oversight

Sixteenth Semiannual Report to the Congress

Published by the Federal Housing Finance Agency, Office of Inspector General on 2018-09-30.

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

F EDERAL H OUSING F INANCE A GENCY
   O FFICE OF I NSPECTOR G ENERAL
    S EMIANNUAL R EPORT        TO THE     C ONGRESS
        April 1, 2018, through September 30, 2018
F ederal H ousing F inance A gency 
   O ffice of I nspector G eneral




  S emiannual R eport         to the     C ongress
       April 1, 2018, through September 30, 2018
Table of Contents
Our Vision .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 1
Our Mission  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 1
Core Values .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  2
Snapshot of OIG Accomplishments: Semiannual  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  3
Snapshot of OIG Accomplishments: Annual .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  4
OIG Investigations Monetary Results .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 5
A Message from the Inspector General .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  6
Executive Summary  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  8
	Overview .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 8
	     This Report .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 9
OIG’s Oversight  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 10
	     OIG’s Risk-Based Oversight Strategy .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 10
	     OIG Impact Through its Oversight Initiatives .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 12
	     	        Office of Risk Analysis .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 12
	     	        Administrative Inquiries  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 13
	     	        Office of Compliance and Special Projects  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 14
OIG’s Oversight of FHFA’s Programs and Operations Through Audit, Evaluation, and
Compliance Activities During This Reporting Period .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 15
	     Office of Audits  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 15
	     Office of Evaluations .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 15
	     Office of Compliance and Special Projects  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 15
	     Oversight Activities This Period .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 15
	     Conservatorship Operations  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 16
		 Delegated Matters  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 16
		 M
    anagement Alert: Consolidation and Relocation of Fannie Mae’s Northern
   Virginia Workforce .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 16
		 M
    anagement Alert: Potential Conflict of Interest Matter Involving a Senior Executive
   Officer at an Enterprise .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 18
		
  Audit of FHFA’s Oversight of the Enterprises’ Affordable Housing Set-Asides
  and Allocations .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 19
		
  Management Advisory: Freddie Mac’s Reimbursement of Certain Employees’
  Commuting Expenses  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 19


                                Federal Housing Finance Agency Office of Inspector General
		 Non-Delegated Matters .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 20
		
  Compliance Review of FHFA’s Process for Making Changes to Conservatorship
  Scorecard Targets .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 21
	     Supervision of the Regulated Entities  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 21
		
  FHFA’s Housing Finance Examiner Commissioning Program: $7.7 Million and Four
  Years into the Program, the Agency has Fewer Commissioned Examiners  .  .  .  .  .  . 21
		
  Compliance Review of FHFA’s Communication of Serious Deficiencies to the
  Enterprises’ Boards of Directors  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 22
		
  DBR’s Safety and Soundness Quality Control Reviews Were Conducted in Compliance
  with FHFA’s Standard During the 2017 Examination Cycle but DBR’s Community
  Investment Quality Control Reviews Were Not  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 23
	     Counterparties and Third Parties .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 24
		 F
    HFA Should Re-evaluate and Revise Fraud Reporting by the Enterprises to Enhance
   its Utility  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 24
	     Agency Operations and Internal Controls  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 25
		 F
    HFA Needs to Strengthen Controls over its Employee Transportation Benefits
   Programs  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 25
		
  Audit of FHFA’s Fiscal Year 2017 Government Purchase Card Program Found Several
  Deficiencies with Leased Holiday Decorations, and the Need for Greater Attention by
  Cardholders and Approving Officials to Program Requirements  .  .  .  .  .  .  .  .  .  .  . 26
		
  Audit of FHFA’s Fiscal Year 2017 Government Travel Card Program: FHFA Needs to
  Emphasize Certain Program Requirements to Travelers and Approving Officials .  .  . 27
		 S
    tatutory Audit: FHFA Complied with Applicable Improper Payment Requirements
   During Fiscal Year 2017  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 27
		 I nvestigative Summary: Review of Alleged Time and Attendance Fraud by Two Senior
    Agency Officials  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 28
		 Management Advisory: Use of an Agency Vehicle  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 28
	     Reports and Recommendations  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 30
Oversight Through OIG’s Investigations  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 32
	     Investigations: Civil Cases .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 34
		 Residential Mortgage-Backed Securities Investigations .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 34
		 Condo Conversion and Builder Bailout Schemes .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 37
		 Loan Origination Schemes .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 38
		 Loan Modification and Property Disposition Schemes  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 40
		 Short Sale Schemes .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 43
		 Multifamily Schemes .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 44



                        Semiannual Report to the Congress • April 1, 2018­–September 30, 2018
		 Property Management and REO Schemes .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 44
		 Adverse Possession, Distressed Property, and Bankruptcy Fraud Schemes .  .  .  .  .  . 45
		
  Fraud Affecting the Enterprises, the FHLBanks, or FHLBank Member Institutions  . 46
	     Law Enforcement Outreach .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 49
	     Investigations: Administrative Actions . .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 49
	     Suspended Counterparty Referrals .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 49
OIG’s Regulatory Activities and Outreach .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 51
	     Regulatory Activities .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 51
	     Public and Private Partnerships, Outreach, and Communications .  .  .  .  .  .  .  .  .  .  .  .  .  . 51
		 Congress .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 51
		 Hotline .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 52
		 Close Coordination with Other Oversight Organizations  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 52
		 Private-Public Partnerships .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 52
Appendix A: Information Required by the Inspector General Act .  .  .  .  .  .  .  .  .  .  .  .  .  . 54
	      eports Identifying Questioned Costs, Unsupported Costs, and Funds to Be Put to Better
      R
      Use by Management Issued During the Semiannual Period .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 57
	     Audit and Evaluation Reports with No Management Decision  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 57
	     No Agency Response Within 60 Days .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 57
	     Significant Revised Management Decisions .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 58
	     Significant Management Decisions with Which the Inspector General Disagrees  .  .  .  .  . 58
	     Federal Financial Management Improvement Act of 1996  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 58
	     Peer Reviews .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 58
	     Investigations into Allegations of Employee Misconduct and Whistleblower Retaliation  . 59
	     Audits or Evaluations That Were Closed and Not Disclosed  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 60
	     Interference with Independence .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 60
Appendix B: OIG Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Appendix C: OI Publicly Reportable Investigative Outcomes Involving Condo Conversion
and Builder Bailout Schemes  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  118
Appendix D: OI Publicly Reportable Investigative Outcomes Involving Loan
Origination Schemes .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  121
Appendix E: OI Publicly Reportable Investigative Outcomes Involving Short
Sale Schemes .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  124




                               Federal Housing Finance Agency Office of Inspector General
Appendix F: OI Publicly Reportable Investigative Outcomes Involving Loan Modification
and Property Disposition Schemes  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  126
Appendix G: OI Publicly Reportable Investigative Outcomes Involving Property
Management and REO Schemes  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  129
Appendix H: OI Publicly Reportable Investigative Outcomes Involving Adverse Possession
and Distressed Property Schemes .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  130
Appendix I: OI Publicly Reportable Investigative Outcomes Involving Multifamily
Schemes	 .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 132
Appendix J: OI Publicly Reportable Investigative Outcomes Involving Fraud Affecting the
Enterprises, the FHLBanks, or FHLBank Member Institutions .  .  .  .  .  .  .  .  .  .  .  .  .  .  133
Appendix K: Glossary and Acronyms .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 137
	     Glossary of Terms .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 137
	     Acronyms and Abbreviations  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 140
Appendix L: Endnotes .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  142




                         Semiannual Report to the Congress • April 1, 2018­–September 30, 2018
Our Vision
Our vision is to be an organization that promotes excellence and trust through exceptional
service to the Federal Housing Finance Agency (FHFA or Agency), Congress, and the American
people. The FHFA Office of Inspector General (OIG) achieves this vision by being a first-rate
independent oversight organization in the federal government that acts as a catalyst for effective
management, accountability, and positive change in FHFA and holds accountable those, whether
inside or outside of the federal government, who waste, steal, or abuse funds in connection with
the Agency, Fannie Mae and Freddie Mac (the Enterprises), or any of the Federal Home Loan
Banks (FHLBanks).


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




                             Semiannual Report to the Congress • April 1, 2018­–September 30, 2018   1
Core Values
OIG’s core values are integrity, respect, professionalism, and results. Accordingly, we endeavor
to maintain the highest level of integrity, professionalism, accountability, and transparency in
our work. We follow the facts—wherever they lead—without fear or favor, report findings that
are supported by sufficient evidence in accordance with professional standards, and recommend
actions tied to our findings. Our work is independent, risk based, relevant, and timely. We play a
vital role in promoting the economy and efficiency in the management of the Agency and view
our oversight role both prospectively (advising the Agency on internal controls and oversight, for
example) and retrospectively (by assessing the Agency’s oversight of Fannie Mae, Freddie Mac,
and the FHLBanks in its role as supervisor, and its operation of Fannie Mae and Freddie Mac in
its role as conservator).

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

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

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




2    Federal Housing Finance Agency Office of Inspector General
           Snapshot of OIG Accomplishments
                 Snapshot of OIG Accomplishments
                      Semiannual Reporting Period
                     AprilSemiannual Reporting Period
                           1, 2018–September     30, 2018
                             April 1, 2018–September 30, 2018

  Reports Issued                                                                                          18
  Includes audits, evaluations, compliance reviews,
  management alerts and advisories, an investigative
  summary, and white papers
   Recommendations                                                                                        13
   Questioned Costs                                                                           $7,700,000
   Funds That Could Be Put to Better Use*                                                  $776,300,000
   Investigative Activities:
      Indictments / Charges                                                                               45
      Arrests                                                                                             33
      Convictions / Pleas                                                                                 37
      Sentencings                                                                                         53
      Suspension / Debarment Referrals to Other Agencies                                                  74
      Suspended Counterparty Referrals to FHFA                                                            30
   Investigative Monetary Results:
      Criminal Restitution                                                                  $51,745,515
      Criminal Fines / Special Assessments / Forfeitures                                    $23,207,127
      Civil Settlements                                                                 $7,031,450,000
   Investigations Total Monetary Results**                                              $7,106,402,642


 *Approximates the $727 million net present value estimate (NPV) for Fannie Mae’s Northern Virginia consolidation
 Option C, increased by $49.3 million for the smaller than projected amount from the sale of its three owned buildings,
 offset by the NPVthe
*Approximates       for $727
                        the Status Quo net
                              million  Option  (which
                                            present    Fannie
                                                    value      Mae never
                                                            estimate     calculated
                                                                      (NPV)         and assumed
                                                                              for Fannie   Mae’stoNorthern
                                                                                                       be zero for this
                                                                                                                Virginia
 table.) See OIG, Consolidation   and Relocation of Fannie  Mae’s  Northern Virginia Workforce    (OIG-2018-004,
consolidation Option C, increased by $49.3 million for the smaller than projected amount from the sale of its
 September
three   owned6, 2018).
                buildings, offset by the NPV for the Status Quo Option (which Fannie Mae never calculated and
assumed
**Includestomoney
             be zero for this
                  ordered     table.)
                          as the resultSee  OIG,
                                        of joint   Consolidation
                                                 investigations with and
                                                                     otherRelocation  of Fannie
                                                                           law enforcement       Mae’s Northern
                                                                                           organizations.
Virginia Workforce (OIG-2018-004, September 6, 2018).
**Includes money ordered as the result of joint investigations with other law enforcement organizations.
                                  Semiannual Report to the Congress • April 1, 2018­–September 30, 2018           3
           Snapshot of OIG Accomplishments
                 Snapshot ofAnnual
                             OIG Accomplishments
                                   Period
                  October 1, 2017–September
                              Annual Period 30, 2018
                          October 1, 2017–September 30, 2018


    Reports Issued                                                                                       35
      Includes audits, evaluations, compliance reviews,
      management alerts and advisories, an investigative
      summary, and white papers
    Recommendations                                                                                      28
    Questioned Costs                                                                          $7,700,000
    Funds That Could Be Put to Better Use*                                                $776,300,000
    Investigative Activities:
      Indictments / Charges                                                                              93
      Arrests                                                                                            72
      Convictions / Pleas                                                                                86
      Sentencings                                                                                        89
      Suspension / Debarment Referrals to Other Agencies                                                121
      Suspended Counterparty Referrals to FHFA                                                           57
    Investigative Monetary Results:
      Criminal Restitution                                                                  $65,842,108
      Criminal Fines / Special Assessments / Forfeitures                                    $40,333,713
      Civil Settlements                                                                 $9,033,450,000
    Investigations Total Monetary Results**                                             $9,139,625,821

*Approximates the $727 million net present value estimate (NPV) for Fannie Mae’s Northern Virginia consolidation
Option C, increased by $49.3 million for the smaller than projected amount from the sale of its three owned buildings,
offset by the NPVthe
*Approximates     for $727
                      the Status Quo net
                            million   Option  (which
                                           present    Fannie
                                                   value      Mae never
                                                           estimate     calculated
                                                                     (NPV)         and assumed
                                                                             for Fannie   Mae’stoNorthern
                                                                                                      be zero for this
                                                                                                               Virginia
table.) See OIG, Consolidation and Relocation of Fannie Mae’s Northern Virginia Workforce (OIG-2018-004,
consolidation Option C, increased by $49.3 million for the smaller than projected amount from the sale of its
September 6, 2018).
three owned buildings, offset by the NPV for the Status Quo Option (which Fannie Mae never calculated and
 **Includestomoney
assumed            ordered
              be zero      as the
                      for this    resultSee
                               table.)   of joint
                                             OIG, investigations
                                                    Consolidationwith and
                                                                      otherRelocation
                                                                            law enforcement organizations.
                                                                                       of Fannie  Mae’s Northern
Virginia Workforce (OIG-2018-004, September 6, 2018).
**Includes money ordered as the result of joint investigations with other law enforcement organizations.
4    Federal Housing Finance Agency Office of Inspector General
             OIG Investigations Monetary Results
            OIG Investigations
                         AnnualMonetary
                               Period   Results
                    October 1,Annual
                              2017–September
                                     Period  30, 2018
                      October 1, 2017–September 30, 2018
OIG’s Fiscal Year (FY) 2018 budget was $49.9 million, and was unchanged from FY 2017.
During FY 2018,
OIG’s Fiscal Year monetary
                  (FY) 2018results
                            budgetfrom  OIG criminal
                                    was $49.9 million, and civilunchanged
                                                       and was   investigations
                                                                            fromtotaled
                                                                                 FY 2017.
$9,139,625,821  and were 183  times greater than OIG’s  budget.
During FY 2018, monetary results from OIG criminal and civil investigations totaled
$9,139,625,821 and were 183 times greater than OIG’s budget.


                   OIG Investigations Monetary Results for FY 2018
                               vs. OIG FY 2018 Budget
 $10,000,000,000

  $9,000,000,000

  $8,000,000,000

  $7,000,000,000

  $6,000,000,000

  $5,000,000,000

  $4,000,000,000

  $3,000,000,000

  $2,000,000,000

  $1,000,000,000

             $0


                         OIG Monetary Results                          OIG Budget
                            $9,139,625,821                             $49,900,000

                        ($9,033,450,000 – civil &
                        $106,175,821 – criminal)




                      Semiannual Report to the Congress • April 1, 2018–September 30, 2018              5
                            Semiannual Report to the Congress • April 1, 2018­–September 30, 2018   5
A Message from the Inspector General
I am pleased to present this Semiannual Report on the
operations of the FHFA-OIG, which covers the period from
April 1, 2018, to September 30, 2018.

FHFA has unique responsibilities in its dual roles as
conservator and supervisor of the Enterprises and as
supervisor of the FHLBanks. Despite their high leverage,
diminished capital buffer, conservatorship status, and
uncertain future, the Enterprises have grown during
conservatorship and, according to FHFA, their combined
market share of newly issued mortgage-backed securities
is more than 60%. As of June 30, 2018, the Enterprises
collectively reported approximately $5.4 trillion in
assets. As conservator of the Enterprises, FHFA exercises
control over trillions of dollars in assets and billions
of dollars in revenue and makes business and policy
decisions that influence and affect the entire mortgage
finance industry. As of June 30, 2018, the FHLBanks
collectively reported roughly $1.1 trillion in assets.          Laura S. Wertheimer
Given the size and complexity of the regulated entities         Inspector General of the
and the dual responsibilities of FHFA, we structure our         Federal Housing Finance Agency
oversight program to examine FHFA’s exercise of its
dual responsibilities. As a result of FHFA’s dual responsibilities as conservator and supervisor,
FHFA-OIG’s responsibilities are broader than those of OIGs for other prudential federal
financial regulators.

To best leverage our resources to strengthen OIG’s oversight, our work is risk-based and is
focused on the four management and performance challenges facing FHFA, the Enterprises in
its conservatorship, and the entities it regulates. See OIG, Fiscal Year 2018 Management and
Performance Challenges (October 15, 2017).

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

During this semiannual period, we published 18 reports, including audits, evaluations,
compliance reviews, management alerts and advisories, an investigative summary, and white



6    Federal Housing Finance Agency Office of Inspector General
papers, which are available on our website, and on Oversight.gov, a publicly accessible,
searchable website containing the latest public reports from federal Inspectors General who are
members of the Council of the Inspectors General on Integrity and Efficiency. These 18 reports
illustrate the broad scope of our oversight responsibilities.

Where our fact-finding has identified shortcomings, deficiencies, or processes that could
be upgraded, our reports include actionable recommendations to assist FHFA in improving
the effectiveness and efficiency of its operations. For this semiannual period, we issued 13
recommendations. Appendix B of this report summarizes all recommendations made by
FHFA-OIG during this period, recommendations made in prior periods that remain open (and
unimplemented), and closed, unimplemented recommendations. During each reporting period,
we update information in Appendix B as new recommendations are issued or recommendations
are closed, and we publish the updated information periodically in a Compendium of Open
Recommendations on our website.

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

    •	 45 indictments/charges;
    •	 37 convictions/pleas;
    •	 53 defendants sentenced for an aggregate total of 181 years in prison;
    •	 More than $74 million in criminal restitutions, fines, special assessments, and forfeitures;
       and
    •	 More than $7 billion in civil settlements.

In many of these investigations, we worked collaboratively with our law enforcement colleagues
in other agencies. A recent example was the joint investigation with the U.S. Attorney’s Office
for the District of Massachusetts into allegations that the Royal Bank of Scotland (RBS) made
misrepresentations to investors about significant risks it failed to disclose about its residential
mortgage-backed securities in the years leading to the financial crisis. RBS agreed to pay a civil
money penalty of $4.9 billion in settlement.

Through our written reports and our law enforcement efforts, both civilly and criminally, we hold
institutions and their officials accountable for their actions or inactions. The work described in
this Semiannual Report demonstrates the importance of effective, fair, and objective investigative
oversight conducted by this Office.

The accomplishments described in this Semiannual Report are a credit to the talented and
dedicated career professionals that I have the privilege to lead.

Laura S. Wertheimer
Inspector General
September 30, 2018




                             Semiannual Report to the Congress • April 1, 2018­–September 30, 2018    7
Executive Summary
Overview                                              Initially, the conservatorships were intended
                                                      to be a “time out” during a period of extreme
The Federal Housing Finance Agency (FHFA              stress to stabilize the mortgage markets and
or Agency) was created on July 30, 2008, when         promote financial stability. Now in their
the President signed into law the Housing and         eleventh year, FHFA’s conservatorships of
Economic Recovery Act of 2008 (HERA).                 the Enterprises are of unprecedented scope,
HERA charged FHFA to serve as regulator and           scale, and complexity. Since September 2008,
supervisor of Fannie Mae and Freddie Mac              FHFA has served in the unique role of both
(the Enterprises) and of the Federal Home             conservator and supervisor of the Enterprises
Loan Banks (FHLBanks) (collectively, the              and supervisor of the FHLBank System.
regulated entities), and the FHLBanks’ fiscal
agent, the Office of Finance. HERA also               HERA also authorized the establishment of
enhanced FHFA’s resolution authority to act as        OIG to oversee the work of FHFA pursuant
conservator or receiver.                              to the Inspector General Act of 1978. OIG
                                                      began operations in October 2010 when
In September 2008, FHFA exercised its                 its first Inspector General was sworn in.
authority under HERA to place Fannie Mae              As a result of FHFA’s dual responsibilities
and Freddie Mac into conservatorship in an            as supervisor of the Enterprises and the
effort to stabilize the residential mortgage          FHLBanks, and, since 2008, as conservator
finance market. Concurrently, the U.S.                of the Enterprises, OIG’s oversight
Department of the Treasury (Treasury)                 responsibilities are correspondingly broader
entered into a Senior Preferred Stock                 than those of an Office of Inspector General
Purchase Agreement (PSPA) with each                   for other prudential federal financial
Enterprise to ensure that each maintained a           regulators.
positive net worth going forward. Under these
PSPAs, U.S. taxpayers, through Treasury,              Our mission is to promote economy,
have invested nearly $191.5 billion in the            efficiency, and effectiveness and protect
Enterprises since 2008. As conservator of             FHFA and the entities it regulates against
the Enterprises, FHFA succeeded to all                fraud, waste, and abuse, contributing to the
rights, titles, powers, and privileges of the         liquidity and stability of the nation’s housing
Enterprises, and of any stockholder, officer,         finance system, and advising the Director of
or director of the Enterprises. FHFA is               the Agency, Congress, and the public on our
authorized under HERA to:                             findings and recommendations. In doing so,
                                                      we further the Agency’s statutory obligation
    •	 Operate the Enterprises and                    to ensure that the regulated entities operate
    •	 Take such action as may be:                    in a safe and sound manner and that their
        ◦◦ Necessary to put the Enterprises in a      operations foster liquid, efficient, competitive,
           sound and solvent condition and            and resilient national housing finance markets.
        ◦◦ Appropriate to carry on the                We also engage in robust law enforcement
           Enterprises’ business and preserve         efforts to protect the interests of the regulated
           and conserve the Enterprises’ assets       entities and the American taxpayers.
           and property.1




8    Federal Housing Finance Agency Office of Inspector General
OIG’s operations are funded by annual
assessments that FHFA levies on the                   Terms and phrases in bold are defined in
                                                      Appendix K, Glossary and Acronyms. If you are
Enterprises and the FHLBanks pursuant to 12
                                                      reading an electronic version of this Semiannual
U.S.C. § 4516. For Fiscal Year (FY) 2018,             Report, then simply move your cursor to the
OIG’s operating budget is $49.9 million.              term or phrase and click for the definition.

This Report
This Semiannual Report (SAR) to the
Congress summarizes the work of OIG and
discusses OIG operations for the reporting
period of April 1, 2018, to September 30, 2018.
Among other things, this report:

    •	 Explains OIG’s risk-based oversight
        strategy;
    •	 Discusses the 18 audits, evaluations,
        compliance reviews, management
        alerts and advisories, an investigative
        summary, and white papers published
        during the period;
    •	 Highlights some of the numerous
        OIG investigations that resulted in 45
        indictments/charges, 37 convictions/
        pleas, and 53 sentencings of individuals
        responsible for fraud, waste, or abuse
        in connection with programs and
        operations of FHFA and the Enterprises;
        more than $74 million in criminal
        restitutions, fines, special assessments,
        and forfeitures; and more than $7 billion
        in civil settlements;
    •	 Summarizes OIG’s outreach during the
        reporting period; and
    •	 Reviews the status of OIG’s
        recommendations.




                             Semiannual Report to the Congress • April 1, 2018­–September 30, 2018       9
OIG’s Oversight
OIG’s Risk-Based Oversight                           work with these challenges. On an annual
Strategy                                             basis, we assess FHFA’s major management
                                                     and performance challenges. In October
Currently, FHFA serves as supervisor for             2017, we noted that these challenges all
the Enterprises and the FHLBanks and as              carried over from prior years and, if not
conservator of the Enterprises. FHFA’s               addressed, could adversely affect FHFA’s
conservatorships of the Enterprises, now in          accomplishment of its mission. (See
their eleventh year, are of unprecedented            OIG, Fiscal Year 2018 Management and
scope, scale, and complexity. FHFA’s dual            Performance Challenges (October 15, 2017)).
roles continue to present novel challenges.          During this reporting period, OIG continued
Consequently, OIG must structure its                 to focus much of its oversight activities on
oversight program to examine FHFA’s                  identifying vulnerabilities in these areas and
exercise of its dual responsibilities,               recommending positive, meaningful actions
which differ significantly from the typical          that the Agency could take to mitigate these
federal financial regulator. Beginning in            risks and remediate identified deficiencies.
Fall 2014, OIG determined to focus its               These challenges include:
resources on programs and operations that
pose the greatest financial, governance,                  •	 Conservatorship Operations –
and/or reputational risk to the Agency,                      Improve Oversight of Matters
the Enterprises, and the FHLBanks to                         Delegated to the Enterprises and
best leverage its resources to strengthen                    Strengthen Internal Review Processes
oversight. We established an integrated                      for Non-Delegated Matters
approach to identify these programs and
operations of greatest risk and published            When then-Secretary of the Treasury Henry
our initial risk-based plan in February 2015,        Paulson announced the conservatorships in
which is updated annually.                           September 2008, he explained that they were
                                                     meant to be a “time out” during which the
Our current Audit, Evaluation, and                   Enterprises would be stabilized, enabling the
Compliance Plan, adopted in March                    “new Congress and the next Administration
2018, describes FHFA’s and OIG’s roles               [to] decide what role government in general,
and missions, explains our risk-based                and these entities in particular, should play
methodology for developing this plan,                in the housing market.” The current FHFA
provides insight into particular risks within        Director has echoed that view, recognizing
four areas, and generally discusses areas            that conservatorship “cannot [and] should
where we will focus our audit, evaluation,           not be a permanent state” for the Enterprises.
and compliance resources during the 2018             However, putting the Enterprises into
calendar year. In addition to our risk-based         conservatorships has proven to be far easier
work plan, OIG completes work required to            than taking them out, and the “time out”
fulfill its statutory mandates.                      period for the conservatorships is now in its
                                                     eleventh year.
An integral part of OIG’s oversight is to
identify and assess FHFA’s top management            While in conservatorship, the Enterprises
and performance challenges and to align our          have required almost $191.5 billion in



10    Federal Housing Finance Agency Office of Inspector General
financial investment from the Treasury                  •	 Supervision of the Regulated Entities –
to avert their insolvency and, through                     Upgrade Supervision of the Enterprises
September 2018, the Enterprises have paid                  and Continue Robust Supervision of
to the Treasury more than $285.7 billion in                the FHLBanks
dividends on its investment. Despite their
high leverage, diminished capital buffer,          FHFA has repeatedly stated that its effective
conservatorship status, and uncertain future,      supervision of the FHLBanks and the
the Enterprises have grown in size since being     Enterprises is critical to ensuring their safety
placed into conservatorship in 2008 and,           and soundness.
according to FHFA, their combined market
share of newly issued mortgage-backed              Within FHFA, the Division of Federal Home
securities is more than 60%. As of June 30,        Loan Bank Regulation (DBR) is responsible
2018, the Enterprises collectively reported        for supervision of the FHLBanks. Section 20 of
approximately $5.4 trillion in assets and          the Federal Home Loan Bank Act requires each
approximately $5.4 trillion in debt.               FHLBank to be examined at least annually.
                                                   FHFA’s Division of Enterprise Regulation
Although market conditions have improved           (DER) is responsible for supervision of the
and the Enterprises have paid dividends on         Enterprises. Section 1317 of the Federal
Treasury’s investments, the Enterprises’           Housing Enterprises Financial Safety and
future profitability cannot be assured for         Soundness Act of 1992, as amended, requires
these reasons: the wind down of their              FHFA to conduct annual on site examinations
retained investment portfolios and reduction       of each Enterprise (codified at 12 U.S.C. §
in net interest income; reduction in the           4517). FHFA’s annual examination program
value of the Enterprises’ deferred tax assets      assesses the financial safety and soundness
due to recent federal corporate tax reform         and overall risk management practices of
(considered by FHFA to be a short-term             each Enterprise through ongoing monitoring,
consequence); the level of guarantee               targeted examinations, and risk assessments.
fees they will be able to charge and keep;
the future performance of their business                •	 Information Technology Security –
segments; and the significant uncertainties                Enhance Oversight of Cybersecurity
involving key market drivers, such as                      at the Regulated Entities and Ensure
mortgage rates, homes prices, and credit                   an Effective Information Security
standards.                                                 Program at FHFA

Under HERA, FHFA’s actions as conservator          Security of information technology (IT) and
are not subject to judicial review or              IT systems continues to be a preeminent
intervention, nor are they subject to              issue for businesses and individuals alike.
procedural safeguards that are ordinarily          The regulated entities, like most modern
applicable to regulatory activities such as        institutions, rely on numerous, complex
rulemaking. As conservator of the Enterprises,     IT systems to conduct almost every aspect
FHFA exercises control over trillions of           of their work. These IT systems manage
dollars in assets and billions of dollars in       processes to guarantee and purchase loans,
revenue and makes business and policy              supporting more than $5 trillion in Fannie
decisions that influence and affect the entire     Mae and Freddie Mac mortgage assets, and
mortgage finance industry.                         store, process, and transmit financial data and
                                                   personally identifiable information (PII). Both



                           Semiannual Report to the Congress • April 1, 2018­–September 30, 2018      11
Enterprises and the FHLBanks have been               critical information necessary to improve
the subject of cyberattacks, though none             its programs and operations. Given the size
caused significant harm. All entities regulated      and complexity of the regulated entities and
by FHFA acknowledge that the substantial             the unique, dual responsibilities of FHFA,
precautions put into place to protect their IT       making the right choices about what we
systems might be vulnerable, and penetration         audit, evaluate, examine for compliance, and
of those systems poses a material risk to their      investigate in our oversight efforts is critical.
business operations. Further, the Enterprises
are increasingly relying on third-party service      Office of Risk Analysis
providers, which requires the sharing of
sensitive information between Enterprise and         To assist in making those choices, we created,
third-party systems.                                 in 2015, the Office of Risk Analysis (ORA)
                                                     to enhance our ability to focus our resources
     •	 Counterparties and Third Parties –           on the areas of greatest risk to FHFA.
        Enhance Oversight of the Enterprises’        ORA is tasked with identifying, analyzing,
        Relationships with Counterparties and        monitoring, and prioritizing emerging
        Third Parties                                and ongoing risks and with educating
                                                     stakeholders on those issues. Through its
The Enterprises rely heavily on                      work, it has contributed data and information
counterparties and third parties for a wide          to our annual risk-based planning process for
array of professional services, including            audits, evaluations, and compliance reviews.
mortgage origination and servicing.                  It has also made significant contributions to
That reliance exposes the Enterprises                our online knowledge library accessible to
to counterparty risk—the risk that the               OIG employees.
counterparty will not meet its contractual
obligations. FHFA has delegated to the               During this reporting period, ORA issued
Enterprises the management of their                  three white papers discussing emerging and
relationships with counterparties, and               ongoing risks.
FHFA reviews that management largely
through its supervisory activities. As               White Paper: FHFA Letters of Instruction
participants in the mortgage market change,          to the Enterprises
counterparties can affect the risks to be
managed by Fannie Mae and Freddie Mac.               As conservator, FHFA has broad authority
In recent years, the Enterprises’ businesses         over the Enterprises. It exercises control over
have changed dramatically in terms of the            trillions of dollars in assets and billions of
types of institutions originating and selling        dollars in revenue and makes business and
mortgages to them and servicing mortgages            policy decisions that influence and affect the
on their behalf.                                     entire mortgage finance industry. Pursuant to
                                                     its powers under HERA, FHFA has delegated
OIG Impact Through its                               authority for many matters to the Enterprises,
Oversight Initiatives                                although it has retained authority for certain
                                                     significant decisions. Delegated authority can
Since the Fall of 2014, OIG has developed            be revoked by FHFA at any time.
and implemented new initiatives and
enhanced existing processes to strengthen            Shortly after FHFA placed the Enterprises
its oversight and provide FHFA with                  into conservatorship, it issued to the



12    Federal Housing Finance Agency Office of Inspector General
Enterprises’ respective boards of directors         reinsurance companies, each of which has been
(boards) Letters of Instruction (LOI) that          preapproved by Freddie Mac. The reinsurers
defined and outlined the scope of delegated         post collateral to provide further assurance that
and undelegated authorities. The 2008 LOI           claims will be paid.
were revised in 2012. On December 18, 2017,
FHFA issued another revision to the LOI,            In light of questions raised by our stakeholders
which became effective on March 31, 2018.           about the IMAGIN pilot, we issued a white
According to FHFA, the objective of the LOI         paper to explain how this pilot program works.
has evolved over the years as the needs of the      (See OIG, Freddie Mac’s IMAGIN Pilot
conservatorship have changed, and the most          (WPR-2018-005, September 12, 2018)).
recent revision was intended to simplify and
clarify matters requiring conservator decision      White Paper: An Overview of Enterprise
or notice, given the extended duration of the       Appraisal Waiver Programs
conservatorships.
                                                    Each Enterprise has recently launched a data-
We summarized the history of FHFA’s LOI to          driven appraisal waiver program for eligible
Fannie Mae and Freddie Mac, FHFA’s process          loans. Both appraisal waiver programs may
to revise the LOI in 2017, and the changes          relieve lenders of representation and warranty
to those LOI. (See OIG, FHFA Letters of             obligations related to collateral value, and
Instruction to the Enterprises (WPR-2018-004,       those obligations could force the repurchase
July 23, 2018)).                                    of loans with such defects. Because both
                                                    appraisal waiver programs, as currently
White Paper: Freddie Mac’s IMAGIN Pilot             structured, are modest in size and include
                                                    stringent eligibility standards, the risks from
Under their charters, the Enterprises must          these programs are small.
obtain credit enhancement to purchase
conventional mortgages with loan-to-                A recent Treasury report expresses support for
value ratios greater than 80%. The charters         the Enterprises’ “limited adoption of appraisal
allow three forms of credit enhancement,            waivers” but cautions that automated property
with mortgage insurance used most often.            valuations must be carefully monitored when
Mortgage insurance transfers a portion of the       they are used instead of traditional appraisals.
risk of mortgage default to an insurer. At the      We issued a white paper to explain how each
same time, it exposes the Enterprise to the         appraisal waiver program works and to assess
counterparty risk that the insurer may fail to      the potential risk. (See OIG, An Overview of
pay claims.                                         Enterprise Appraisal Waivers (WPR-2018-006,
                                                    September 14, 2018)).
According to FHFA, the Agency and the
Enterprises have been focused on mitigating         Administrative Inquiries
the counterparty risk of mortgage insurers.
On March 1, 2018, Freddie Mac launched a            During the reporting period, OIG completed
pilot called Integrated Mortgage Insurance          several administrative inquiries into hotline
(IMAGINSM), which is intended to mitigate           complaints and reported on its findings.
such risks. Under the IMAGIN pilot program,         Administrative inquiries provide additional,
simultaneous with purchasing single-                targeted oversight where specific waste, fraud,
family mortgages, Freddie Mac effectively           and/or abuse has been alleged. As explained
purchases mortgage insurance from a panel of        in detail below, administrative inquiries



                            Semiannual Report to the Congress • April 1, 2018­–September 30, 2018   13
completed during this period were reported            •	 Validation Testing. We are not always able
in two management alerts, two management                 to assess, at the time of closure, whether
advisories, and an investigative summary.                the implementation actions by FHFA meet
Reports of completed inquiries keep FHFA                 the letter and spirit of the agreed-upon
senior management, Congress, and the public              recommendation, nor can we determine,
informed of risks and shortcomings in agency             at closure, whether the underlying
programs and operations.                                 shortcoming has been addressed. OCom
                                                         conducts validation testing on a sample
Office of Compliance and Special Projects                of closed recommendations to hold FHFA
                                                         accountable for the corrective actions
Recommendations to address deficiencies                  it has represented it has implemented.
identified during an audit, evaluation, or               We publish the results of that validation
administrative inquiry require meaningful                testing to enable our stakeholders to assess
follow-up and oversight to ensure that the               the efficacy of FHFA’s implementation
recommendations have been fully implemented              of actions to correct the underlying
and the shortcomings that gave rise to the               shortcoming.
recommendations have been corrected. Created
in December 2014, the Office of Compliance          Compliance reviews enhance our ability to
and Special Projects (OCom) has strengthened        stimulate positive change in critical areas and
our capacity to perform compliance reviews          promote economy, efficiency, and effectiveness
to determine whether FHFA has fully                 at FHFA, and OCom’s validation testing is
implemented our recommendations. OCom has           a key component. Overall, our validation
several responsibilities:                           testing conducted since January 2015 has
                                                    found that FHFA has fully implemented 8 of
 •	 Closure of Recommendations. When FHFA           15 recommendations (53%) and has not fully
    believes that its implementation efforts        implemented the remaining 7 (47%).
    are well underway or that implementation
    is complete, FHFA provides that                 During this reporting period, OCom issued
    information to us, along with corroborating     three compliance reviews, which are discussed
    documents. We review the materials              in the next section, OIG’s Oversight of FHFA’s
    and representations submitted by the            Programs and Operations Through Audit,
    Agency to determine whether to close            Evaluation, and Compliance Activities During
    recommendations—and may close some              This Reporting Period.
    recommendations based on the Agency’s
    representations as to corrective actions        OCom also undertakes special projects, which
    it has taken. OCom consults with each           include reviews and administrative inquiries
    OIG division prior to the closure of a          of hotline complaints alleging non-criminal
    recommendation to facilitate application        misconduct.
    of a single standard across OIG for closing
    recommendations.

 •	 Tracking of Recommendations. OCom
    maintains a database in which it tracks the
    status of all recommendations issued by
    OIG in its reports.




14    Federal Housing Finance Agency Office of Inspector General
OIG’s Oversight of FHFA’s Programs and Operations
Through Audit, Evaluation, and Compliance Activities
During This Reporting Period

OIG fulfills its oversight mission through           Office of Compliance and
four operational offices. In this section,           Special Projects
OIG discusses its oversight activities in
three of its operational offices: the Office of      Typically, when an agency accepts an
Audits, the Office of Evaluations, and the           IG recommendation and takes steps to
Office of Compliance and Special Projects.           implement the corrective action, the agency
During this reporting period, OIG published          reports on its efforts to the IG and the IG
15 reports from these offices. All of these          relies on materials and representations from
reports relate to the four ongoing major             the agency to close the recommendation. As
management and performance challenges                discussed in the prior section, the validation
that we identified to FHFA and to the                testing conducted by OCom holds FHFA
Agency’s operations and internal controls.           accountable for the corrective actions it has
                                                     represented it has implemented.
Office of Audits
                                                     OCom also undertakes special projects,
The Office of Audits (OA) conducts                   which include reviews and administrative
independent performance audits with                  inquiries of hotline complaints alleging non-
respect to the Agency’s programs and                 criminal misconduct. OCom performs its
operations. OA also undertakes projects              compliance reviews and special projects in
to address statutory requirements and                accordance with the Blue Book.
stakeholder requests. As required by the
Inspector General Act, OA performs its               Oversight Activities This Period
audits in accordance with the audit standards
promulgated by the Comptroller General               As explained earlier, OIG publishes an annual
of the United States, which are known as             Audit, Evaluation, and Compliance Plan
generally accepted government auditing               setting forth the four risk-based areas on
standards or GAGAS.                                  which it intends to focus its audit, evaluation,
                                                     and compliance resources during the calendar
Office of Evaluations                                year. That risk-based work plan aligns OIG’s
                                                     work to the top management and performance
The Office of Evaluations (OE) conducts              challenges it has identified to FHFA.
independent and objective reviews,
assessments, studies, and analyses of                FHFA’s programs and operations are
FHFA’s programs and operations. Under the            subject to legal and policy requirements
Inspector General Reform Act of 2008,                common to federal agencies. Satisfying such
IGs are required to adhere to the professional       requirements necessitates the development
standards designated by the Council of the           and implementation of, and compliance with,
Inspectors General on Integrity and Efficiency       effective internal controls within the Agency.
(CIGIE). OE performs its evaluations                 As warranted, we assess whether FHFA’s
in accordance with the standards CIGIE               existing controls, including its written
established for inspections and evaluations,         policies and procedures, are sufficiently
which are known as the Quality Standards for         robust, and whether its personnel are
Inspection and Evaluation (Blue Book).               adequately trained on these internal controls



                            Semiannual Report to the Congress • April 1, 2018­–September 30, 2018   15
and comply fully with them.                           Four officials in FHFA’s Division of
We now discuss our oversight activities               Conservatorship (DOC), responsible for
executed by OA, OE, and OCom during                   oversight of Fannie Mae’s move from
the reporting period by each risk area and            its Northern Virginia offices, separately
our assessment of certain FHFA agency                 reported to us that Fannie Mae faced no
operations and internal controls.                     “action forcing” event requiring it to either
                                                      incur significant costs to repair or maintain
Conservatorship Operations                            its offices, or to shrink (or grow) its square
                                                      footage. The DOC officials advised that
Delegated Matters                                     the driver for Fannie Mae’s consolidation
                                                      and relocation was the implementation of
FHFA, as conservator, has delegated to each           a Workplace Strategy (WPS) developed by
Enterprise responsibility for a significant           Fannie Mae management (management),
portion of day-to-day management and risk             adopted by the Fannie Mae board, and
management controls. For this governance              accepted by FHFA.
approach to succeed, FHFA must be confident
that the Enterprises’ directors and committees        During the first half of 2017, management
are properly exercising the powers they have          considered three possible options for its
been given and fulfilling their responsibilities.     Northern Virginia offices and workforce
                                                      of approximately 4,000 individuals (of
During this reporting period, we conducted            whom roughly 40% are contractors and
one audit and completed three administrative          consultants, not Fannie Mae employees). One
inquiries in connection with delegated matters.       option (Option C)­—ultimately selected by
                                                      management—was to continue operations in
Management Alert: Consolidation and                   the three buildings currently owned by Fannie
Relocation of Fannie Mae’s Northern                   Mae in Northern Virginia and one leased
Virginia Workforce                                    building until 2022. At that time, Fannie Mae
                                                      would consolidate and relocate the workforce
As conservator of Fannie Mae, FHFA is                 into leased office space to be constructed by
charged with the responsibility to “preserve          2022, built out to Fannie Mae’s specifications,
and conserve” its assets while operating              at an estimated net present value (NPV) of
it in a manner consonant with the public              $727 million.
interest. During this reporting period, we
issued a Management Alert about Fannie                Our review of management’s June 2017
Mae’s decision to consolidate and relocate            presentation to FHFA and of its July 2017
its workforce in Northern Virginia from               board presentation and minutes for that
three owned office buildings and one leased           meeting found no evidence that management
building into leased space built out to Fannie        considered a fourth option: continuing to
Mae’s specifications in a new building                operate out of the three owned and one leased
to be constructed by Boston Properties                buildings in Northern Virginia, making any
at the Reston Town Center. This is the                repairs necessary to maintain the buildings
fourth report we have issued regarding the            in good working condition, and foregoing
reasonableness of build-out costs related to          additional costs to reconfigure and restructure
Fannie Mae’s consolidation and relocation             these buildings to implement WPS (the Status
of multiple offices into leased space in metro        Quo Option). Management did not calculate
Washington, D.C., and in Plano, Texas.                an NPV for such an option.



16     Federal Housing Finance Agency Office of Inspector General
Notwithstanding the lack of any “action              taxpayers, through Treasury, have invested
forcing” events, management selected Option          nearly $119.8 billion in Fannie Mae since
C because it fully implemented WPS at the            2008, and Fannie Mae operates under the
lowest NPV. The board endorsed this course           conservatorship of the federal government.
of action, which FHFA accepted.                      We have long recognized that FHFA, as
                                                     conservator, has delegated the responsibility
The current FHFA Director has acknowledged           for a significant portion of day-to-day
that his statutory responsibilities are to           management to each Enterprise, which it
“preserve and conserve” the assets and               can revoke at any time. As the Enterprises’
property of Fannie Mae while operating               conservator, FHFA must do more than
the Enterprise in a manner consonant with            monitor management’s execution of delegated
the public interest. FHFA has delegated              authority because it is ultimately responsible
responsibility for oversight of general              for such actions.
corporate matters to the board, which is
appointed by the FHFA Director. Unlike               The current FHFA Director has acknowledged
directors of public companies who owe                that his statutory responsibilities under HERA
fiduciary duties to the shareholders, directors      are to “preserve and conserve” the assets and
of Fannie Mae owe those duties solely to             property of Fannie Mae while operating it in
the conservator. For matters delegated to            a manner consonant with the public interest.
Fannie Mae, the board acts as agent for              On February 14, 2018, Fannie Mae, an entity
the FHFA Director and must carry out his             in FHFA’s conservatorship, reported that it
responsibilities to conserve and preserve            required an additional draw of $3.7 billion
Fannie Mae resources as it operates the              from the Treasury to eliminate its net worth
company in the public interest. In two               deficit, bringing the taxpayers’ investment in
Management Alerts issued in 2016 involving           it to $119.8 billion. In August 2018, FHFA
Fannie Mae’s decision to consolidate and             approved Fannie Mae’s request to sell its
relocate into rented space in Washington,            three owned buildings in Northern Virginia
D.C., and in Plano, Texas, we recognized that        for a total of $90.7 million, $49.3 million less
Fannie Mae undertook a reasoned analysis of          than the $140 million NPV baked into Option
its options in each location and had a sound         C. Because Fannie Mae will realize 35% less
basis for its determination to consolidate           than projected on the sale of the buildings, the
and relocate. Here, we found that no such            cost for its consolidation and relocation—and
analysis was conducted by management and             the NPV for Option C—will both go up while
it was, in the words of FHFA, “irresponsible”        the savings from WPS promised to the board
and “ill advised” for the board to support           by management will go down.
management’s decision without insisting on
an in-depth consideration of potentially less        As we cautioned in our 2016 Management
costly options.                                      Alert regarding Fannie Mae’s proposed
                                                     build-out of its new headquarters, Fannie
FHFA, in its Management Response,                    Mae “arguably has little incentive to cabin
maintained that we sought to substitute our          its costs” because “any positive net worth it
judgment for that of FHFA in determining             does not spend on itself will be swept into
those management decisions that “can                 the Treasury as a dividend.” In our view,
responsibly be made by Fannie Mae during             the cost to consolidate and move Fannie
this protracted period of conservatorship.”          Mae’s Northern Virginia operations under
We disagreed and continue to disagree. U.S.          Option C (NPV $727 million increased by



                            Semiannual Report to the Congress • April 1, 2018­–September 30, 2018   17
$49.3 million for the smaller than projected         Virginia Workforce (OIG-2018-004,
amount from the sale of the buildings), less         September 6, 2018)).
the NPV for the Status Quo Option (which
Fannie Mae did not calculate), are funds that        Management Alert: Potential Conflict
could, and should, be put to better use. A           of Interest Matter Involving a Senior
better use would include a sweep of excess           Executive Officer at an Enterprise
funds to the U.S. Treasury as a dividend
for the $119.8 billion investment by U.S.            We conducted an administrative review of the
taxpayers, pursuant to the terms of the Third        adequacy of a conflict of interest disclosure
Amendment to the PSPA.                               made by a senior executive officer (SEO)
                                                     at Fannie Mae and reported our findings in
To reduce the waste from Option C, we                a management alert. We reviewed Fannie
recommended that FHFA, consistent with its           Mae governance documents in effect during
duties as conservator: (1) cause Fannie Mae          the relevant timeframe, and found that each
to calculate the NPV for a Status Quo Option,        recognized that personal relationships can
and calculate the costs associated with              give rise to potential, apparent, or actual
terminating the lease with Boston Properties;        conflicts of interest and that complete
and (2) direct Fannie Mae to terminate the           disclosure was necessary to facilitate a fully
lease, cancel the sale of the three owned            informed analysis of the existence of an actual
buildings, and implement the Status Quo              or apparent conflict of interest and to develop
Option, should the NPV for a Status Quo              and implement adequate controls to mitigate
Option and the termination costs be lower            any conflict. We also reviewed internal
than the adjusted NPV for Option C.                  documents related to the SEO’s disclosure,
                                                     including emails, case management system
In the event that FHFA determined to                 logs, recusal agreements, and board materials.
permit Fannie Mae to continue with its
plans, we questioned all costs to lease and          We found that Fannie Mae case management
build out the space in the Boston Properties         system logs reflected two disclosures by
building beyond the costs for the Status Quo         the SEO regarding a potential conflict of
Option. To eliminate the potential waste             interest relating to FHFA’s consideration
associated with Option C, we recommended             whether to update the credit score model
that FHFA, consistent with its duties as             requirements. Analysis of those disclosures
conservator, direct Fannie Mae to record on          led us to conclude that the SEO did not
its books a liability owed to the Treasury           fully disclose all information relating to a
for the expenses it incurs to consolidate and        potential conflict in order to facilitate a fully-
relocate into leased space at Reston Town            informed conflicts analysis by the board’s
Center, built out to its specifications. We          governance committee. We also found that
also recommended that, in the event Fannie           the SEO knew, or should have known, from
Mae were to emerge from conservatorship,             his review of a draft recusal agreement, that
FHFA should require Fannie Mae to pay                the potential conflict was far more substantial
Treasury in full for this liability before           than the one identified in the draft agreement.
dividend payments are made to private                Review of documents showed that the
shareholders. FHFA declined to agree                 board’s governance committee lacked critical
with our recommendations and we closed               information related to its conflict analysis
them as rejected. (See OIG, Consolidation            and recusal remedy. We found that the SEO’s
and Relocation of Fannie Mae’s Northern              incomplete disclosures ran afoul of Fannie



18    Federal Housing Finance Agency Office of Inspector General
Mae’s ethics authorities and instructions            set-asides and transmissions until further
to employees to “always err on the side of           notice, upon his finding that at least one of the
transparency” in conflicts disclosures and           statutory conditions was met. In December
“proceed in a manner that all concerned              2014, the current FHFA Director lifted the
would agree is completely beyond reproach.”          suspension, effective January 2015. For 2015,
                                                     2016, and 2017, the Enterprises set aside
For those reasons, we recommended that,              and transmitted a total of $1.251 billion to
prior to the FHFA Director’s final decision          the Housing Trust Fund ($0.678 billion), the
on alternative credit score models, FHFA: (1)        Capital Magnet Fund ($0.364 billion), and
promptly perform a comprehensive review              the HOPE Reserve Fund ($0.209 billion, for
of the conflict of interest implications arising     2015 and 2016 only). Our audit found that
from the SEO’s possible involvement in               the Enterprises’ computations for the 2015,
Fannie Mae’s assessment of the potential             2016 and 2016 set-asides and subsequent
impact of a certain matter and possible              transmittals were accurate.
discussions with FHFA about Fannie Mae’s
assessment, and (2) ensure appropriate               In our audit report, we recognized that 12
controls are in place to mitigate any potential,     U.S.C. § 4567(b) vests the FHFA Director
apparent, or actual conflict of interest. FHFA       with authority to suspend the set-aside and
agreed with both recommendations. (See               transmission of the affordable housing
OIG, Administrative Review of a Potential            allocations of one or both Enterprises,
Conflict of Interest Matter Involving a Senior       upon a finding that one or more of three
Executive Officer at an Enterprise (OIG-             statutory conditions have been met. We noted
2018-001, July 26, 2018)).                           that the FHFA Director invoked his sole
                                                     discretion under HERA when he determined
Audit of FHFA’s Oversight of the                     that transmittal of the set-asides did not
Enterprises’ Affordable Housing Set-Asides           contribute, and would not contribute to
and Allocations                                      the financial instability of the Enterprises.
                                                     For those reasons, we made no formal
HERA established (in 12 U.S.C. § 4567) two           recommendations to FHFA.Because FHFA
affordable housing funds—the Housing Trust           is both the conservator for and supervisor of
Fund within the Department of Housing and            the Enterprises, in which U.S. taxpayers have
Urban Development (HUD) and the Capital              invested more than $191 billion, we advised
Magnet Fund within Treasury (together, the           that prudence counsels FHFA, in the future,
Affordable Housing Funds)—to be funded               to acknowledge and explain the reasons
through annual set-asides by the Enterprises.        for changes in its critical determinations.
(HERA also provided that a limited amount            (See OIG, Audit of FHFA’s Oversight of the
of the set-asides would go into a reserve fund       Enterprises’ Affordable Housing Set-Asides
(the HOPE Reserve Fund) managed by the               and Allocations (AUD-2018-012, September
Treasury.) HERA requires the Enterprises to          24, 2018)).
transmit the annual set-aside amounts to these
Funds, unless the FHFA Director suspends the         Management Advisory: Freddie Mac’s
transmission, upon a finding that one or more        Reimbursement of Certain Employees’
of three statutory conditions have been met.         Commuting Expenses

In November 2008, the then-FHFA Director             We reported our findings for a completed
suspended the Enterprises’ affordable housing        administrative inquiry into allegations



                            Semiannual Report to the Congress • April 1, 2018­–September 30, 2018   19
in an anonymous hotline complaint                    interests, penalties, and applicable refiling
alleging, among other things, that a Senior          fees are paid by Freddie Mac, are to be based
Vice President (SVP) of a Freddie Mac                on actual receipts. Freddie Mac is revising its
business unit engaged in wasteful spending           Travel Policy and causing income taxes to be
by reimbursing the travel expenses of                paid on the reimbursed travel expenses. FHFA
individuals who were hired by the SVP and            did not object to Freddie Mac’s two proposed
commuted on a weekly basis to Freddie                corrective actions.
Mac headquarters in McLean, Virginia from
hundreds of miles away.                              Because the identified problems will be
                                                     addressed by Freddie Mac’s proposed
Based on documents from FHFA and Freddie             corrective actions, we made no formal
Mac, we determined that this allegation              recommendations. However, as a matter of
involved 19 out-of-area individuals in the           prudential operation of the conservatorship,
SVP’s business unit who were reimbursed              we suggested specific follow-up by FHFA. In
commuting expenses totaling $1,656,664               a written response, FHFA stated that it will
from 2015 to 2017. We determined that                review Freddie Mac’s revised Travel Policy
reimbursement of these commuting expenses            to confirm that it addresses the issues raised
was at odds with Freddie Mac’s Travel and            by the hotline complaint, and will monitor
Business Expenses Policy (Travel Policy)             Freddie Mac’s implementation of its revised
which prohibited employee reimbursement              Travel Policy, handling of tax issues related
“for commuting expenses for travel.”                 to the reimbursement of commuting expenses
                                                     to the impacted employees from 2015 to
Freddie Mac proposed two corrective actions          2017, and execution of Freddie Mac’s three-
to address the violation of its Travel Policy:       year transition plan. (See OIG, Management
a three-year “transition plan” to phase out          Advisory: Freddie Mac’s Reimbursement of
reimbursement of commuting expenses for              Certain Employees’ Commuting Expenses
the impacted employees, and revisions to its         (OIG-2018-003, September 6, 2018)).
Travel Policy to clarify what costs (including
commuting costs) are reimbursable.                   Non-Delegated Matters
While FHFA generally does not support
reimbursement of expenses associated with            FHFA sets the strategic goals for its
commuting from outside the Washington,               conservatorships of the Enterprises
D.C. metropolitan area to Freddie Mac’s              and annually issues a Scorecard to the
headquarters and initially questioned the            Enterprises with objectives to further
need for a three-year transition plan, we            its strategic goals. FHFA uses its annual
reported that FHFA credited Freddie Mac’s            Scorecards to communicate its priorities
assertion that reimbursement of commuting            and expectations to the Enterprises and the
expenses was viewed by the 19 employees              public. As conservator, FHFA has retained
as part of their compensation and that a             authority (or has revoked previously
three-year transition plan was needed to             delegated authority) to resolve issues of
retain these employees while keeping their           significant monetary and/or reputational
direct compensation in line with peers.              value to the Enterprises.
Reimbursements during the three-year
transition period, which could reach roughly         During this reporting period, we conducted
$2.9 million, before the additional reported         one compliance review in connection with
tax liabilities, shortages in tax refunds,           non-delegated matters.



20    Federal Housing Finance Agency Office of Inspector General
Compliance Review of FHFA’s Process                   with 14 of the projects. We conducted
for Making Changes to Conservatorship                 independent testing of the Agency’s process for
Scorecard Targets                                     tracking and documenting target modifications,
                                                      and found that the Agency had adhered to its
Currently, FHFA is operating under its 2014           procedures. (See OIG, Compliance Review
Strategic Plan for the conservatorships,              of FHFA’s Process for Making Changes to
which has three strategic goals. To implement         Conservatorship Scorecard Targets (COM-
its 2014 Strategic Plan, FHFA issues                  2018-004, June 20, 2018)).
annual Scorecards with objectives that the
Enterprises are expected to achieve. To assess        Supervision of the
the Enterprises’ performance in meeting their         Regulated Entities
Scorecard objectives, the Agency groups the
objectives into projects. Projects, in turn, are      As supervisor of the Enterprises and the
comprised of discrete tasks called “targets”          FHLBanks, FHFA is tasked by statute to
with scheduled completion dates.                      ensure that these entities operate safely and
                                                      soundly so that they serve as a reliable source
In a 2016 audit report, we found that the             of liquidity and funding for housing finance
Agency had revised Scorecard targets or               and community investment. Examinations
extended the time within which they were              of its regulated entities are fundamental to
to be completed, but failed to document               FHFA’s supervisory mission. Within FHFA,
those changes. We explained that the lack             DER is responsible for supervision of the
of accurate and precise records could create          Enterprises and DBR is responsible for
the misimpression that an Enterprise had              supervision of the FHLBanks.
completed the target when, in fact, that target
had been modified or the completion date              During this reporting period, we conducted
had been extended. Because compensation               an audit and two compliance reviews in
of the Enterprises’ executives is based, in           connection with FHFA’s supervision of its
part, on the Enterprises’ performance against         regulated entities.
the Scorecard and the Scorecard is the
primary means of measuring the Enterprises’           FHFA’s Housing Finance Examiner
progress against the conservator’s strategic          Commissioning Program: $7.7 Million and
goals, we stressed the need for accurate and          Four Years into the Program, the Agency
precise records. We recommended that the              has Fewer Commissioned Examiners
Agency adopt standards by which revisions
to Scorecard targets would be documented,             In 2011, FHFA acknowledged that
and the Agency agreed. FHFA asserted that             the efficiency and effectiveness of its
it revised its guidance process, and in June          examination program was impeded by
2016, adopted Scorecard procedures, upon              the limited number of commissioned
which we closed the recommendation.                   examiners then in its employ, totaling 46.
                                                      The Agency agreed to develop a Housing
During this reporting period, we performed            Finance Examiner commission program
a compliance review to test the Agency’s              (HFE Program) with the stated objectives
implementation of its Scorecard procedures            of providing examiners with “broad-based
during 2017. We found that, of the 30 projects        knowledge to conduct successful risk-based
in the 2017 Scorecard, the Agency had revised         examinations” and qualifying them “to
targets or their completion dates associated          lead the examination of a major risk area at



                             Semiannual Report to the Congress • April 1, 2018­–September 30, 2018   21
Fannie Mae, Freddie Mac, and the Federal             Report, explained that the main objective
Home Loan Banks.”                                    of the HFE Program was to produce
                                                     commissioned examiners who are “qualified
Previously, we issued four reports on                to lead” examinations of major risk areas at
FHFA’s efforts to increase the size of its           the entities supervised by FHFA. However,
corps of commissioned examiners and two              that objective has not been fulfilled in
assessments of the HFE Program. During               practice. DBR records reflect that, for
this semiannual period, we conducted a               each of the last three supervisory cycles,
study to assess whether the HFE Program              commissioned examiners led roughly 75% of
had increased the number of commissioned             annual DBR exams. DER records show that,
examiners on the FHFA staff and to determine         for the 2016 and 2017 annual supervisory
how FHFA deployed its commissioned                   cycles, DER initiated a total of 53 targeted
examiners and reported our findings. We              examinations (defined by FHFA as “a deep
found that the Agency has not achieved               or comprehensive assessment” of areas
its goal of increasing the number of                 of high importance or risk) and none of
commissioned examiners nor is it on track            these 53 targeted exams was led by an HFE
to do so. Since the Agency began awarding            commissioned examiner.
HFE commissions in 2014, the total number
of its commissioned examiners has decreased          Based on our prior reports and the fieldwork
from 59 (as of June 2014) to 58 (as of June          for our September 2018 report, we hold
2018). Almost seven years after the Agency           the view that the multiple failures in
committed to develop and implement a                 FHFA’s administration of its HFE Program
commissioning program and $7.7 million               have derailed efforts to produce the HFE
later, the Agency’s examination program              commissioned examiners that the Agency
continues to be hindered by an insufficient          claimed to need. We questioned the $7.7
number of commissioned examiners.                    million in costs to develop, implement, and
                                                     staff the HFE Program in light of the failure
We found the HFE Program suffers from                of that Program to yield the anticipated
a high non-completion rate. Of the 66                results. (See OIG, FHFA’s Housing Finance
examiners who enrolled when the HFE                  Examiner Commissioning Program: $7.7
Program first began in 2013, only 6                  Million and Four Years into the Program, the
completed the HFE Program and passed its             Agency has Fewer Commissioned Examiners
final examination. By June 2018 more than            (COM-2018-006, September 6, 2018)).
half (36) were no longer enrolled in the HFE
Program. The remaining 24 continued to be            Compliance Review of FHFA’s
enrolled as of June 1, 2018, almost five years       Communication of Serious Deficiencies to
into the approximately four-year program, and        the Enterprises’ Boards of Directors
one-third (8) had completed less than 75% of
the Program’s requirements after five years.         In a 2016 evaluation, we found that FHFA
Since 2014, only 9 individuals have graduated        failed to communicate the most serious
from the HFE Program and passed the final            safety and soundness deficiencies, called
examination.                                         matters requiring attention (MRAs), to the
                                                     Enterprises’ boards. Instead, DER informed
We also assessed the Agency’s deployment             only Enterprise management of an MRA and
of its commissioned examiners. FHFA, in              relied on management to determine whether
its 2013 Performance and Accountability              to communicate the fact and content of each



22    Federal Housing Finance Agency Office of Inspector General
MRA to its board. We also found that FHFA            each supervisory correspondence containing
did not require that its annual reports of           MRAs has been timely provided to the Audit
examination (ROE) identify all outstanding           Committee Chair of the affected Enterprise.
MRAs. As a result, no mechanism existed to           In its Management Response, FHFA noted
ensure that the boards were informed of all          that DER would consider adoption of such an
MRAs. We made four recommendations to                internal control.
address the identified shortcomings, of which
FHFA agreed in full to three.                        We also tested whether FHFA identified all
                                                     open MRAs and their estimated remediation
During this reporting period, OIG                    dates in its annual ROEs to the Enterprises,
completed a compliance review that tested            as it had agreed to do. We found that DER
FHFA’s implementation of its remedial                fully implemented that recommendation.
actions in response to two agreed-upon               (See OIG, Compliance Review of FHFA’s
recommendations, for the period October              Communication of Serious Deficiencies to the
13, 2016, through March 31, 2018. We first           Enterprises’ Boards of Directors (COM-2018-
tested whether supervisory correspondence            005, September 5, 2018)).
containing 29 MRAs was transmitted to the
affected Audit Committee Chair, as FHFA              DBR’s Safety and Soundness Quality
agreed to do. While DER addressed its                Control Reviews Were Conducted in
supervisory correspondence to Enterprise             Compliance with FHFA’s Standard During
management and the affected Audit                    the 2017 Examination Cycle but DBR’s
Committee Chair, we found that DER relied            Community Investment Quality Control
on Enterprise management to transmit                 Reviews Were Not
that correspondence to the affected Audit
Committee Chair. DER acknowledged                    DBR’s supervision of the FHLBanks and
to us that its examiners neither asked for,          the Office of Finance is conducted through
nor obtained, confirmation that the Audit            on-site annual examinations and off-site
Committee Chairs received the supervisory            monitoring. FHFA requires that DBR institute
correspondence with the 29 MRAs. Instead             a quality control (QC) process to assess
of implementing our recommendation, DER’s            examination documentation and “identify
actions preserved the status quo, which as           significant deviations from FHFA examination
we cautioned in our evaluation, “creates a           standards and supervision policy and afford
significant risk that management will put its        the examiner-in-charge an opportunity to
own spin on the deficiencies giving rise to the      correct any deviations before final findings,
MRA or will filter the information it provides       conclusions, and ratings are communicated
to the Board.” Because DER’s revised                 to the regulated entity or Office of Finance.”
supervisory guidance, as implemented, failed         Additionally, FHFA requires that individuals
to carry out the recommendation agreed to by         participating in a QC review be independent,
FHFA, we re-opened that recommendation.              i.e., they must not have participated in the
                                                     examination activity under review.
We expect FHFA to direct DER either
to amend its guidance to implement the               We performed an audit (1) to determine
recommendation, or require that DER put              whether DBR guidance for independent QC
into place an internal control to ensure             activities followed FHFA requirements; and
that it receives contemporaneous, written            (2) to assess whether DBR’s independent QC
certification from Enterprise management that        review activities for safety and soundness



                            Semiannual Report to the Congress • April 1, 2018­–September 30, 2018   23
and for community investment examinations            reviews their management largely through its
during the 2017 examination cycle met                supervisory activities.
FHFA’s requirements.
                                                     During this reporting period, we issued one
We found that DBR guidance for safety                evaluation in connection with this risk.
and soundness QC reviews was consistent
with FHFA’s requirements and determined              FHFA Should Re-evaluate and Revise
that the safety and soundness QC reviews             Fraud Reporting by the Enterprises to
of examination work performed during the             Enhance its Utility
2017 examination cycle were conducted in
compliance with that guidance. However,              HERA requires the Enterprises to establish
we found that DBR guidance for community             and maintain procedures designed to
investment QC reviews was not consistent             discover and report instances of fraud and
with FHFA’s requirements regarding QC                possible fraud. In 2010, FHFA promulgated
reviewer independence and that, in practice,         a regulation to implement HERA’s fraud
the examination specialist who performed             reporting requirements. This regulation
QC reviews for community investment                  requires each Enterprise to report to the FHFA
examinations during the 2017 examination             Director instances of fraud and possible fraud
cycle was not independent of the examination         relating to the purchase or sale of fraudulent
process, as required by FHFA’s standard.             loans or financial instruments. In addition,
                                                     FHFA Advisory Bulletin 2015-02, Enterprise
We made two recommendations to                       Fraud Reporting, directs the Enterprises
FHFA and the Agency agreed with those                to submit monthly and quarterly fraud
recommendations. (See OIG, DBR’s Safety              status reports. FHFA provided standardized
and Soundness Quality Control Reviews                templates for specifying the information
Were Conducted in Compliance with FHFA’s             the Enterprises should include in their
Standard During the 2017 Examination Cycle           monthly and quarterly reports. Similarly,
but DBR’s Community Investment Quality               under the Bank Secrecy Act, the Enterprises
Control Reviews Were Not (AUD-2018-010,              are required to report fraud and other
August 17, 2018)).                                   suspicious activities to the Financial Crimes
                                                     Enforcement Network, a Treasury bureau.
Counterparties and
Third Parties                                        FHFA is responsible for examining and
                                                     monitoring the Enterprises’ fraud risk
The Enterprises rely heavily on counterparties       management practices and overseeing the
and third parties for a wide array of                Enterprises’ compliance with FHFA fraud
professional services, including mortgage            reporting requirements. FHFA recognizes
origination and servicing. As the Enterprises        that timely fraud reporting to the Agency is
and FHFA recognize, that reliance exposes            essential to maintain the Enterprises’ safe and
the Enterprises to a number of risks,                sound condition.
including the risk that a counterparty will
not meet its contractual obligations, and            We reviewed the applicable requirements
the risk that a counterparty will engage in          and guidance governing the Enterprises’
fraudulent conduct. FHFA has delegated               obligations to detect and report fraud, the
to the Enterprises the management of                 Enterprises’ fraud detection and reporting
their relationships with counterparties and          practices, and FHFA’s use of the Enterprises’



24    Federal Housing Finance Agency Office of Inspector General
fraud reports. We found that FHFA does not           the form of either a subsidy to those who
make any documented, systematic use of               commute to work using public transportation
the content of the Enterprises’ fraud reports.       (transit subsidy program) or parking for
FHFA advised us that it recently began to            those who drive themselves or are part of a
analyze trends of the information in the             carpool (parking program). FHFA employees
Enterprises’ fraud reports. While FHFA has           may elect either a transit subsidy or parking,
considered using that information for risk           but cannot participate in both programs. We
analysis, it has not developed any framework         performed an audit to determine whether
in which to assess that information.                 FHFA had established sufficient controls over
                                                     its transportation benefits programs for FHFA
Because Congress required the Enterprises to         employees located in the Washington, D.C.,
prepare fraud reports and FHFA has directed          metropolitan area during calendar year 2017.
them to submit detailed monthly and quarterly        (Our audit excluded OIG’s controls over
reports to meet this statutory requirement,          its transportation benefits programs for its
we recommended that FHFA re-evaluate                 employees.)
the fraud information it requires from the
Enterprises and revise, as appropriate, its          We found that FHFA’s controls over its
existing reporting requirements to enhance           transportation benefits programs during
the utility of these reports with the goal of        calendar year 2017 were not sufficient.
using these reports to inform its supervisory        Certain control activities to detect and
activities with respect to the risk that fraud       correct instances of ineligible transit
poses to the Enterprises. FHFA agreed with           subsidy recipients were not performed,
our recommendation. (See OIG, FHFA Should            which included: no periodic reconciliation
Re-evaluate and Revise Fraud Reporting by            of approved transit subsidy recipients
the Enterprises to Enhance its Utility (EVL-         to monthly activity reports produced
2018-004), September 24, 2018).                      by the Washington Metropolitan Area
                                                     Transit Authority (WMATA); no periodic
Agency Operations and                                reconciliation of approved transit subsidy
Internal Controls                                    recipients to active parking recipients; and
                                                     no periodic inventory counts of WMATA
During this reporting period, we issued              SmarTrip® cards registered to FHFA and
four audits, a management advisory, and              undistributed parking permits. Our audit also
an investigative summary relating to our             identified practices in violation of FHFA’s
assessments whether specific FHFA controls,          existing internal controls: a number of
including its written policies and procedures,       employees received both a transit subsidy
are sufficiently robust, and whether its             benefit and a parking benefit; former
personnel have been adequately trained on            employees had access to FHFA transit
those specific controls and comply fully             subsidies; FHFA’s system to facilitate the
with them.                                           administration of its transportation benefits
                                                     programs lacked complete records for some
FHFA Needs to Strengthen Controls over               recipients; and FHFA could not account
its Employee Transportation Benefits                 for all WMATA SmarTrip® cards issued to
Programs                                             FHFA. We also found that FHFA guidance
                                                     for its transportation benefits programs was
As part of its employee benefits package,            incomplete. Notwithstanding these control
FHFA provides a transportation benefit in            deficiencies, we found that few dollars



                            Semiannual Report to the Congress • April 1, 2018­–September 30, 2018   25
were at risk and even fewer dollars were             approval, was not posted timely to the
improperly claimed during our audit period.          cardholder’s purchase card log, and did not
                                                     result in the vendor receiving payment on
We made three recommendations in our                 time in compliance with Prompt Payment
report, and FHFA management agreed with              Act regulations. FHFA’s continual use of the
the recommendations. (See OIG, FHFA Needs            same vendor for leased seasonal decorations
to Strengthen Controls over its Employee             year-after-year was also contrary to micro-
Transportation Benefits Programs (AUD-               purchase requirements that call for such
2018-013, September 25, 2018)).                      purchases to be equitably distributed among
                                                     qualified vendors (to the extent practicable).
Audit of FHFA’s Fiscal Year 2017                     Additionally, FHFA lacked a policy governing
Government Purchase Card Program                     the use of funds for seasonal decorations
Found Several Deficiencies with Leased               although such a policy is urged by the
Holiday Decorations, and the Need                    Government Accountability Office in a 1987
for Greater Attention by Cardholders                 decision concerning seasonal decoration.
and Approving Officials to Program
Requirements                                         We also found that FHFA personnel did
                                                     not consistently document the receipt of
FHFA, like other federal agencies, uses              goods and services nor obtain prior written
government purchase cards to make micro-             approval by an approving official before
purchases (purchases of $5,000 or less, as           making purchases.
defined by FHFA) to acquire goods and
services for its operations, although use            We made two recommendations to FHFA
of the government purchase card is not               to address the shortcomings identified
limited to micro-purchases. For fiscal year          in this audit. FHFA disagreed with our
2017, FHFA made 1,194 purchase card                  recommendation to pay a vendor interest
transactions, totaling $1,144,313. We audited        penalties owed under the Prompt Payment Act
FHFA’s government purchase card program,             regulations for the late payment of the leased
as it was carried out during fiscal year 2017.       seasonal decorations. FHFA agreed with our
Our objectives were to determine whether             other recommendation to reinforce, through
(1) the Agency’s existing controls over              periodic reminders and staff training, various
the program provide reasonable assurance             policies and procedures for the purchase card
that improper payments will not occur or             program. As our report also noted, in light
will be detected in the normal course of             of the money spent by FHFA over the years
business and (2) payments for purchase card          to lease seasonal decorations (over $40,000
transactions were properly supported as a            for the period December 2008 to May 2018
valid use of Agency funds.                           according to vendor documentation) and
                                                     the constitutional and other considerations
We found that FHFA has adequate written              with such acquisitions, we believe this is an
policies and procedures for the purchase             area that warrants FHFA consideration of
card program. However, those policies and            establishing a policy on seasonal decorations.
procedures were not always followed.                 (See OIG, Audit of FHFA’s Fiscal Year 2017
                                                     Government Purchase Card Program Found
One purchase card transaction, for $5,000            Several Deficiencies with Leased Holiday
of leased seasonal decorations for the               Decorations, and the Need for Greater
Agency’s headquarters space, lacked prior            Attention by Cardholders and Approving



26    Federal Housing Finance Agency Office of Inspector General
Officials to Program Requirements (AUD-              personal expenses. During our audit, FHFA
2018-011, September 6, 2018)).                       took action to obtain refunds of the lodging
                                                     taxes in the tax-exempt states and to obtain
Audit of FHFA’s Fiscal Year 2017                     the missing lodging receipt. Also, according
Government Travel Card Program: FHFA                 to FHFA, the employees who used their travel
Needs to Emphasize Certain Program                   cards while not on official travel promptly
Requirements to Travelers and Approving              paid their card balances.
Officials
                                                     We made one recommendation in our
FHFA, like other agencies, and its employees         report and FHFA management agreed with
use government travel cards to pay for travel        the recommendation. (See OIG, Audit of
expenses. For fiscal year 2017, FHFA’s               FHFA’s Fiscal Year 2017 Government Travel
employees submitted 2,048 travel vouchers,           Card Program: FHFA Needs to Emphasize
totaling $2,954,116, each of which were paid         Certain Program Requirements to Travelers
by FHFA. We audited FHFA’s government                and Approving Officials (AUD-2018-014,
travel card program policies, procedures,            September 25, 2018)).
and transactions during fiscal year 2017. Our
objectives were to determine whether (1) the         Statutory Audit: FHFA Complied
Agency’s existing controls over the program          with Applicable Improper Payment
provide reasonable assurance that improper           Requirements During Fiscal Year 2017
payments will not occur or will be detected
in the normal course of business and (2)             The Improper Payments Information Act of
payments for travel card transactions were           2002 (IPIA), as amended by the Improper
properly supported as a valid use of Agency          Payments Elimination and Recovery Act of
funds. We tested a sample of 68 travel               2010 (IPERA) and the Improper Payments
vouchers as part of our audit.                       Elimination and Recovery Improvement
                                                     Act of 2012 (IPERIA) (collectively, IPIA,
We found that FHFA has adequate written              as amended), requires federal agencies to
policies and procedures for its travel card          periodically review, estimate, and report
program. However, those policies and                 programs and activities that may be
procedures were not always followed.                 susceptible to significant improper payments.
                                                     IPIA was amended by IPERA to, among other
We noted exceptions to travel requirements           things, direct federal Inspectors General to
in our sample related to: reimbursement for          determine annually whether their respective
lodging taxes in states that exempt such taxes       agencies are in compliance with the statute
when a government-issued travel card is used         and to submit a report to the head of the
to pay for lodging (13 vouchers); late filing        agency, Congressional oversight committees,
of travel vouchers (20 vouchers); lack of an         the Comptroller General of the United
approved travel authorization before travel          States, and the controller of the Office of
was initiated (2 vouchers); and lack of a            Management and Budget (OMB).
lodging receipt (1 voucher). Additionally, we
found that two FHFA employees did not use            FHFA, through its Office of General Counsel,
their government-issued travel cards while           maintains that most requirements of the IPIA,
on official travel for lodging expenses and          as amended, are not applicable to the Agency
two other employees used their travel cards          because those requirements apply only to
while not on official travel to pay for nominal      payments made with federal funds and FHFA



                            Semiannual Report to the Congress • April 1, 2018­–September 30, 2018   27
does not finance its operations with federal         reflect when the individual entered and
funds. That said, FHFA asserts that it has put       exited FHFA’s offices. Because the other
controls in place to achieve the intent of the       individual did not exit the building via an
IPIA, as amended.                                    elevator that requires a badge swipe, we did
                                                     not find evidence sufficient to substantiate the
We conducted a statutory performance audit           allegation as to that individual.
to assess the Agency’s compliance with the
IPIA, as amended, for fiscal year 2017. We           We provided these findings to FHFA.
found that FHFA complied with the applicable         FHFA made inquiries to both individuals,
provisions of the IPIA, as amended, as well as       and both acknowledged that the certified
related criteria established by OMB. (See OIG,       time and attendance records did not reflect
FHFA Complied with Applicable Improper               the time worked in FHFA’s offices. The
Payment Requirements During Fiscal Year              Agency concluded that both senior officials
2017 (AUD-2018-009, April 26, 2018)).                violated FHFA’s policies regarding leave
                                                     and work schedules, and that their conduct
Investigative Summary: Review of Alleged             warrants discipline, the nature of which is
Time and Attendance Fraud by Two Senior              under consideration by FHFA. (See OIG,
Agency Officials                                     Summary of Administrative Inquiry: The
                                                     Office of Inspector General’s Review of
OIG initiated an administrative inquiry              Alleged Time and Attendance Fraud by Two
into allegations in an anonymous hotline             Senior Agency Officials, OIG-2018-005
complaint that two senior FHFA officials             (September 24, 2018)).
falsified time and attendance records by
reporting that they worked eight hours per day       Management Advisory: Use of an
when they did not.                                   Agency Vehicle

We compared the employees’ time and                  We conducted an administrative inquiry into
attendance records against electronic records        two allegations in an anonymous hotline
of their arrival at and, when available,             complaint: (1) FHFA employees inaccurately
departure from FHFA. FHFA employees                  reported their time and attendance by failing
are not required to swipe their identification       to take leave to attend the funeral of an FHFA
badges when exiting the building. However,           employee; and (2) a senior FHFA employee
employees must swipe their badges to                 authorized staff to use an FHFA vehicle to
facilitate exiting the building via certain          drive to that funeral.
restricted elevators located by the two main
entrances.                                           We found that an FHFA employee drove an
                                                     Agency van to transport 13 current FHFA
One of the two individuals named in the              employees to and from the funeral of the
allegation regularly exited the building via         spouse of an FHFA employee. FHFA time and
these elevators and swiped an identification         attendance records for these employees show
badge to do so. Comparing the electronic             that each took several hours of annual leave
records of that individual’s entrance to and         on the date of the funeral.
exit from the building against the individual’s
time and attendance submissions, we                  While these employees took annual leave to
concluded that the individual’s certified time       attend the funeral, they used the FHFA van to
and attendance records did not accurately            travel to and from it. By definition, employees



28    Federal Housing Finance Agency Office of Inspector General
who are on leave are not conducting official
business. Use of any Agency vehicle,
including the Agency van, is authorized
under FHFA’s Official Use of FHFA Vehicles
Policy, adopted March 29, 2017, only “in
furtherance of FHFA business and not for
the personal use, comfort, or convenience
of the employee.” We found no exception
in this policy to authorize employee use of
an Agency vehicle for unofficial business.
Employees’ use of the FHFA van while on
leave appears to run afoul of this policy.

Because we found only one instance
where an FHFA vehicle was used outside
of FHFA’s Official Use of FHFA Vehicles
Policy and because that one instance was
of limited duration, we made no formal
recommendations. Prudence counsels that
FHFA consider training its employees on its
Official Use of FHFA Vehicles Policy to avoid
similar issues in the future.

During the course of our inquiry, we reviewed
the vehicle log for this Agency van for a six-
month period and found it was used only four
times, including the date on which the van
was used to transport employees to and from
the funeral. (The remaining three were for the
purpose of vehicle maintenance or upkeep).
We advised that FHFA review additional logs
for this vehicle to determine whether FHFA
has a continuing need for it.

FHFA stated that it would issue a reminder
to employees to read and comply with the
Agency’s vehicle use policy and particularly
note the procedures and limitations for use
of Agency vehicles. In addition, FHFA will
review whether it has a continuing need for
the van. (See OIG, Management Advisory:
Use of an Agency Vehicle, OIG-2018-002
(September 5, 2018)).




                           Semiannual Report to the Congress • April 1, 2018­–September 30, 2018   29
Reports and Recommendations
Below are the 18 audits, evaluations, compliance reviews, management alerts and advisories,
an investigative summary, and white papers published during the period. A list of the
recommendations made in these OIG reports is provided in Appendix B. See OIG’s website for a
list of all reports issued by OIG since its inception.


                                 Report                                        Date

 FHFA Complied with Applicable Improper Payment Requirements            April 26, 2018
 During Fiscal Year 2017 (AUD-2018-009)

 Compliance Review of FHFA’s Process for Making Changes to              June 20, 2018
 Conservatorship Scorecard Targets (COM-2018-004)

 FHFA Letters of Instruction to the Enterprises (WPR-2018-004)          July 23, 2018

 Administrative Review of a Potential Conflict of Interest Matter       July 26, 2018
 Involving a Senior Executive Officer at an Enterprise (OIG-2018-001)

 DBR’s Safety and Soundness Quality Control Reviews Were                August 17, 2018
 Conducted in Compliance with FHFA’s Standard During the 2017
 Examination Cycle but DBR’s Community Investment Quality
 Control Reviews Were Not (AUD-2018-010)

 Management Advisory: Use of an Agency Vehicle (OIG-2018-002)           September 5, 2018

 Compliance Review of FHFA’s Communication of Serious                   September 5, 2018
 Deficiencies to the Enterprises’ Boards of Directors (COM-2018-
 005)

 FHFA’s Housing Finance Examiner Commissioning Program: $7.7            September 6, 2018
 Million and Four Years into the Program, the Agency has Fewer
 Commissioned Examiners (COM-2018-006)

 Management Advisory: Freddie Mac’s Reimbursement of Certain            September 6, 2018
 Employees’ Commuting Expenses (OIG-2018-003)

 Consolidation and Relocation of Fannie Mae’s Northern Virginia         September 6, 2018
 Workforce (OIG-2018-004)

 Audit of FHFA’s Fiscal Year 2017 Government Purchase Card              September 6, 2018
 Program Found Several Deficiencies with Leased Holiday
 Decorations, and the Need for Greater Attention by Cardholders and
 Approving Officials to Program Requirements (AUD-2018-011)




30    Federal Housing Finance Agency Office of Inspector General
                             Report                                                Date

Freddie Mac’s IMAGIN Pilot (WPR-2018-005)                                  September 12, 2018

An Overview of Enterprise Appraisal Waivers (WPR-2018-006)                 September 14, 2018

FHFA Should Re-evaluate and Revise Fraud Reporting by the                  September 24, 2018
Enterprises to Enhance its Utility (EVL-2018-004)

Audit of FHFA’s Oversight of the Enterprises’ Affordable Housing           September 24, 2018
Set-Asides and Allocations (AUD-2018-012)

Summary of Administrative Inquiry: The Office of Inspector                 September 24, 2018
General’s Review of Alleged Time and Attendance Fraud by Two
Senior Agency Officials (OIG-2018-005)

FHFA Needs to Strengthen Controls over its Employee                        September 25, 2018
Transportation Benefits Programs (AUD-2018-013)

Audit of FHFA’s Fiscal Year 2017 Government Travel Card                    September 25, 2018
Program: FHFA Needs to Emphasize Certain Program Requirements
to Travelers and Approving Officials (AUD-2018-014)




                        Semiannual Report to the Congress • April 1, 2018­–September 30, 2018   31
Oversight Through OIG’s Investigations
OIG is vested with statutory law                     Various elements contribute to determining
enforcement authority that is exercised by           the resources needed for each investigation
its Office of Investigations (OI). OI conducts       and the length of time necessary to complete
criminal and civil investigations into those,        each investigation. For example, loan
whether inside or outside of government,             origination and short sale schemes—common
who waste, steal, or abuse government                types of mortgage fraud—can be labor
monies in connection with programs and               intensive due to the extensive review and
operations of the Agency and the                     analysis of mortgage loan files and bank
regulated entities.                                  documents necessary to spot indications of
                                                     fraud. Fraudulent loan modification schemes
Depending on the type of misconduct                  sometimes involve hundreds of victims.
uncovered, OI investigations may result              Those investigations require comprehensive
in criminal charges, civil complaints, and/          document and financial records reviews,
or administrative sanctions and decisions.           victim interviews, and the tracking of illicitly
Civil claims can lead to settlements or              received fees charged by the perpetrators.
verdicts with restitutions, fines, penalties,        In condominium or builder bailout scheme
forfeitures, assessments, and exclusion of           investigations, SAs carefully examine
individuals or entities from participation           mortgage and bank documents to determine
in federal programs. Criminal charges filed          fraudulent patterns of behavior, including
against individuals or entities may result           undisclosed incentives to attract buyers to
in plea agreements or trials, incarceration,         purchase and invest in properties. In these
restitution, fines, and penalties. This              investigations, SAs locate and interview
reporting period, as a result of OIG                 investors, learn the nuances of how the
investigations, 53 defendants were sentenced         scheme is organized, and determine how
to an aggregate total of 181 years in prison.        the perpetrators financially benefitted. In
                                                     bankruptcy or foreclosure-delay schemes,
                                                     SAs cull through documents received by the
                                                     Enterprises and the FHLBanks, calculate
                                                     scheme losses, and coordinate with the United
                                                     States Trustee’s offices as needed to determine
                                                     if fraudulent paperwork has been submitted
                                                     to initiate a bankruptcy. Other labor-intensive
                                                     investigations conducted by SAs include
                                                     real estate owned (REO), multifamily, and
                                                     adverse possession schemes. Each of these
                                                     schemes presents with unique circumstances
                                                     and requires many hours of intense document
                                                     analysis, potential victim and witness
OI is staffed with special agents (SAs),             interviews, and other investigative techniques.
investigative counsels, analysts, and
attorney advisors. OIG’s SAs investigate             To increase OIG’s effectiveness, four OIG
criminal matters involving allegations of            attorney-investigators have been appointed
fraud and misconduct.                                as Special Assistant U.S. Attorneys in



32    Federal Housing Finance Agency Office of Inspector General
              Figure 1. OI Monetary Results
              April 1, 2018 – September 30, 2018
                                         Criminal                               Civil
                                      Investigations                       Investigations
              Fines*                    $ 23,207,127                                  $0
              Settlements                         $0                     $ 7,031,450,000
              Restitutions              $ 51,745,515                                  $0
              Total                     $ 74,952,642                     $ 7,031,450,000
             *Fines include criminal fines, forfeiture and special assessments, and civil fines
             imposed by federal court.

              Figure 2. Reports, Referrals, Prosecutions, and Convictions
              April 1, 2018 – September 30, 2018*
              Investigative Reports**                                   23
              Criminal Referrals to DOJ                                 59
              Criminal Referrals to State and Local Prosecuting         12
              Authorities
              Indictments and Informations during the Reporting         36
              Period that Resulted from Referral to Prosecutors
              during Prior Reporting Periods
              Total Indictments and Informations during the Reporting   45
              Period Resulting from OIG Referrals
              Trials                                                    5
              Defendants Tried                                          7
              Convictions/Pleas                                         37
              Sentencings                                               53
             *All criminal charges and successive actions (pleas/convictions/sentencings) are
             supported with documents filed with the corresponding federal or state court.
             This includes both public and non-public documents (sealed). All referrals made
             to DOJ and to state prosecutors are captured within each investigative file; these
             actions are tabulated via a statistical report run in OIG’s case management system.
             Criminal referrals on this chart include both individuals and entities.
             **For the purposes of this SAR, an investigative report is defined as the Report of
             Investigation finalized at the conclusion of the investigation, prior to case closure.


several judicial districts throughout the                  law enforcement agencies, including the
country. They have been assigned criminal                  Department of Justice (DOJ), the Federal
matters arising from OI’s investigations in                Bureau of Investigation (FBI), the HUD-
the districts where they have been appointed               OIG, Internal Revenue Service-Criminal
and have pursued these investigations to                   Investigation (IRS-CI), and state and local
conviction and sentencing.                                 law enforcement entities nationwide.

To maximize criminal and civil law                         Since its inception, OIG has also maintained a
enforcement, OI works closely with other                   hotline to provide easy access for individuals



                             Semiannual Report to the Congress • April 1, 2018­–September 30, 2018       33
to report tips, complaints, or referrals (TCRs)       mortgage-backed securities (RMBS)
of alleged violations of criminal and civil laws      investigations by working closely with U.S.
in connection with programs and operations of         Attorneys’ offices to investigate allegations
the Agency. OI is responsible for conducting a        of fraud committed by financial institutions
preliminary review of all hotline TCRs. OIG’s         and individuals in connection with RMBS.
hotline is staffed by a third-party vendor to         OI SAs and attorneys reviewed evidence
protect the anonymity of the callers and to           produced by various parties and provided
provide easy access for reporting. Every TCR,         strategic litigation review and advice on the
whether made by telephone directly to the             operations of the RMBS market.
hotline, email, website, or in person, is sent to
the hotline and logged by the hotline. Attorneys      Wells Fargo Agrees to Pay $2.09 Billion
in OI conduct a preliminary assessment                Penalty for Allegedly Misrepresenting
to determine whether further review and               the Quality of Loans Used in Residential
investigation is appropriate. During this             Mortgage-Backed Securities
reporting period, 614 discrete contacts to the
hotline were made involving TCRs, and 128             On August 1, 2018, DOJ announced that
separate TCRs were logged by the hotline.             Wells Fargo Bank, N.A. and several of
                                                      its affiliates (Wells Fargo) will pay a civil
During the semiannual reporting period, OI            penalty of $2.09 billion under the Financial
conducted numerous criminal, civil, and               Institutions Reform, Recovery, and
administrative investigations, which resulted         Enforcement Act of 1989 (FIRREA) based
in the filing of criminal charges against 45          on the bank’s alleged origination and sale
individuals, the conviction of 37 individuals,        of residential mortgage loans that it knew
and 53 sentencings, as well as court-ordered          contained misstated income information and
fines and restitution awards.                         did not meet the quality that Wells Fargo
                                                      represented. Investors, including federally
Figures 1 and 2 (see above) summarize the             insured financial institutions, suffered billions
results obtained during this reporting period         of dollars in losses from investing in RMBS
from our investigative efforts.                       containing loans originated by Wells Fargo.

Below, we discuss some of our civil and               The United States alleged that, in 2005,
criminal cases, grouped by category. In               Wells Fargo began an initiative to double its
each category, we describe the nature of the          production of subprime and Alt-A loans. As
crime and include a few highlights of matters         part of that initiative, Wells Fargo loosened
investigated by OIG. For a summary of                 its requirements for originating stated income
publicly reportable investigative outcomes for        loans—loans where a borrower simply states
each category during this reporting period, see       his or her income without providing any
Appendices C-J.                                       supporting income documentation.

Investigations: Civil Cases                           To evaluate the integrity of its increasing
                                                      volume of stated income loans, Wells Fargo
Residential Mortgage-Backed Securities                subjected a sample of these loans to testing
Investigations                                        that involved comparing the borrower’s tax
                                                      transcripts with the income stated on the loan
During the semiannual reporting period,               application. Wells Fargo’s testing revealed
OI continued to participate in residential            that more than 70% of the loans sampled



34     Federal Housing Finance Agency Office of Inspector General
had an “unacceptable” variance (greater than           selling residential mortgage loans from 2004
20% discrepancy between the borrower’s                 through 2008. Under the resolution, Aurora
stated income and the income reflected in the          Loan Services will pay $41 million as a civil
borrower’s most recent tax returns), and the           penalty under FIRREA.
average variance was approximately 65%.
After receiving these results, Wells Fargo             Aurora Loan Services was a mortgage
conducted further internal testing to determine        company headquartered in Littleton,
if “plausible” explanations existed for the            Colorado. It worked with correspondent
“unacceptable” variances. This additional step         lenders, which made mortgage loans to
revealed that nearly half of the stated income         homebuyers. Aurora Loan Services arranged
loans that Wells Fargo tested had both an              for the sale of these loans to its parent
unacceptable variance and the absence of a             company, Lehman Brothers Bank. Lehman
plausible explanation for that variance.               Brothers Bank sold these loans to its parent,
                                                       LBHI, a major investment bank. LBHI used
The United States alleged that, despite its            the loans to create RMBS and sold those
knowledge that a substantial portion of its            securities to investors.
stated income loans contained misstated
income, Wells Fargo failed to disclose this            The United States alleged that between 2004
information and instead reported to investors          and 2008, Aurora Loan Services represented
false debt-to-income ratios relating to the            to potential investors that the loans generally
loans it sold. Wells Fargo also allegedly              complied with its underwriting standards.
heralded its fraud controls while failing to           It represented that before the loans were
disclose the income discrepancies its controls         purchased from correspondent lenders, the
had identified. The United States further              loans had been scrutinized as part of Aurora
alleged that Wells Fargo took steps to insulate        Loan Services’ quality control review.
itself from the risks of its stated income loans       Investors were also told that the loans went
by screening out many of these loans from its          through Aurora Loan Services’ “pre-funding
own loan portfolio held for investment and             fraud detection” review, a review that
by limiting its liability to third parties for the     identified potential “red flags” in loan files.
accuracy of its stated income loans. Nearly
half of the stated income loans Wells Fargo            In practice, however, Aurora Loan Services
sold that were included in RMBS between                knew that these representations were not true
2005 to 2007 have defaulted, resulting in              for many loans. Aurora Loan Services gave
billions of dollars in losses to investors.            five large correspondent lenders “Platinum”
                                                       status. Aurora Loan Services gave these
Former Colorado Mortgage Originator, a                 Platinum lenders better pricing. Aurora Loan
Subsidiary of Lehman Brothers, Agrees to               Services also allowed the Platinum lenders to
Pay $41 Million Related to its Conduct in              underwrite their own loans and even to make
Originating and Selling Mortgage Loans                 exceptions by issuing loans that failed to
                                                       meet the underwriting standards. In 2005, to
On August 2, 2018, the U.S. Attorney for the           save time and money, Aurora Loan Services
District of Colorado, announced a $41 million          removed the pre-funding fraud detection
settlement with Aurora Loan Services, LLC,             for all five Platinum lenders. Aurora Loan
a subsidiary of Lehman Brothers Holdings,              Services also decided to exempt the Platinum
Inc. (“LBHI”), in connection with Aurora               lenders from the quality control standards that
Loan Services’ conduct in originating and              Aurora Loan Services otherwise imposed on



                              Semiannual Report to the Congress • April 1, 2018­–September 30, 2018   35
other lenders before their loans were sold.          For example, RBS’s reviews of loans backing
Aurora Loan Services did not tell investors          its RMBS (known as “due diligence”)
that these five Platinum lenders were exempt         confirmed that loan originators had failed to
from those quality control requirements.             follow their own underwriting procedures,
The shortcuts and preferential treatment             and that their procedures were ineffective at
that Aurora Loan Services gave to the five           preventing risky loans from being made. As a
Platinum lenders contributed, among other            result, RBS routinely found that borrowers for
factors, to the deteriorating quality of some        the loans in its RMBS did not have the ability
loans purchased from those lenders. Starting         to repay and that appraisals for the properties
in late 2006, the loans purchased from the five      guaranteeing the loans had materially inflated
Platinum lenders began defaulting at higher          the property values RBS’s RMBS contained, as
rates. Investors who bought LBHI’s RMBS              its Chief Credit Officer put it, “total [expletive
containing those loans suffered losses.              deleted] garbage” loans with “random” and
                                                     “rampant” fraud that was “all disguised to,
Aurora Loan Services has minimal assets and          you know look okay kind of . . . in a data
no employees, and will be winding down. As           file.” RBS never disclosed that these material
part of the settlement, Aurora Loan Services’        risks both existed and increased the likelihood
parent company, Aurora Commercial                    that loans in its RMBS would default.
Corporation, has represented that it has not
resumed, and will not resume, the origination,       RBS’s due diligence practices did not remove
underwriting, purchase, or sale of mortgage          fraudulent and high-risk loans from its
loans. Aurora Loan Services has ceased all           RMBS. In fact, RBS executives internally
mortgage activities.                                 discussed how RBS’s due diligence process
                                                     was “just a bunch of [expletive deleted].”
The Royal Bank of Scotland Agrees to
Pay $4.9 Billion for Financial Crisis-Era            To develop and maintain business relations
Misconduct                                           with originators, RBS agreed to limit
                                                     the number of loans it could review (due
On August 14, 2018, DOJ announced a $4.9             diligence caps) and/or limit the number of
billion settlement with The Royal Bank of            materially defective loans it could remove
Scotland Group plc (RBS Group) resolving             from an RMBS (kick-out caps). As a result,
federal civil claims that RBS Group’s                RBS securitized tens of thousands of
subsidiaries in the United States (RBS) misled       loans that it determined or suspected were
investors in the underwriting and issuing of         fraudulent or had material problems without
RMBS between 2005 and 2008. The penalty              disclosing the nature of the loans to investors.
is the largest imposed by DOJ for financial
crisis-era misconduct at a single entity.            Through its scheme, RBS earned hundreds
                                                     of millions of dollars, while simultaneously
Using recordings of contemporaneous                  ensuring that it received repayment of billions
calls and emails of RBS executives, the              of dollars it had lent to originators to fund the
settlement includes a statement of facts             faulty loans underlying the RMBS. RBS used
alleged by DOJ (but not admitted or agreed           RMBS to push the risk of the loans, and tens
to by RBS) that details how RBS routinely            of billions of dollars in subsequent losses,
made misrepresentations to investors about           onto unsuspecting investors across the world,
significant risks it failed to disclose about        including non-profits, retirement funds, and
its RMBS.                                            federally-insured financial institutions. As



36    Federal Housing Finance Agency Office of Inspector General
losses mounted, and after many mortgage               ordered to pay more than $10 million
lenders who originated those loans had gone           in restitution, jointly and severally, for
out of business, RBS executives showed little         his leadership role in a “builder bailout”
regard for this misconduct and made light             mortgage fraud scheme.
of it. For example, after RBS’s Head Trader
received an e-mail from a friend stating              According to court documents, Abaji, along
“[I’m] sure your parents never imagine[d]             with several co-conspirators, operated the
they’d raise a son who [would] destroy the            scheme through Excel Investments and
housing market in the richest nation on the           related companies based in Santa Ana and
planet,” the Head Trader answered, “I take            Irvine, California. The scheme involved
exception to the word ‘destroy.’ I am more            kickbacks from condominium builders that
comfortable with ‘severely damage.’”                  Abaji and his co-conspirators hid from
                                                      lenders to convince them to fund loans in
The actions of RBS resulted in significant            excess of the actual purchase price.
losses to investors, including Fannie Mae and
Freddie Mac, which purchased RMBS backed              The co-conspirators identified condominium
by defective loans.                                   developments around the country where
                                                      the builders were struggling to sell units
Investigations: Criminal Cases                        and arranged to purchase multiple units at a
                                                      discount. The builders benefitted by making it
Below we highlight OIG criminal                       appear that their condominiums were selling
investigations during this semiannual                 and maintaining their value, while members
reporting period in a number of different             of the conspiracy obtained the kickbacks.
categories. These investigations resulted
in criminal charges, trial convictions, plea          The co-conspirators negotiated with
agreements, sentencings, and court-ordered            condominium builders in California,
fines, forfeitures, and restitution judgments.        Florida, and Arizona for discount units. The
                                                      defendants bought units for themselves,
Condo Conversion and Builder                          their relatives, and on behalf of “straw
Bailout Schemes                                       buyers” whom they brought into the scheme.
                                                      They identified straw buyers by looking
In condo conversion and builder bailout               for individuals with good credit scores and
schemes, the sellers or developers wrongfully         then recruited them into the scheme by
conceal from prospective lenders the incentives       giving them an upfront payment for their
they have offered to investors and the true           participation and by presenting the scheme
value of the properties. The lenders, acting on       as an investment opportunity that required no
this misinformation, make loans that are far          down payment and would generate income
riskier than they have been led to believe. Such      through rental payments.
loans often default and go into foreclosure,
causing the lenders to suffer large losses.           To obtain mortgages for the properties,
                                                      Abaji and other co-conspirators prepared
Three Sentenced in $21 Million Builder                loan applications with false information
Bailout Fraud Scheme, California                      about the straw buyers—including fake
                                                      employment, income, and assets, as well
On July 16, 2018, Momoud Abaji was                    as fabricated W-2s, pay stubs, and bank
sentenced to 108 months in prison and                 statements. The mortgage applications also



                             Semiannual Report to the Congress • April 1, 2018­–September 30, 2018   37
included false information about the terms           charges of wire fraud and mail fraud.
of the transactions, such as concealing the          Additionally, on September 4, 2018, Vince
large kickbacks from builders through false          Manglardi pled guilty to wire fraud affecting
and misleading HUD-1 forms. Because of               a financial institution for his participation in
the false statements in the fraudulent loan          the scheme.
applications, mortgage lenders provided over
$21 million in financing to purchase more            According to court documents, Manglardi,
than 100 properties.                                 Wojtas, Jr., and other co-defendants used an
                                                     assortment of advertising methods and sales
Many of these loans went into default, and           pitches—on air, online, in writing, and at
mortgage lenders lost more than $10 million          live presentations—to falsely promote the
after foreclosing on the properties.                 purchase of condominiums at the Woods as a
                                                     means to financial independence and wealth,
In related cases, on June 5, 2018, Maher             enticing prospective condominium buyers
Obagi and Mohamed Salah were sentenced               with substantial, unsustainable financial
to 78 months and 57 months in prison,                incentives, including down payment refunds
respectively, four years of supervised release,      and up to three years’ worth of mortgage
and ordered to respectively pay more than $10        payments, maintenance costs, and property
million and $7 million in restitution, jointly       tax payments.
and severally, for their roles in this scheme.
Obagi and Salah were previously found guilty         Additionally, the co-defendants colluded to
at trial for conspiracy to commit bank and           misrepresent and conceal material facts from
wire fraud; Obagi was additionally found             banks and mortgage lenders to fraudulently
guilty on charges of wire fraud.                     induce them to approve non-conforming
                                                     loans to unqualified buyers, thereby exposing
The Enterprises purchased dozens of these            lenders and the Enterprises to millions of
loans on the secondary mortgage market and           dollars in potential losses. The Enterprises
suffered losses of at least $1.3 million because     purchased over $32 million in mortgage loans
of defaults and foreclosures on the properties.      made to condominium buyers at the Woods.
                                                     The fraud scheme caused more than $16
Sentencing and Guilty Plea of Real Estate            million in losses to banks, mortgage lenders,
Developers in Builder Bailout Fraud                  and the Enterprises, whose combined losses
Scheme, Illinois                                     are over $1.3 million.

On July 24, 2018, Theodore Wojtas, Jr.,              Loan Origination Schemes
was sentenced to 66 months in prison, 3
years of supervised release, and ordered             Loan or mortgage origination schemes are
to pay nearly $15 million in restitution,            the most common type of mortgage fraud.
jointly and severally, for his participation         They typically involve falsifying borrowers’
in a mortgage fraud scheme involving the             income, assets, employment histories, and
marketing and sale of condominiums at a 50-          credit profiles to make them more attractive
acre development known as The Woods at               to lenders. Perpetrators often employ bogus
Countryside (the Woods) in Palatine, Illinois.       Social Security numbers and fake or altered
Wojtas, Jr., was ordered to refrain from             documents such as W-2s and bank statements
working in the real estate industry. He was          to cause lenders to make loans they would not
previously convicted at trial on                     otherwise make.



38    Federal Housing Finance Agency Office of Inspector General
Sentencing in $11 Million Bank Fraud                 and submitted documents with fraudulent
Case, California                                     information about the buyers’ income, assets,
                                                     and source of down payment. In addition, the
On August 27, 2018, Mohsen Hass, a.k.a.              properties involved in the scheme were sold at
“Mohsen Hassanshahi,” was sentenced to               inflated prices. Soon after the properties were
57 months in prison, 3 years of supervised           sold to the straw buyers, the mortgages went
release, and ordered to pay more than                into default. There were at least five mortgage
$5.7 million in restitution for his role in          loans valued at approximately $1.5 million
a bank fraud scheme. Hass was initially              involved in this scheme, causing a combined
charged in 2014, but he fled to Iran for             loss to the Enterprises of approximately
nearly four years before self-surrendering           $800,000.
in February of this year. He pled guilty in
March 2018 to making false statements to             Sentencing in Loan Origination Fraud
a financial institution.                             Scheme, Texas

According to court documents, Hass bought            On August 21, 2018, Chukwuma Osuagwu
a gas station and two car washes with more           was sentenced to 72 months in prison, five
than $11 million in loans that he obtained           years of supervised release, and ordered to
based on false information including fake            pay $722,934 in restitution for his role in
assets that he claimed he was using for a            an origination fraud scheme. Osuagwu was
down payment. At least one bank insider              previously found guilty at trial on charges of
participated in the scheme and allowed loans         bank fraud and conspiracy to commit bank
to go through despite knowing about the              fraud.
false information.
                                                     According to court documents, Osuagwu and
Mirae Bank, a member bank of the FHLBank             co-conspirator James Mitchell engaged in a
of San Francisco, ultimately failed and went         series of fraudulent real estate transactions
into receivership in part due to the fraudulent      involving condominium units in Texas.
conduct perpetrated by Hass.                         Osuagwu was able to purchase condominium
                                                     units, or assist Mitchell and others in
Attorney Sentenced in Straw Buyer                    purchasing condominium units using false
Scheme, Illinois                                     documents including false bank statements,
                                                     employment letters, W-2s, and paystubs.
On August 13, 2018, Robert Lattas, an                Relying on these documents, multiple banks
attorney, was sentenced to 84 months in              issued mortgage loans they otherwise would
prison, two years of supervised release, and         not have approved. These frauds involved
ordered to pay over $2.7 million in restitution      at least nine mortgages, two of which were
for his role in a straw buyer scheme. Lattas         secured by Fannie Mae. The total loss
was previously found guilty after a federal          suffered by the banks because of the scheme
trial on charges of mail and wire fraud.             was over $1.2 million, including a loss of
                                                     approximately $185,000 to Fannie Mae.
According to court documents, Lattas and
others helped straw buyers obtain mortgages          In a related case, on April 11, 2018, Mitchell
by making false representations in mortgage          was sentenced to 30 months of probation and
application documents submitted to lenders.          ordered to pay $87,965 in restitution for his
For example, the co-conspirators prepared            role in this scheme.



                            Semiannual Report to the Congress • April 1, 2018­–September 30, 2018   39
Former Loan Officer Sentenced for Role in            exposing the Enterprises and lenders to more
$6 Million Mortgage Fraud Scheme, New                than $2 million in potential losses.
Jersey
                                                     Loan Modification and Property
On May 22, 2018, Joseph Divalli was                  Disposition Schemes
sentenced to 18 months in prison, three
years supervised release, and ordered to             Loan modification and property disposition
pay $2.3 million in restitution, jointly and         schemes prey on homeowners. Businesses
severally, for his role in a mortgage fraud          typically advertise that they can secure
scheme. Divalli previously pled guilty to            loan modifications if the homeowners pay
conspiracy to commit wire fraud, wire                significant upfront fees or take other action
fraud, and tax evasion.                              that enriches the defendant. Typically, these
                                                     businesses take little or no action, leaving
According to documents filed in this case            homeowners in a worse position.
and statements made in court, Divalli and
co-conspirators participated in a scheme             Three Sentenced in $20 Million Mortgage
to fraudulently obtain mortgage loans for            Fraud Scheme, California
properties located in New Jersey. After
recruiting straw buyers to purchase the              On July 16, 2018, three owners and/or
properties, Divalli and others submitted             managers of Los Angeles, California-area
false and fraudulent loan applications and           foreclosure rescue companies, Dorothy
supporting documents so the straw buyers             Matsuba, her daughter Jamie Matsuba,
could qualify for the loans. Divalli and others      and her husband Thomas Matsuba, were
also used another co-conspirator, who worked         sentenced to 240, 135, and 168 months in
at a bank, to create misleading certifications       prison for their roles in a foreclosure rescue
showing certain bank accounts held more              scheme, respectively. The defendants were
money than they had. Divalli and his co-             additionally ordered to serve three years of
conspirators also submitted false appraisal          supervised release.
reports, backdated deeds, and used unlicensed
title agents to close transactions and disburse      Dorothy Matsuba previously pled guilty
the mortgage proceeds.                               to charges of conspiracy to commit wire
                                                     fraud and false statements to a federally
Divalli also admitted to engaging in a separate      insured bank or mortgage lending business,
scheme to modify the mortgage on his                 identity theft, wire fraud, false statements
personal residence. Divalli used false payroll       to federally insured banks, and aggravated
ledgers and earnings statements to deceive           identity theft. Jamie Matsuba and Thomas
a loan officer into believing that his net           Matsuba were previously convicted at
earnings were lower than his actual income           trial on charges of conspiracy to commit
level, misrepresenting his financial position        wire fraud and making false statements to
and qualifying him for the modification.             federally insured banks, identity theft,
                                                     and making false statements to federally
As a loan officer for a New Jersey mortgage          insured banks.
lender, Divalli facilitated some of these
fraudulent transactions. Overall, the scheme         According to evidence presented at trial,
induced lenders to issue more than $6 million        Dorothy Matsuba, Jamie Matsuba, Thomas
in loans, resulting in several defaults and          Matsuba, and others engaged in a scheme to



40    Federal Housing Finance Agency Office of Inspector General
defraud financially distressed homeowners                     On June 20, 2018, a federal jury convicted
by offering to prevent foreclosure on their                   Michelle Jordan; her husband, Michael
properties through short sales. Instead, the                  Welsh; and Carrol Jackson on charges of
conspirators rented out the properties to third               conspiracy to commit wire fraud and wire
parties, did not pay the mortgages on the                     fraud relating to a foreclosure prevention
properties, and submitted false and fraudulent                fraud scheme. According to the evidence
documents to mortgage lenders and servicers                   presented at trial, Jordan was chief executive
to delay foreclosure. The evidence further                    officer and director of MJ Loan Auditor
established that the conspirators obtained                    Group, LLC (MJLAG), a limited liability
mortgages in the names of stolen identities.                  company registered and doing business
The defendants also used additional tactics,                  in Maryland. Welsh was president, vice
including filing bankruptcy in the names                      president, and director of MJLAG.
of distressed homeowners without their
knowledge and fabricating liens on the                        The evidence showed that Jordan and
distressed properties, the evidence showed.                   Welsh told victim homeowners that, for a
                                                              fee, MJLAG could help these homeowners
Losses to the Enterprises and lenders are                     modify their mortgage loans and prevent
nearly $19 million.                                           foreclosure of their homes. Jordan and
                                                              Welsh falsely represented that MJLAG
Three Convicted on Charges Related to                         could help the homeowners get “free and
Foreclosure Prevention Fraud Scheme,                          clear” title to their homes, with no debt or
Maryland                                                      liens against the property, and that MJLAG




Evidence presented at trial that Jordan told victims they should stop crying, read the board, and fight, leading them
to believe she was a legitimate service provider.




                                 Semiannual Report to the Congress • April 1, 2018­–September 30, 2018             41
could obtain money from the homeowners’               homes were in foreclosure proceedings to
lenders, typically by suing the lenders.              file for bankruptcy to delay the foreclosure
Jordan and Welsh told homeowners that they            proceedings and as part of the process to
needed to purchase one or more “audits” of            prevent foreclosure of the clients’ homes.
the homeowners’ mortgage loans in order               Jordan facilitated this process by preparing
to uncover fraud and alleged illegal acts             bankruptcy petitions and related documents
committed by the lenders, and that these              and court filings.
“audits” could be used as evidence in lawsuits
against the lenders and in negotiating for a          The jury found that the evidence proved
loan modification.                                    Jordan and Welsh paid defendant Jackson,
                                                      as the owner of CJ Maxx LLC Group, to
Witnesses testified that as part of the scheme,       prepare fraudulent documents purporting
Jordan and Welsh had homeowners sign a                to be “Forensic Audit Reports” and “Real
“contract fee agreement” setting out what             Estate Securitization Audits” relating to
fees would be charged for the “audit.” The            loans for properties owned by MJLAG
contract fee agreement contained the seal             clients. The victim homeowners paid
of the National Association of Mortgage               money to MJLAG with the expectation of
Underwriters (NAMU), even though the                  receiving assistance with modifying their
defendants and their companies had no                 mortgage loans and preventing foreclosure
current affiliation with NAMU. Jordan                 of their homes.
advised clients to submit baseless complaints
about their lender to state and federal               At least 20 of the properties involved in
agencies, and to stop paying their mortgages.         this investigation were financed through
Jordan further advised MJLAG clients whose            Enterprise-backed loans.

                                                      Eight Year Prison Sentence for Operator
                                                      of Nationwide Loan Modification Scheme,
                                                      California

                                                      On July 13, 2018, Assad Suleiman was
                                                      sentenced to 8 years in prison and ordered to
                                                      pay over $1.5 million in restitution for his role
                                                      in a nationwide loan modification services
                                                      pre-payment scheme.

                                                      According to court documents, Suleiman,
                                                      along with others, operated multiple
                                                      fictitious entities, including Jefferson Legal
                                                      Group, Simplify Law Group, Synergy Law
                                                      Center, and Wilshire Debt Advisors, that
                                                      purported to offer home loan modification
                                                      services to distressed homeowners. The
                                                      entities charged advance fees for their
Photo of Jordan’s wedding at a                        services and, despite their names, were
resort in Jamaica, paid for with                      not law firms and did not employ lawyers.
proceeds from the fraud scheme.                       The co-conspirators often terminated



42     Federal Housing Finance Agency Office of Inspector General
communication with victims upon receiving             and Jemmett pled guilty to false statement
their initial payment.                                in a transaction insured by HUD. David
                                                      Dziedzic additionally pled guilty to a tax
If the co-conspirators did facilitate a trial         fraud charge.
loan modification for their victims, they
falsely advised the victims to pay their trial        According to their plea agreements, David
payments, as well as other fraudulent fees            and Heather Dziedzic were licensed real
such as taxes or impounds, direct to the              estate brokers who ran a real estate brokerage
fictitious entities they controlled, claiming the     business. Poyner was a licensed real estate
payments would be forwarded to the lenders.           broker and owner of Phoenix Property Group.
The lenders did not receive these payments            The Dziedzics used the “Housing Angel”
and instead, the co-conspirators used the             website to market short sale services to
funds for personal gain.                              distressed homeowners, including a program
                                                      that allowed the homeowners to stay in their
During April 2018, Rosa Barraza was charged           residence, touted as “sale-leaseback” using
by superseding information with conspiracy,           “angel” investors.
grand theft, money laundering, and unlawful
loan modification advance fees.                       The Dziedzics admitted to using straw buyers
                                                      to buy distressed properties and to representing
This scheme impacted at least 387 victim              both sides of the real estate transaction. In
homeowners. Losses to the Enterprises,                some cases, they encouraged the homeowners
lenders, and victim homeowners are over               to repurchase the properties, knowingly
$2.28 million.                                        circumventing the arm’s length agreements.

Short Sale Schemes                                    David Dziedzic additionally admitted
                                                      to directing Jemmett, a Housing Angels
Short sales occur when a lender allows a              employee, to add secondary liens under
borrower who is “underwater” on his/                  the name “Global Finance” to many of the
her loan—that is, the borrower owes more              properties they were trying to sell short, to
than the property is worth—to sell his/her            recoup the time spent by Housing Angels in
property for less than the debt owed. Short           arranging the short sale. This money came
sale fraud usually involves a borrower                from funds intended to satisfy the underlying
who intentionally misrepresents or fails to           obligation to the lenders. As a real estate
disclose material facts to induce a lender to         agent, David Dziedzic was not entitled to these
agree to a short sale.                                funds. David Dziedzic admitted to receiving
                                                      secondary lien payments and real estate
Four Real Estate Professionals Plead Guilty           commissions for approximately 40 properties,
in Short Sale Fraud Scheme, Arizona                   resulting in a profit of over $1.5 million.

During August 2018, David Dziedzic,                   Poyner, in his plea agreement, admitted
Heather Dziedzic, Jason Poyner, and Andrew            to knowingly making a false statement in
Jemmett were charged by information for               a settlement statement while engaged in
their roles in a short sale fraud scheme.             a short sale fraud transaction with David
Shortly thereafter, David and Heather                 Dziedzic. Jemmett, in his plea agreement,
Dziedzic pled guilty to securities charges,           admitted to knowingly and willfully making
Poyner pled guilty to misprision of felony,           a material false statement to secure the



                             Semiannual Report to the Congress • April 1, 2018­–September 30, 2018   43
release of a mortgage, insured by HUD,               units, placing mats and shoes outside
through a short sale.                                apartments as lived in, and pretending to be
                                                     a tenant of an inspected unit.
The Enterprises were investors in 35
properties involved in this scheme. Loss             The indictment alleges fraud at seven
calculations are ongoing.                            different properties that resulted in total loans
                                                     issued of over $167 million.
Multifamily Schemes
                                                     Property Management and REO Schemes
Investigations in this category can involve a
variety of fraud schemes that relate to loans        Numerous foreclosures left the Enterprises
purchased by the Enterprises to finance              with an inventory of REO properties. The
multifamily properties. Multifamily properties       REO inventory has sparked a number of
have five or more units and are primarily            different schemes to either defraud the
rental apartment communities.                        Enterprises, which use contractors to secure,
                                                     maintain and repair, price, and ultimately
Four Indicted in Multimillion Dollar                 sell their properties, or defraud individuals
Mortgage Fraud Scheme, New York                      seeking to purchase REO properties from
                                                     the Enterprises.
On May 22, 2018, Frank Giacobbe, Patrick
Ogiony, Kevin Morgan, and Todd Morgan                Guilty Plea of Real Estate Broker in Fannie
were charged by indictment with wire fraud,          Mae REO Fraud Scheme, Florida
bank fraud, and conspiracy to commit wire
fraud and bank fraud for their roles in a            On June 19, 2018, Hollie Dustin pled guilty
multimillion-dollar mortgage fraud scheme.           to wire fraud for her role in an REO fraud
                                                     scheme. Dustin operated Home Choice
According to the indictment, the defendants          Real Estate (HCRE), an approved Fannie
conspired to defraud financial institutions,         Mae REO broker, and ProPreserve, Inc.
including the Enterprises, by engaging in a          (ProPreserve), a home maintenance and
variety of conduct to induce mortgage lenders        repair service company. HCRE hired vendors,
to issue loans for residential apartment             including ProPreserve, to perform lawn and
complexes that the lenders would not have            pool service maintenance on REO properties.
issued had they known the truth.
                                                     According to the plea agreement, once
The defendants allegedly conspired to                vendors provided invoices, HCRE paid
provide lending institutions with false rent         the vendors for their services. HCRE then
rolls suggesting that properties had more            submitted the invoices and proof of payment
occupied units, at higher rental rates, and          to Fannie Mae for reimbursement. Fannie
generated more income than they did;                 Mae, in turn, remitted checks to HCRE for
conspired to provide false information about         reimbursement. Aware that she was not
other income received at the complexes;              conforming to Fannie Mae’s Master Listing
conspired to provide lenders with                    Agreement by owning both companies,
fraudulently altered leases; and conspired           Dustin claimed she sold ProPreserve when,
to prevent inspectors touring the properties         in fact, she remained the 100% shareholder
from discovering vacant units by, among              of the company and falsely led Fannie Mae
other things, turning on radios inside vacant        to believe that HCRE and ProPreserve were



44    Federal Housing Finance Agency Office of Inspector General
unrelated. Dustin submitted fraudulent               avoid foreclosure. They use fraudulent tactics,
invoices to Fannie Mae for work purportedly          such as filing false bankruptcy petitions,
performed by ProPreserve. Some of these              while collecting significant fees from the
invoices contained inflated costs or were for        homeowners.
services rendered by other vendors. Dustin
destroyed ProPreserve invoices once they             Real Estate Agent Pleads Guilty to
were electronically submitted to Fannie Mae          Defrauding Fannie Mae in Bankruptcy
to conceal the fraudulent activity.                  Fraud Scheme, Florida

Throughout this scheme, Dustin submitted             On September 11, 2018, David Morgan pled
more than 550 fraudulent invoices to Fannie          guilty to bankruptcy fraud. According to the
Mae. Once reimbursed by Fannie Mae,                  plea agreement, Morgan was a licensed real
Dustin transferred the proceeds into accounts        estate agent who entered into a contract with a
controlled by her or family members.                 homeowner to sell a property in foreclosure. To
                                                     prevent Fannie Mae from lawfully foreclosing
46 Month Prison Sentence in Fraudulent               on the homeowner’s property, Morgan devised
Deed/REO Scheme, Nevada                              and executed a bankruptcy fraud scheme
                                                     wherein he filed a fraudulent bankruptcy
On September 24, 2018, Geri McKinnon                 petition in the name of the homeowner, without
was sentenced to 46 months in prison                 the homeowner’s knowledge or consent,
for her role in a fraudulent deed/REO                just prior to the scheduled foreclosure sale
scheme. McKinnon previously pled guilty              date. The fraudulent bankruptcy invoked the
to false representation concerning title and         automatic stay provision of the bankruptcy
conspiracy to commit theft.                          code, which prevented Fannie Mae from
                                                     conducting the foreclosure sale and obtaining
According to court documents, McKinnon               title to the property.
submitted fictitious documents to the Clark
County Recorder’s Office to fraudulently             The fraudulent bankruptcy petition filed by
obtain title to foreclosed properties. In the        Morgan allowed him to continue efforts to
false documents, McKinnon purported                  sell the property to obtain ill-gotten real estate
to be the owner of three single-family               commissions.
homes that belonged to Fannie Mae. These
misrepresentations caused Fannie Mae to              Real Estate Broker Pleads Guilty in
suffer losses because it was unable to market        Bankruptcy Fraud Scheme, Florida
the properties for more than two years.
                                                     On September 25, 2018, Michaelangelo
Adverse Possession, Distressed Property,             Hijada pled guilty to bankruptcy fraud in a
and Bankruptcy Fraud Schemes                         scheme to fraudulently obtain commissions
                                                     from short sales of distressed properties and
Adverse possession schemes use illegal               bankruptcy preparation fees.
adverse possession (also known as “home
squatting”) or fraudulent documentation to           According to the plea agreement, Hijada,
control distressed homes, foreclosed homes,          a licensed real estate broker, owned and
and REO properties. In distressed property           operated Helping Homeowners Florida.
schemes, perpetrators falsely purport to assist      Hijada and others offered distressed
struggling homeowners seeking to delay or            homeowners facing foreclosure the



                            Semiannual Report to the Congress • April 1, 2018­–September 30, 2018   45
chance to save their homes through short             bank fraud, wire fraud, attempted obstruction
sales or other means. To accomplish this,            of justice, and other offenses. Lonich was
for a fee, Hijada and others filed fraudulent        an attorney for Bijan Madjlessi, a real estate
bankruptcy petitions, knowing that the               developer who, before his death, had been
filing would invoke the automatic stay               indicted on charges related to this scheme.
provision of federal bankruptcy law and
prevent creditors and guarantors from                The evidence at trial demonstrated that
lawfully foreclosing while also allowing             Cutting, Melland, and Lonich were involved
time for the short sale to occur.                    in multiple schemes to defraud that involved
                                                     years of excessive and illegal lending to
Hijada enriched himself through real estate          Madjlessi, often using straw borrowers,
commissions earned through the short sale            for real estate projects in Santa Rosa and
transactions as well as from bankruptcy              Petaluma, California.
petition preparation fees. Fannie Mae suffered
losses from this scheme.                             According to the evidence admitted at trial,
                                                     SVB loaned Madjlessi and the persons
Fraud Affecting the Enterprises, the                 and entities he controlled more than $35
FHLBanks, or FHLBank Member                          million, approximately $24.7 million more
Institutions                                         than the legal lending limit set by the bank’s
                                                     regulators. To conceal this high concentration
Investigations in this category include a            of lending, Cutting and Melland, the loan
variety of schemes involving Fannie Mae,             officer who worked most closely with
Freddie Mac, the FHLBanks, or members of             Madjlessi, recommended multimillion-
FHLBanks.                                            dollar loans to straw borrowers, knowing
                                                     that millions in proceeds from these loans
Former CEO and Chief Loan Officer                    would go to Madjlessi and the companies he
of Failed Sonoma Valley Bank, and                    controlled. Cutting and Melland schemed to
Borrower’s California Attorney, Sentenced            give Madjlessi and his companies more than
to Multi-Year Prison Terms for Bank                  $8.6 million in proceeds from loans nominally
Fraud and Other Crimes, California                   made in the names of other borrowers.

On August 3, 2018, Sean Cutting and Brian            Lonich conspired with Cutting and Melland
Melland, respectively the former chief               to mislead SVB into lending millions more
executive officer and former chief loan officer      to Madjlessi in the name of a straw borrower.
of failed Sonoma Valley Bank (SVB), were             The conspiracy allowed Madjlessi to illegally
each sentenced to 100 months in prison and           buy-back an approximately $27 million debt he
three years of supervised release. Both were         owed to IndyMac Bank for approximately $4
previously convicted at trial for conspiracy,        million. At the time, IndyMac Bank had failed
bank fraud, wire fraud, money laundering,            and been taken over by the FDIC, whose rules
falsifying bank records, lying to bank               specifically prohibited delinquent borrowers,
regulators, and other crimes.                        like Madjlessi, from purchasing their own notes
                                                     at auction. Evidence at trial proved Lonich
Additionally, David Lonich was sentenced             instructed the straw borrower to make false
to 80 months in prison and three years               claims to federal agents and a federal grand
of supervised release. He was previously             jury related to this transaction. Nonetheless,
convicted at trial on charges of conspiracy,         the defendants conspired to obtain the



46    Federal Housing Finance Agency Office of Inspector General
defaulted note by misleading SVB, the FDIC,           the lender for GTI. Based upon the false
and eventually other financial institutions,          documentation submitted by Gaver, the lender
about Madjlessi’s true role in the scheme.            ultimately extended $50 million in financing
                                                      to GTI. The evidence showed that Gaver
In addition, Cutting helped Lonich gain               diverted a large portion of these fraudulently
control of additional units in Santa Rosa             obtained funds to his own personal use.
by issuing letters on SVB letterhead falsely
stating that potential nominee buyers had
sufficient funds at SVB for purchase. The
Enterprises were investors for several of these
units, many of which subsequently defaulted
and became REO properties.

The defendants’ fraud and other crimes
caused the failure of SVB, resulting in
losses to taxpayers of over $47 million.
Other victims include SVB’s shareholders
who suffered losses when the value of their
securities collapsed. The court-ordered asset
forfeiture of Lonich’s interest in real estate is
worth approximately $20.8 million. SVB and
IndyMac Bank were member banks of the
FHLBank of San Francisco.

Former Business Owner Convicted in
Federal Court for Over $49 Million Bank
Fraud, Maryland

On August 1, 2018, Mark Gaver was convicted
by a federal jury on charges of bank fraud and        Defendant Mark Gaver vacationing in Paris, France. The
money laundering arising from a scheme in             trip was funded with proceeds from his fraud scheme.
which he obtained over $49 million in bank
financing for his company Gaver Technologies,         According to the evidence presented at
Inc. (GTI), using false and fraudulent financial      trial, the bank initially approved an $18.5
statements, balance sheets, and certifications of     million line of credit for GTI when it took
outstanding accounts receivable.                      over the line of credit from another bank
                                                      that had previously extended a $16.5 million
According to the evidence presented at                line of credit to GTI. This line of credit was
his seven-day trial, Gaver formed GTI, an             subsequently increased eight separate times,
information technology company based                  growing from $18.5 million to a total of $49
in Frederick, Maryland. Gaver submitted               million. On an ongoing monthly, quarterly,
materially false financial documents to               and annual basis, and in connection with
Santander Bank, a federally insured bank,             each request by Gaver for an increase in
including fraudulent audit reports and                GTI’s credit line, the bank required GTI to
contract status reports, to establish and obtain      submit specific documentation disclosing the
successive increases in the line of credit from       company’s financial performance and condition.



                             Semiannual Report to the Congress • April 1, 2018­–September 30, 2018      47
The required documentation included audited          in a scheme to defraud Excel Bank and to
annual financial statements, quarterly balance       profit from illegal insider loans. Hayes and
sheets, monthly borrowing base certificates,         Litz were sentenced to 68 months and 36
and monthly accounts receivable aging reports.       months in prison, respectively, as well as
The monthly borrowing base certificates              five years of supervised release and ordered
required Gaver to certify the amount of GTI’s        to pay over $5 million in restitution, jointly
outstanding accounts receivable and were used        and severally. Hayes and Litz previously
by the bank to establish a maximum borrowing         pled guilty to theft, embezzlement, or
amount for GTI. Under the terms of GTI’s line        misapplication of funds by a bank officer.
of credit agreement with the lender, GTI was         Hayes additionally pled guilty to bank fraud.
only allowed to borrow up to 75% to 80% of
the total amount of GTI’s outstanding                Excel Bank operated a Loan Production
accounts receivable, and the funds loaned            Office (LPO) in Clayton, Missouri. Hayes
by the bank were only to be used by GTI for          held a controlling stock interest in Excel
business purposes.                                   Bank and managed the loan activities at the
                                                     LPO. At Hayes’s direction, the commercial
The evidence showed that some of the funds           and residential real estate lending at Excel
obtained from the lender were used by                Bank increased dramatically through the
Gaver to cover regular business expenses             operation of the LPO. As part of his guilty
and thereby keep GTI open, but Gaver                 plea, Hayes admitted that many of the loans
also diverted half of the loan proceeds—             made through the LPO were substandard
approximately $15 million—to his own                 and placed the bank at risk. He also admitted
personal use. For example, Gaver used loan           that he engaged in unlawful self-dealing
proceeds to pay rental fees of private planes        by causing loans to be made that directly
that he used for non-business purposes, as           benefitted him and his associates while
well as to pay for personal pleasure trips           concealing his interest in the loans.
to France, Germany, Mexico, Jamaica, and
the Bahamas. Gaver also used the funds               Additionally, Hayes admitted that he helped
to purchase vacation homes, including a              set up a loan at Excel Bank to a straw party
4,000-square foot condominium with a                 in the amount of $3.3 million and caused
view of the Gulf of Mexico in Bonita Springs,        $906,000 of the proceeds of that loan to
Florida, a 2012 Maserati Gran Turismo, a             be paid to Centrue Bank to pay off a loan
2011 Mercedes Benz SL Roadster, and a                he and Litz had guaranteed for their entity
private membership at an exclusive golf club.        McKnight Man I LLC. Hayes admitted
                                                     that his interest in the loan was concealed
Gaver obtained a home equity line of                 from bank officials and he and Litz made
credit that was pledged to the FHLBank of            no payments to Excel Bank. Hayes assisted
Pittsburgh. The estimated loss to Santander, a       in causing Excel Bank to make the above
member bank of the FHLBank of Pittsburgh, is         loan and millions of dollars in other loans
$49 million.                                         to straw parties to cover the delinquent and
                                                     substandard loans owed by Litz’s business,
Sentencings of Bank Executive and Real               Eighteen Investments, at other banks. Excel
Estate Developer, Missouri                           Bank lost substantial amounts on these loans.

During May 2018, Shaun Hayes and                     In a related case, on April 24, 2018, Timothy
Michael Litz were sentenced for their roles          Murphy was sentenced to five years of



48    Federal Housing Finance Agency Office of Inspector General
supervised release and ordered to pay                Department of Labor, Licensing, and
over $4 million in restitution, jointly and          Regulations; the Orange County, California,
severally with co-defendants in this scheme.         District Attorney’s Office; the New York
Murphy, a loan officer, previously pled              Department of Financial Services; the Nassau
guilty to bank fraud.                                County, New York, District Attorney’s Office;
                                                     the Nevada Attorney General’s Office;
Excel Bank, an FHLBank member, failed                the California Department of Justice; the
in 2012 and was taken over by the FDIC               California Department of Insurance; the
and ultimately acquired by Simmons First             Marin County, California, Sheriff’s Office;
National Bank, an FHLBank member. At the             the Sonoma County, California, Sheriff’s
time of failure, Excel Bank had outstanding          Office; the Santa Rosa, California, Police
debt to the FHLBank of Des Moines, some              Department; the Miami-Dade, Florida, Police
of which was loans pledged as collateral             Department; the Wayne County, Michigan,
in this scheme. This debt passed on to the           Prosecutor’s Office; the Stanislas County,
acquiring institution.                               California, District Attorney’s Office; the
                                                     Richmond County, New York, District
Law Enforcement Outreach                             Attorney’s Office; the Michigan State Police;
                                                     and the Texas State Bar.
OIG develops public-private partnerships
where appropriate. It delivered 43 fraud             Investigations: Administrative
awareness briefings to different audiences           Actions
to raise awareness of its law enforcement
mission and of fraud schemes targeting               In addition to the criminal cases brought
FHFA programs.                                       as a result of OIG investigations, OI’s
                                                     investigative work regularly results in
OIG has developed ongoing close working              administrative referrals to other entities
relationships with other law enforcement             for action. For example, a criminal case of
agencies, including DOJ and U.S. Attorneys’          mortgage fraud that results in a guilty plea
offices; FBI; HUD-OIG; FDIC-OIG; IRS-CI;             by a licensed real estate agent, attorney, or
the Office of the Special Inspector General          certified public accountant for participation
for the Troubled Asset Relief Program; the           in a bank fraud scheme might result in a
Financial Crimes Enforcement Network; state          referral by OIG to a state licensing body
attorneys general; mortgage fraud working            for disciplinary actions. When a real estate
groups; and other federal, state, and local law      professional is prosecuted for mortgage fraud,
enforcement agencies nationwide. OI also             that prosecution may cause OIG to refer the
works closely with Fannie Mae and Freddie            matter to another federal agency for possible
Mac to combat fraud.                                 suspension or debarment of that individual
                                                     from participation in federal programs.
During this reporting period, OIG worked             During this reporting period, OIG made 74
with additional local and state partners,            such referrals for suspension and debarment.
including the Hudson County, New Jersey,
Prosecutor’s Office; the Los Angeles                 Suspended Counterparty
Sheriff’s Office; the Prince George’s County,        Referrals
Maryland, Police Department; the Liberty
County, Georgia, Sheriff’s Office; the Georgia       FHFA has adopted a Suspended Counterparty
Bureau of Investigation; the Maryland                Program under which it issues “suspension



                            Semiannual Report to the Congress • April 1, 2018­–September 30, 2018   49
orders directing the regulated entities to            Figure 3. Administrative Actions
cease or refrain” from doing business with            April 1, 2018 – September 30, 2018
counterparties (and their affiliates) that
were previously found to have “engaged                Suspension/Debarment Referrals to    74
in covered misconduct.” Suspension of                 Other Agencies
such counterparties is warranted to protect           Suspended Counterparty Program       30
the safety and soundness of the regulated             Referrals to FHFA
entities. For purposes of the program,
“covered misconduct” includes convictions or
administrative sanctions within the past three
years based on fraud or similar misconduct in
connection with the mortgage business. FHFA
issues suspension orders if the misconduct
“is of a type that would be likely to cause
significant financial or reputational harm to a
regulated entity or otherwise threaten the safe
and sound operation of a regulated entity.”2

During this reporting period, OIG made
30 referrals of counterparties to FHFA for
consideration of potential suspension under
its Suspended Counterparty Program and
additional suspension/ debarment referrals to
other agencies, summarized in Figure 3.




50    Federal Housing Finance Agency Office of Inspector General
OIG’s Regulatory Activities and Outreach
Regulatory Activities                                 Highlights of our efforts during this reporting
                                                      period include the following:
Pursuant to the Inspector General Act, OIG
assesses whether proposed legislation and             Congress
regulations related to FHFA are efficient,
economical, legal, or susceptible to fraud            To fulfill its mission, OIG works closely
and abuse. OIG is currently assessing                 with Congress and is committed to keeping
proposed, interim final, and final rules              it fully apprised of our oversight of FHFA.
published by FHFA in the Federal Register.            During this semiannual reporting period, the
Any recommendations or comments                       Inspector General testified on two occasions
upon those rules will be made after these             before Congress:
assessments conclude.
                                                           •	 “Oversight of the Federal Housing
Public and Private Partnerships,                               Finance Agency” before the
Outreach, and Communications                                   U.S. House of Representatives
                                                               Committee on Financial Services,
The Enterprises and the FHLBanks play                          Subcommittee on Oversight and
a critical role in the U.S. housing finance                    Investigations on April 12, 2018.
system, and the financial crisis has shown that                The Inspector General’s written
financial distress at the Enterprises can threaten             testimony is available on our website.
the U.S. economy. American taxpayers put                       See Written Testimony of Inspector
their money and confidence in the hands of                     General Wertheimer before the
regulators and lawmakers to restore stability                  House Oversight and Investigations
to the economy, and decisions were made to                     Subcommittee (April 12, 2018).
invest $191.5 billion in the Enterprises. The
continuing significant role of the Enterprises             •	 “Oversight of the Federal Housing
and FHLBanks in housing finance demands                        Finance Agency’s Role as Conservator
constant supervision and monitoring.                           and Regulator of the Government
Fundamental to OIG’s mission is independent                    Sponsored Enterprises” before
and transparent oversight of Agency programs                   the U.S. House of Representatives
and operations and of the Enterprises to the                   Committee on Financial Services on
extent FHFA, as conservator, has delegated                     September 27, 2018. The Inspector
responsibilities to them.                                      General’s written testimony is
                                                               available on our website. See
OIG prioritizes outreach and engagement                        Written Testimony of Inspector
to communicate its mission and work to                         General Wertheimer before the
members of Congress and to the public and                      House Financial Services Committee
to actively participate in government-wide                     (September 27, 2018).
oversight community activities. We continue
to forge public and private partnerships to           During the period, OIG also provided
prevent fraud, encourage transparency, and            information and briefings to congressional
ensure accountability, responsibility, and            staff on OIG work.
ethical leadership.



                             Semiannual Report to the Congress • April 1, 2018­–September 30, 2018   51
Hotline                                                      Oversight Council (FSOC), which
                                                             is charged with identifying risks to
The OIG hotline serves as a vehicle through                  the financial stability of the United
which Agency, Enterprise, and FHLBank                        States, promoting market discipline,
employees and members of the public                          and responding to emerging risks
can report suspected fraud, waste, abuse,                    to the stability of the U.S. financial
mismanagement, or misconduct in Agency                       system. The FHFA IG is a permanent
programs and operations. For more information                member of CIGFO, along with the IGs
about OIG’s hotline, including OIG contact                   of Treasury, FDIC, the Securities and
information, visit our hotline webpage.                      Exchange Commission, and others. By
                                                             statute, CIGFO may convene working
Close Coordination with Other Oversight                      groups to evaluate the effectiveness
Organizations                                                and internal operations of FSOC.
                                                             OIG has participated, and continues
During the reporting period, we maintained                   to participate, in different CIGFO
active participation in coordinated oversight                working groups.
activities:
                                                      During September 2018, CIGFO approved
     •	 FBI Cybercrimes Task Force. The              a report titled Top Management and
        FBI’s Washington, D.C., field office          Performance Challenges Facing Financial
        spearheads a cybercrimes task force, and      Regulatory Organizations to consolidate
        OIG has assigned two special agents to        and provide insight into cross-cutting
        it. This multiagency task force focuses       management and performance challenges
        on investigating cybercrimes. OIG             facing financial-sector regulatory
        made this assignment to help combat           organizations as identified by the CIGFO
        such crimes and to work in partnership        members, including the FHFA IG. Six cross-
        with multiple federal agencies. This          cutting challenges were reported:
        concerted effort will help prosecute                  ◦◦ Enhancing Oversight of Financial
        cybercriminals and stop cyberattacks                     Institution Cybersecurity
        made against institutions maintaining                 ◦◦ Managing and Securing Information
        PII, trade secrets, and financial data.                  Technology at Regulatory
                                                                 Organizations
     •	 CIGIE. OIG actively participates                     ◦◦ Sharing Threat Information
         in several CIGIE committees and                      ◦◦ Readiness for Crises
         working groups:                                      ◦◦ Strengthening Agency Governance
          ◦◦ The Inspection and Evaluation                    ◦◦ Managing Human Capital
             Committee
          ◦◦ The Investigations Committee             Private-Public Partnerships
          ◦◦ The Audit Committee
                                                      Housing finance professionals are on
     •	 Council of Inspectors General on             the frontlines and often have a real-time
         Financial Oversight (CIGFO).                 understanding of emerging threats and
         CIGFO was created by the Dodd-               misconduct. We speak with officials at the
         Frank Wall Street Reform and                 FHLBanks and the Enterprises to benefit
         Consumer Protection Act of 2010              from their insights and make presentations to
         to oversee the Financial Stability           industry groups. Recent presentations include:



52     Federal Housing Finance Agency Office of Inspector General
the U.S. Trustee Program (nationwide), the
Los Angeles Real Estate Fraud Task Force,
the Financial Industry Regulatory Authority,
the Cook County Regional Organized Crime
Conference, the New York City Latino
Professionals Group, the South Florida
International Society of Appraisers, the
Nevada Financial Crimes Task Force, the
Illinois Fraud Investigators Group, the Boise
White Collar Crime Meeting, and local and
regional banks.




                           Semiannual Report to the Congress • April 1, 2018­–September 30, 2018   53
Appendices
Appendix A:
Information Required
by the Inspector                                     activities during the immediately preceding
                                                     six-month periods ending March 31 and
General Act                                          September 30.

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

                                Source/Requirement                                       Pages
 Section 5(a)(1) – A description of significant problems, abuses, and deficiencies      10-12,
 relating to the administration of programs and operations of FHFA.                     15-31

 Section 5(a)(2) – A description of the recommendations for corrective action           15-31,
 made by OIG with respect to significant problems, abuses, or deficiencies.             61-117

 Section 5(a)(3) – An identification of each significant recommendation                 61-117
 described in previous semiannual reports on which corrective action has not
 been completed.

 Section 5(a)(4) – A summary of matters referred to prosecutive authorities and          32-50,
 the prosecutions and convictions that have resulted.                                   118-136

 Section 5(a)(5) – A summary of each report made to the Director of FHFA                  60
 about information or assistance requested and unreasonably refused or not
 provided.

 Section 5(a)(6) – A listing, subdivided according to subject matter, of each audit     15-31,
 and evaluation report issued by OIG during the reporting period and for each             57
 report, where applicable, the total dollar value of questioned costs (including a
 separate category for the dollar value of unsupported costs) and the dollar value
 of recommendations that funds be put to better use.

 Section 5(a)(7) – A summary of each particularly significant report.                   12-13,
                                                                                        15-31

 Section 5(a)(8) – Statistical tables showing the total number of audit and              3, 57
 evaluation reports and the total dollar value of questioned and unsupported
 costs.



54    Federal Housing Finance Agency Office of Inspector General
                              Source/Requirement                                            Pages
Section 5(a)(9) – Statistical tables showing the total number of audit and                   3, 57
evaluation reports and the dollar value of recommendations that funds be put to
better use by management.

Section 5(a)(10)(A) – A summary of each audit and evaluation report issued                    57
before the commencement of the reporting period for which no management
decision has been made by the end of the reporting period.

Section 5(a)(10)(B) – A summary of each audit and evaluation report issued                    57
before the commencement of the reporting period for which no FHFA comment
was returned within 60 days of providing the report to the Agency.

Section 5(a)(10)(C) – A summary of each audit and evaluation report issued                 61-117
before the commencement of the reporting period for which there are any
outstanding unimplemented recommendations, including the aggregate potential
cost savings of those recommendations.

Section 5(a)(11) – A description and explanation of the reasons for any                       58
significant revised management decision made during the reporting period.

Section 5(a)(12) – Information concerning any significant management decision                 58
with which the Inspector General is in disagreement.

Section 5(a)(13) – The information described under section 804(b) of the                      58
Federal Financial Management Improvement Act of 1996.

Section 5(a)(14) – An appendix containing the results of any peer review                    58-59
conducted by another IG; or the date of the last peer review if no peer review
was conducted during the reporting period.

Section 5(a)(15) – A list of any outstanding recommendations from any peer                  58-59
review conducted by another IG that have not been fully implemented.

Section 5(a)(16) – A list of any peer reviews of another IG during the reporting            58-59
period.

Section 5(a)(17) – Statistical tables showing, for the reporting period, the total            33
number of: investigative reports issued; persons referred to DOJ for criminal
prosecution; persons referred to State and local prosecuting authorities for
criminal prosecution; and indictments and criminal informations that resulted
from any prior referral to prosecuting authorities.




                           Semiannual Report to the Congress • April 1, 2018­–September 30, 2018     55
                               Source/Requirement                                    Pages
 Section 5(a)(18) – A description of the metrics used for developing the data for     33
 the statistical tables under paragraph (17).

 Section 5(a)(19) – A report on each investigation conducted by OIG involving        59-60
 a senior Government employee where allegations of misconduct were
 substantiated, including a detailed description of the facts and circumstances of
 the investigation, and the status and disposition of the matter.

 Section 5(a)(20) – A detailed description of any instance of whistleblower          59-60
 retaliation, including information about the official found to have engaged in
 retaliation and what, if any, consequences FHFA imposed to hold that official
 accountable.

 Section 5(a)(21) – A detailed description of any attempt by FHFA to interfere        60
 with the independence of OIG, including with budget constraints designed to
 limit OIG’s capabilities, and incidents where FHFA has resisted or objected
 to OIG oversight activities or restricted or significantly delayed access to
 information.

 Section 5(a)(22)(A) – Detailed descriptions of the particular circumstances          60
 of each evaluation and audit conducted by OIG that is closed and was not
 disclosed to the public.

 Section 5(a)(22)(B) – Detailed descriptions of the particular circumstances of      59-60
 each investigation conducted by OIG involving a senior Government employee
 that is closed and was not disclosed to the public.




56   Federal Housing Finance Agency Office of Inspector General
Reports Identifying Questioned                      Boston Properties, we question all costs to
Costs, Unsupported Costs, and                       lease and build out the space in the Boston
Funds to Be Put to Better Use                       Properties building beyond the costs for the
by Management Issued During                         Status Quo Option—an indeterminate amount
the Semiannual Period                               at this time. We also noted that the estimated
                                                    net present value for Option C (increased by
Section 5(a)(6) of the Inspector General Act,       $49.3 million for the smaller-than-anticipated
as amended, requires that OIG list its audit        amount from the time of sale proceeds of
reports, inspection reports, and evaluation         the three buildings), offset by the net present
reports issued during the semiannual period         value for the Status Quo Option (which
and include for each report, where applicable,      Fannie Mae never calculated), constitutes, in
questioned costs, unsupported costs, and            our view, funds that could, and should, be put
funds to be put to better use. Section 5(a)         to better use.
(8) and section 5(a)(9), respectively, require
OIG to publish statistical tables showing           Audit and Evaluation Reports
the total number of audit reports, inspection       with No Management Decision
reports, and evaluation reports and the dollar
value of questioned and unsupported costs,          Section 5(a)(10)(A) of the Inspector General
and of recommendations that funds be put            Act, as amended, requires that OIG report
to better use by management. Oversight              on each audit, inspection, and evaluation
conducted by OIG is not limited to reports          report issued before the commencement
issuing from inspections, audits, and               of the reporting period for which no
evaluations. OIG also issues other reports          management decision has been made by
in furtherance of its mission, including            the end of the reporting period. There were
management alerts and advisories, special           no audit, inspection, or evaluation reports
reports, and compliance reviews.                    issued before April 1, 2018, that await a
                                                    management decision.
During this semiannual reporting period,
in our report, FHFA’s Housing Finance               No Agency Response Within
Examiner Commissioning Program: $7.7                60 Days
Million and Four Years into the Program,
the Agency has Fewer Commissioned                   Section 5(a)(10)(B) of the Inspector General
Examiners (COM-2018-006, September                  Act, as amended, requires that OIG report
6, 2018), we questioned whether the                 on each audit, inspection, and evaluation
$7.7 million expended in developing,                report issued before the commencement
implementing, and staffing the HFE Program          of the reporting period for which no FHFA
has yielded the anticipated results.                comment was returned within 60 days of
                                                    providing the report to the Agency. There
In our Management Alert entitled,                   were no audit, inspection, or evaluation
Consolidation and Relocation of Fannie              reports issued before April 1, 2018, for
Mae’s Northern Virginia Workforce (OIG-             which OIG did not receive a response
2018-004, September 6, 2018), we stated             within 60 days of providing the report to
that, should FHFA permit Fannie Mae to              the Agency for comment.
continue with its plans to consolidate and
relocate into newly leased space in a building
to be constructed at Reston Town Center by



                           Semiannual Report to the Congress • April 1, 2018­–September 30, 2018   57
Significant Revised                                  Federal Financial Management
Management Decisions                                 Improvement Act of 1996
                                                     Section 5(a)(13) of the Inspector General
Section 5(a)(11) of the Inspector General            Act, as amended, requires that OIG report
Act, as amended, requires that OIG report            information concerning instances of and
information concerning the reasons for any           reasons for failures to meet any intermediate
significant revised management decision              target dates from remediation plans designed
made during the reporting period. During the         to remedy findings that the Agency’s financial
six-month reporting period ended September           management systems do not comply with
30, 2018, there were no significant revised          federal financial management system
management decisions by FHFA.                        requirements, applicable federal accounting
                                                     standards, and the United States Government
Significant Management                               Standard General Ledger at the transaction
Decisions with Which the                             level. For the six-month reporting period
Inspector General Disagrees                          ended September 30, 2018, this reporting
                                                     provision did not apply to the Agency or OIG.
Section 5(a)(12) of the Inspector General
Act, as amended, requires that OIG report            HERA requires the Government
information concerning any significant               Accountability Office (GAO) to audit FHFA
management decision with which the                   financial statements. In its Financial Audit:
Inspector General is in disagreement.                Federal Housing Finance Agency’s Fiscal
During the six-month reporting period                Years 2017 and 2016 Financial Statements
ended September 30, 2018, there was one              report, GAO did not identify any deficiencies
significant management decision by FHFA              in FHFA’s internal controls over financial
with which the Inspector General disagreed.          reporting that it considered to be a material
                                                     weakness or significant deficiency. GAO
OIG disagrees with FHFA’s decision in                also reported that its test for compliance with
response to the Management Alert titled              provisions of applicable laws, regulations,
Consolidation and Relocation of Fannie Mae’s         contracts, and grant agreements disclosed no
Northern Virginia Workforce (OIG-2018-               reportable instances of noncompliance.
004). FHFA declined to agree with OIG’s
recommendations that, to reduce the waste            Peer Reviews
from Option C (the option Fannie Mae selected
for its future operations in Northern Virginia),     Sections 5(a)(14), (15), and (16) of the
FHFA, consistent with its duties as conservator,     Inspector General Act, as amended, require
should: (1) cause Fannie Mae to calculate the        that OIG provide information relevant to
net present value for a Status Quo Option, and       the semiannual period on any peer reviews
calculate the costs associated with terminating      of OIG, unimplemented recommendations
the lease with Boston Properties; and (2)            from any peer reviews of OIG, and any peer
direct Fannie Mae to terminate the lease,            reviews conducted by OIG.
cancel the sale of the three owned buildings,
and implement the Status Quo Option, should          The most recent peer review of our
the net present value for a Status Quo Option        investigative function was conducted by
and the termination costs be lower than the          the United States Nuclear Regulatory
adjusted net present value for Option C. OIG         Commission Office of Inspector General
closed the recommendations as rejected.              (NRC-OIG) and reported on July 12, 2017.



58    Federal Housing Finance Agency Office of Inspector General
NRC-OIG issued an Opinion Letter and a                (e.g., the Privacy Act of 1974)—on each
Letter of Observations detailing the results of       investigation it conducted involving an
its review. In the Opinion Letter, the NRC-           SGE when allegations of misconduct were
OIG reported that OIG’s system of internal            substantiated. During this reporting period,
safeguards and management procedures for              OIG completed an administrative inquiry of
our investigative function is in compliance           hotline complaints alleging: two FHFA SGEs
with the quality standards established by             falsified their time and attendance records
CIGIE and the applicable Attorney General             by reporting that they worked eight-hour
guidelines. In the Letter of Observations,            days when they did not; FHFA employees
NRC-OIG recognized OIG for employing five             inaccurately reported their time and
“best practices” in its investigative operations.     attendance by failing to take leave to attend
                                                      the funeral of an FHFA employee; and an
The most recent peer review of our audit              FHFA SGE authorized staff to use an FHFA
organization was conducted by the Pension             vehicle to drive to that funeral.
Benefit Guaranty Corporation Office of
Inspector General and reported on February            Regarding the falsification of time and
28, 2017. OIG received a final System                 attendance records allegation, OIG concluded
Review Report with a rating of pass, which            that one SGE’s certified time and attendance
is the highest rating that can be issued to an        records did not accurately reflect when that
audit organization.                                   individual entered and exited FHFA’s offices.
                                                      OIG referred the matter to DOJ on June 28,
Copies of both peer review reports are on             2018, and prosecution was declined the same
OIG’s website under Current Peer Review               day. As discussed earlier in the SAR section
Reports. During this semiannual reporting             titled, OIG’s Oversight of FHFA’s Programs
period, OIG has not completed any peer                and Operations Through Audit, Evaluation,
reviews of another Office of Inspector                and Compliance Activities During This
General.                                              Reporting Period, OIG did not find evidence
                                                      sufficient to substantiate the allegation
Investigations into Allegations                       against the second individual. See Summary
of Employee Misconduct and                            of Administrative Inquiry: The Office of
Whistleblower Retaliation                             Inspector General’s Review of Alleged Time
                                                      and Attendance Fraud by Two Senior Agency
In accordance with the Inspector General Act,         Officials.
as amended, Sections 5(a)(19), (20), (22)(B),
and 5(e), OIG is required to report certain           For the allegation concerning authorization of
information regarding (1) investigations              employee leave to attend a funeral and use of a
involving senior government employees                 government vehicle, we did not find evidence
(SGEs) or (2) government officials found to           that FHFA employees inaccurately reported
have engaged in whistleblower retaliation.            their time and attendance on the day of the
In this section, we include the results of OIG        funeral. We found that an FHFA vehicle was
administrative inquiries as appropriate.              used outside of FHFA’s Official Use of FHFA
                                                      Vehicles Policy in this instance and suggested
Sections 5(a)(19) and 5(e)(1) of the Inspector        that FHFA consider training its employees on
General Act, as amended, require that OIG             that policy to avoid similar issues in the future.
report—to the extent that public disclosure           See Management Advisory: Use of an Agency
of the information is not prohibited by law           Vehicle, discussed earlier in the SAR section



                             Semiannual Report to the Congress • April 1, 2018­–September 30, 2018   59
titled, OIG’s Oversight of FHFA’s Programs           issued several reports during this reporting
and Operations Through Audit, Evaluation,            period that contained information that is
and Compliance Activities During This                privileged, confidential, protected under the
Reporting Period.                                    Privacy Act, or could be used to circumvent
                                                     FHFA’s internal controls, and, accordingly,
Sections 5(a)(20) and 5(e)(1) of the Inspector       OIG has not publicly disclosed such contents.
General Act, as amended, require that OIG            We have provided unredacted reports to our
report—to the extent that public disclosure of       congressional oversight committees.
the information is not prohibited by law (e.g.,
the Privacy Act of 1974)—on any instance of          Interference with Independence
whistleblower retaliation by an official found
to have engaged in retaliation. OIG does not         Section 5(a)(21) of the Inspector General
have any reportable information during the           Act, as amended, requires that OIG report
applicable time frame.                               any attempt by FHFA to interfere with the
                                                     independence of the office, including through
Sections 5(a)(22)(B) and 5(e)(1) of the              budget constraints designed to limit OIG’s
Inspector General Act, as amended, require           capabilities and resistance or objection to
that OIG report—to the extent that public            OIG’s oversight activities or restricting or
disclosure of the information is not prohibited      significantly delaying access to information.
by law (e.g., the Privacy Act of 1974)—on            OIG does not have any reportable information
each investigation involving an SGE that is          during the applicable time frame.
closed and was not disclosed to the public.
During this reporting period, OIG received
a hotline complaint alleging that an FHFA
official was reassigned for improper reasons.
OIG conducted an administrative inquiry into
these allegations and found no evidentiary
basis on which to substantiate the claims.
Therefore, the matter was closed.

Audits or Evaluations That
Were Closed and Not Disclosed
Sections 5(a)(22)(A) and 5(e)(1) of the
Inspector General Act, as amended,
require that OIG report—to the extent that
public disclosure of the information is not
prohibited by law (e.g., the Privacy Act of
1974, confidential supervisory information,
trade secrets)—the particular circumstances
of each inspection, evaluation, and audit
OIG conducted that is closed and was not
disclosed to the public. During this reporting
period, OIG did not close any inspection,
evaluation, or audit without disclosing the
existence of the report to the public. OIG



60    Federal Housing Finance Agency Office of Inspector General
Appendix B: OIG                                     recommendations still pending, made,
                                                    or reopened during this reporting period.
Recommendations                                     Figure 5 (see page 86) summarizes
                                                    OIG’s outstanding unimplemented
In accordance with the provisions of the            recommendations. Figure 6 (see page 87)
Inspector General Act, one of the key               lists OIG’s outstanding unimplemented
duties of OIG is to provide to FHFA                 open recommendations, organized by risk
recommendations that promote economy,               area. Figure 7 (see page 106) lists OIG’s
efficiency, and effectiveness in the Agency’s       closed, unimplemented recommendations.
operations and aid in the prevention and            Summaries for all reports are available
detection of fraud, waste, or abuse. Since          on OIG’s website or through the links
OIG began operations in October 2010, we            provided in the accompanying tables. OIG
have made more than 400 recommendations.            also publishes a Compendium of Open
Figure 4 (see page 62) summarizes OIG’s             Recommendations on its website.




                           Semiannual Report to the Congress • April 1, 2018­–September 30, 2018   61
Figure 4.

Summary of OIG Recommendations

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




62   Federal Housing Finance Agency Office of Inspector General
                                                          Report Name
      No.                Recommendation                    and Date                 Status
AUD-2018-013-1   FHFA should develop, document,        FHFA Needs            Recommendation
                 and implement control                 to Strengthen         agreed to
                 activities to ensure that (a)         Controls over         by FHFA;
                 only current FHFA employees           its Employee          implementation
                 are receiving transportation          Transportation        pending.
                 benefits, (b) no employee is          Benefits Programs
                 improperly participating in           (AUD-2018-013,
                 both transportation benefit           September 25,
                 programs, (c) FHFA’s Transit          2018)
                 Benefits System has a record/
                 certification for each employee
                 who receives a transportation
                 benefit, and (d) SmarTrip® cards
                 are physically controlled. Such
                 control activities include periodic
                 reconciliation of approved
                 transit subsidy recipients in [the]
                 Transit Benefits System to FHFA
                 transit subsidy recipients listed
                 on WMATA Monthly Activity
                 Reports; periodic reconciliation
                 of approved transit subsidy
                 recipients to active parking
                 permit recipients; and periodic
                 inventory counts of SmarTrip®
                 cards registered to FHFA and
                 undistributed parking permits.
AUD-2018-013-2   FHFA should ensure that FHFA’s        FHFA Needs            Recommendation
                 Transit Benefits System has           to Strengthen         agreed to
                 accurate and up-to-date records       Controls over         by FHFA;
                 of, and current certifications        its Employee          implementation
                 for, each FHFA employee who           Transportation        pending.
                 receives a transportation benefit.    Benefits Programs
                                                       (AUD-2018-013,
                                                       September 25,
                                                       2018)




                       Semiannual Report to the Congress • April 1, 2018­–September 30, 2018   63
                                                              Report Name
       No.                   Recommendation                    and Date             Status
AUD-2018-013-3       Should FHFA identify, through         FHFA Needs          Recommendation
                     these newly implemented               to Strengthen       agreed to
                     controls, any individuals who         Controls over       by FHFA;
                     improperly used transit subsidies     its Employee        implementation
                     to which they were not entitled,      Transportation      pending.
                     FHFA should determine whether         Benefits Programs
                     to recover the amounts (taking        (AUD-2018-013,
                     cost/benefit into consideration).     September 25,
                                                           2018)
AUD-2018-011-1       FHFA should determine and pay         Audit of FHFA’s     Recommendation
                     the vendor the interest penalties     Fiscal Year 2017    not agreed to by
                     owed under the Prompt Payment         Government          FHFA; closed as
                     Act regulations for the late          Purchase            rejected.
                     payments of the leased seasonal       Card Program
                     decorations received by FHFA          Found Several
                     for the 2015, 2016, and 2017          Deficiencies with
                     holiday seasons.                      Leased Holiday
                                                           Decorations,
                                                           and the Need for
                                                           Greater Attention
                                                           by Cardholders
                                                           and Approving
                                                           Officials to
                                                           Program
                                                           Requirements
                                                           (AUD-2018-011,
                                                           September 6,
                                                           2018)




64   Federal Housing Finance Agency Office of Inspector General
                                                          Report Name
      No.                Recommendation                    and Date                 Status
AUD-2018-011-2   FHFA should reinforce FHFA’s      Audit of FHFA’s           Recommendation
                 government purchase card          Fiscal Year 2017          agreed to
                 policies and procedures through   Government                by FHFA;
                 periodic reminders to, and        Purchase                  implementation
                 training of, FHFA cardholders     Card Program              pending.
                 and approving officials, includingFound Several
                 requirements to:                  Deficiencies with
                                                   Leased Holiday
                  •	 Distribute micro-purchases
                                                   Decorations,
                     equitably among qualified
                                                   and the Need for
                     suppliers (to the extent
                                                   Greater Attention
                     practicable),
                                                   by Cardholders
                  •	 Document receipt of goods
                                                   and Approving
                     and services, and
                                                   Officials to
                  •	 Obtain prior written
                                                   Program
                     approval from an approving
                                                   Requirements
                     official before purchases are
                                                   (AUD-2018-011,
                     made.
                                                   September 6,
                                                   2018)
AUD-2018-010-1   FHFA should ensure that               DBR’s Safety          Recommendation
                 examination specialists               and Soundness         agreed to
                 reviewing community investment        Quality Control       by FHFA;
                 examinations under DBR’s              Reviews Were          implementation
                 revised independent quality           Conducted in          pending.
                 control process did not participate   Compliance with
                 in the examination activity under     FHFA’s Standard
                 review.                               During the 2017
                                                       Examination
                                                       Cycle but DBR’s
                                                       Community
                                                       Investment
                                                       Quality Control
                                                       Reviews Were
                                                       Not
                                                       (AUD-2018-010,
                                                       August 17, 2018)




                       Semiannual Report to the Congress • April 1, 2018­–September 30, 2018   65
                                                              Report Name
       No.                   Recommendation                    and Date             Status
AUD-2018-010-2       FHFA should ensure the planned         DBR’s Safety        Recommendation
                     operating procedures bulletins         and Soundness       agreed to
                     for independent quality control        Quality Control     by FHFA;
                     reviews of DBR examinations            Reviews Were        implementation
                     are issued and conform to              Conducted in        pending.
                     Supervision Directive 2017-01,         Compliance with
                     to include the requirement that        FHFA’s Standard
                     personnel performing the quality       During the 2017
                     control review must not have           Examination
                     participated in the examination        Cycle but DBR’s
                     activity under review.                 Community
                                                            Investment
                                                            Quality Control
                                                            Reviews Were
                                                            Not
                                                            (AUD-2018-010,
                                                            August 17, 2018)
AUD-2018-008-1       FHFA should train DER                  FHFA Failed to      Recommendation
                     examiners on the elements of           Ensure Freddie      agreed to
                     the current OPB standard for           Mac’s Remedial      by FHFA;
                     MRA issuance, follow-up and            Plans for a         implementation
                     closure, which include: (a) a          Cybersecurity       pending.
                     requirement that examiners             MRA Addressed
                     ensure that proposed corrective        All Deficiencies;
                     actions in remedial plans are          as Allowed by
                     sufficient to address the deficiency   its Standard,
                     underlying an MRA before               FHFA Closed
                     issuing non-objection letters; and     the MRA after
                     (b) a requirement that examiners       Independently
                     determine, after an Enterprise         Determining
                     implements its remedial plan,          the Enterprise
                     that the deficiency giving rise to     Completed its
                     the MRA has been satisfactorily        Planned Remedial
                     addressed.                             Actions
                                                            (AUD-2018-008,
                                                            March 28, 2018)




66   Federal Housing Finance Agency Office of Inspector General
                                                          Report Name
      No.                Recommendation                    and Date                 Status
AUD-2018-008-2   FHFA should ensure that Freddie        FHFA Failed to       Recommendation
                 Mac takes, or has taken, remedial      Ensure Freddie       agreed to
                 action to address the deficiency       Mac’s Remedial       by FHFA;
                 underlying the MRA regarding           Plans for a          implementation
                 the need to implement a process        Cybersecurity        pending.
                 to verify and monitor [certain         MRA Addressed
                 matters].                              All Deficiencies;
                                                        as Allowed by
                                                        its Standard,
                                                        FHFA Closed
                                                        the MRA after
                                                        Independently
                                                        Determining
                                                        the Enterprise
                                                        Completed its
                                                        Planned Remedial
                                                        Actions
                                                        (AUD-2018-008,
                                                        March 28, 2018)
AUD-2018-006-1   FHFA should reinforce, in              FHFA Completed       Recommendation
                 examiner training, the need to         its Planned          agreed to
                 prepare workpapers for targeted        Procedures           by FHFA;
                 examinations with sufficient detail    for a 2016           implementation
                 and clarity to provide a third party   Representation       pending.
                 with a clear understanding of the      and Warranty
                 examination work performed;            Framework
                 the examination findings,              Targeted
                 conclusions, and ratings reached;      Examination at
                 and any implications of the            Freddie Mac, but
                 findings, conclusions, and ratings.    the Supporting
                                                        Workpapers Did
                                                        Not Sufficiently
                                                        Document the
                                                        Examination Work
                                                        (AUD-2018-006,
                                                        March 13, 2018)




                       Semiannual Report to the Congress • April 1, 2018­–September 30, 2018   67
                                                              Report Name
       No.                   Recommendation                    and Date          Status
AUD-2017-010-2       FHFA should reinforce through      FHFA Failed to     OIG review
                     training and supervision of DER    Complete Non-      pending closure.
AUD-2017-011-1
                     personnel, the requirements        MRA Supervisory
                     established by FHFA and            Activities Related
                     reinforced by DER guidance,        to Cybersecurity
                     for the risk assessment and        Risks at Fannie
                     supervisory planning process.      Mae Planned
                     Specifically:                      for the 2016
                                                        Examination
                      a.	 Ensure that the annual
                                                        Cycle
                          supervisory strategy
                                                        (AUD-2017-010,
                          identifies significant risks  September 27,
                          and supervisory concerns and 2017); FHFA Did
                          explains how the planned      Not Complete
                          supervisory activities to     All Planned
                          be conducted during the       Supervisory
                          examination cycle address     Activities Related
                          the most significant risks    to Cybersecurity
                          in the operational risk       Risk at Freddie
                          assessment. (Applies to       Mac for the 2016
                          AUD-2017-010 and AUD-         Examination
                          2017-011)                     Cycle
                      b.	 Ensure that supervisory       (AUD-2017-011,
                          activities planned during     September 27,
                          an examination cycle to       2017)
                          address the most significant
                          risks in the operational risk
                          assessment are completed
                          within the examination cycle.
                          (Applies to AUD-2017-010)




68   Federal Housing Finance Agency Office of Inspector General
                                                          Report Name
      No.                Recommendation                    and Date                 Status
AUD-2017-010-3   FHFA should, except for rare          FHFA Failed to     OIG review
                 instances where DER has an            Complete Non-      pending closure.
AUD-2017-011-2
                 urgent need to communicate            MRA Supervisory
                 significant supervisory concerns      Activities Related
                 to an Enterprise board, ensure        to Cybersecurity
                 that all supervisory conclusions      Risks at Fannie
                 and findings reported by DER in       Mae Planned
                 the Enterprise’s annual reports of    for the 2016
                 examination (ROEs) are based          Examination
                 on completed work that has            Cycle
                 been previously communicated,         (AUD-2017-010,
                 when required, in writing to the      September 27,
                 Enterprise.                           2017); FHFA Did
                                                       Not Complete
                                                       All Planned
                                                       Supervisory
                                                       Activities Related
                                                       to Cybersecurity
                                                       Risk at Freddie
                                                       Mac for the 2016
                                                       Examination
                                                       Cycle
                                                       (AUD-2017-011,
                                                       September 27,
                                                       2017)
AUD-2017-010-1   FHFA should assess whether DER        FHFA Failed to     OIG review
                 has a sufficient complement of        Complete Non-      pending closure.
                 qualified examiners to conduct        MRA Supervisory
                 and complete those examinations       Activities Related
                 rated by DER to be of high-           to Cybersecurity
                 priority within each supervisory      Risks at Fannie
                 cycle and address the resource        Mae Planned
                 constraints that have adversely       for the 2016
                 affected DER’s ability to carry out   Examination
                 its risk-based supervisory plans.     Cycle
                                                       (AUD-2017-010,
                                                       September 27,
                                                       2017)




                       Semiannual Report to the Congress • April 1, 2018­–September 30, 2018   69
                                                              Report Name
       No.                   Recommendation                    and Date            Status
AUD-2017-008-1       FHFA should reinforce the             FHFA’s 2015       OIG review
                     requirements of DEROPB02              Report of         pending closure.
                     and hold DER leadership               Examination to
                     accountable to ensure that            Fannie Mae Failed
                     targeted examination conclusions      to Follow FHFA’s
                     presented in the ROE are based on     Standards Because
                     work that has either (1) undergone    it Reported on
                     quality control review and been       an Incomplete
                     communicated in writing to the        Targeted
                     Enterprise, or (2) the required       Examination
                     quality control review has been       of the
                     waived by the Deputy Director of      Enterprise’s New
                     DER and documented in writing.        Representation
                                                           and Warranty
                                                           Framework
                                                           (AUD-2017-008,
                                                           September 22,
                                                           2017)
AUD-2017-007-1       The FHFA Privacy Office should        Performance Audit OIG review
                     conduct a comprehensive business      of the Federal    pending closure.
                     process analysis to identify          Housing Finance
                     all FHFA business processes           Agency’s (FHFA)
                     that collect PII in electronic        Privacy Program
                     and hardcopy form to build an         (AUD-2017-007,
                     inventory of where PII is stored.     August 30, 2017)
AUD-2017-007-2       The FHFA Privacy Office should        Performance Audit OIG review
                     develop manual and automated          of the Federal    pending closure.
                     processes to maintain an accurate     Housing Finance
                     and complete inventory of where       Agency’s (FHFA)
                     PII is stored.                        Privacy Program
                                                           (AUD-2017-007,
                                                           August 30, 2017)
AUD-2017-007-3       The FHFA Privacy Office should        Performance Audit   Recommendation
                     establish, implement, and train       of the Federal      agreed to
                     end users to apply naming             Housing Finance     by FHFA;
                     conventions to files and folders      Agency’s (FHFA)     implementation
                     containing PII.                       Privacy Program     pending.
                                                           (AUD-2017-007,
                                                           August 30, 2017)




70   Federal Housing Finance Agency Office of Inspector General
                                                          Report Name
      No.                Recommendation                    and Date                 Status
AUD-2017-007-4   The FHFA Privacy Office               Performance Audit OIG review
                 should conduct a feasibility          of the Federal    pending closure.
                 study of available technologies       Housing Finance
                 to supplement the manual and          Agency’s (FHFA)
                 automated processes to identify       Privacy Program
                 and secure PII at rest and in         (AUD-2017-007,
                 transit.                              August 30, 2017)
AUD-2016-007-2   FHFA should assess whether DER        FHFA’s Targeted       Recommendation
                 has a sufficient complement of        Examinations          partially agreed
AUD-2016-006-2
                 qualified examiners to conduct        of Freddie Mac:       to by FHFA;
                 and complete those examinations       Just Over Half        implementation
                 rated by DER to be of high-           of the Targeted       pending. FHFA
                 priority within each supervisory      Examinations          provided
                 cycle and address the resource        Planned for 2012      documentation
                 constraints that have adversely       through 2015          on August 17,
                 affected DER’s ability to carry out   Were Completed        2017, that it
                 its risk-based supervisory plans.     (AUD-2016-            assessed whether
                                                       007, September        staffing levels
                                                       30, 2016);            were sufficient
                                                       FHFA’s Targeted       to carry out DER
                                                       Examinations          responsibilities
                                                       of Fannie Mae:        for fulfillment of
                                                       Less than Half        FHFA’s mission
                                                       of the Targeted       for fiscal year
                                                       Examinations          2018. However,
                                                       Planned for           we made the same
                                                       2012 through          recommendation
                                                       2015 Were             in AUD-2017-010
                                                       Completed and         and reported the
                                                       No Examinations       recommendation
                                                       Planned for 2015      remained open.
                                                       Were Completed        The status of that
                                                       Before the Report     recommendation
                                                       of Examination        is OIG review
                                                       Issued                pending closure.
                                                       (AUD-2016-006,
                                                       September 30,
                                                       2016)




                       Semiannual Report to the Congress • April 1, 2018­–September 30, 2018   71
                                                              Report Name
       No.                   Recommendation                    and Date                 Status
AUD-2012-003-1       FHFA’s Division of Housing             FHFA’s Oversight      Recommendation
                     Mission and Goals should               of Fannie Mae’s       agreed to
                     formally establish a policy for its    Single-Family         by FHFA;
                     review process of underwriting         Underwriting          implementation
                     standards and variances including      Standards             pending. Based
                     escalation of unresolved issues        (AUD-2012-003,        on COM-
                     reflecting potential lack of           March 22, 2012)       2016-001, the
                     agreement.                                                   recommendation
                                                                                  was reopened.
                                                                                  OIG conducted
                                                                                  a review in
                                                                                  September 2017
                                                                                  to validate the
                                                                                  effectiveness of
                                                                                  FHFA’s remedial
                                                                                  actions and
                                                                                  concluded that the
                                                                                  record provided
                                                                                  an insufficient
                                                                                  basis on which
                                                                                  to close the
                                                                                  recommendation.
                                                                                  See COM-2018-
                                                                                  003.
EVL-2018-004-1       Because Congress required the          FHFA Should           Recommendation
                     Enterprises to prepare fraud           Re-evaluate and       agreed to
                     reports and FHFA has directed          Revise Fraud          by FHFA;
                     them to submit detailed monthly        Reporting by the      implementation
                     and quarterly reports to meet          Enterprises to        pending.
                     this statutory requirement, we         Enhance its Utility
                     recommend that FHFA re-                (EVL-2018-004,
                     evaluate the fraud information it      September 24,
                     requires from the Enterprises, and     2018)
                     revise, as appropriate, its existing
                     reporting requirements to enhance
                     the utility of these reports with
                     the goal of using these reports to
                     inform its supervisory activities
                     with respect to the risk that fraud
                     poses to the Enterprises.




72   Federal Housing Finance Agency Office of Inspector General
                                                         Report Name
      No.               Recommendation                    and Date                 Status
EVL-2018-003-1   FHFA should adopt clear              FHFA’s Adoption       Recommendation
                 guidance for examiners to follow     of Clear Guidance     agreed to
                 when assessing the sufficiency       on the Review of      by FHFA;
                 of MRA remediation by the            the Enterprises’      implementation
                 Enterprises that identifies the      Internal Audit        pending.
                 work steps that should be included   Work When
                 in examiners’ independent            Assessing the
                 assessments of Internal Audit’s      Sufficiency of
                 work and specifies the conditions    Remediation
                 under which examiner testing is      of Serious
                 expected.                            Deficiencies
                                                      Would Assist
                                                      FHFA Examiners
                                                      (EVL-2018-003,
                                                      March 28, 2018)
EVL-2018-002-2   FHFA should revise its guidance      FHFA Requires         Recommendation
                 to provide clear direction to        the Enterprises’      agreed to
                 examiners on whether, or the         Internal Audit        by FHFA;
                 circumstances under which,           Functions             implementation
                 its examiners may rely on            to Validate           pending.
                 information, analyses, or            Remediation
                 conclusions provided by an           of Serious
                 Enterprise’s Internal Audit          Deficiencies
                 function when assessing the          but Provides
                 adequacy of MRA remediation.         No Guidance
                                                      and Imposes No
                                                      Preconditions on
                                                      Examiners’ Use
                                                      of that Validation
                                                      Work
                                                      (EVL-2018-002,
                                                      March 28, 2018)




                      Semiannual Report to the Congress • April 1, 2018­–September 30, 2018   73
                                                              Report Name
       No.                   Recommendation                    and Date              Status
EVL-2018-001-1       FHFA should provide guidance to        Corporate          OIG review
                     Fannie Mae on FHFA governance          Governance:        pending closure.
                     expectations regarding authority       Review and
                     to review and resolve actual,          Resolution of
                     potential, and apparent conflicts of   Conflicts of
                     interest involving SEO positions.      Interest Involving
                                                            Fannie Mae’s
                                                            Senior Executive
                                                            Officers Highlight
                                                            the Need for
                                                            Closer Attention
                                                            to Governance
                                                            Issues by FHFA
                                                            (EVL-2018-001,
                                                            January 31, 2018)
EVL-2018-001-2       FHFA should direct Fannie Mae          Corporate          OIG review
                     to conduct a comprehensive             Governance:        pending closure.
                     internal review of its governance      Review and
                     documents (both board and              Resolution of
                     management generated) for              Conflicts of
                     consistency and clarity, with          Interest Involving
                     specific emphasis on the               Fannie Mae’s
                     assignment of authority to review      Senior Executive
                     and resolve conflict of interest       Officers Highlight
                     matters involving SEO positions,       the Need for
                     by seniority and rank, and the         Closer Attention
                     process to be used to review and       to Governance
                     resolve such conflicts.                Issues by FHFA
                                                            (EVL-2018-001,
                                                            January 31, 2018)




74   Federal Housing Finance Agency Office of Inspector General
                                                          Report Name
      No.                Recommendation                    and Date                 Status
EVL-2018-001-3   FHFA should direct the Fannie          Corporate          OIG review
                 Mae Board of Directors to review       Governance:        pending closure.
                 the results of the comprehensive       Review and
                 internal review and determine          Resolution of
                 whether authority to review and        Conflicts of
                 resolve conflict of interest matters   Interest Involving
                 involving specific SEO positions,      Fannie Mae’s
                 by seniority and rank, should          Senior Executive
                 be vested in a Board committee         Officers Highlight
                 or delegated to Fannie Mae             the Need for
                 management, and determine the          Closer Attention
                 process to be used to review and       to Governance
                 resolve such conflicts. Should the     Issues by FHFA
                 Board determine to delegate to         (EVL-2018-001,
                 management authority to review         January 31, 2018)
                 and resolve all potential, actual,
                 or apparent conflicts of interest
                 involving the CEO and the CEO’s
                 direct reports, counsel the Board
                 on the process that should be put
                 into place to require management
                 to report its resolution of all such
                 conflicts to a Board committee for
                 its review.
EVL-2018-001-4   FHFA should, to the extent             Corporate          OIG review
                 that the Fannie Mae Board              Governance:        pending closure.
                 of Directors determines to             Review and
                 delegate authority to the Chief        Resolution of
                 Compliance and Ethics Officer          Conflicts of
                 (CCO) and FM Ethics to review          Interest Involving
                 and resolve certain conflicts of       Fannie Mae’s
                 interest involving SEOs, counsel       Senior Executive
                 the Board to amend the relevant        Officers Highlight
                 governance documents and               the Need for
                 establish a reporting relationship     Closer Attention
                 between the NGC, FM Ethics, and        to Governance
                 the CCO.                               Issues by FHFA
                                                        (EVL-2018-001,
                                                        January 31, 2018)




                       Semiannual Report to the Congress • April 1, 2018­–September 30, 2018   75
                                                                 Report Name
       No.                    Recommendation                      and Date              Status
EVL-2018-001-5       FHFA should direct FHFA                   Corporate            Recommendation
                     employees to monitor the review           Governance:          agreed to
                     and resolution of SEO disclosures         Review and           by FHFA;
                     of potential, actual, or apparent         Resolution of        implementation
                     conflicts of interest to ensure           Conflicts of         pending.
                     that revised Board committee              Interest Involving
                     charter(s) and management                 Fannie Mae’s
                     policies and procedures are being         Senior Executive
                     followed.                                 Officers Highlight
                                                               the Need for
                                                               Closer Attention
                                                               to Governance
                                                               Issues by FHFA
                                                               (EVL-2018-001,
                                                               January 31, 2018)
EVL-2018-001-6       FHFA should direct the NGC                Corporate          OIG review
                     to use its authority to retain, as        Governance:        pending closure.
                     appropriate, independent outside          Review and
                     corporate governance experts to           Resolution of
                     assist it in fulfilling its obligations   Conflicts of
                     under the NGC Charter.                    Interest Involving
                                                               Fannie Mae’s
                                                               Senior Executive
                                                               Officers Highlight
                                                               the Need for
                                                               Closer Attention
                                                               to Governance
                                                               Issues by FHFA
                                                               (EVL-2018-001,
                                                               January 31, 2018)




76   Federal Housing Finance Agency Office of Inspector General
                                                          Report Name
      No.                Recommendation                    and Date                 Status
EVL-2018-001-7   FHFA should direct the Fannie          Corporate          OIG review
                 Mae Board of Directors to              Governance:        pending closure.
                 assess the skills and professional     Review and
                 experiences of current board           Resolution of
                 members and, as vacancies              Conflicts of
                 occur, prioritize candidates           Interest Involving
                 with demonstrable expertise in         Fannie Mae’s
                 corporate governance.                  Senior Executive
                                                        Officers Highlight
                                                        the Need for
                                                        Closer Attention
                                                        to Governance
                                                        Issues by FHFA
                                                        (EVL-2018-001,
                                                        January 31, 2018)
EVL-2018-001-8   FHFA should require the NGC            Corporate          OIG review
                 to fully document, in meeting          Governance:        pending closure.
                 minutes, its discussions,              Review and
                 deliberations, and actions at each     Resolution of
                 meeting to ensure an effective         Conflicts of
                 flow of information between the        Interest Involving
                 NGC and other directors and to         Fannie Mae’s
                 provide FHFA with sufficient           Senior Executive
                 information to enable it to assess     Officers Highlight
                 whether the NGC is meeting the         the Need for
                 responsibilities and obligations set   Closer Attention
                 forth in its Charter.                  to Governance
                                                        Issues by FHFA
                                                        (EVL-2018-001,
                                                        January 31, 2018)




                       Semiannual Report to the Congress • April 1, 2018­–September 30, 2018   77
                                                             Report Name
       No.                   Recommendation                   and Date              Status
EVL-2017-002-1       In 2017, or as expeditiously          FHFA’s              Recommendation
                     as possible, FHFA should              Examinations        agreed to
                     complete the examination              Have Not            by FHFA;
                     activities necessary to determine     Confirmed           implementation
                     whether [the Enterprise’s]            Compliance by       pending.
                     risk management of nonbank            One Enterprise
                     seller/servicers meets FHFA’s         with its Advisory
                     supervisory expectations as set       Bulletins
                     forth in its supervisory guidance.    Regarding Risk
                     These activities should include       Management of
                     an independent assessment of the      Nonbank Sellers
                     [related matters].                    and Servicers
                                                           (EVL-2017-002,
                                                           December 21,
                                                           2016)
EVL-2016-006-1       FHFA should direct the Fannie         Corporate          OIG review
                     Mae Board to enhance Fannie           Governance:        pending closure.
                     Mae’s existing cyber risk             Cyber Risk
                     management policies to:               Oversight by
                                                           the Fannie Mae
                      a.	 Require a baseline
                                                           Board of Directors
                          Enterprise-wide cyber risk
                                                           Highlights the
                          assessment with subsequent
                                                           Need for FHFA’s
                          periodic updates;
                                                           Closer Attention
                      b.	 Describe information to be       to Governance
                          reported to the Board and        Issues
                          committees;                      (EVL-2016-006,
                                                           March 31, 2016)
                      c.	 Include a cyber risk
                          framework and cyber risk
                          appetite.




78   Federal Housing Finance Agency Office of Inspector General
                                                         Report Name
      No.               Recommendation                    and Date                 Status
EVL-2016-006-3   FHFA should direct the               Corporate          OIG review
                 Fannie Mae Board to oversee          Governance:        pending closure.
                 management’s efforts to leverage     Cyber Risk
                 industry standards to:               Oversight by
                                                      the Fannie Mae
                 a.	 Protect against and detect
                                                      Board of Directors
                     existing threats;
                                                      Highlights the
                 b.	 Remain informed on               Need for FHFA’s
                     emerging risks;                  Closer Attention
                                                      to Governance
                 c.	 Enable timely response and       Issues
                     recovery in the event of a       (EVL-2016-006,
                     breach; and                      March 31, 2016)
                 d.	 Achieve the desired
                     target state of cyber risk
                     management identified in
                     Recommendation 2 within a
                     time period agreed upon by
                     the Board.
EVL-2016-005-1   FHFA should revise its               FHFA’s                Based on COM-
                 supervision guidance to require      Supervisory           2018-005, this
                 DER to provide the Chair of the      Standards for         recommendation
                 Audit Committee of an Enterprise     Communication         was reopened.
                 Board with each conclusion           of Serious            FHFA will decide
                 letter setting forth an MRA. (In     Deficiencies to       by December 31,
                 COM-2018-005, OIG clarified          Enterprise Boards     2018, whether it
                 that the recommendation covers       and for Board         will accept the
                 “supervisory correspondence,”        Oversight of          recommendation.
                 which includes conclusion letters    Management’s
                 and supervisory letters that set     Remediation
                 forth MRAs.).                        Efforts are
                                                      Inadequate
                                                      (EVL-2016-005,
                                                      March 31, 2016)




                      Semiannual Report to the Congress • April 1, 2018­–September 30, 2018   79
                                                              Report Name
       No.                   Recommendation                    and Date              Status
EVL-2016-003-3       FHFA should comply with FSOC           FHFA Should         Recommendation
                     recommendations to address the         Map Its             agreed to
                     gaps, as prioritized, to reflect and   Supervisory         by FHFA;
                     incorporate appropriate elements       Standards for       implementation
                     of the National Institute of           Cyber Risk          pending.
                     Standards and Technology (NIST)        Management
                     Framework.                             to Appropriate
                                                            Elements of the
                                                            NIST Framework
                                                            (EVL-2016-003,
                                                            March 28, 2016)
EVL-2016-003-4       FHFA should comply with FSOC           FHFA Should         Recommendation
                     recommendations to revise              Map Its             agreed to
                     existing regulatory guidance to        Supervisory         by FHFA;
                     reflect and incorporate appropriate    Standards for       implementation
                     elements of the NIST Framework         Cyber Risk          pending.
                     in a manner that achieves              Management
                     consistency with other federal         to Appropriate
                     financial regulators.                  Elements of the
                                                            NIST Framework
                                                            (EVL-2016-003,
                                                            March 28, 2016)
EVL-2015-003-2       FHFA should regularly analyze          Women and           Recommendation
                     Agency workforce data and assess       Minorities in       agreed to
                     trends in hiring, awards, and          FHFA’s Workforce    by FHFA;
                     promotions.                            (EVL-2015-003,      implementation
                                                            January 13, 2015)   pending.
EVL-2014-002-2       FHFA should develop a process          Update on           OIG review
                     that links annual Enterprise           FHFA’s Efforts      pending closure.
                     examination plans with core team       to Strengthen
                     resource requirements.                 its Capacity to
                                                            Examine the
                                                            Enterprises
                                                            (EVL-2014-002,
                                                            December 19,
                                                            2013)




80   Federal Housing Finance Agency Office of Inspector General
                                                         Report Name
      No.               Recommendation                    and Date                 Status
EVL-2014-002-3   FHFA should establish a strategy     Update on             OIG review
                 to ensure that the necessary         FHFA’s Efforts        pending closure.
                 resources are in place to ensure     to Strengthen
                 timely and effective Enterprise      its Capacity to
                 examination oversight.               Examine the
                                                      Enterprises
                                                      (EVL-2014-002,
                                                      December 19,
                                                      2013)
EVL-2013-012-2   FHFA should require Fannie Mae       Evaluation            OIG review
                 to:                                  of Fannie             pending closure.
                                                      Mae’s Servicer
                 •	 Quantify and aggregate its
                                                      Reimbursement
                    overpayments to servicers
                                                      Operations for
                    regularly;
                                                      Delinquency
                 •	 Implement a plan to reduce        Expenses
                    these overpayments by             (EVL-2013-012,
                    (1) identifying their root        September 18,
                    causes, (2) creating reduction    2013)
                    targets, and (3) holding
                    managers accountable; and
                 •	 Report its findings and
                    progress to FHFA periodically.
EVL-2013-010-1   Because information in               Reducing Risk         OIG review
                 the report could be used to          and Preventing        pending closure.
                 exploit vulnerabilities and          Fraud in the New
                 circumvent countermeasures, the      Securitization
                 recommendations have not been        Infrastructure
                 released publicly.                   (EVL-2013-010,
                                                      August 22, 2013)
EVL-2013-010-3   Because information in               Reducing Risk         OIG review
                 the report could be used to          and Preventing        pending closure.
                 exploit vulnerabilities and          Fraud in the New
                 circumvent countermeasures, the      Securitization
                 recommendations have not been        Infrastructure
                 released publicly.                   (EVL-2013-010,
                                                      August 22, 2013)




                      Semiannual Report to the Congress • April 1, 2018­–September 30, 2018    81
                                                             Report Name
       No.                   Recommendation                   and Date             Status
EVL-2013-010-4       Because information in                Reducing Risk      OIG review
                     the report could be used to           and Preventing     pending closure.
                     exploit vulnerabilities and           Fraud in the New
                     circumvent countermeasures, the       Securitization
                     recommendations have not been         Infrastructure
                     released publicly.                    (EVL-2013-010,
                                                           August 22, 2013)
EVL-2012-005-2       To strengthen the regulatory     FHFA’s Oversight        OIG review
                     framework around the extension   of the Federal          pending closure.
                     of unsecured credit by the       Home Loan
                     FHLBanks, as a component of      Banks’ Unsecured
                     future rulemakings, FHFA should  Credit Risk
                     consider the utility of:         Management
                                                      Practices
                      •	 Establishing maximum overall
                                                      (EVL-2012-005,
                         exposure limits;
                                                      June 28, 2012)
                      •	 Lowering the existing
                         individual counterparty limits;
                         and

                      •	 Ensuring that the unsecured
                         exposure limits are consistent
                         with the FHLBank System’s
                         housing mission.




82   Federal Housing Finance Agency Office of Inspector General
                                                          Report Name
      No.                Recommendation                    and Date                 Status
COM-2015-001-1   FHFA should determine the             OIG’s Compliance      Recommendation
                 causes of the shortfalls in the       Review of FHFA’s      agreed to
                 Housing Finance Examiner              Implementation        by FHFA;
                 Commission Program that we            of Its Housing        implementation
                 have identified, and implement        Finance Examiner      pending. In
                 a strategy to ensure the program      Commission            September 2018,
                 fulfills its central objective        Program               OCom reported
                 of producing commissioned             (COM-2015-001,        its assessment
                 examiners who are qualified           July 29, 2015)        of the status of
                 to lead major risk sections of                              the Housing
                 government-sponsored enterprise                             Finance Examiner
                 (GSE) examinations.                                         Commission
                                                                             Program. OCom
                                                                             determined
                                                                             that the
                                                                             recommendation
                                                                             should be
                                                                             maintained as
                                                                             open and OCom
                                                                             will monitor
                                                                             FHFA’s efforts
                                                                             to revise the
                                                                             Program. See
                                                                             COM-2018-006.
OIG-2018-004-1   To reduce the waste from Option       Consolidation         Recommendation
                 C (the option Fannie Mae              and Relocation        not agreed to by
                 selected for its future operations    of Fannie Mae’s       FHFA; closed as
                 in Northern Virginia), FHFA,          Northern Virginia     rejected.
                 consistent with its duties as         Workforce
                 conservator, should cause Fannie      (OIG-2018-004,
                 Mae to calculate the net present      September 6,
                 value for a Status Quo Option,        2018)
                 and calculate the costs associated
                 with terminating the lease with
                 Boston Properties.




                       Semiannual Report to the Congress • April 1, 2018­–September 30, 2018   83
                                                             Report Name
       No.                   Recommendation                   and Date              Status
OIG-2018-004-2       To reduce the waste from Option       Consolidation       Recommendation
                     C (the option Fannie Mae              and Relocation      not agreed to by
                     selected for its future operations    of Fannie Mae’s     FHFA; closed as
                     in Northern Virginia), FHFA,          Northern Virginia   rejected.
                     consistent with its duties as         Workforce
                     conservator, should direct Fannie     (OIG-2018-004,
                     Mae to terminate the lease,           September 6,
                     cancel the sale of the three owned    2018)
                     buildings, and implement the
                     Status Quo Option, should the
                     net present value for a Status Quo
                     Option and the termination costs
                     be lower than the adjusted net
                     present value for Option C.
OIG-2018-001-1       Prior to the FHFA Director’s          Administrative     OIG review
                     final decision on alternative         Review of a        pending closure.
                     credit score models, FHFA             Potential Conflict
                     should promptly perform a             of Interest Matter
                     comprehensive review of the           Involving a Senior
                     conflict of interest implications     Executive Officer
                     arising from [redacted] possible      at an Enterprise
                     involvement in Fannie Mae’s           (OIG-2018-001,
                     assessment of the potential           July 26, 2018)
                     impact of [redacted] and possible
                     discussions with FHFA about
                     Fannie Mae’s assessment, in
                     light of [redacted] employment
                     of [redacted] as [redacted].
                     Public release by OIG of certain
                     information in the Management
                     Alert is prohibited by the Privacy
                     Act of 1974 (Pub.L. 93–579, 88
                     Stat. 1896, enacted December 31,
                     1974, 5 U.S.C. § 552a).




84   Federal Housing Finance Agency Office of Inspector General
                                                         Report Name
      No.               Recommendation                    and Date                 Status
OIG-2018-001-2   Prior to the FHFA Director’s final   Administrative        Recommendation
                 decision on alternative credit       Review of a           agreed to
                 score models, FHFA should            Potential Conflict    by FHFA;
                 ensure appropriate controls are in   of Interest Matter    implementation
                 place to mitigate any potential,     Involving a Senior    pending
                 apparent, or actual conflict of      Executive Officer
                 interest.                            at an Enterprise
                                                      (OIG-2018-001,
                                                      July 26, 2018)




                      Semiannual Report to the Congress • April 1, 2018­–September 30, 2018   85
Figure 5.a

Summary of OIG Outstanding Unimplemented Recommendations

                                                           Total Number             Dollar Value
                            Number of                     of Reports with           of Aggregate
                          Unimplemented                   Unimplemented            Potential Cost
     Fiscal Year         Recommendations                 Recommendations               Savings
     2012           2 open recommendations                            2                          $–
                    0 closed, rejected
                    recommendations
     2013           4 open recommendations                            2                          $–
                    1 closed, rejected
                    recommendation
     2014           2 open recommendations                            7                  $5,015,505b
                    8 closed, rejected
                    recommendations
     2015           2 open recommendations                            3                          $–
                    1 closed, rejected
                    recommendation
     2016           6 open recommendations                        12c                            $–
                    14 closed, rejected
                    recommendations
     2017           9 open recommendations                            6d                         $–
                    2 closed, rejected
                    recommendations
     2018           23 open recommendations                       12                             $–
                    5 closed, rejected
                    recommendations
     TOTAL          48 open recommendations                       44                     $5,015,505
                    31 closed, rejected
                    recommendations


a
     his figure summarizes OIG’s outstanding unimplemented recommendations, comprised of
    T
    open recommendations and closed, rejected recommendations, which were closed in light of the
    Agency’s permanent rejection or failure to follow through on corrective action.
b
    This potential cost savings is associated with a closed, rejected recommendation.
c
     ecommendations from AUD-2016-007 are repeated in AUD-2016-006 and AUD-2016-005.
    R
    Each repeated recommendation is only counted once; the reports are counted separately.
d
    As with 2016, some audit recommendations appear in two reports (AUD-2017-010 and AUD-
    2017-011). Recommendations are counted only once; reports are counted separately.



86       Federal Housing Finance Agency Office of Inspector General
Figure 6.

Summary of OIG Open Recommendations
 Specific Risk to                                         Expected             Report Name
  be Mitigated            Recommendation                   Impact               and Date

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




                         Semiannual Report to the Congress • April 1, 2018­–September 30, 2018   87
 Specific Risk to                                           Expected       Report Name
  be Mitigated              Recommendation                   Impact         and Date
Review and           FHFA’s Division of Housing          Improved      FHFA’s Oversight of
Enhancement          Mission and Goals should            oversight     Fannie Mae’s Single-
of Underwriting      formally establish a policy                       Family Underwriting
Standards            for its review process of                         Standards
                     underwriting standards and                        (AUD-2012-003,
                     variances, including escalation                   March 22, 2012);
                     of unresolved issues reflecting                   see also Compliance
                     potential lack of agreement.                      Review of FHFA’s
                                                                       Implementation
                                                                       of Its Procedures
                                                                       for Overseeing the
                                                                       Enterprises’ Single-
                                                                       Family Mortgage
                                                                       Underwriting
                                                                       Standards and
                                                                       Variances
                                                                       (COM-2016-001,
                                                                       December 17, 2015),
                                                                       and Update on FHFA’s
                                                                       Implementation of its
                                                                       Revised Procedures
                                                                       for Overseeing the
                                                                       Enterprises’ Single-
                                                                       Family Mortgage
                                                                       Underwriting
                                                                       Standards and
                                                                       Variances
                                                                       (COM-2018-003,
                                                                       March 27, 2018)
Conflicts of         FHFA should provide guidance Improved             Corporate Governance:
Interest             to Fannie Mae on FHFA              oversight      Review and Resolution
                     governance expectations                           of Conflicts of
                     regarding authority to review                     Interest Involving
                     and resolve actual, potential,                    Fannie Mae’s Senior
                     and apparent conflicts of interest                Executive Officers
                     involving SEO positions.                          Highlight the Need
                                                                       for Closer Attention to
                                                                       Governance Issues by
                                                                       FHFA
                                                                       (EVL-2018-001,
                                                                       January 31, 2018)




88   Federal Housing Finance Agency Office of Inspector General
Specific Risk to                                         Expected             Report Name
 be Mitigated            Recommendation                   Impact               and Date
                   FHFA should direct Fannie Mae Improved                Corporate Governance:
                   to conduct a comprehensive        oversight           Review and Resolution
                   internal review of its governance                     of Conflicts of
                   documents (both board and                             Interest Involving
                   management generated) for                             Fannie Mae’s Senior
                   consistency and clarity, with                         Executive Officers
                   specific emphasis on the                              Highlight the Need
                   assignment of authority to                            for Closer Attention to
                   review and resolve conflict of                        Governance Issues by
                   interest matters involving SEO                        FHFA
                   positions, by seniority and                           (EVL-2018-001,
                   rank, and the process to be used                      January 31, 2018)
                   to review and resolve such
                   conflicts.
                   FHFA should direct the Fannie Improved                Corporate Governance:
                   Mae Board of Directors to         oversight           Review and Resolution
                   review the results of the                             of Conflicts of
                   comprehensive internal review                         Interest Involving
                   and determine whether authority                       Fannie Mae’s Senior
                   to review and resolve conflict                        Executive Officers
                   of interest matters involving                         Highlight the Need
                   specific SEO positions, by                            for Closer Attention to
                   seniority and rank, should be                         Governance Issues by
                   vested in a Board committee                           FHFA
                   or delegated to Fannie Mae                            (EVL-2018-001,
                   management, and determine the                         January 31, 2018)
                   process to be used to review and
                   resolve such conflicts. Should
                   the Board determine to delegate
                   to management authority to
                   review and resolve all potential,
                   actual, or apparent conflicts
                   of interest involving the CEO
                   and the CEO’s direct reports,
                   counsel the Board on the
                   process that should be put into
                   place to require management to
                   report its resolution of all such
                   conflicts to a Board committee
                   for its review.




                        Semiannual Report to the Congress • April 1, 2018­–September 30, 2018   89
 Specific Risk to                                           Expected       Report Name
  be Mitigated              Recommendation                   Impact         and Date
                     FHFA should, to the extent         Improved       Corporate Governance:
                     that the Fannie Mae Board of       oversight      Review and Resolution
                     Directors determines to delegate                  of Conflicts of
                     authority to the CCO and FM                       Interest Involving
                     Ethics to review and resolve                      Fannie Mae’s Senior
                     certain conflicts of interest                     Executive Officers
                     involving SEOs, counsel the                       Highlight the Need
                     Board to amend the relevant                       for Closer Attention to
                     governance documents and                          Governance Issues by
                     establish a reporting relationship                FHFA
                     between the NGC, FM Ethics,                       (EVL-2018-001,
                     and the CCO.                                      January 31, 2018)
                     FHFA should direct FHFA              Improved     Corporate Governance:
                     employees to monitor the             oversight    Review and Resolution
                     review and resolution of                          of Conflicts of
                     SEO disclosures of potential,                     Interest Involving
                     actual, or apparent conflicts of                  Fannie Mae’s Senior
                     interest to ensure that revised                   Executive Officers
                     Board committee charter(s)                        Highlight the Need
                     and management policies and                       for Closer Attention to
                     procedures are being followed.                    Governance Issues by
                                                                       FHFA
                                                                       (EVL-2018-001,
                                                                       January 31, 2018)
                     FHFA should direct the NGC           Improved     Corporate Governance:
                     to use its authority to retain,      oversight    Review and Resolution
                     as appropriate, independent                       of Conflicts of
                     outside corporate governance                      Interest Involving
                     experts to assist it in fulfilling                Fannie Mae’s Senior
                     its obligations under the NGC                     Executive Officers
                     Charter.                                          Highlight the Need
                                                                       for Closer Attention to
                                                                       Governance Issues by
                                                                       FHFA
                                                                       (EVL-2018-001,
                                                                       January 31, 2018)




90   Federal Housing Finance Agency Office of Inspector General
Specific Risk to                                          Expected             Report Name
 be Mitigated            Recommendation                    Impact               and Date
                   FHFA should direct the Fannie       Improved           Corporate Governance:
                   Mae Board of Directors              oversight          Review and Resolution
                   to assess the skills and                               of Conflicts of
                   professional experiences of                            Interest Involving
                   current board members and,                             Fannie Mae’s Senior
                   as vacancies occur, prioritize                         Executive Officers
                   candidates with demonstrable                           Highlight the Need
                   expertise in corporate                                 for Closer Attention to
                   governance.                                            Governance Issues by
                                                                          FHFA
                                                                          (EVL-2018-001,
                                                                          January 31, 2018)
                   FHFA should require the NGC         Improved           Corporate Governance:
                   to fully document, in meeting       oversight          Review and Resolution
                   minutes, its discussions,                              of Conflicts of
                   deliberations, and actions at                          Interest Involving
                   each meeting to ensure an                              Fannie Mae’s Senior
                   effective flow of information                          Executive Officers
                   between the NGC and other                              Highlight the Need
                   directors and to provide FHFA                          for Closer Attention to
                   with sufficient information                            Governance Issues by
                   to enable it to assess whether                         FHFA
                   the NGC is meeting the                                 (EVL-2018-001,
                   responsibilities and obligations                       January 31, 2018)
                   set forth in its Charter.
                   Prior to the FHFA Director’s      Improved             Administrative Review
                   final decision on alternative     oversight            of a Potential Conflict
                   credit score models, FHFA                              of Interest Matter
                   should promptly perform a                              Involving a Senior
                   comprehensive review of the                            Executive Officer at an
                   conflict of interest implications                      Enterprise
                   arising from [redacted] possible                       (OIG-2018-001, July
                   involvement in Fannie Mae’s                            26, 2018)
                   assessment of the potential
                   impact of [redacted] and
                   possible discussions with FHFA
                   about Fannie Mae’s assessment,
                   in light of [redacted]
                   employment of [redacted] as
                   [redacted].




                         Semiannual Report to the Congress • April 1, 2018­–September 30, 2018   91
 Specific Risk to                                           Expected       Report Name
  be Mitigated              Recommendation                   Impact         and Date
                     Prior to the FHFA Director’s       Improved       Administrative Review
                     final decision on alternative      oversight      of a Potential Conflict
                     credit score models, FHFA                         of Interest Matter
                     should ensure appropriate                         Involving a Senior
                     controls are in place to mitigate                 Executive Officer at an
                     any potential, apparent, or actual                Enterprise
                     conflict of interest.                             (OIG-2018-001, July
                                                                       26, 2018)
Supervision
Examiner             FHFA should develop a process Improved            Update on FHFA’s
Capacity             that links annual Enterprise  supervision         Efforts to Strengthen
                     examination plans with core                       its Capacity to
                     team resource requirements.                       Examine the
                                                                       Enterprises
                                                                       (EVL-2014-002,
                                                                       December 19, 2013)
                     FHFA should establish a          Improved         Update on FHFA’s
                     strategy to ensure that the      supervision      Efforts to Strengthen
                     necessary resources are in place                  its Capacity to
                     to ensure timely and effective                    Examine the
                     Enterprise examination                            Enterprises
                     oversight.                                        (EVL-2014-002,
                                                                       December 19, 2013)
                     FHFA should assess whether       Improved         FHFA Failed to
                     DER has a sufficient             supervision      Complete Non-
                     complement of qualified                           MRA Supervisory
                     examiners to conduct and                          Activities Related
                     complete those examinations                       to Cybersecurity
                     rated by DER to be of high-                       Risks at Fannie Mae
                     priority within each supervisory                  Planned for the 2016
                     cycle and address the resource                    Examination Cycle
                     constraints that have adversely                   (AUD-2017-010,
                     affected DER’s ability to carry                   September 27, 2017)
                     out its risk-based supervisory
                     plans.




92   Federal Housing Finance Agency Office of Inspector General
 Specific Risk to                                         Expected             Report Name
  be Mitigated            Recommendation                   Impact               and Date
                    FHFA should assess whether       Improved             FHFA’s Targeted
                    DER has a sufficient             supervision          Examinations of
                    complement of qualified                               Freddie Mac: Just Over
                    examiners to conduct and                              Half of the Targeted
                    complete those examinations                           Examinations Planned
                    rated by DER to be of high-                           for 2012 through
                    priority within each supervisory                      2015 Were Completed
                    cycle and address the resource                        (AUD-2016-007,
                    constraints that have adversely                       September 30, 2016);
                    affected DER’s ability to carry                       FHFA’s Targeted
                    out its risk-based supervisory                        Examinations of
                    plans.                                                Fannie Mae: Less than
                                                                          Half of the Targeted
                                                                          Examinations Planned
                                                                          for 2012 through 2015
                                                                          Were Completed and
                                                                          No Examinations
                                                                          Planned for 2015 Were
                                                                          Completed Before the
                                                                          Report of Examination
                                                                          Issued
                                                                          (AUD-2016-006,
                                                                          September 30, 2016)
Accreditation of    FHFA should determine the        Improved             OIG’s Compliance
Examiners           causes of the shortfalls in the  quality              Review of FHFA’s
                    Housing Finance Examiner                              Implementation of
                    Commission Program that we                            Its Housing Finance
                    have identified, and implement                        Examiner Commission
                    a strategy to ensure the program                      Program
                    fulfills its central objective                        (COM-2015-001,
                    of producing commissioned                             July 29, 2015), and
                    examiners who are qualified                           FHFA’s Housing
                    to lead major risk sections                           Finance Examiner
                    of government-sponsored                               Commissioning
                    enterprise (GSE) examinations.                        Program: $7.7 Million
                                                                          and Four Years into
                                                                          the Program, the
                                                                          Agency has Fewer
                                                                          Commissioned
                                                                          Examiners
                                                                          (COM-2018-006,
                                                                          September 6, 2018)




                         Semiannual Report to the Congress • April 1, 2018­–September 30, 2018   93
 Specific Risk to                                           Expected       Report Name
  be Mitigated              Recommendation                   Impact         and Date
Quality Control      FHFA should reinforce the       Improved          FHFA’s 2015 Report of
                     requirements of DER-OPB-02 quality                Examination to Fannie
                     and hold DER leadership                           Mae Failed to Follow
                     accountable to ensure                             FHFA’s Standards
                     that targeted examination                         Because it Reported on
                     conclusions presented in                          an Incomplete Targeted
                     the ROE are based on work                         Examination of the
                     that has either (1) undergone                     Enterprise’s New
                     quality control review and been                   Representation and
                     communicated in writing to the                    Warranty Framework
                     Enterprise, or (2) the required                   (AUD-2017-008,
                     quality control review has been                   September 22, 2017)
                     waived by the Deputy Director
                     of DER and documented in
                     writing.
                     FHFA should ensure that        Improved           DBR’s Safety and
                     examination specialists        quality            Soundness Quality
                     reviewing community                               Control Reviews
                     investment examinations under                     Were Conducted in
                     the Division of Federal Home                      Compliance with
                     Loan Bank Regulation’s revised                    FHFA’s Standard
                     independent quality control                       During the 2017
                     process did not participate in                    Examination Cycle but
                     the examination activity under                    DBR’s Community
                     review.                                           Investment Quality
                                                                       Control Reviews Were
                                                                       Not
                                                                       (AUD-2018-010,
                                                                       August 17, 2018)
                     FHFA should ensure the           Improved         DBR’s Safety and
                     planned operating procedures     quality          Soundness Quality
                     bulletin for independent quality                  Control Reviews
                     control reviews of Division                       Were Conducted in
                     of Federal Home Loan Bank                         Compliance with
                     Regulation examinations                           FHFA’s Standard
                     are issued and conform to                         During the 2017
                     Supervision Directive 2017-01,                    Examination Cycle but
                     to include the requirement that                   DBR’s Community
                     personnel performing the quality                  Investment Quality
                     control review must not have                      Control Reviews Were
                     participated in the examination                   Not
                     activity under review.                            (AUD-2018-010,
                                                                       August 17, 2018)


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




                        Semiannual Report to the Congress • April 1, 2018­–September 30, 2018   95
 Specific Risk to                                           Expected       Report Name
  be Mitigated              Recommendation                   Impact         and Date
Targeted             FHFA should reinforce, in           Improved      FHFA Completed
Examinations         examiner training, the need         supervision   its Planned
Completed            to prepare workpapers for                         Procedures for a 2016
                     targeted examinations with                        Representation and
                     sufficient detail and clarity                     Warranty Framework
                     to provide a third party with                     Targeted Examination
                     a clear understanding of the                      at Freddie Mac,
                     examination work performed;                       but the Supporting
                     the examination findings,                         Workpapers Did Not
                     conclusions, and ratings                          Sufficiently Document
                     reached; and any implications                     the Examination Work
                     of the findings, conclusions,                     (AUD-2018-006,
                     and ratings.                                      March 13, 2018)
Communication        FHFA should revise its              Improved      FHFA’s Supervisory
of Deficiencies      supervision guidance to             supervision   Standards for
to Enterprise        require DER to provide the                        Communication of
Boards               Chair of the Audit Committee                      Serious Deficiencies to
                     of an Enterprise Board with                       Enterprise Boards and
                     each conclusion letter setting                    for Board Oversight
                     forth an MRA. (In COM-                            of Management’s
                     2018-005, OIG clarified that                      Remediation Efforts
                     the recommendation covers                         are Inadequate
                     “supervisory correspondence,”                     (EVL-2016-005,
                     which includes conclusion                         March 31, 2016),
                     letters and supervisory letters                   Compliance
                     that set forth MRAs.)                             Review of FHFA’s
                                                                       Communication of
                                                                       Serious Deficiencies to
                                                                       the Enterprises’ Boards
                                                                       of Directors
                                                                       (COM-2018-005,
                                                                       September 5, 2018)




96   Federal Housing Finance Agency Office of Inspector General
 Specific Risk to                                         Expected             Report Name
  be Mitigated            Recommendation                   Impact               and Date
                    FHFA should, except for rare     Improved             FHFA Failed to
                    instances where DER has an       supervision          Complete Non-
                    urgent need to communicate                            MRA Supervisory
                    significant supervisory concerns                      Activities Related
                    to an Enterprise board, ensure                        to Cybersecurity
                    that all supervisory conclusions                      Risks at Fannie Mae
                    and findings reported by DER                          Planned for the 2016
                    in the Enterprise’s annual                            Examination Cycle
                    ROEs are based on completed                           (AUD-2017-010,
                    work that has been previously                         September 27,
                    communicated, when required,                          2017); FHFA Did
                    in writing to the Enterprise.                         Not Complete All
                                                                          Planned Supervisory
                                                                          Activities Related to
                                                                          Cybersecurity Risks
                                                                          at Freddie Mac for
                                                                          the 2016 Examination
                                                                          Cycle
                                                                          (AUD-2017-011,
                                                                          September 27, 2017)
Assessing           FHFA should train DER           Improved              FHFA Failed to
Remediation of      examiners on the elements of    remediation of        Ensure Freddie Mac’s
Deficiencies        the current OPB standard for    deficiencies          Remedial Plans for
                    MRA issuance, follow-up and                           a Cybersecurity
                    closure, which include: (a) a                         MRA Addressed
                    requirement that examiners                            All Deficiencies;
                    ensure that proposed corrective                       as Allowed by its
                    actions in remedial plans                             Standard, FHFA
                    are sufficient to address the                         Closed the MRA
                    deficiency underlying an MRA                          after Independently
                    before issuing non-objection                          Determining the
                    letters; and (b) a requirement                        Enterprise Completed
                    that examiners determine,                             its Planned Remedial
                    after an Enterprise implements                        Actions
                    its remedial plan, that the                           (AUD-2018-008,
                    deficiency giving rise to the                         March 28, 2018)
                    MRA has been satisfactorily
                    addressed.




                         Semiannual Report to the Congress • April 1, 2018­–September 30, 2018   97
 Specific Risk to                                           Expected          Report Name
  be Mitigated              Recommendation                   Impact            and Date
                     FHFA should ensure that         Improved             FHFA Failed to
                     Freddie Mac takes, or has       remediation of       Ensure Freddie Mac’s
                     taken, remedial action          deficiencies         Remedial Plans for
                     to address the deficiency                            a Cybersecurity
                     underlying the MRA regarding                         MRA Addressed
                     the need to implement a process                      All Deficiencies;
                     to verify and monitor [certain                       as Allowed by its
                     matters].                                            Standard, FHFA
                                                                          Closed the MRA
                                                                          after Independently
                                                                          Determining the
                                                                          Enterprise Completed
                                                                          its Planned Remedial
                                                                          Actions
                                                                          (AUD-2018-008,
                                                                          March 28, 2018)
                     FHFA should adopt clear             Improved         FHFA’s Adoption
                     guidance for examiners              remediation of   of Clear Guidance
                     to follow when assessing            deficiencies     on the Review of
                     the sufficiency of MRA                               the Enterprises’
                     remediation by the Enterprises                       Internal Audit Work
                     that identifies the work steps                       When Assessing
                     that should be included in                           the Sufficiency of
                     examiners’ independent                               Remediation of
                     assessments of Internal                              Serious Deficiencies
                     Audit’s work and specifies                           Would Assist FHFA
                     the conditions under which                           Examiners
                     examiner testing is expected.                        (EVL-2018-003),
                                                                          March 28, 2018)
                     FHFA should revise its         Improved              FHFA Requires the
                     guidance to provide clear      remediation of        Enterprises’ Internal
                     direction to examiners on      deficiencies          Audit Functions to
                     whether, or the circumstances                        Validate Remediation
                     under which, its examiners may                       of Serious Deficiencies
                     rely on information, analyses,                       but Provides No
                     or conclusions provided by                           Guidance and Imposes
                     an Enterprise’s Internal Audit                       No Preconditions on
                     function when assessing the                          Examiners’ Use of that
                     adequacy of MRA remediation.                         Validation Work
                                                                          (EVL-2018-002,
                                                                          March 28, 2018)




98   Federal Housing Finance Agency Office of Inspector General
 Specific Risk to                                         Expected             Report Name
  be Mitigated            Recommendation                   Impact               and Date
Extension of        To strengthen the regulatory       Improved           FHFA’s Oversight
Unsecured Credit    framework around the               compliance         of the Federal
by Federal Home     extension of unsecured                                Home Loan Banks’
Loan Banks          credit by the FHLBanks,                               Unsecured Credit Risk
                    as a component of future                              Management Practices
                    rulemakings, FHFA should                              (EVL-2012-005,
                    consider the utility of:                              June 28, 2012)
                     •	 Establishing maximum
                        overall exposure limits;
                     •	 Lowering the existing
                        individual counterparty
                        limits; and
                     •	 Ensuring that the
                        unsecured exposure
                        limits are consistent with
                        the FHLBank System’s
                        housing mission.
Use of Fraud Risk Because Congress required the Improved                  FHFA Should Re-
Reporting         Enterprises to prepare fraud      supervision           evaluate and Revise
                  reports and FHFA has directed                           Fraud Reporting by the
                  them to submit detailed monthly                         Enterprises to Enhance
                  and quarterly reports to meet                           its Utility
                  this statutory requirement, we                          (EVL-2018-004,
                  recommend that FHFA re-                                 September 24, 2018)
                  evaluate the fraud information
                  it requires from the Enterprises,
                  and revise, as appropriate, its
                  existing reporting requirements
                  to enhance the utility of these
                  reports with the goal of using
                  these reports to inform its
                  supervisory activities with
                  respect to the risk that fraud
                  poses to the Enterprises.




                         Semiannual Report to the Congress • April 1, 2018­–September 30, 2018   99
 Specific Risk to                                            Expected        Report Name
  be Mitigated              Recommendation                    Impact          and Date

Counterparties
Collection of        FHFA should require Fannie          Improved        Evaluation of Fannie
Funds from           Mae to:                             financial       Mae’s Servicer
Servicers                                                management      Reimbursement
                       •	 Quantify and aggregate its
                                                                         Operations for
                          overpayments to servicers
                                                                         Delinquency Expenses
                          regularly;
                                                                         (EVL-2013-012,
                       •	 Implement a plan to                            September 18, 2013)
                          reduce these 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.
Compliance           In 2017, or as expeditiously        Improved risk   FHFA’s Examinations
with Advisory        as possible, FHFA should            management      Have Not Confirmed
Bulletins            complete the examination                            Compliance by One
                     activities necessary to                             Enterprise with its
                     determine whether [the                              Advisory Bulletins
                     Enterprise’s] risk management                       Regarding Risk
                     of nonbank seller/servicers                         Management of
                     meets FHFA’s supervisory                            Nonbank Sellers and
                     expectations as set forth in its                    Servicers
                     supervisory guidance. These                         (EVL-2017-002,
                     activities should include an                        December 21, 2016)
                     independent assessment of the
                     [related matters].

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



100    Federal Housing Finance Agency Office of Inspector General
 Specific Risk to                                          Expected             Report Name
  be Mitigated            Recommendation                    Impact               and Date
                    FHFA should comply with         Improved risk          FHFA Should Map
                    FSOC recommendations to         management             Its Supervisory
                    revise existing regulatory                             Standards for Cyber
                    guidance to reflect and                                Risk Management
                    incorporate appropriate                                to Appropriate
                    elements of the NIST                                   Elements of the NIST
                    framework in a manner that                             Framework
                    achieves consistency with other                        (EVL-2016-003,
                    federal financial regulators.                          March 28, 2016)
Cyber Risk          FHFA should direct the Fannie       Improved risk      Corporate Governance:
Oversight           Mae Board to enhance Fannie         management         Cyber Risk Oversight
                    Mae’s existing cyber risk                              by the Fannie Mae
                    management policies to:                                Board of Directors
                                                                           Highlights the
                     a.	 Require a baseline
                                                                           Need for FHFA’s
                         Enterprise-wide cyber
                                                                           Closer Attention to
                         risk assessment with
                                                                           Governance Issues
                         subsequent periodic
                                                                           (EVL-2016-006,
                         updates;
                                                                           March 31, 2016)
                     b.	 Describe information to be
                         reported to the Board and
                         committees;
                     c.	 Include a cyber risk
                         framework and cyber risk
                         appetite.




                        Semiannual Report to the Congress • April 1, 2018­–September 30, 2018   101
 Specific Risk to                                           Expected        Report Name
  be Mitigated             Recommendation                    Impact          and Date
                    FHFA should direct the              Improved risk   Corporate Governance:
                    Fannie Mae Board to oversee         management      Cyber Risk Oversight
                    management’s efforts to                             by the Fannie Mae
                    leverage industry standards to:                     Board of Directors
                                                                        Highlights the
                      a.	 Protect against and detect
                                                                        Need for FHFA’s
                          existing threats;
                                                                        Closer Attention to
                      b.	 Remain informed on                            Governance Issues
                          emerging risks;                               (EVL-2016-006,
                                                                        March 31, 2016)
                      c.	 Enable timely response
                          and recovery in the event
                          of a breach; and
                      d.	 Achieve the desired
                          target state of cyber risk
                          management identified in
                          Recommendation 2 within
                          a time period agreed upon
                          by the Board.
Privacy             The FHFA Privacy Office             Improved        Performance Audit of
Information and     should conduct a comprehensive      protection      the Federal Housing
Data Protection     business process analysis to        of privacy      Finance Agency’s
                    identify all FHFA business          information     (FHFA) Privacy
                    processes that collect PII in                       Program
                    electronic and hardcopy form to                     (AUD-2017-007,
                    build an inventory of where PII                     August 30, 2017)
                    is stored.
                    The FHFA Privacy Office             Improved        Performance Audit of
                    should develop manual               protection      the Federal Housing
                    and automated processes to          of privacy      Finance Agency’s
                    maintain an accurate and            information     (FHFA) Privacy
                    complete inventory of where                         Program
                    PII is stored.                                      (AUD-2017-007,
                                                                        August 30, 2017)
                    The FHFA Privacy Office             Improved        Performance Audit of
                    should establish, implement,        protection      the Federal Housing
                    and train end users to apply        of privacy      Finance Agency’s
                    naming conventions to files and     information     (FHFA) Privacy
                    folders containing PII.                             Program
                                                                        (AUD-2017-007,
                                                                        August 30, 2017)



102   Federal Housing Finance Agency Office of Inspector General
 Specific Risk to                                          Expected             Report Name
  be Mitigated            Recommendation                    Impact               and Date
                    The FHFA Privacy Office             Improved           Performance Audit of
                    should conduct a feasibility        protection         the Federal Housing
                    study of available technologies     of privacy         Finance Agency’s
                    to supplement the manual and        information        (FHFA) Privacy
                    automated processes to identify                        Program
                    and secure PII at rest and in                          (AUD-2017-007,
                    transit.                                               August 30, 2017)

Agency Operations
Oversight of   FHFA should regularly analyze            Improved           Women and Minorities
FHFA Workforce Agency workforce data and                opportunities      in FHFA’s Workforce
Matters        assess trends in hiring, awards,         and oversight      (EVL-2015-003,
               and promotions.                                             January 13, 2015)
Management of    FHFA should reinforce FHFA’s Improved                     Audit of FHFA’s
Agency Resources government purchase card        management of             Fiscal Year 2017
                 policies and procedures through resources                 Government Purchase
                 periodic reminders to, and                                Card Program Found
                 training of, FHFA cardholders                             Several Deficiencies
                 and approving officials,                                  with Leased Holiday
                 including requirements to:                                Decorations,
                                                                           and the Need for
                     •	 Distribute micro-purchases
                                                                           Greater Attention
                        equitably among qualified
                                                                           by Cardholders and
                        suppliers (to the extent
                                                                           Approving Officials to
                        practicable),
                                                                           Program Requirements
                     •	 Document receipt of goods                          (AUD-2018-011,
                        and services, and                                  September 6, 2018)
                     •	 Obtain prior written
                        approval from an approving
                        official before purchases
                        are made.




                        Semiannual Report to the Congress • April 1, 2018­–September 30, 2018   103
 Specific Risk to                                           Expected       Report Name
  be Mitigated             Recommendation                    Impact         and Date
                    FHFA should develop,              Improved         FHFA Needs to
                    document, and implement           management of    Strengthen Controls
                    control activities to ensure      resources        over its Employee
                    that (a) only current FHFA                         Transportation Benefits
                    employees are receiving                            Programs
                    transportation benefits, (b)                       (AUD-2018-013,
                    no employee is improperly                          September 25, 2018)
                    participating in both
                    transportation benefit programs,
                    (c) FHFA’s Transit Benefits
                    System has a record/certification
                    for each employee who receives
                    a transportation benefit, and (d)
                    SmarTrip® cards are physically
                    controlled. Such control
                    activities include periodic
                    reconciliation of approved
                    transit subsidy recipients in
                    [the] Transit Benefits System to
                    FHFA transit subsidy recipients
                    listed on WMATA Monthly
                    Activity Reports; periodic
                    reconciliation of approved
                    transit subsidy recipients to
                    active parking permit recipients;
                    and periodic inventory counts of
                    SmarTrip® cards registered to
                    FHFA and undistributed parking
                    permits.
                    FHFA should ensure that             Improved      FHFA Needs to
                    FHFA’s Transit Benefits             management of Strengthen Controls
                    System has accurate and up-         resources     over its Employee
                    to-date records of, and current                   Transportation Benefits
                    certifications for, each FHFA                     Programs
                    employee who receives a                           (AUD-2018-013,
                    transportation benefit.                           September 25, 2018)




104   Federal Housing Finance Agency Office of Inspector General
Specific Risk to                                          Expected             Report Name
 be Mitigated            Recommendation                    Impact               and Date
                   Should FHFA identify, through Improved                 FHFA Needs to
                   these newly implemented          management of         Strengthen Controls
                   controls, any individuals        resources             over its Employee
                   who improperly used transit                            Transportation Benefits
                   subsidies to which they were                           Programs
                   not entitled, FHFA should                              (AUD-2018-013,
                   determine whether to recover                           September 25, 2018)
                   the amounts (taking cost/benefit
                   into consideration).
                   FHFA should reinforce FHFA’s Improved                  Audit of FHFA’s Fiscal
                   government travel card policies management of          Year 2017 Government
                   and procedures through          resources              Travel Card Program:
                   periodic reminders to, and                             FHFA Needs to
                   training of, FHFA travelers and                        Emphasize Certain
                   approving officials, including                         Program Requirements
                   requirements to ensure:                                to Travelers and
                                                                          Approving Officials
                   •	 Travel card holders do not
                                                                          (AUD-2018-014,
                      pay lodging taxes in states
                                                                          September 25, 2018)
                      that exempt government
                      issued travel cards from
                      taxes;
                   •	 Employees submit vouchers
                      within five working
                      days after employees
                      complete their travel,
                      initiate travel only after
                      their travel authorizations
                      are approved, and submit
                      required receipts with travel
                      vouchers;
                   •	 Employees use their
                      government-issued travel
                      cards for all official travel
                      expenses; and
                   •	 Employees use travel cards
                      only for official travel.




                       Semiannual Report to the Congress • April 1, 2018­–September 30, 2018   105
Figure 7.

Summary of Closed, Unimplemented Recommendations

 Specific Risk to                                           Expected       Report Name
  be Mitigated             Recommendation                    Impact         and Date
Property            FHFA should direct the            Improved         FHFA Oversight of
Inspection          Enterprises to establish uniform quality           Enterprise Controls
Quality Controls    pre-foreclosure inspection                         Over Pre-Foreclosure
                    quality standards and quality                      Property Inspections
                    control processes for inspectors.                  (AUD-2014-012,
                                                                       March 25, 2014)
Improperly          FHFA should direct Fannie           Improved       FHFA Oversight
Reimbursed          Mae to obtain a refund from         accuracy       of Fannie Mae’s
Property            servicers for improperly                           Reimbursement
Inspection Claims   reimbursed property inspection                     Process for Pre-
                    claims, resulting in estimated                     Foreclosure Property
                    funds put to better use of                         Inspections
                    $5,015,505.                                        (AUD-2014-005,
                                                                       January 15, 2014)
Seller/Servicer     FHFA should promptly            Improved           FHFA Oversight of
Resolution of       quantify the potential benefit  oversight          Enterprise Handling
Aged Repurchase     of implementing a repurchase                       of Aged Repurchase
Demands             late fee program at Fannie Mae,                    Demands
                    and then determine whether the                     (AUD-2014-009,
                    potential cost of from $500,000                    February 12, 2014)
                    to $5.4 million still outweighs
                    the potential benefit.
Oversight of        FHFA should perform a             Improved         FHFA’s Representation
Enterprise          comprehensive analysis to         framework        and Warranty
Implementation      assess whether financial          management       Framework
of Representation   risks associated with the new                      (AUD-2014-016,
and Warranty        representation and warranty                        September 17, 2014)
Framework           framework, including with
                    regard to sunset periods, are
                    appropriately balanced between
                    the Enterprises and sellers. This
                    analysis should be based on
                    consistent transactional data
                    across both Enterprises, identify
                    potential costs and benefits to
                    the Enterprises, and document
                    consideration of the Agency’s
                    objectives.


106   Federal Housing Finance Agency Office of Inspector General
 Specific Risk to                                          Expected             Report Name
  be Mitigated            Recommendation                    Impact               and Date
Seller/Servicer     FHFA should direct Fannie      Improved                FHFA’s Oversight of
Compliance with     Mae and Freddie Mac to assess compliance               Risks Associated with
Guidance            the cost/benefit of a risk-                            the Enterprises Relying
                    based approach to requiring                            on Counterparties
                    their sellers and servicers to                         to Comply with
                    provide independent, third-                            Selling and Servicing
                    party attestation reports on                           Guidelines
                    compliance with Enterprise                             (AUD-2014-018,
                    origination and servicing                              September 26, 2014)
                    guidance.
Collection of       FHFA should publish Fannie          Improved           Evaluation of Fannie
Funds from          Mae’s reduction targets and         transparency       Mae’s Servicer
Servicers           overpayment findings.                                  Reimbursement
                                                                           Operations for
                                                                           Delinquency Expenses
                                                                           (EVL-2013-012,
                                                                           September 18, 2013)
Examination         DER should adopt a                Improved             Evaluation of the
Recordkeeping       comprehensive examination         efficiency           Division of Enterprise
Practices           workpaper index and                                    Regulation’s 2013
                    standardize electronic                                 Examination Records:
                    workpaper folder structures                            Successes and
                    and naming conventions                                 Opportunities
                    between the two Core Teams.                            (EVL-2015-001,
                    In addition, FHFA and DER                              October 6, 2014)
                    should upgrade recordkeeping
                    practices as necessary to
                    enhance the identification and
                    retrieval of critical workpapers.




                        Semiannual Report to the Congress • April 1, 2018­–September 30, 2018   107
 Specific Risk to                                           Expected       Report Name
  be Mitigated             Recommendation                    Impact         and Date
Oversight of        FHFA should develop a            Improved          Compliance Review of
Enterprise          strategy to enhance the          oversight         FHFA’s Oversight of
Executive           Executive Compensation                             Enterprise Executive
Compensation        Branch’s capacity to review the                    Compensation
                    reasonableness and justification                   Based on Corporate
                    of the Enterprises’ annual                         Scorecard Performance
                    proposals to compensate                            (COM-2016-002,
                    their executives based                             March 17, 2016)
                    on Corporate Scorecard
                    performance. To this end,
                    FHFA should ensure that: the
                    Enterprises submit proposals
                    containing information
                    sufficient to facilitate a
                    comprehensive review by
                    the Executive Compensation
                    Branch; the Executive
                    Compensation Branch tests and
                    verifies the information in the
                    Enterprises’ proposals, perhaps
                    on a randomized basis; and
                    the Executive Compensation
                    Branch follows up with the
                    Enterprises to resolve any
                    proposals that do not appear to
                    be reasonable and justified.
                    FHFA should develop a policy Improved              Compliance Review of
                    under which it is required to     oversight        FHFA’s Oversight of
                    notify OIG within 10 days of its                   Enterprise Executive
                    decision not to fully implement,                   Compensation
                    substantially alter, or abandon a                  Based on Corporate
                    corrective action that served as                   Scorecard Performance
                    the basis for OIG’s decision to                    (COM-2016-002,
                    close a recommendation.                            March 17, 2016)




108   Federal Housing Finance Agency Office of Inspector General
 Specific Risk to                                          Expected             Report Name
  be Mitigated             Recommendation                   Impact               and Date
Oversight           FHFA’s Division of Housing          Improved           FHFA’s Oversight
of Servicing        Mission and Goals Deputy            servicing          of the Servicing
Alignment           Director should establish an        compliance         Alignment Initiative
Initiative          ongoing process to evaluate         and minimized      (EVL-2014-003,
                    servicers’ Servicing Alignment      losses             February 12, 2014)
                    Initiative compliance and the
                    effectiveness of the Enterprises’
                    remediation efforts.
                    FHFA’s Division of Housing          Improved           FHFA’s Oversight
                    Mission and Goals Deputy            servicing          of the Servicing
                    Director should direct the          compliance         Alignment Initiative
                    Enterprises to provide routinely    and minimized      (EVL-2014-003,
                    their internal reports and          losses             February 12, 2014)
                    reviews for the Division of
                    Housing Mission and Goals’
                    assessment.
                    FHFA’s Division of Housing          Improved           FHFA’s Oversight
                    Mission and Goals Deputy            servicing          of the Servicing
                    Director should regularly           compliance         Alignment Initiative
                    review Servicing Alignment          and minimized      (EVL-2014-003,
                    Initiative-related guidelines for   losses             February 12, 2014)
                    enhancements or revisions, as
                    necessary, based on servicers’
                    actual versus expected
                    performance.




                        Semiannual Report to the Congress • April 1, 2018­–September 30, 2018   109
 Specific Risk to                                           Expected       Report Name
  be Mitigated              Recommendation                   Impact         and Date
Targeted            FHFA should revise existing          Improved      FHFA’s Targeted
Examinations        guidance to require examiners        supervision   Examinations of
Completed           to prepare complete                                Freddie Mac: Just Over
                    documentation of supervisory                       Half of the Targeted
                    activities and maintain such                       Examinations Planned
                    documentation in the official                      for 2012 through
                    system of record, and train                        2015 Were Completed
                    DER examiners on this                              (AUD-2016-007,
                    guidance.                                          September 30, 2016);
                                                                       FHFA’s Targeted
                                                                       Examinations of
                                                                       Fannie Mae: Less than
                                                                       Half of the Targeted
                                                                       Examinations Planned
                                                                       for 2012 through 2015
                                                                       Were Completed and
                                                                       No Examinations
                                                                       Planned for 2015
                                                                       Were Completed
                                                                       Before the Report of
                                                                       Examination Issued
                                                                       (AUD-2016-006,
                                                                       September 30, 2016);
                                                                       FHFA’s Supervisory
                                                                       Planning Process
                                                                       for the Enterprises:
                                                                       Roughly Half of
                                                                       FHFA’s 2014 and 2015
                                                                       High-Priority Planned
                                                                       Targeted Examinations
                                                                       Did Not Trace to Risk
                                                                       Assessments and Most
                                                                       High-Priority Planned
                                                                       Examinations Were
                                                                       Not Completed
                                                                       (AUD-2016-005,
                                                                       September 30, 2016)




110   Federal Housing Finance Agency Office of Inspector General
 Specific Risk to                                         Expected             Report Name
  be Mitigated            Recommendation                   Impact               and Date
Oversight of        FHFA should review FHFA’s        Improved             FHFA’s Examiners
Enterprise          existing requirements,           remediation of       Did Not Meet
Remediation of      guidance, and processes          deficiencies         Requirements and
Deficiencies        regarding MRAs against the                            Guidance for Oversight
                    requirements, guidance, and                           of an Enterprise’s
                    processes adopted by the                              Remediation of Serious
                    Office of the Comptroller                             Deficiencies
                    of the Currency, the Board                            (EVL-2016-004,
                    of Governors of the Federal                           March 29, 2016)
                    Reserve System, and other
                    federal financial regulators
                    including, but not limited to,
                    content of an MRA; standards
                    for proposed remediation plans;
                    approval authority for proposed
                    remediation plans; real-time
                    assessments at regular intervals
                    of the effectiveness and
                    timeliness of an Enterprise’s
                    MRA remediation efforts; final
                    assessment of the effectiveness
                    and timeliness of an
                    Enterprise’s MRA remediation
                    efforts; and required
                    documentation for examiner
                    oversight of MRA remediation.
                    Based on the results of the        Improved           FHFA’s Examiners
                    review in recommendation           remediation of     Did Not Meet
                    1, FHFA should assess              deficiencies       Requirements and
                    whether any of the existing                           Guidance for Oversight
                    requirements, guidance, and                           of an Enterprise’s
                    processes adopted by FHFA                             Remediation of Serious
                    should be enhanced, and make                          Deficiencies
                    such enhancements.                                    (EVL-2016-004,
                                                                          March 29, 2016)




                        Semiannual Report to the Congress • April 1, 2018­–September 30, 2018   111
 Specific Risk to                                           Expected       Report Name
  be Mitigated              Recommendation                   Impact         and Date
Communication       FHFA should revise its          Improved           FHFA’s Supervisory
of Deficiencies     supervision guidance to require Board              Standards for
to Enterprise       DER to provide the Chair of     oversight          Communication of
Boards              the Audit Committee of an                          Serious Deficiencies to
                    Enterprise Board with each                         Enterprise Boards and
                    plan submitted by Enterprise                       for Board Oversight
                    management to remediate                            of Management’s
                    an MRA with associated                             Remediation Efforts
                    timetables and the response by                     are Inadequate
                    DER.                                               (EVL-2016-005,
                                                                       March 31, 2016)
                    FHFA should direct DER to            Improved      FHFA Failed to
                    develop detailed guidance            Board         Consistently Deliver
                    and promulgate that guidance         oversight     Timely Reports of
                    to each Enterprise’s board of                      Examination to the
                    directors that explains:                           Enterprise Boards
                                                                       and Obtain Written
                      •	 The purpose for DER’s
                                                                       Responses from the
                         annual presentation to
                                                                       Boards Regarding
                         each Enterprise board
                                                                       Remediation of
                         of directors on the ROE
                                                                       Supervisory Concerns
                         results, conclusions, and
                                                                       Identified in those
                         supervisory concerns
                                                                       Reports
                         and the opportunity for
                                                                       (EVL-2016-009, July
                         directors to ask questions
                                                                       14, 2016)
                         and discuss ROE
                         examination conclusions
                         and supervisory concerns at
                         that presentation; and
                      •	 The requirement that
                         each Enterprise board of
                         directors submit a written
                         response to the annual ROE
                         to DER and the expected
                         level of detail regarding
                         ongoing and contemplated
                         remediation in that written
                         response.




112   Federal Housing Finance Agency Office of Inspector General
 Specific Risk to                                          Expected             Report Name
  be Mitigated            Recommendation                    Impact               and Date
                    FHFA should direct the           Improved             FHFA Failed to
                    Enterprises’ boards to amend     Board                Consistently Deliver
                    their charters to require review oversight            Timely Reports of
                    by each director of each annual                       Examination to the
                    ROE and review and approval                           Enterprise Boards
                    of the written response to DER                        and Obtain Written
                    in response to each annual                            Responses from the
                    ROE.                                                  Boards Regarding
                                                                          Remediation of
                                                                          Supervisory Concerns
                                                                          Identified in those
                                                                          Reports
                                                                          (EVL-2016-009, July
                                                                          14, 2016)
Assessing           FHFA should ensure that            Improved           FHFA’s Inconsistent
Remediation of      the underlying remediation         remediation of     Practices in Assessing
Deficiencies        documents, including the           deficiencies       Enterprise Remediation
                    Procedures Document, are                              of Serious Deficiencies
                    readily available by direct link                      and Weaknesses in
                    or other means, through DER’s                         its Tracking Systems
                    MRA tracking system(s).                               Limit the Effectiveness
                                                                          of FHFA’s Supervision
                                                                          of the Enterprises
                                                                          (EVL-2016-007, July
                                                                          14, 2016)
                    FHFA should require DER            Improved           FHFA’s Inconsistent
                    to track interim milestones        remediation of     Practices in Assessing
                    and to independently assess        deficiencies       Enterprise Remediation
                    and document the timeliness                           of Serious Deficiencies
                    and adequacy of Enterprise                            and Weaknesses in
                    remediation of MRAs on a                              its Tracking Systems
                    regular basis.                                        Limit the Effectiveness
                                                                          of FHFA’s Supervision
                                                                          of the Enterprises
                                                                          (EVL-2016-007, July
                                                                          14, 2016)




                        Semiannual Report to the Congress • April 1, 2018­–September 30, 2018   113
 Specific Risk to                                           Expected          Report Name
  be Mitigated              Recommendation                   Impact            and Date
                    FHFA should require the            Improved           FHFA’s Inconsistent
                    Enterprises to provide, in their remediation of       Practices in Assessing
                    remediation plans, the target      deficiencies       Enterprise Remediation
                    date in which their internal                          of Serious Deficiencies
                    audit departments expect                              and Weaknesses in
                    to validate management’s                              its Tracking Systems
                    remediation of MRAs, and                              Limit the Effectiveness
                    require examiners to enter that                       of FHFA’s Supervision
                    date into a dedicated field in the                    of the Enterprises
                    MRA tracking system.                                  (EVL-2016-007, July
                                                                          14, 2016)
                    FHFA should periodically        Improved              FHFA Requires the
                    conclude, based upon sufficient remediation of        Enterprises’ Internal
                    examination work, on the        deficiencies          Audit Functions to
                    overall effectiveness of the                          Validate Remediation
                    Internal Audit functions at                           of Serious Deficiencies
                    Fannie Mae and Freddie Mac.                           but Provides No
                                                                          Guidance and Imposes
                                                                          No Preconditions on
                                                                          Examiners’ Use of that
                                                                          Validation Work
                                                                          (EVL-2018-002,
                                                                          March 28, 2018)
                    FHFA should direct that              Improved         FHFA Requires the
                    examiners can use Internal           remediation of   Enterprises’ Internal
                    Audit work to assess the             deficiencies     Audit Functions to
                    adequacy of MRA remediation                           Validate Remediation
                    only if FHFA has concluded                            of Serious Deficiencies
                    that the Internal Audit function                      but Provides No
                    is effective overall.                                 Guidance and Imposes
                                                                          No Preconditions on
                                                                          Examiners’ Use of that
                                                                          Validation Work
                                                                          (EVL-2018-002,
                                                                          March 28, 2018)




114   Federal Housing Finance Agency Office of Inspector General
 Specific Risk to                                          Expected             Report Name
  be Mitigated            Recommendation                    Impact               and Date
Identification      FHFA should direct DER to          Improved           FHFA’s Failure to
of Deficiencies     revise its guidance to require     Board              Consistently Identify
and Their Root      ROEs to focus the boards’          oversight          Specific Deficiencies
Causes              attention of the most critical                        and Their Root
                    and time-sensitive supervisory                        Causes in Its Reports
                    concerns through (1) the                              of Examination
                    prioritization of examination                         Constrains the Ability
                    findings and conclusions and                          of the Enterprise
                    (2) identification of deficiencies                    Boards to Exercise
                    and MRAs in the ROE and                               Effective Oversight
                    discussion of their root causes.                      of Management’s
                                                                          Remediation of
                                                                          Supervisory Concerns
                                                                          (EVL-2016-008, July
                                                                          14, 2016)
Oversight of        FHFA should ensure that it has     Improved           Management Alert:
Fannie Mae          adequate internal staff, outside   oversight          Need for Increased
Headquarters        contractors, or both, who have                        Oversight by FHFA,
Consolidation       the professional expertise and                        as Conservator of
and Relocation      experience in commercial                              Fannie Mae, of the
                    construction to oversee the                           Projected Costs
                    buildout plans and associated                         Associated with Fannie
                    budget(s), as Fannie Mae                              Mae’s Headquarters
                    continues to revise and refine                        Consolidation and
                    them.                                                 Relocation Project
                                                                          (COM-2016-004, June
                                                                          16, 2016)
                    FHFA should direct Fannie          Improved           Management Alert:
                    Mae to provide regular updates     oversight          Need for Increased
                    and formal budgetary reports                          Oversight by FHFA,
                    to DOC for its review and for                         as Conservator of
                    FHFA approval through the                             Fannie Mae, of the
                    design and construction of                            Projected Costs
                    Fannie Mae’s leased space in                          Associated with Fannie
                    Midtown Center.                                       Mae’s Headquarters
                                                                          Consolidation and
                                                                          Relocation Project
                                                                          (COM-2016-004, June
                                                                          16, 2016)




                        Semiannual Report to the Congress • April 1, 2018­–September 30, 2018   115
 Specific Risk to                                            Expected         Report Name
  be Mitigated               Recommendation                   Impact           and Date
Oversight of         To reduce the waste from          Reduced waste      Consolidation and
Fannie Mae           Option C (the option Fannie                          Relocation of Fannie
Northern Virginia    Mae selected for its future                          Mae’s Northern
Consolidation        operations in Northern Virginia),                    Virginia Workforce
and Relocation       FHFA, consistent with its duties                     (OIG-2018-004,
                     as conservator, should cause                         September 6, 2018)
                     Fannie Mae to calculate the net
                     present value for a Status Quo
                     Option, and calculate the costs
                     associated with terminating the
                     lease with Boston Properties.
                     To reduce the waste from             Reduced waste   Consolidation and
                     Option C, FHFA, consistent                           Relocation of Fannie
                     with its duties as conservator,                      Mae’s Northern
                     should direct Fannie Mae to                          Virginia Workforce
                     terminate the lease, cancel                          (OIG-2018-004,
                     the sale of the three owned                          September 6, 2018)
                     buildings, and implement the
                     Status Quo Option, should the
                     net present value for a Status
                     Quo Option and the termination
                     costs be lower than the adjusted
                     net present value for Option C.
Conflicts of         Take appropriate action to       Improved            Administrative
Interest             address conflicts of interest    oversight           Investigation into
                     issue involving an entity within                     Anonymous Hotline
                     FHFA’s oversight authority.                          Complaints Concerning
                     Public release by OIG of certain                     Timeliness and
                     information in the Management                        Completeness of
                     Alert and accompanying expert                        Disclosures Regarding
                     report is prohibited by the                          a Potential Conflict of
                     Privacy Act of 1974 (Pub.L.                          Interest by a Senior
                     93–579, 88 Stat. 1896, enacted                       Executive Officer of an
                     December 31, 1974, 5 U.S.C. §                        Enterprise
                     552a).                                               (OIG-2017-004, March
                                                                          23, 2017)




116    Federal Housing Finance Agency Office of Inspector General
 Specific Risk to                                          Expected             Report Name
  be Mitigated            Recommendation                    Impact               and Date
                    Take appropriate action to       Improved             Administrative
                    address conflicts of interest    oversight            Investigation
                    issue involving an entity                             into Anonymous
                    within FHFA’s oversight                               Hotline Complaints
                    authority. Public release by                          Concerning Timeliness
                    OIG of certain information                            and Completeness of
                    in the Management Alert and                           Disclosures Regarding
                    accompanying expert report is                         a Potential Conflict of
                    prohibited by the Privacy Act of                      Interest by a Senior
                    1974 (Pub.L. 93–579, 88 Stat.                         Executive Officer of an
                    1896, enacted December 31,                            Enterprise
                    1974, 5 U.S.C. § 552a).                               (OIG-2017-004, March
                                                                          23, 2017)
Management of    FHFA should determine           Improved                 Audit of FHFA’s
Agency Resources and pay the vendor the          compliance               Fiscal Year 2017
                 interest penalties owed                                  Government Purchase
                 under the Prompt Payment                                 Card Program Found
                 Act regulations for the late                             Several Deficiencies
                 payments of the leased seasonal                          with Leased Holiday
                 decorations received by FHFA                             Decorations,
                 for the 2015, 2016, and 2017                             and the Need for
                 holiday seasons.                                         Greater Attention
                                                                          by Cardholders and
                                                                          Approving Officials to
                                                                          Program Requirements
                                                                          (AUD-2018-011,
                                                                          September 6, 2018)




                        Semiannual Report to the Congress • April 1, 2018­–September 30, 2018   117
Appendix C: OI                                      In condo conversion and builder bailout
                                                    schemes, the sellers or developers wrongfully
Publicly Reportable                                 conceal from prospective lenders the incentives
Investigative                                       they have offered to investors and the true
                                                    value of the properties. The lenders, acting on
Outcomes Involving                                  this misinformation, make loans that are far
                                                    riskier than they have been led to believe. Such
Condo Conversion                                    loans often default and go into foreclosure,
and Builder Bailout                                 causing the lenders to suffer large losses.
                                                    Below are the names of the defendants in these
Schemes                                             schemes, their roles, the most recent actions in
                                                    the cases, and the date of those actions.

Five Sentenced and Two Charged in Condo Fraud Scheme, Florida
  Defendant             Role                     Most Recent Action                  Date
Abdelghani        Straw Buyer           Sentenced to 36 months of              September 5, 2018
Mellouki                                supervised release and ordered         & June 19, 2018
                                        to pay $27,000 in forfeiture.
                                        Later ordered to pay $483,975 in
                                        restitution, joint and several.
Daniel Cardenas Loan Officer            Sentenced to 18 months in prison,      August 9, 2018
                                        60 months of supervised release,
                                        and ordered to pay $710,986 in
                                        restitution, joint and several.
Alejandro         Branch Manager        Sentenced to 37 months in prison,      May 17, 2018
Tobon                                   5 years of supervised release,
                                        and ordered to pay $5,803,022 in
                                        restitution, joint and several.
Carlos Escarria   Real Estate Sales     Sentenced to 18 months in prison,      May 17, 2018
                  Associate/Loan        5 years of supervised release,
                  Officer               and ordered to pay $1,284,833 in
                                        restitution, joint and several.
Joaquin Cadavid Straw Buyer             Sentenced to 5 years of supervised     April 6, 2018
                                        release and ordered to pay
                                        $755,325 in restitution, joint and
                                        several.
Mordechai         Licensed Real         Charged by superseding indictment April 5, 2018
Boaziz            Estate Agent/         with conspiracy and false
                  Developer             statements to a financial institution.
Jonathan          Licensed              Charged by superseding indictment April 5, 2018
Marmol            Mortgage Broker       with conspiracy and false
                                        statements to a financial institution.


118   Federal Housing Finance Agency Office of Inspector General
Sentencing and Guilty Plea of Real Estate Developers in Builder Bailout Fraud Scheme,
Illinois
  Defendant            Role                  Most Recent Action                     Date
Vince Manglardi Real Estate           Pled guilty to wire fraud affecting     September 4, 2018
                Developer             a financial institution.
Theodore        Real Estate           Sentenced to 66 months in prison,       July 24, 2018
Wojtas, Jr.     Developer             3 years of supervised release, and
                                      ordered to pay $14,745,882 in
                                      restitution, joint and several.


Sentencings of Acting Manager/Recruiter, Title Company President and Straw Buyer and
Guilty Plea of Real Estate Broker/Recruiter in Multi-Defendant Condominium Fraud
Scheme, Florida
  Defendant            Role                  Most Recent Action                      Date
Miguel Soto     Acting Manager/       Sentenced to 42 months in prison,       July 20, 2018
                Recruiter             5 years of supervised release.
Barbara Camayd Title Company          Sentenced to 18 months in prison,       July 6, 2018
               President              5 years of supervised release,
                                      and ordered to pay $1,860,170 in
                                      restitution, joint and several.
Emily           Real Estate           Pled guilty to conspiracy to            June 6, 2018
Echavarria      Broker/Recruiter      commit bank fraud and wire fraud
                                      affecting a financial institution.
Yipsy Rabelo    Straw Buyer           Sentenced to 7 months in prison         April 9, 2018
Clavelo                               and 5 years of supervised release.


Three Sentenced in $21 Million Builder Bailout Fraud Scheme, California
  Defendant             Role                  Most Recent Action               Date
Momoud Abaji    Participant           Sentenced to 108 months in prison July 16, 2018
                                      and ordered to pay $10,047,272 in
                                      restitution, joint and several.
Maher Obagi     Participant           Sentenced to 78 months in prison,       June 5, 2018
                                      4 years of supervised release, and
                                      ordered to pay $10,042,638 in
                                      restitution, joint and several.
Mohamed Salah Participant             Sentenced to 57 months in prison,       June 5, 2018
                                      4 years of supervised release,
                                      and ordered to pay $7,487,163 in
                                      restitution, joint and several.



                       Semiannual Report to the Congress • April 1, 2018­–September 30, 2018   119
Indictment of Realtor and Business Partner in Condominium Fraud Scheme, Florida
  Defendant              Role                  Most Recent Action                  Date
Geo Geovanni      Realtor/Investor      Charged by indictment with          June 27, 2018
                                        conspiracy to commit bank fraud
                                        and bank fraud.
Elizabeth         Business Partner      Charged by indictment with          June 27, 2018
Longerbone                              conspiracy to commit bank fraud
                                        and bank fraud.


Attorney/Escrow Agent found Guilty at Trial, Florida
   Defendant             Role                   Most Recent Action                 Date
Eric Granitur     Attorney/Escrow       Convicted at trial on charges       June 15, 2018
                  Agent                 of conspiracy and making false
                                        statements to a federally insured
                                        institution.


Real Estate Investor/Recruiter Charged in Builder-Bailout Scheme, Florida
  Defendant              Role                  Most Recent Action                  Date
Henry Frierson    Real Estate           Charged by indictment with bank     April 24, 2018
                  Investor/Recruiter    fraud and conspiracy to commit
                                        mail fraud and bank fraud.


Restitution Ordered in Condominium Fraud Scheme, Florida
   Defendant             Role                   Most Recent Action                 Date
Angel Garcia-     Former Attorney       Ordered to pay $2,500,000 in        April 23, 2018
Oliver            and Principal of      restitution.
                  Garcia-Oliver &
                  Mainieri, P.A.




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

Three Indicted in Origination Fraud Scheme, New Jersey
  Defendant             Role                 Most Recent Action                     Date
Fausto Simoes    Settlement Agent     Charged by indictment with              September 25,
                                      conspiracy, bank fraud, and false       2018
                                      statements in a credit application.
Victor Santos    Investor/            Charged by indictment with              September 25,
                 Developer            conspiracy, bank fraud, and false       2018
                                      statements in a credit application.
Arsenio Santos   Builder              Charged by indictment with              September 25,
                                      conspiracy, bank fraud, and false       2018
                                      statements in a credit application.


Title Agent Sentenced, New York
  Defendant             Role                  Most Recent Action                     Date
Michelle Baker   Title Agent          Sentenced to 6 months in prison,         September 13,
                                      6 months of home confinement,            2018
                                      2 years of supervised release,
                                      and ordered to pay $300,000 in
                                      forfeiture.


One Charged in Straw Buyer Scheme, Michigan
  Defendant              Role                 Most Recent Action                     Date
Aoun Aoun        Participant          Charged by state complaint with          September 7,
                                      forgery, uttering and publishing,        2018
                                      and false pretenses.




                       Semiannual Report to the Congress • April 1, 2018­–September 30, 2018   121
Sentencing to Nearly Five Years in Federal Prison in $11 Million Bank Fraud Case,
California
  Defendant                Role                  Most Recent Action                Date
Mohsen Hass        Participant           Sentenced to 57 months in prison,    August 27, 2018
                                         3 years of supervised release,
                                         and ordered to pay $5,737,585 in
                                         restitution.


Sentencings in Loan Origination Fraud Scheme, Texas
  Defendant              Role                     Most Recent Action               Date
Chukwuma           Buyer/Seller           Sentenced to 72 months in prison,   August 21, 2018
Osuagwu                                   5 years of supervised release,
                                          and ordered to pay $722,934 in
                                          restitution.
James Mitchell     Buyer                  Sentenced to 30 months of           April 11, 2018
                                          probation and ordered to pay
                                          $87,965 in restitution.


Attorney Sentenced in Straw Buyer Scheme, Illinois
  Defendant               Role                    Most Recent Action               Date
Robert Lattas      Attorney               Sentenced to 84 months in prison,   August 13, 2018
                                          2 years of supervised release,
                                          and ordered to pay $2,711,208 in
                                          restitution.


Superseding Indictment Filed in Appraisal Fraud Scheme, Ohio
  Defendant               Role                    Most Recent Action             Date
Cynthia            Business Owner         Charged by superseding indictment May 22, 2018
Faulkner                                  with false statements, aiding and
                                          assisting in the preparation of a
                                          fraudulent tax return, and bank
                                          fraud.


Former Loan Officer Sentenced for Role in $6 Million Mortgage Fraud Scheme, New York
   Defendant             Role                     Most Recent Action               Date
Joseph Divalli     Loan Officer           Sentenced to 18 months in prison,   May 22, 2018
                                          3 years of supervised release,
                                          and ordered to pay $2,322,044 in
                                          restitution, joint and several.



122    Federal Housing Finance Agency Office of Inspector General
Sentencing of Real Estate Developer, New York
  Defendant             Role                   Most Recent Action              Date
Schelton         Real Estate           Sentenced to 2 years of supervised May 16, 2018
Assoumou         Developer             release and ordered to pay a fine of
                                       $5,000.


Indictment of Business Operator in Loan Origination Scheme, Illinois
   Defendant            Role                  Most Recent Action                     Date
Irma Holloway    Business Operator     Charged by indictment with bank          May 3, 2018
                                       fraud and false statements.




                       Semiannual Report to the Congress • April 1, 2018­–September 30, 2018   123
Appendix E: OI                                      Short sales occur when a lender allows a
                                                    borrower who is “underwater” on his/her
Publicly Reportable                                 loan—that is, the borrower owes more than
Investigative                                       the property is worth—to sell his/her property
                                                    for less than the debt owed. Short sale fraud
Outcomes                                            usually involves a borrower who intentionally
                                                    misrepresents or fails to disclose material facts
Involving Short                                     to induce a lender to agree to a short sale.
                                                    Below are the names of the defendants in these
Sale Schemes                                        schemes, their roles, the most recent actions in
                                                    the cases, and the date of those actions.

Charge and Guilty Plea of Real Estate Attorney in Short Sale Fraud Scheme, New Jersey
  Defendant              Role                    Most Recent Action                   Date
Christopher       Real Estate            Charged by information and pled        September 28,
Goodson           Attorney               guilty to bank fraud.                  2018

Four Real Estate Professionals Plead Guilty in Short Sale Fraud Scheme, Arizona
   Defendant           Role                     Most Recent Action                 Date
Andrew Jemmett Real Estate               Pled guilty to false statement in a  August 27, 2018
               Employee                  transaction insured by HUD.
Jason Poyner   Participant               Pled guilty to misprision of felony. August 20, 2018
David Dziedzic    Real Estate Broker Pled guilty to willful                     August 6, 2018
                                     communication of unregistered
                                     securities and failure to file form
                                     8300.
Heather           Real Estate Broker Pled guilty to willful                     August 6, 2018
Dziedzic                             communication of unregistered
                                     securities and unfair competition.

Attorney Sentenced After Being Found Guilty at Trial for Short Sale Fraud Scheme,
California
  Defendant              Role                    Most Recent Action                   Date
Robert Farrace    Attorney               Sentenced to 24 months in prison,      June 18, 2018
                                         24 months of supervised release,
                                         and ordered to pay $128,245 in
                                         forfeiture.




124   Federal Housing Finance Agency Office of Inspector General
Guilty Plea of Real Estate Salesperson in Buy-and-Bail Scheme, Michigan
  Defendant              Role                   Most Recent Action                   Date
Dan Trubak        Real Estate           Pled guilty to misprision of a          May 22, 2018
                  Salesperson           felony.

Two Business Owners Indicted in Short Sale Fraud Scheme, North Carolina
   Defendant            Role                   Most Recent Action                    Date
Starr Ilzhoefer   Business Owner        Charged by indictment with              May 15, 2018
                                        conspiracy and false statements.
Aaron Guido       Business Owner        Charged by indictment with              May 15, 2018
                                        conspiracy and false statements.

Sentencing of Family Members in Short Sale Fraud Scheme, Florida
  Defendant               Role                   Most Recent Action            Date
Louis Virzi       Participant           Sentenced to 1 year of supervised May 11, 2018
                                        release and ordered to pay $34,334
                                        in restitution, joint and several.
Christopher       Participant           Sentenced to 1 year of supervised May 11, 2018
Campbell                                release and ordered to pay $34,334
                                        in restitution, joint and several.




                        Semiannual Report to the Congress • April 1, 2018­–September 30, 2018   125
Appendix F: OI                                       Loan modification and property disposition
                                                     schemes prey on homeowners. Businesses
Publicly Reportable                                  typically advertise that they can secure
Investigative Outcomes                               loan modifications if the homeowners pay
                                                     significant upfront fees or take other action
Involving Loan                                       that enriches the defendant. Typically, these
                                                     businesses take little or no action, leaving
Modification and                                     homeowners in a worse position. Below are
Property Disposition                                 the names of the defendants in these schemes,
                                                     their roles, the most recent actions in the
Schemes                                              cases, and the date of those actions.


Loan Modification Consulting Company Operator Sentenced to Prison for Defrauding
Multiple Residential Mortgage Holders, New Jersey
   Defendant             Role                     Most Recent Action                Date
Jeffrey Halpern    Loan Modification      Sentenced to 57 months in prison,    August 27, 2018
                   Consulting             3 years of supervised release,
                   Company Owner          and ordered to pay $411,005 in
                                          restitution.


Foreclosure Rescue Scheme Operator Pleads Guilty and is Sentenced, Maryland
   Defendant               Role                  Most Recent Action                 Date
Paul Randall       Participant            Pled guilty to failure to comply     August 21, 2018
                                          with terms while acting as
                                          a foreclosure specialist and
                                          practicing law with admission to
                                          the bar and sentenced to 3 years
                                          in prison, 5 years of supervised
                                          release, and ordered to pay
                                          $12,000 in restitution.


Three Sentenced in $20 Million Mortgage Fraud Scheme, California
  Defendant                Role                  Most Recent Action                 Date
Dorothy            Participant            Sentenced to 240 months in prison, July 16, 2018
Matsuba                                   3 years of supervised release.
Jamie Matsuba      Participant            Sentenced to 135 months in           July 16, 2018
                                          prison, 3 years of supervised
                                          release.
Thomas Matsuba Participant                Sentenced to 168 months in prison, July 16, 2018
                                          3 years of supervised release.




126    Federal Housing Finance Agency Office of Inspector General
Sentencing of Former Director/Vice President of Non-Profit, Texas
   Defendant             Role                   Most Recent Action                     Date
Javier Gonzalez   Director/Vice         Sentenced to 60 months in prison,       July 16, 2018
                  President             2 years of supervised release,
                                        and ordered to pay $611,740
                                        in restitution and $54,257 in
                                        forfeiture.


Sentencing of Nationwide Loan Modification Scheme Operator and One Charged,
California
  Defendant               Role                  Most Recent Action                     Date
Assad Suleiman    Participant           Sentenced to 8 years in prison          July 13, 2018
                                        and ordered to pay $1,568,717 in
                                        restitution.
Rosa Barraza      Participant           Charged by superseding                  April 4, 2018
                                        information with conspiracy,
                                        grand theft, money laundering,
                                        and unlawful loan modification
                                        advance fees.


Sentencing of Loan Modification Fraud Scheme Promoter, California
   Defendant            Role                    Most Recent Action               Date
Jacob Orona       Promoter              Sentenced to 7 years and 4 months July 10, 2018
                                        in prison and ordered to pay a
                                        $10,000 fine and $131,286 in
                                        restitution, joint and several.


Guilty Pleas in Loan Modification Fraud Scheme, New York
  Defendant               Role                 Most Recent Action                  Date
Doreen            Participant           Pled guilty to residential mortgage July 2, 2018
Scarciofolo                             fraud.
Anthony           Participant           Pled guilty to residential mortgage April 25, 2018
Calascione                              fraud and criminal tax fraud.




                        Semiannual Report to the Congress • April 1, 2018­–September 30, 2018   127
Three Convicted at Trial on Charges Related to Foreclosure Prevention Fraud Scheme,
Maryland
  Defendant            Role                     Most Recent Action                   Date
Michelle Jordan   CEO/Director of        Found guilty at trial on charges of   June 20, 2018
                  Company                conspiracy to commit wire fraud
                                         and wire fraud.
Michael Welsh     President/Vice         Found guilty at trial on charges of   June 20, 2018
                  President and          conspiracy to commit wire fraud
                  Director of            and wire fraud.
                  Company
Carrol Jackson    Owner/Manager of Found guilty at trial on charges of         June 20, 2018
                  Company          conspiracy to commit wire fraud
                                   and wire fraud.


Indictment of Business Owner in Multi-State Loan Modification Scheme with Over 550
Victims, Kansas
   Defendant            Role                    Most Recent Action                   Date
Sarah Cordry      Business Owner         Charged by indictment with con-       May 9, 2018
                                         spiracy to commit mail and wire
                                         fraud, mail fraud, and wire fraud.


Indictment of Licensed Realtor and Loan Modification Scheme Operator, Virginia
  Defendant              Role                   Most Recent Action                    Date
Rodrigo Pardo     Licensed Realtor       Charged by indictment with            April 26, 2018
                                         conspiracy, wire fraud, and bank
                                         fraud.
Lorena Medina     Loan Modification Charged by indictment with                 April 26, 2018
                  Scheme Operator conspiracy, wire fraud, and bank
                                    fraud.


Guilty Plea in Loan Modification Fraud Scheme, New York
   Defendant              Role                  Most Recent Action                  Date
Anthony           Participant            Pled guilty to residential mortgage April 25, 2018
Calascione                               fraud and criminal tax fraud.




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

46 Month Prison Sentence in Fraudulent Deed/REO Scheme, Nevada
  Defendant               Role                Most Recent Action                      Date
Geri McKinnon     Participant           Sentenced to 46 months in prison.       September 24,
                                                                                2018


Guilty Plea of Real Estate Broker Charged, Florida
  Defendant              Role               Most Recent Action                        Date
Hollie Dustin     Real Estate Broker Pled guilty to wire fraud.                 June 19, 2018


Sentencing of Property Manager, Florida
  Defendant              Role                   Most Recent Action                   Date
Michael Rubino    Property Manager      Sentenced to 13 months in prison,       May 31, 2018
                                        3 years of supervised release,
                                        and ordered to pay $90,070 in
                                        restitution.


Guilty Trial Verdict in Rental Fraud Scheme, Florida
    Defendant             Role                  Most Recent Action                   Date
Robert Tribble,   Participant           Found guilty at trial on charges        May 16, 2018
Jr.                                     of criminal use of personal
                                        identification.




                        Semiannual Report to the Congress • April 1, 2018­–September 30, 2018   129
Appendix H: OI                                      Adverse possession schemes use illegal
                                                    adverse possession (also known as “home
Publicly Reportable                                 squatting”) or fraudulent documentation to
Investigative Outcomes                              control distressed homes, foreclosed homes,
                                                    and REO properties. In distressed property
Involving Adverse                                   schemes, perpetrators falsely purport to assist
                                                    struggling homeowners seeking to delay or
Possession and                                      avoid foreclosure. They use fraudulent tactics,
Distressed Property                                 such as filing false bankruptcy petitions,
                                                    while collecting significant fees from the
Schemes                                             homeowners. Below are the names of the
                                                    defendants in these schemes, their roles, the
                                                    most recent actions in the cases, and the date
                                                    of those actions.

Real Estate Broker Plead Guilty in Bankruptcy Fraud Scheme, Florida
   Defendant            Role                Most Recent Action                      Date
Michaelangelo     Real Estate Broker Pled guilty to bankruptcy fraud.         September 25,
Hijada                                                                        2018


Real Estate Agent Pleads Guilty to Defrauding Fannie Mae in Bankruptcy Fraud
Scheme, Florida
  Defendant              Role                   Most Recent Action                  Date
David Morgan      Real Estate Agent      Pled guilty to bankruptcy fraud.     September 11,
                                                                              2018


Two Plead Guilty in $2 Million Mortgage Fraud Scheme, California
    Defendant             Role                   Most Recent Action                 Date
Andrew Valles,    Participant            Pled guilty to theft, filing false   August 27, 2018
III                                      or forged documents in a public
                                         office, conspiracy, and identity
                                         theft.
Arnold Millman    Participant            Pled guilty to theft, filing false   August 27, 2018
                                         or forged documents in a public
                                         office, conspiracy, and identity
                                         theft.




130   Federal Housing Finance Agency Office of Inspector General
Sovereign Citizens Sentenced, Michigan
   Defendant            Role                Most Recent Action                 Date
Tanisha Farr     Participant          Sentenced to 2 years of probation. August 17, 2018
Valerion Farr    Participant          Sentenced to 2 years of probation. August 17, 2018

Guilty Plea in Multi-State Deed Fraud Scheme, Texas
   Defendant            Role                 Most Recent Action                     Date
Arlando Jacobs   Participant          Pled guilty to conspiracy to            May 14, 2018
                                      commit wire fraud.


Indictment of Business Owner/Fraudulent Bankruptcy Petition Filer, Florida
  Defendant            Role                 Most Recent Action                      Date
Christopher      Business Owner       Charged by indictment with              May 9, 2018
Coburn                                bankruptcy fraud.




                       Semiannual Report to the Congress • April 1, 2018­–September 30, 2018   131
Appendix I: OI                                      Investigations in this category can involve a
                                                    variety of fraud schemes that relate to loans
Publicly Reportable                                 purchased by the Enterprises to finance
Investigative Outcomes                              multifamily properties. Multifamily properties
                                                    have five or more units and are primarily
Involving Multifamily                               rental apartment communities. Below are the
                                                    names of the defendants in these schemes,
Schemes                                             their roles, the most recent actions in the
                                                    cases, and the date of those actions.

Sentencings of Co-Conspirators in Loan Origination Scheme, New York
  Defendant              Role                  Most Recent Action                 Date
Nimboko Miller    Participant           Sentenced to 3 years of supervised July 30, 2018
                                        release.
Christopher       Participant           Sentenced to 3 years of supervised June 20, 2018
Scott, Jr.                              release.


Four Indicted in Multi-Million Dollar Mortgage Fraud Scheme, New York
   Defendant            Role                   Most Recent Action                  Date
Frank Giacobbe    Business Owner        Charged by indictment with           May 22, 2018
                                        conspiracy to commit wire fraud
                                        and bank fraud, wire fraud, and
                                        bank fraud.
Patrick Ogiony    Managing Director Charged by indictment with               May 22, 2018
                                    conspiracy to commit wire fraud
                                    and bank fraud, wire fraud, and
                                    bank fraud.
Kevin Morgan      Vice President        Charged by indictment with           May 22, 2018
                                        conspiracy to commit wire fraud
                                        and bank fraud, wire fraud, and
                                        bank fraud.
Todd Morgan       Project Manager       Charged by indictment with           May 22, 2018
                                        conspiracy to commit wire fraud
                                        and bank fraud, wire fraud, and
                                        bank fraud.




132   Federal Housing Finance Agency Office of Inspector General
Appendix J: OI                                     Investigations in this category include a
                                                   variety of schemes involving Fannie Mae,
Publicly Reportable                                Freddie Mac, the FHLBanks, or members
Investigative                                      of FHLBanks. Below are the names of the
                                                   defendants in these schemes, their roles, the
Outcomes Involving                                 most recent actions in the cases, and the date
                                                   of those actions.
Fraud Affecting
the Enterprises,
the FHLBanks, or
FHLBank Member
Institutions
Real Estate Broker and Homeowner Sentenced and Business Partner Indicted for $3.5
Million ‘Shotgun’ Loan Scheme, New Jersey
  Defendant             Role                 Most Recent Action              Date
Michael Arroyo    Real Estate Broker Sentenced to 21 months in prison, September 13,
                                     5 years of supervised release,    2018
                                     and ordered to pay $281,000 in
                                     restitution.
Rafael Popoteur   Homeowner            Sentenced to 3 years of supervised September 13,
                                       release, and ordered to pay        2018
                                       $440,000 in restitution.
Saoud Rihan       Business Partner     Charged by indictment with              September 11,
                                       conspiracy to commit bank fraud.        2018


Guilty Pleas of Credit Union Employees as Part of Fraud Scheme, Florida
   Defendant            Role                  Most Recent Action                     Date
Jamelah           Bank Employee        Pled guilty to conspiracy to            September 13,
Martinez                               commit bank fraud.                      2018
Devin Williams    Bank Employee        Pled guilty to conspiracy to            May 31, 2018
                                       commit bank fraud.




                        Semiannual Report to the Congress • April 1, 2018­–September 30, 2018   133
Three Indicted in Alleged $364 Million Ponzi Scheme with Over 400 Victims Nationwide,
Maryland
  Defendant               Role                  Most Recent Action                   Date
Kevin Merrill      Participant           Charged by indictment with            September 11,
                                         conspiracy to commit wire fraud,      2018
                                         wire fraud, identity theft, money
                                         laundering conspiracy, and
                                         financial transactions in excess of
                                         $10,000 in fraud proceeds.
Jay Ledford        Participant           Charged by indictment with            September 11,
                                         conspiracy to commit wire fraud,      2018
                                         wire fraud, identity theft, money
                                         laundering conspiracy, and
                                         financial transactions in excess of
                                         $10,000 in fraud proceeds.
Cameron            Participant           Charged by indictment with            September 11,
Jezierski                                conspiracy to commit wire fraud       2018
                                         and wire fraud.


Two Plead Guilty and One Charged in $1 Million Bank Loan Scheme, North Carolina
   Defendant              Role                   Most Recent Action                  Date
Stanley Barron     Scheme                 Pled guilty to conspiracy to         August 29, 2018
                   Participant            commit wire fraud and bank
                                          fraud.
Brian Lyles        Participant            Pled guilty to conspiracy to     April 5, 2018
                                          commit wire fraud and bank fraud
                                          and bank fraud.
Kimberlie          Scheme                 Charged by indictment with           March 13, 2018
Flemings           Participant            conspiracy to commit wire
                                          fraud and bank fraud, wire fraud
                                          affecting financial institutions,
                                          and financial instruction fraud.


Indictment of Bank Vice President and Co-Conspirator, Mississippi
  Defendant               Role                   Most Recent Action                  Date
Max Miller         VP and                 Charged by indictment with bank      August 23, 2018
                   Commercial             fraud.
                   Relations Officer
James Nichols      Participant            Charged by indictment with bank      August 23, 2018
                                          fraud.



134    Federal Housing Finance Agency Office of Inspector General
Former CEO and Chief Loan Officer of Failed Sonoma Valley Bank, and Borrower’s
California Attorney, Sentenced to Multi-Year Prison Terms for Bank Fraud and Other
Crimes, California
   Defendant            Role                 Most Recent Action               Date
Sean Cutting      Former CEO          Sentenced to 100 months in prison August 3, 2018
                                      and 3 years of supervised release.
Brian Melland     Former Chief        Sentenced to 100 months in prison August 3, 2018
                  Loan Officer        and 3 years of supervised release.
David Lonich      Attorney            Sentenced to 80 months in prison, August 3, 2018
                                      3 years of supervised release, and
                                      ordered to pay $20.8 million in
                                      forfeiture.


Sentencing in Counterfeit HELOC Check Fraud Scheme, Florida
   Defendant             Role                Most Recent Action                     Date
Virginia Nelson   Participant         Sentenced to 8 months of home           August 3, 2018
                                      confinement and 3 years of
                                      supervised release.


Former Business Owner Convicted in Federal Court for Over $49 Million Bank Fraud,
Maryland
  Defendant             Role                 Most Recent Action                 Date
Mark Gaver        Business Owner      Found guilty at trial on charges of August 1, 2018
                                      bank fraud and money laundering.


Sentencing in Mortgage Refinance Ponzi Scheme, Ohio
   Defendant            Role                 Most Recent Action                Date
Erick Parker      Business Owner      Sentenced to 41 months in prison, July 17, 2018
                                      3 years of supervised release.


Sentencing of Mortgage and Title Company Owner in Lien Fraud Scheme, Virginia
   Defendant             Role                 Most Recent Action               Date
Roberto           Mortgage and        Sentenced to 33 months in prison, July 12, 2018
Jaramillo         Title Company       5 years of supervised release,
                  Owner               and ordered to pay $696,654 in
                                      restitution and $1,259,610 in
                                      forfeiture.




                       Semiannual Report to the Congress • April 1, 2018­–September 30, 2018   135
Sentencings of Bank Executives and Real Estate Investor, Missouri
  Defendant             Role                     Most Recent Action              Date
Shaun Hayes       Bank Executive         Sentenced to 68 months in prison, May 29, 2018
                                         5 years of supervised release,
                                         and ordered to pay $5,048,003 in
                                         restitution, joint and several.
Michael Litz      Real Estate            Sentenced to 36 months in prison, May 14, 2018
                  Investor               5 years of supervised release,
                                         and ordered to pay $5,048,003 in
                                         restitution, joint and several.
Timothy Murphy Loan Officer/             Sentenced to 5 years of supervised April 24, 2018
               Executive Vice            release and ordered to pay
               President                 $4,016,780 in restitution, joint and
                                         several.



Guilty Plea in Contractor Kickback Scheme, New York
   Defendant              Role                 Most Recent Action                  Date
Shikha Mohta      Participant            Pled guilty to conspiracy.         April 2, 2018




136   Federal Housing Finance Agency Office of Inspector General
Appendix K: Glossary                                  mortgages, Fannie Mae supplies funds
                                                      to lenders so they may make loans to
and Acronyms                                          home buyers.

Glossary of Terms                                     Federal Home Loan Bank System
                                                      (FHLBank System): The FHLBanks are 11
Bankruptcy: A legal procedure for resolving           regional cooperative banks that U.S. lending
debt problems of individuals and businesses;          institutions use to finance housing and
specifically, a case filed under one of the           economic development in their communities.
chapters of Title 11 of the U.S. Code.                Created by Congress, the FHLBanks have
                                                      been the largest source of funding for
Conservatorship: A legal procedure for the            community lending for eight decades. The
management of financial institutions for an           FHLBanks provide loans (or “advances”) to
interim period during which the institution’s         their member banks but do not lend directly to
conservator assumes responsibility for                individual borrowers.
operating the institution and conserving its
assets. Under the Housing and Economic                Fiscal Year 2018: OIG’s FY 2018 covers
Recovery Act of 2008, the Enterprises were            October 1, 2017, through September 30, 2018.
placed into conservatorships overseen by
FHFA. As conservator, FHFA has undertaken             Foreclosure: A legal process used by a lender
to preserve and conserve the assets of the            to obtain possession of a mortgaged property
Enterprises and restore them to safety and            in order to repay part or all of the debt.
soundness. FHFA also has assumed the
powers of the boards of directors, officers,          Freddie Mac: A federally chartered
and shareholders; however, the day-to-day             corporation that purchases residential
operational decision-making of each company           mortgages and pools them into securities that
is delegated by FHFA to the Enterprises’              are sold to investors. By purchasing mortgages,
existing management.                                  Freddie Mac supplies funds to lenders so they
                                                      may make loans to home buyers.
Default: Occurs when a mortgagor misses
one or more payments.                                 Government-Sponsored Enterprises
                                                      (GSEs): Business organizations chartered and
Dodd-Frank Wall Street Reform and                     sponsored by the federal government. The
Consumer Protection Act of 2010:                      GSEs regulated by FHFA also are referred to
Legislation that intends to promote the               as regulated entities.
financial stability of the United States by
improving accountability and transparency in          Guarantee: A pledge to investors that the
the financial system, to end “too big to fail,”       guarantor will bear the default risk on a pool
to protect the American taxpayer by ending            of loans or other collateral.
bailouts, and to protect consumers from
abusive financial services practices.                 Housing and Economic Recovery Act of
                                                      2008: Legislation that established FHFA
Fannie Mae: A federally chartered                     and OIG. HERA also expanded Treasury’s
corporation that purchases residential                authority to provide financial support to
mortgages and pools them into securities              the regulated entities and enhanced FHFA’s
that are sold to investors. By purchasing             authority to act as conservator or receiver.



                           Semiannual Report to the Congress • April 1, 2018­–September 30, 2018   137
Inspector General Act of 1978: Legislation            Mortgage-Backed Securities: Debt
that authorizes establishment of offices              securities that represent interests in the cash
of inspectors general, “independent and               flows—anticipated principal and interest
objective units” within federal agencies,             payments—from pools of mortgage loans,
that: (1) conduct and supervise audits and            most commonly on residential property.
investigations relating to the programs and
operations of their agencies; (2) provide             Real Estate Owned: Foreclosed homes
leadership and coordination and recommend             owned by government agencies or financial
policies for activities designed to promote           institutions, such as the Enterprises or real
economy, efficiency, and effectiveness in             estate investors. REO homes represent
the administration of agency programs and             collateral seized to satisfy unpaid mortgage
to prevent and detect fraud, waste, or abuse          loans. The investor or its representative must
in such programs and operations; and (3)              then sell the property on its own.
provide a means for keeping the head of the
agency and Congress fully and currently               Securitization: A process whereby a financial
informed about problems and deficiencies              institution assembles pools of income-
relating to the administration of such                producing assets (such as loans) and then
programs and operations and the necessity for         sells securities representing an interest in the
and progress of corrective action.                    assets’ cash flows to investors.

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



138     Federal Housing Finance Agency Office of Inspector General
their more traditional duty of collecting and
distributing monthly mortgage payments.

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

Straw Buyer: A person whose credit
profile is used to serve as a cover in a loan
transaction. Straw buyers are chosen for their
ability to qualify for a mortgage loan, causing
loans that would ordinarily be declined to be
approved. Straw buyers are often paid a fee
for their involvement in purchasing a property
and usually never intend to own or occupy
the property.

Underwater: Term used to describe
situations in which the homeowner’s equity is
below zero (i.e., the home is worth less than
the balance of the loan[s] it secures).

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

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




                          Semiannual Report to the Congress • April 1, 2018­–September 30, 2018   139
Acronyms and Abbreviations                             FSOC	          Financial Stability
                                                                      Oversight Council
Agency	             Federal Housing Finance
                    Agency                             FY 2018	       Fiscal Year 2018

ARM	                Adjustable-Rate Mortgage           GAGAS	         Generally Accepted
                                                                      Government Auditing
Blue Book	          Quality Standards for                             Standards
                    Inspection and Evaluation
                                                       GAO	Government
CEO	                Chief Executive Officer                Accountability Office

CIGFO	              Council of Inspectors              HELOC	         Home Equity Line of
                    General on Financial                              Credit
                    Oversight
                                                       HERA	          Housing and Economic
CIGIE	              Council of the Inspectors                         Recovery Act of 2008
                    General on Integrity and
                    Efficiency                         HUD-OIG	       Department of Housing
                                                                      and Urban Development
DER	                Division of Enterprise                            Office of Inspector General
                    Regulation
                                                       IG	            Inspector General
DHMG	               Division of Housing
                    Mission and Goals                  IRS-CI	        Internal Revenue Service-
                                                                      Criminal Investigation
DOC	                Division of
                    Conservatorship                    IT	            Information Technology

DOJ	                Department of Justice              MBS	           Mortgage-Backed
                                                                      Securities
EIC	                Examiner-in-Charge
                                                       MRA	           Matter Requiring Attention
Enterprises	        Fannie Mae and Freddie
                    Mac                                MSR	           Mortgage Servicing Right

FBI	                Federal Bureau of                  NGC	           Nominating and Corporate
                    Investigation                                     Governance Committee of
                                                                      the Fannie Mae Board of
FDIC	               Federal Deposit Insurance                         Directors
                    Corporation
                                                       NIST	          National Institute of
FHFA	               Federal Housing Finance                           Standards and Technology
                    Agency
                                                       OA	            Office of Audits
FHLBank	            Federal Home Loan Bank



140      Federal Housing Finance Agency Office of Inspector General
OCom	       Office of Compliance and
            Special Projects

OE	         Office of Evaluations

OHRP	       Office of Housing and
            Regulatory Policy

OI	         Office of Investigations

OIG	        Federal Housing Finance
            Agency Office of Inspector
            General

ORA	        Office of Risk Analysis

PII	        Personally Identifiable
            Information

PSPA	       Senior Preferred Stock
            Purchase Agreement

REO	        Real Estate Owned

RMBS	       Residential Mortgage-
            Backed Securities

ROE	        Report of Examination

SA	         Special Agent

SEO	        Senior Executive Officer

SGE	        Senior Government
            Employee

SVB	        Sonoma Valley Bank

TCRs	       Tips, Complaints, or
            Referrals

Treasury	   U.S. Department of the
            Treasury




                   Semiannual Report to the Congress • April 1, 2018­–September 30, 2018   141
Appendix L: Endnotes

  12 U.S.C. § 4617(b)(2)(A), (B), (D) (2017).
1 

  Accessed: September 28, 2018.

  FHFA Suspended Counterparty Program,
2 

  12 C.F.R. pt. 1227 (2018). Accessed:
  September 28, 2018.




142     Federal Housing Finance Agency Office of Inspector General
F e d er a l H ou s i n g F i n a n c e A gen c y 
O ff i c e of I n s pec tor G en er a l
S emi a n n u a l R eport
to t he C on gr es s
April 1, 2018, through September 30, 2018




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