie-Mae-
                                                                  and-Freddie-Mac-to-Restrict.aspx. Lender Placed
97	   Federal Housing Finance Agency, FHFA                       Insurance, Terms and Conditions, 78 Fed. Reg.
       Announces Significant Steps in Organization of             19,263 (proposed March 29, 2013). Accessed:
       Joint Venture to Establish Common Securitization           February 14, 2014, at www.gpo.gov/fdsys/pkg/
       Platform (October 7, 2013). Accessed: April 24,            FR-2013-03-29/pdf/2013-07338.pdf.
       2014, at www.fhfa.gov/Media/PublicAffairs/
       Pages/FHFA-Announces-Significant-Steps-in-          102	    ender Placed Insurance, Terms and Conditions,
                                                                  L
       Organization-of-Joint-Venture-to-Establish-                78 Fed. Reg. 19,263, 19,264 (proposed March 29,
       Common-Securitization-Platform.aspx.                       2013). Accessed: February 14, 2014, at www.gpo.
                                                                  gov/fdsys/pkg/FR-2013-03-29/pdf/2013-07338.
98	   Federal Housing Finance Agency, “Common                    pdf.
       Securitization Platform,” A Progress Report on
       the Implementation of FHFA’s Strategic Plan for     103	    ederal Housing Finance Agency, Agencies Issue
                                                                  F
       Enterprise Conservatorships, at 4, 5. Accessed:            Proposed Rule on Minimum Requirements for
       April 24, 2014, at www.fhfa.gov/AboutUs/                   Appraisal Management Companies (March 24,


                                     Semiannual Report to the Congress • October 1, 2013–March 31, 2014       121
       2014). Accessed: April 24, 2014, at                      110	    ederal Housing Finance Agency, FHFA Takes
                                                                       F
       www.fhfa.gov/Media/PublicAffairs/Pages/                         Further Steps to Advance Conservatorship Strategic
       Agencies-Issue-Proposed-Rule-on-Minimum-                        Plan by Announcing an Increase in Guarantee
       Requirements-for-Appraisal-Management-                          Fees (December 9, 2013). Accessed: April 24,
       Companies.aspx.                                                 2014, at www.fhfa.gov/Media/PublicAffairs/
                                                                       Pages/FHFA-Takes-Further-Steps-to-Advance-
104	   Id.                                                            Conservatorship-Strategic-Plan-by-Announcing-
                                                                       an-Increase-in-Guarantee-Fees.aspx.
105	   Federal Housing Finance Agency, Agencies Issue
        Final Rule to Exempt Subset of Higher-Priced            111	    ederal Housing Finance Agency Office of
                                                                       F
        Mortgage Loans from Appraisal Requirements                     Inspector General, FHFA’s Initiative to Reduce
        (December 12, 2013). Accessed: April 24, 2014,                 the Enterprises’ Dominant Position in the Housing
        at www.fhfa.gov/Media/PublicAffairs/Pages/                     Finance System by Raising Gradually Their
        Agencies-Issue-Final-Rule-to-Exempt-Subset-of-                 Guarantee Fees, EVL-2013-005 (July 16, 2013).
        Higher-Priced-Mortgage-Loans-from-Appraisal-                   Accessed: February 14, 2014, at www.fhfaoig.gov/
        Requirements.aspx.                                             Content/Files/EVL-2013-005_4.pdf.


106	   Id.                                                     112	    ederal Housing Finance Agency, FHFA Seeks
                                                                       F
                                                                       Public Input on Proposed Gradual Decrease of
107	    ederal Housing Finance Agency, FHFA Directs
       F                                                               Future Fannie Mae and Freddie Mac Loan Purchase
       Fannie Mae and Freddie Mac to Delay Guarantee                   Limits (December 16, 2013). Accessed: April
       Fee Changes (January 8, 2014). Accessed: April                  24, 2014, at www.fhfa.gov/Media/PublicAffairs/
       24, 2014, at www.fhfa.gov/Media/PublicAffairs/                  Pages/FHFA-Seeks-Public-Input-on-Proposed-
       Pages/FHFA-Directs-Fannie-Mae-and-Freddie-                      Gradual-Decrease-of.aspx.
       Mac-To-Delay-Guarantee-Fee-Changes.aspx.
                                                                113	   Id.
108	   Federal Housing Finance Agency, FHFA Takes
        Further Steps to Advance Conservatorship Strategic      114	    ederal Housing Finance Agency, Statement of
                                                                       F
        Plan by Announcing an Increase in Guarantee                    Edward J. DeMarco on Fannie Mae Risk-Sharing
        Fees (December 9, 2013). Accessed: April 24,                   Transaction (October 10, 2013). Accessed: April
        2014, at www.fhfa.gov/Media/PublicAffairs/                     24, 2014, at www.fhfa.gov/Media/PublicAffairs/
        Pages/FHFA-Takes-Further-Steps-to-Advance-                     Pages/Statement-of-Edward-J-DeMarco-on-
        Conservatorship-Strategic-Plan-by-Announcing-                  Fannie-Mae-Risk-Sharing-Transaction.aspx.
        an-Increase-in-Guarantee-Fees.aspx.
                                                                115	    annie Mae, Fannie Mae Prices First Capital
                                                                       F
109	   Federal Housing Finance Agency, FHFA Directs                   Markets Risk Sharing Transaction: $675 Million
        Fannie Mae and Freddie Mac to Delay Guarantee                  Connecticut Avenue Securities Offering Helps
        Fee Changes (January 8, 2014). Accessed: April                 to Meet Conservatorship Goal (October 15,
        24, 2014, at www.fhfa.gov/Media/PublicAffairs/                 2013). Accessed: February 14, 2014, at www.
        Pages/FHFA-Directs-Fannie-Mae-and-Freddie-                     fanniemae.com/portal/about-us/media/financial-
        Mac-To-Delay-Guarantee-Fee-Changes.aspx.                       news/2013/6028.html.


122           Federal Housing Finance Agency Office of Inspector General
116	   Id.                                                   122	   I d. Federal Housing Finance Agency, Federal
                                                                      Housing Finance Agency Update on Private-Label
117	    ederal Housing Finance Agency, “2013
       F                                                              Securities Actions 2013 Settlements and Remaining
       Securities Transactions,” Housing Finance                      Cases. Accessed: April 24, 2014, at www.fhfa.gov/
       Reform: Fundamentals of Transferring Credit Risk               Media/PublicAffairs/PublicAffairsDocuments/
       in a Future Housing Finance System, Statement                  FHFA_Update_on_PLS_Actions_2013_
       of Wanda DeLeo, Deputy Director, Division of                   Settlements_and_Cases.pdf. Federal Housing
       Conservatorship, Federal Housing Finance Agency,               Finance Agency, FHFA Announces $5.1 Billion
       Before the U.S. Senate Committee on Banking,                   in Settlements with J.P. Morgan Chase & Co.;
       Housing, and Urban Affairs (December 10, 2013).                Settlements Include Private-Label Securities and
       Accessed: April 24, 2014, at www.fhfa.gov/Media/               Representation and Warranty Claims (October
       PublicAffairs/Pages/Housing-Finance-Reform-                    25, 2013). Accessed: April 24, 2014, at www.
       Fundamentals-of-Transferring-Credit-Risk-in-a-                 fhfa.gov/Media/PublicAffairs/Pages/FHFA-
       Future-Housing-Finance-System.aspx.                            Announces-$5-1-Billion-in-Settlements.
                                                                      aspx. Federal Housing Finance Agency, FHFA
118	   Freddie Mac, Freddie Mac Structured Agency Credit             Announces $1.9 Billion Settlement With Deutsche
        Risk (STACR®). Accessed: March 13, 2014, at                   Bank (December 20, 2013). Accessed: April 24,
        www.freddiemac.com/creditsecurities/stacr_debt.               2014, at www.fhfa.gov/Media/PublicAffairs/
        html.                                                         Pages/FHFA-Announces-$1-9-Billion-Settlement-
                                                                      With-Deutsche-Bank.aspx. Freddie Mac, “Non-
                                                                      Agency Mortgage-Related Security Issuers,” Form
119	   Freddie Mac, Freddie Mac Agency Credit Insurance
                                                                      10-K for the Fiscal Year Ended December 31, 2013,
        Structure (ACIS): Agency Credit Insurance Structure
                                                                      at 247. Accessed: March 12, 2014, at www.
        1. Accessed: April 17, 2014, at www.freddiemac.
                                                                      freddiemac.com/investors/er/pdf/10k_022714.
        com/creditsecurities/creditrisk_insurance.html.
                                                                      pdf. Fannie Mae, “FHFA Private-Label Mortgage-
                                                                      Related Securities Litigation,” Form 10-K for
120	   Federal Housing Finance Agency, “Contract the
                                                                      the Fiscal Year Ended December 31, 2013, at 61.
        Enterprises Dominant Presence in the Marketplace
                                                                      Accessed: March 12, 2014, at www.fanniemae.
        While Simplifying and Shrinking Certain
                                                                      com/resources/file/ir/pdf/quarterly-annual-
        Operations,” Conservatorship Strategic Plan:
                                                                      results/2013/10k_2013.pdf. Federal Housing
        Performance Goals for 2013, at 2. Accessed: April
                                                                      Finance Agency, FHFA Announces Settlement with
        24, 2014, at www.fhfa.gov/AboutUs/Reports/
                                                                      UBS (July 25, 2013). Accessed: April 24, 2014, at
        ReportDocuments/2013EnterpriseScorecard_508.
                                                                      www.fhfa.gov/Media/PublicAffairs/Pages/FHFA-
        pdf.
                                                                      Announces-Settlement-with-UBS.aspx.

121	   Federal Housing Finance Agency, FHFA Recovers
                                                              123	    ederal Housing Finance Agency, FHFA
                                                                     F
        Nearly $8 Billion for Taxpayers in 2013 Through
                                                                     Announces $9.3 Billion Settlement With Bank of
        Settlements (January 2, 2014). Accessed: April 24,
                                                                     America Corporation; Agreement Includes Private-
        2014, at www.fhfa.gov/Media/PublicAffairs/Pages/
                                                                     label Securities Settlement As Well As Securities
        FHFA-Recovers-Nearly-$8-Billion-for-Taxpayers-
                                                                     Purchases (March 26, 2014). Accessed: April 24,
        in-2013.aspx.
                                                                     2014, at www.fhfa.gov/Media/PublicAffairs/


                                      Semiannual Report to the Congress • October 1, 2013–March 31, 2014          123
       Pages/FHFA-Announces-$9-3-Billion-Settlement-         127	    ederal Housing Finance Agency, FHFA Progress
                                                                    F
       With-Bank-of-America-Corporation.aspx.                       Report Details Advancement on Securitization
                                                                    Infrastructure and Credit Risk Sharing (November
124	    ederal Housing Finance Agency, FHFA
       F                                                            25, 2013). Accessed: April 24, 2014, at www.fhfa.
       Announces $885 Million Settlement With                       gov/Media/PublicAffairs/Pages/FHFA-Progress-
       Credit Suisse (March 21, 2014). Accessed:                    Report-Details-Advancement-on-Securitization.
       April 24, 2014, at www.fhfa.gov/Media/                       aspx.
       PublicAffairs/PublicAffairsDocuments/
       CORRECTEDCreditSuisseSettlement032114F.               128	    ederal Housing Finance Agency, Statement of
                                                                    F
       pdf. Federal Housing Finance Agency, FHFA                    FHFA Acting Director Edward J. DeMarco on
       Announces $1.25 Billion Settlement With                      Termination of Fannie Mae and Freddie Mac
       Morgan Stanley (February 7, 2014). Accessed:                 Pension Plans (October 25, 2013). Accessed: April
       April 24, 2014, at www.fhfa.gov/Media/                       24, 2014, at www.fhfa.gov/Media/PublicAffairs/
       PublicAffairs/Pages/FHFA-Announces-$1-                       Pages/Statement-of-FHFA-Acting-Director-
       25-Billion-Settlement-With-Morgan-Stanley.                   Edward-J-DeMarco-on-Termination-of-Fannie-
       aspx. Federal Housing Finance Agency, FHFA                   Mae-and-Freddie-Mac-Pension-Plans.aspx.
       Announces $122 Million Settlement With Société
       Générale (February 27, 2014). Accessed: April         129	    ederal Housing Finance Agency, FHFA
                                                                    F
       24, 2014, at www.fhfa.gov/Media/PublicAffairs/               Issues Scenarios and Guidance to Fannie Mae,
       Pages/FHFA-Announces-$122-Million-                           Freddie Mac and the FHLBanks Regarding
       Settlement-With-Soci%C3%A9t%C3%A9-                           Annual Dodd-Frank Stress Tests (December
       G%C3%A9n%C3%A9rale.aspx.                                     17, 2013). Accessed: April 24, 2014, at
                                                                    www.fhfa.gov/Media/PublicAffairs/Pages/
125	   Fannie Mae, “Senior Preferred Stock Purchase                FHFA-Issues-Scenarios-and-Guidance-to-
        Agreements Litigation,” Form 10-K for the                   FannieMae,-Freddie-Mac-and-the-Federal-Home-
        Fiscal Year Ended December 31, 2013, at 62.                 Loan-Banks-Regarding-Annual-Dodd-Frank-St.
        Accessed: March 12, 2014, at www.fanniemae.                 aspx.
        com/resources/file/ir/pdf/quarterly-annual-
        results/2013/10k_2013.pdf. Freddie Mac,              130	   Id.
        “Litigation Against the U.S. Government
        Concerning Conservatorship and the Purchase
        Agreement,” Form 10-K for the Fiscal Year Ended
        December 31, 2013, at 54. Accessed: March 12,
        2014, at www.freddiemac.com/investors/er/
        pdf/10k_022714.pdf.

126	   Federal Housing Finance Agency, FHFA Releases
        2013 Performance and Accountability Report
        (December 16, 2013). Accessed: April 24,
        2014, at www.fhfa.gov/Media/PublicAffairs/
        Pages/FHFA-Releases-2013-Performance-and-
        Accountability-Report.aspx.

124        Federal Housing Finance Agency Office of Inspector General
Semiannual Report to the Congress • October 1, 2013–March 31, 2014   125
Federal Housing Finance Agency
Office of Inspector General

Se m iann ual R e p ort
to t h e Cong r e ss
October 1, 2013, through March 31, 2014




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