oversight

Tenth Semiannual Report to the Congress

Published by the Federal Housing Finance Agency, Office of Inspector General on 2015-09-30.

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

Federal Housing Finance Agency
  Office of Inspector General

  Se m iann ual R ep ort to t he Cong r e ss
           April 1, 2015, through September 30, 2015
Federal Housing Finance Agency
 Office of Inspector General




 Semiannual Report            to the       Congress
       April 1, 2015, through September 30, 2015
ii   Federal Housing Finance Agency Office of Inspector General
Table of Contents	

Our Vision	                                                                                            v
Our Mission	                                                                                           v
Core Values	                                                                                          vi
OIG’s Accomplishments from 2010 to Present	                                                          vii
A Message from the Inspector General	                                                                 1
Executive Summary	                                                                                    2
	Overview	                                                                                            2
	 This Report	                                                                                        3
OIG’s Oversight Strategy	                                                                             4
	 Risk-Focused Strategy	                                                                              4
	 Challenges Confronting FHFA	                                                                        5
OIG’s Organizational Structure	                                                                       6
	Leadership	                                                                                          6
Snapshot of OIG Accomplishments April 1, 2015–September 30, 2015	                                    10
OIG’s Audit, Evaluation, and Compliance Activities	                                                  11
	 Conservatorship Operations	                                                                        11
	Supervision	                                                                                        16
	 Nonbank Sellers	                                                                                   18
	 IT Security	                                                                                       19
	 Statutory, Cooperative, and Stakeholder Reports and Responses	                                     20
	Recommendations	                                                                                    24
OIG’s Investigations	                                                                                25
	 Investigations: Civil Cases	                                                                       25
	 Investigations: Criminal Cases	                                                                    26
	Outreach	                                                                                           33
	 Investigations: Administrative Actions	                                                            33
	 Suspended Counterparty Referrals	                                                                  33
OIG’s Regulatory Activities and Outreach	                                                            35
	 Regulatory Activities	                                                                             35
	 Public and Private Partnerships, Outreach, and Communications	                                     35
Appendix A: Glossary and Acronyms	                                                                   38
Appendix B: OIG Recommendations	                                                                     46
Appendix C: Information Required by the Inspector General Act and 	
            Subpoenas Issued	                                                                        64
Appendix D: OIG Reports	                                                                             67
Appendix E: OI Publicly Reportable Investigative Outcomes Involving	
            Condo Conversion and Builder Bailout Schemes	                                            68


                              Semiannual Report to the Congress • April 1, 2015–September 30, 2015   iii
Appendix F: OI Publicly Reportable Investigative Outcomes Involving Fraud
             Committed Against the Enterprises, the FHLBanks, or FHLBank
             Member Institutions	                                          72
Appendix G: OI Publicly Reportable Investigative Outcomes Involving
             Loan Origination Schemes	                                     74
Appendix H: OI Publicly Reportable Investigative Outcomes Involving
             Short Sale Schemes	                                           83
Appendix I: OI Publicly Reportable Investigative Outcomes Involving
             Loan Modification and Property Disposition Schemes	           87
Appendix J: OI Publicly Reportable Investigative Outcomes Involving
             Property Management and REO Schemes	                          90
Appendix K: OI Publicly Reportable Investigative Outcomes Involving
             Adverse Possession Schemes	                                   92
Appendix L: OI Publicly Reportable Investigative Outcomes Involving
             RMBS Schemes	                                                 93
Appendix M: OI Publicly Reportable Investigative Outcomes Involving
             Multi-family Schemes	                                         94
Appendix N: Fiscal Year 2016 Management and Performance Challenges	        95
Appendix O: Figure Sources	                                               106
Appendix P: Endnotes	                                                     107




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


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




                                    Semiannual Report to the Congress • April 1, 2015–September 30, 2015          v
Core Values
OIG’s core values are integrity, respect, professionalism, and results. Accordingly, we strive to maintain the
highest level of integrity, professionalism, accountability, and transparency in our work. We follow the facts—
wherever they go, without fear or favor; report findings that are supported by sufficient evidence in accordance
with professional standards; and recommend actions tied to our findings. Our work is risk-based, credible,
and timely. We play a vital role in promoting the economy and efficiency in the management of the Agency
and view our oversight role both prospectively (advising the Agency on internal controls and oversight, for
example) and retrospectively (by assessing the Agency’s oversight of Fannie Mae, Freddie Mac, and the Federal
Home Loan Banks and its conservatorship of Fannie Mae and Freddie Mac). The U.S. taxpayers have invested
$187.5 billion in Fannie Mae and Freddie Mac; our oversight role thus reaches third parties (such as lenders
and servicers) who deal with those entities to ensure that they are satisfying their obligations to these entities
and that taxpayer monies are not wasted or misused.

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

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




vi   Federal Housing Finance Agency Office of Inspector General
OIG’s
 OIG’sAccomplishments
       Accomplishmentsfrom
                       from2010
                            2010to
                                 toPresent
                                   Present

                                                                 52
      129
                                                                           Audits
                   Reports
                                                                 38        Evaluations
                                                                  8        White Papers
      228          Recommendations                                7
                                                                  2
                                                                           Evaluation Surveys
                                                                           Compliance Reports
                                                                 10        Semiannual Report to Congress
                                                                 12        Systemic Implication Reports (SIRs)a

         50        Regulatory
                   Activities




     $2.8B         Recoveries




      499          Investigations                                 $4.2 billion
                                                                 $34.2 billion
                                                                                              Criminal Monetary Resultsb
                                                                                              Civil Monetary Resultsc


      266          Subpoenas



      662          Indictments/
                   Charges d


      379          Convictions/Pleas




     a 12 SIRs have been produced, of which 5 have been published publicly and 7 remain privileged due to their investigative content
a
  12bSIRs have been produced, of which 5 have been published publicly and 7 remain privileged due to their investigative content.
        Includes Criminal Restitution and Forfeitures/Fines/Special Assessments and Seizures
b
  Includes criminal restitution and forfeitures/fines/special assessments and seizures.
     c  Includes Settlements/Recoveries/Fines
c
 Includes   settlements/recoveries/fines.
  d Superseding
Superseding
d
                 indictments
            indictments  are are included
                             included     in this
                                       in this    total
                                               total.


                                        Semiannual Report to the Congress • April 1, 2015–September 30, 2015                   vii
viii   Federal Housing Finance Agency Office of Inspector General
A Message from the Inspector General
I am pleased to present OIG’s tenth Semiannual Report to the Congress,
which covers the period from April 1, 2015, to September 30, 2015.

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

To best leverage our resources to strengthen OIG’s oversight, we
determined to focus our audit and evaluation efforts on assessing existing
controls on those programs and operations that we determined to pose
the greatest financial, governance, and/or reputational risk to FHFA,
the Enterprises, and the FHLBanks. Those risks are conservatorship              Laura S. Wertheimer
operations, Enterprise supervision, counterparties (nonbank sellers), and       Inspector General of the
                                                                                Federal Housing Finance Agency
information technology security. We created an Office of Compliance in
December 2014 to conduct verification testing of closed recommendations
to independently verify whether the Agency has implemented in full the
corrective actions it represented to OIG that it intended to take.

This approach enables OIG to prioritize the most critical risks for scrutiny, offer targeted
recommendations for corrective actions, and conduct validation testing to ensure the recommendations
are fully implemented and yield meaningful change. This Semiannual Report details our audits and
evaluations in which we tested the adequacy of existing controls to mitigate known risks and compliance
reviews to assess the adequacy of remedial efforts to cure previously identified deficiencies.

OIG also furthers its mission through vigorous law enforcement efforts. To date, 662 charges have been
brought against defendants involved with crimes investigated by OIG, of which 379 individuals have been
convicted or pled guilty and 285 have been sentenced. Additionally, OIG saw significant developments
in a number of its cases; for example, a lead defendant was sentenced to 20 years in prison for his role
in a loan modification scheme that preyed on distressed homeowners in danger of losing their homes,
and three individuals were indicted for their alleged role involving fraud in connection to the sales of
residential mortgage-backed securities bonds. To date, OIG has obtained $34.2 billion in civil monetary
results and $4.2 billion in criminal monetary results.

OIG has worked diligently to act as a catalyst for effective management, accountability, and positive
change in FHFA and the entities it regulates. Our achievements would not be possible without the
dedication and hard work of the professionals at OIG, and I thank them for their service.

Laura S. Wertheimer
Inspector General
October 30, 2015

                                   Semiannual Report to the Congress • April 1, 2015–September 30, 2015          1
Executive Summary

Overview                                                   FHFA currently serves in a unique role: it is both
                                                           conservator and regulator of the Enterprises and
The Federal Housing Finance Agency (FHFA                   regulator of the FHLBanks.
or Agency) was created on July 30, 2008, when              HERA also amended the Inspector General Act
the President signed into law the Housing and              of 1978 to establish an Office of Inspector General
Economic Recovery Act of 2008 (HERA).*                     (OIG) for FHFA. OIG began operations on
HERA charged the newly created FHFA to serve               October 12, 2010, when its first Inspector General
as regulator of Fannie Mae and Freddie Mac                 was sworn in. OIG is dedicated to promoting
(the Enterprises) and of the Federal Home Loan             the economy, efficiency, and effectiveness of the
Banks (FHLBanks) (collectively, the government-            programs and operations of FHFA; preventing
sponsored enterprises, or the GSEs) and enhanced           and detecting fraud, waste, and abuse in
its resolution authority.                                  FHFA’s programs and operations; reviewing and
In September 2008, FHFA exercised its authority            commenting on pending legislation and regulations;
under HERA to place Fannie Mae and Freddie Mac             and bringing civil, criminal, and administrative
into conservatorship in an effort to stabilize the         actions against those, whether inside or outside of
residential mortgage finance market. Concurrently,         the government, who commit fraud, waste, or abuse
the Department of the Treasury (Treasury)                  in connection with the programs and operations of
entered into Senior Preferred Stock Purchase               FHFA. We are dedicated to protecting the American
Agreements (PSPAs) with each Enterprise                    taxpayer by conducting audits, evaluations,
to ensure that each maintained a positive net              compliance tests, and investigations that promote
worth going forward. Under these PSPAs, U.S.               economy and efficiency in the management of
taxpayers, through Treasury, have injected a total of      FHFA’s programs and operations. We view our
$187.5 billion since 2008. Initially, conservatorship      oversight role both prospectively (by advising
was intended to be a “time out” during a period            FHFA on issues relating to internal controls and
of extreme stress to stabilize the mortgage markets        fraud prevention) and retrospectively (by assessing
and promote financial stability. Now in their eighth       the effectiveness of FHFA activities over time and
year, FHFA’s conservatorships of the Enterprises           recommending improvements).
are of unprecedented scope, scale, and complexity.         Under the Inspector General Act, OIG is charged
                                                           with oversight of FHFA actions. Our oversight
                                                           tracks the responsibilities exercised by FHFA. With
                                                           respect to the Enterprises, as conservator under
    *Terms and phrases in bold are defined in
                                                           HERA, FHFA has discretionary or permissive
    Appendix A, Glossary and Acronyms. If you
                                                           powers, not specific mandates. FHFA is authorized
    are reading an electronic version of this
                                                           to:
    Semiannual Report, then simply move your
    cursor to the term or phrase and click for             •	 Succeed to all rights and powers of any
    the definition.                                           stockholder, officer, or director of the Enterprises;


2    Federal Housing Finance Agency Office of Inspector General
•	 Operate the Enterprises; and                            This Report
•	 Take such action as may be:
                                                           This Semiannual Report discusses OIG operations
   űű Necessary to put the Enterprises in a sound          from April 1, 2015, to September 30, 2015. During
      and solvent condition; and                           this reporting period, OIG directed substantial
                                                           audit and evaluation resources toward those areas
   űű Appropriate to carry on the Enterprises’
                                                           of greatest risk to the Agency: conservatorship
      business and preserve and conserve the
                                                           operations, supervisory actions, oversight of
      Enterprises’ assets and property.1
                                                           counterparties (specifically, non-depository
Where FHFA exercises its conservatorship authority         financial institutions, hereinafter “nonbank sellers”),
to decide specific issues, such as approval of the         and information technology (IT) security. We
Enterprises’ annual operating budgets, OIG’s               also continued our vigorous civil, criminal, and
responsibilities necessarily include oversight of          administrative enforcement activities against those,
FHFA’s decisions to determine whether FHFA is              inside and outside of government, who waste,
fulfilling its statutory duties and responsibilities and   steal, or abuse taxpayer monies involving Agency,
safeguarding taxpayers.                                    Enterprise, or FHLBank operations.

In November 2008, FHFA delegated authority                 What follows provides a brief overview of OIG’s
for general corporate governance and day-to-day            risk-based strategy and Audit and Evaluation
matters to the Enterprises for reasons of efficiency,      Plan; challenges that OIG has identified that
concordant goals with the Enterprises, and                 impact FHFA’s programs and operations; OIG’s
operational savings. Any aspect of this delegation         organizational structure; and the results of OIG’s
of authority may be revoked by FHFA at any time.           audits, evaluations, and compliance tests and
When an Enterprise takes action pursuant to a              regulatory and outreach efforts during this reporting
delegated grant of authority from FHFA, such as the        period.
hiring of a Chief Audit Executive, OIG’s oversight
                                                           It also discusses numerous OIG investigations that
role includes FHFA; the Enterprises, recipients
                                                           resulted in indictments and convictions of individuals
of $187.5 billion in taxpayer monies, to ensure
                                                           responsible for fraud, waste, or abuse in connection
that they are satisfying their obligations under the
                                                           with programs and operations of FHFA and the
authority delegated to them in the conservatorships;
                                                           Enterprises, and in fines and restitution orders
and third parties (such as lenders and servicers)
                                                           totaling more than $130 million.
to ensure that they are satisfying their obligations
to the Enterprises. Through oversight, transparent         Finally, it discusses the status of OIG’s audit and
reporting of results, and robust enforcement, OIG          evaluation recommendations.
seeks to be a voice for, and protect the interest of,
those who have funded Treasury’s investment in the
Enterprises—the American taxpayers.



                                     Semiannual Report to the Congress • April 1, 2015–September 30, 2015        3
OIG’s Oversight Strategy
OIG began operations on October 12, 2010. It              Strategic Goal 1—Promote FHFA’s Effective
was established by HERA, which amended the                Oversight of the GSEs’ Safety and Soundness and
Inspector General Act. The primary mission of OIG         Housing Missions
is to conduct independent audits, evaluations, and        OIG will promote effective risk oversight by FHFA,
investigations to promote economy and efficiency          assess FHFA’s oversight of the GSEs’ housing mission
and to prevent and detect fraud, waste, abuse, and        and goal responsibilities, and assess the effectiveness
mismanagement in the programs and operations              of FHFA’s operations.
of FHFA, including its conservatorship of the
Enterprises.                                              Strategic Goal 2—Promote FHFA’s Effective
OIG’s operations are funded by annual assessments         Management and Conservatorship of the
that FHFA levies on the Enterprises and the               Enterprises
FHLBanks pursuant to 12 U.S.C. § 4516. For fiscal         OIG will assess FHFA’s and the Enterprises’
year 2015, OIG’s operating budget is $48 million.         plans and progress on their strategic goals; assess
                                                          FHFA’s effectiveness in controlling the costs of the
Risk-Focused Strategy                                     conservatorships; and detect and deter fraud, waste,
                                                          and abuse.
OIG’s mandate is broad and comprehensive and
                                                          Strategic Goal 3—Promote Effective FHFA
encompasses oversight of the full scope of the
                                                          Internal Operations
Agency’s programs and operations, including its
conservatorship of the Enterprises. Our work plan         OIG will detect and deter fraud, waste, and abuse.
is dynamic and will adapt to a changing risk profile.
To best leverage our resources to strengthen OIG’s        Strategic Goal 4—Promote Effective OIG Internal
oversight, we determined to focus our resources           Operations
on programs and operations that pose the greatest         OIG will maintain workforce expertise and
financial, governance, and/or reputational risk to the    collaboration to meet goals; maintain access and data
Agency, the Enterprises, and the FHLBanks.                security protocols with FHFA and GSEs; and ensure
                                                          reporting processes are useful to stakeholders.
Strategic Plan
                                                          The Strategic Plan is available at www.fhfaoig.
In February 2014, OIG issued a Strategic Plan for
                                                          gov/Reports/StrategicPlan. OIG will continue to
Fiscal Years 2015–2017. OIG intended this Strategic
                                                          monitor events; make changes to the Strategic Plan as
Plan to further the goals of FHFA’s then existing
                                                          circumstances warrant; and strive to remain relevant
strategic plan, and the plan includes four high-level
                                                          regarding areas of concern to FHFA, the GSEs,
goals that serve as a blueprint for OIG’s risk-based
                                                          Congress, and the American people.
oversight of FHFA and independent reporting. The
goals are:




4   Federal Housing Finance Agency Office of Inspector General
Work Plan                                               •	 IT Security. FHFA’s and the GSEs’ computer
                                                           systems, software, and networks may be
The results of our strategic planning process led us
                                                           vulnerable to cyber attacks, breaches,
to revise the Audit and Evaluation Plan in February
                                                           unauthorized access, misuse, computer viruses or
2015 to focus on four areas of risk:
                                                           other malicious codes, or other attempts to harm
•	 Conservatorship Operations. Since                       them or misuse or steal confidential information.
   September 2008, FHFA has administered two               Among other things, a breach of their security
   conservatorships of unprecedented scope and             systems could disrupt their business operations or
   undeterminable duration. As conservator, the            result in the unauthorized disclosure or misuse of
   Agency has expansive authority to make business         confidential and other information.
   and policy decisions for two large, complex
                                                        Our revised Audit and Evaluation Plan is available at
   companies that dominate the secondary mortgage
                                                        www.fhfaoig.gov/Reports/AuditAndEvaluationPlan.
   market and the mortgage securitization sector
                                                        The work plan for each identified risk has been
   of the U.S. housing finance industry and thus
                                                        designed to produce reports that can be generated
   influence and affect the entire mortgage finance
                                                        promptly both to increase transparency and to
   industry.
                                                        improve the programs and operations of the Agency
•	 Enterprise Supervision. FHFA’s Division of           without compromising the rigor of the methodology.
   Enterprise Regulation (DER) is responsible for
   supervision of the Enterprises to ensure their       Challenges Confronting FHFA
   safe and sound operation. DER is responsible
   for designing a comprehensive, risk-based
                                                        OIG’s work during FY 2015 confirms that the
   supervisory strategy, conducting ongoing
                                                        four high-risk areas identified by OIG in its Audit
   monitoring or targeted examinations of risk
                                                        and Evaluation Plan represent the most significant
   areas, and monitoring Enterprise remediation of
                                                        management and performance challenges facing
   deficiencies identified during examinations.
                                                        FHFA. Pursuant to the Reports Consolidation
•	 Counterparties (Nonbank Sellers). The                Act of 2000 (Pub. L. No. 106-531), OIG advised
   Enterprises have been acquiring an increasing        FHFA, by memorandum dated October 5, 2015,
   portion of their single-family business volume       of the most serious management and performance
   directly from nonbank sellers, which may not         challenges facing the Agency in FY 2016. A copy of
   have the same financial strength, liquidity, or      our memorandum is provided in Appendix N.
   operational capacity as their larger depository
   institution counterparties. As a result, the
   Enterprises face increased risk that these
   counterparties could fail to perform their
   obligations.




                                    Semiannual Report to the Congress • April 1, 2015–September 30, 2015      5
OIG’s Organizational Structure

OIG consists of the Inspector General, senior staff,       counseling, and opinions to OIG about its programs
and OIG offices, principally: the Office of Audits,        and operations. OC also reviews audit and evaluation
Office of Evaluations, Office of Investigations, and       reports for legal sufficiency and compliance with
the Office of Compliance and Special Projects.             OIG’s policies and priorities. Additionally, it reviews
Additionally, OIG’s Executive Office includes the          drafts of FHFA regulations and policies and prepares
Office of Chief Counsel, the Office of External            comments as appropriate. OC also coordinates with
Affairs, the Office of Communications, and OIG’s           FHFA’s Office of General Counsel and manages
Equal Employment Opportunity Program Office and            OIG’s responses to requests and appeals made under
provides organization-wide supervision; the Office         the Freedom of Information Act (FOIA) and the
of Risk Analysis, the Office of Administration, and        Privacy Act.
the Office of Internal Controls and Facilities provide
                                                           The Office of External Affairs is also within EO, and
organization-wide support.
                                                           it responds to inquiries from members of Congress.

Leadership                                                 The Office of Communications is also within EO,
                                                           and it responds to inquiries from the press and
On May 22, 2014, President Barack Obama                    public.
nominated Laura S. Wertheimer to the position of           Additionally, OIG’s Equal Employment Opportunity
FHFA Inspector General; she was confirmed by the           Program is within EO, and it oversees compliance
Senate on September 18, 2014, and sworn in shortly         with federal requirements for equal opportunities in
thereafter. Prior to becoming Inspector General,           the workplace.
Ms. Wertheimer was a partner at a law firm where
she led numerous independent internal investigations       Office of Risk Analysis
on behalf of audit, governance, and special board
                                                           To exercise rigorous oversight, we must identify
committees of publicly traded companies. She also
                                                           emerging risks and revise our work plan as new risks
represented public companies, professional service
                                                           emerge and existing risks are well-controlled. Our
partnerships, and corporate directors and officers
                                                           Office of Risk Analysis (ORA) uses data mining,
in regulatory investigations and enforcement
                                                           quantitative data, and analysis of data and relevant
proceedings under the federal securities laws.
                                                           information to identify and monitor emerging and
                                                           ongoing areas of risk. The identification, analysis, and
Executive Office
                                                           prioritization of risk areas allow us to utilize resources
The Executive Office (EO) provides leadership              strategically and realign our Audit and Evaluation
and programmatic direction for OIG’s offices and           Plan, in real time, to address those risks.
activities.

EO includes the Office of Chief Counsel (OC),
which serves as the chief legal advisor to the Inspector
General and provides independent legal advice,


6   Federal Housing Finance Agency Office of Inspector General
Office of Audits                                          Office of Evaluations
The Office of Audits (OA) is tasked with designing        The Office of Evaluations (OE) conducts
and conducting independent performance audits             program and management reviews and makes
with respect to the Agency’s programs and operations.     recommendations for improvement where applicable.
OA also undertakes projects to address statutory          OE provides independent and objective reviews,
requirements and stakeholder requests. For example,       studies, survey reports, and analyses of FHFA’s
the Improper Payments Information Act of 2002             programs and operations. The Inspector General
(IPIA), as amended, requires OIG annually to audit        Reform Act of 2008 requires that inspectors general
FHFA’s compliance with IPIA during the prior              adhere to the Quality Standards for Inspection and
fiscal year. Additionally, the Federal Information        Evaluation (Blue Book), issued by the Council of
Security Management Act of 2002 (FISMA) directs           the Inspectors General on Integrity and Efficiency
OIG annually to audit whether FHFA’s and OIG’s            (CIGIE). OE performs its evaluations in accordance
information security programs and practices meet          with the Blue Book.
FISMA’s security requirements.
                                                          Office of Investigations
Under the Inspector General Act, inspectors general
are required to comply with the Government                Staffed with special agents, investigators, analysts,
Accountability Office’s (GAO) Government Auditing         prosecutors, and attorney advisors, the Office of
Standards (Yellow Book). OA performs its audits           Investigations (OI) conducts criminal and civil
and attestation engagements in accordance with the        investigations into those, whether inside or outside of
Yellow Book.                                              government, who waste, steal, or abuse government
                                                          monies in connection with programs and operations
During the semiannual period, OA commenced                of the Agency and the GSEs. OI pursues wrongdoers
a major reorganization effort that is expected to         within the Agency and the GSEs as well as
continue well into the next semiannual period. The        individuals and entities that make misrepresentations
purpose of the reorganization is to ensure that the       to the Enterprises in connection with loans that the
skill sets of OIG personnel facilitate the types of       Enterprises buy or guarantee.
performance audits and evaluations that OIG plans
to conduct, and to fulfill OIG’s strategic vision of      OI also takes the lead in responding to referrals made
producing targeted, relevant, high-quality audit          to OIG’s hotline through telephone, email, website,
and evaluations products faster and with smaller          and in-person complaints, abiding by all applicable
teams. As part of this reorganization, OA offered a       whistleblower protections set forth in the Inspector
voluntary separation incentive for OA employees and       General Act. Our hotline is staffed by a third-party
reassigned some OA staff who did not elect to take        vendor to protect the anonymity of the callers
the separation incentive to other offices that needed     and provides easy access for individuals to report
their skill sets and experience. The first stage of the   concerns, allegations, information, and evidence of
reorganization (i.e., the voluntary separation and        violations of criminal and civil laws in connection
reassignments) is complete. Going forward, OIG will       with programs and operations of the Agency. During
recruit professional staff with legal, economic, audit,   this reporting period, our hotline has received and
IT security, and other skill sets to further OIG’s        analyzed 984 contacts. When OI determines that a
mission and enhance our capabilities.                     full investigation is not warranted, it works closely
                                                          with OA and OE to determine whether an audit or
                                                          evaluation project is advisable.

                                     Semiannual Report to the Congress • April 1, 2015–September 30, 2015      7
To maximize criminal and civil law enforcement, OI         recommendations may be closed based on an agency’s
works closely with other law enforcement agencies,         representations alone. As stated in the Quality
including the Department of Justice (DOJ), the             Standards for Inspection and Evaluation, “management
Office of the Special Inspector General for the            notification that an action has been completed within
Troubled Asset Relief Program (SIGTARP), the               the agreed-on time constitutes reasonable assurance
Postal Inspection Service, the Federal Bureau of           and can be the basis for ‘closing’ an action for
Investigation (FBI), the Department of Housing and         followup purposes.”2
Urban Development Office of Inspector General
                                                           Stakeholders’ respect for and trust in IG reports and
(HUD-OIG), the Secret Service, IRS-Criminal
                                                           recommendations is grounded in the recognition
Investigation (IRS-CI), and state and local law
                                                           that IGs report the facts, as found, and recommend
enforcement entities nationwide.
                                                           corrective actions based on those facts. Lacking
                                                           enforcement authority under the Inspector
Office of Compliance and Special Projects
                                                           General Act, IGs necessarily rely on materials and
While federal inspectors general (IGs) are often           representations made by their respective agencies
referred to as “watchdogs” for their respective            regarding the implementation of remedial measures.
agencies, the Inspector General Act does not
authorize an IG to compel its respective agency to         This OIG has issued more than 300a
adopt new policies or processes or take personnel          recommendations since it began operations in
actions to correct shortcomings identified in              2010. Each recommendation was presented for
audits, evaluations, and investigations of agency          FHFA’s consideration; FHFA determined whether
programs and operations. Rather, the Act                   to accept each recommendation; and, for those
empowers IGs to recommend remedial actions                 recommendations it accepted, FHFA reported to
to correct such shortcomings and to track                  OIG what actions it had taken, and planned to
whether the affected agency agrees to adopt and            take, to implement the recommendation. In some
implement the recommended remedial actions.                cases, recommendations made by this OIG were
IG recommendations flow from findings premised             closed based largely on FHFA’s representations that
on facts found during an audit, evaluation, or             implementation was underway.
investigation.                                             In December 2014, this OIG created the Office of
Office of Management and Budget (OMB) Circular             Compliance and Special Projects (OCo) to address
No. A-50 Revised sets forth an agency’s responsibilities   the reputational risk arising from the practical
once an IG has issued a recommendation. An agency          necessity of closing recommendations based upon
is generally expected to “assign a high priority to        representations from the Agency. Staffed with
the resolution” of the recommendation. Once the            experienced auditors, evaluators, attorneys, and
agency determines to adopt the recommendation              investigators from OIG’s offices, OCo is tasked
and takes steps to begin the implementation process,       with conducting verification testing of closed
the agency reports its decision to the IG, and the IG      recommendations to independently verify whether
typically relies on materials and representations from     FHFA has implemented in full the corrective actions
the agency to close the recommendation. Indeed,            it represented to OIG that it intended to take and


                                                           Includes non-public recommendations.
                                                           a




8   Federal Housing Finance Agency Office of Inspector General
publishes the results of its testing in “compliance     and evaluation to organizational and individual
reviews.” These compliance reviews (the first of        accomplishment of goals and objectives. OAd also
which has been issued and is discussed below) permit    coordinates budget planning and execution and
FHFA, Congress, and the public to assess the impact     oversees all of OIG’s procedural guidance for financial
of OIG’s recommendations, as well as the efficacy of    management and procurement integrity.
the Agency’s implementation of them. To the best of
our knowledge, establishment of this function, within   Office of Internal Controls and Facilities
one IG office, appears to be a new approach in the      The Office of Internal Controls and Facilities (OICF)
federal IG community.                                   manages and oversees OIG’s workplace safety,
OCo also plays a support role within OIG. It            facilities, and internal controls.
consults with OA, OE, and OI in the development
of recommendations and in decisions to close
existing recommendations. OCo developed and
now maintains the Recommendation Tracking
System, which identifies all OIG recommendations,
contains all documentation provided by FHFA in
support of its implementation efforts, and provides a
comprehensive and up-to-date source of information
about OIG recommendations and is available to
all OIG staff. To date, OCo has consulted with
OA, OE, and OI on whether to close 40 separate
recommendations from 16 OIG reports.

At the request of the IG, OCo also performs
high-value, short-turnaround special projects.
OCo’s first such assignment was to respond to a
congressional inquiry concerning FHFA’s FOIA
response process. Its report (see page 23) was based
on its factual assessment of the Agency’s FOIA
process.

Office of Administration
The Office of Administration (OAd) manages and
oversees OIG administration, including budget,
human resources, financial management, and IT.
For human resources, OAd develops policies to
attract, develop, and retain exceptional people,
with an emphasis on linking performance planning




                                   Semiannual Report to the Congress • April 1, 2015–September 30, 2015      9
                 Snapshot of OIG Accomplishments
                            April 1, 2015–September 30, 2015



        Audit and Evaluation Reports Issued	                                   6

        Office of Compliance and Special Projects Reports Issued	              2

        Nonmonetary Recommendations Made	                                      7


        Hotline Contacts	                                                    984

        OIG Subpoenas Issued	                                                 25

        Judicial Actions

            Indictments/Charges	95

            Arrests	81

            Convictions/Pleas	54

            Sentencings	65

            Suspension/Debarment Referrals 	                                  83

        OIG Investigations Monetary Results

            Restitution	$72,068,931

            Fines/Special Assessments/Seizures	                       $60,787,725

            Total	$132,856,656


        Regulations Reviewed	                                                  7


        Responses to Requests Under the Freedom of Information Act	           53




10   Federal Housing Finance Agency Office of Inspector General
OIG’s Audit, Evaluation, and Compliance Activities

OIG actively strives to fulfill its mission through     The lack of consensus in Congress about the nation’s
audit, evaluation, and compliance projects and          future mortgage finance system and the role, if any,
reports and through investigations. Our Audit and       for the Enterprises may mean that the Enterprises will
Evaluation Plan identifies the four risk areas on       continue to operate under FHFA’s conservatorship
which our audit and evaluation projects have been       for a considerably longer period.
focused. In addition to these projects, we completed
                                                        While in conservatorship, the Enterprises have
one additional statutory audit during the period and
                                                        required $187.5 billion in financial investment from
led an audit on behalf of the Council of Inspectors
                                                        Treasury to avert their insolvency and, through
General on Financial Oversight (CIGFO).
                                                        September 2015, the Enterprises have paid to
We now discuss our oversight activities during the      Treasury approximately $239 billion in dividends
reporting period by risk area, as well as our other     on its investment. Despite their high leverage, lack
audit activities in which we engaged.                   of capital, conservatorship status, and uncertain
                                                        future, the Enterprises have grown in size during
Conservatorship Operations                              conservatorship and, according to FHFA, their
                                                        combined market share of newly issued mortgage-
                                                        backed securities is approximately 70%.3 The
When then-Secretary of Treasury Henry Paulson
                                                        Enterprises’ combined total assets are approximately
announced the conservatorships in September
                                                        $5.2 trillion and their combined debt exceeds
2008, he explained that the conservatorships were
                                                        $5 trillion.4 Although market conditions have
meant to be a “‘time out’ where we have stabilized
                                                        improved and the Enterprises have returned to
the” Enterprises, during which the “new Congress
                                                        profitability, their ability to sustain profitability
and the next Administration must decide what
                                                        in the future cannot be assured for a number of
role government in general, and these entities in
                                                        reasons: the winding down of their investment
particular, should play in the housing market.”
                                                        portfolios and reduction in net interest income; the
The current FHFA Director has echoed that
                                                        level of guarantee fees they will be able to charge;
view in recognizing that conservatorship “cannot
                                                        the future performance of their business segments;
and should not be a permanent state” for the
                                                        the elimination by 2018 of a capital cushion to
Enterprises. However, putting the Enterprises into
                                                        buffer against losses; and the significant uncertainties
conservatorships has proven to be far easier than
                                                        involving key market drivers such as mortgage rates,
ending them, and the “time out” period for the
                                                        homes prices, and credit standards.5
conservatorships has now entered its eighth year.
                                                        Given the taxpayers’ enormous investment in
Since September 2008, FHFA has administered
                                                        the Enterprises, the unknown duration of the
two conservatorships of unprecedented scope and
                                                        conservatorships, the Enterprises’ critical role in the
undeterminable duration over two entities that
                                                        secondary mortgage market, and their unknown
dominate the secondary mortgage market and the
                                                        ability to sustain future profitability, OIG determined
mortgage securitization sector in the United States,
                                                        that FHFA’s administration of the conservatorships
and thus affect the entire mortgage finance industry.
                                                        has been, and continues to be, a critical risk.

                                  Semiannual Report to the Congress • April 1, 2015–September 30, 2015       11
Oversight of Delegated Matters                            The Enterprises’ PSPAs with Treasury largely nullify
                                                          typical corporate governance incentives to improve
Pursuant to its powers under HERA to take actions
                                                          shareholder returns by controlling costs, increasing
“necessary to put [Fannie Mae and Freddie Mac] in
                                                          earnings, and building corporate net worth. Pursuant
a sound and solvent condition” and “appropriate to
                                                          to the Enterprises’ agreements with Treasury, the
carry on the business of [Fannie Mae and Freddie
                                                          Enterprises must sweep any excess of net worth (over a
Mac]” and “preserve and conserve” their assets,
                                                          small capital reserve) to Treasury, and this mandatory
12 U.S.C. § 4617(b)(2)(D), FHFA has delegated
                                                          sweep means that controlling costs and increasing
authority for many matters, both large and small, to
                                                          net income will not increase the net worth of the
the Enterprises. As conservator, FHFA is ultimately
                                                          Enterprises. As a result, the Enterprises’ boards lack the
responsible for all decisions made and actions taken
                                                          same incentives as boards of most public companies
by the Enterprises, even with respect to delegated
                                                          to build capital and enhance stock performance by
matters, pursuant to its revocable grant of delegated
                                                          controlling costs and increasing earnings.
authority, and FHFA owes duties to the U.S.
taxpayers, the largest shareholders in the Enterprises.   With respect to assessing the reasonableness of board
                                                          activities, in a report OIG issued on March 11,
Historically, FHFA’s oversight of delegated matters,
                                                          2015, OIG assessed the process used by Fannie Mae’s
in its role as conservator, has largely been limited
                                                          Audit Committee of its Board of Directors to fulfill
to attendance at Enterprise internal management
                                                          its delegated responsibility to select a Chief Audit
and board meetings as observers and discussions
                                                          Executive (CAE)—the senior executive who heads
with Enterprise managers and directors. For the
                                                          Internal Audit—which is a critical element of Fannie
most part, FHFA, as conservator, has not assessed
                                                          Mae’s risk management controls. OIG found that the
the reasonableness of Enterprise delegated actions,
                                                          Audit Committee’s process was haphazard, at best:
including actions taken by the Enterprises to
                                                          the Committee waited several months after it learned
implement conservatorship directives.
                                                          that the CAE position would soon become vacant
Limited FHFA oversight of matters delegated to            before it began a search for possible CAE candidates;
the Enterprises carries significant risk because of the   ignored a management-prepared Succession Plan
significant change in the governance environment          for senior executive positions that concluded that
at the Enterprises caused by the conservatorship.         no internal candidate across Fannie Mae was “ready
Typically, boards of public companies are vested with     now” for the CAE position and a permanent
the power or duty to manage, direct, or oversee the       successor would require an “external” candidate;
company’s business. Here, FHFA, as conservator, has       limited its search to internal candidates; relied on
succeeded to all rights, titles, powers, and privileges   Fannie Mae’s Chief Human Resources Officer to
of the Enterprises and of any shareholder, officer,       identify qualified internal candidates even though
or director of the Enterprises, and the Enterprises       he and others in senior management concluded, two
recognize that their directors “no longer ha[ve] the      months earlier, that there was no internal candidate
power or duty to manage, direct or oversee [the]          for the CAE position; and selected the Chief Credit
business and affairs” of the Enterprises.6 In public      Officer of Fannie Mae’s largest business unit, the
securities filings, the Enterprises acknowledge that      Single-Family Business Group, even though he had
their directors serve on behalf of the conservator        not been identified as a candidate for the position
and exercise their authority as directed by and with      in senior management’s Succession Plan, lacked the
the approval, where required, of the conservator.7        professional audit experience deemed “preferable”


12    Federal Housing Finance Agency Office of Inspector General
in the CAE Position Description, and was burdened           of the Audit Committee’s effectiveness and
by significant conflicts because of his management          identify recommendations for improvements, and
responsibilities in the Single-Family Business Group.       this assessment is underway.8
OIG also found that the Audit Committee did not
                                                          FHFA’s long-standing practice is for FHFA employees
develop a plan and comprehensive controls to address
                                                          to attend Enterprise internal management and board
the candidate’s conflicts of interest. (See OIG, FHFA’s
                                                          meetings as observers, review materials provided
Oversight of Governance Risks Associated with Fannie
                                                          by the Enterprises, and participate in discussions
Mae’s Selection and Appointment of a New Chief Audit
                                                          with Enterprise managers and directors. Prior to
Executive (EVL-2015-004, March 11, 2015), online
                                                          OIG’s issuance of its evaluation report on Fannie
at www.fhfaoig.gov/Reports/AuditsAndEvaluations.)
                                                          Mae’s hiring of a new CAE, OIG found that FHFA
As a consequence, Fannie Mae hired a candidate            lacked a sufficiently robust internal communications
who was burdened by conflicts without controls in         process to share the information obtained by
place to mitigate them, and FHFA, as conservator,         different FHFA employees with senior FHFA officials
exercised no oversight over Fannie Mae’s exercise         regarding matters delegated to the Enterprises. Lack
of its delegated responsibility. Even after FHFA,         of information sharing impedes the Agency’s ability
acting in its capacity as regulator, directed the Audit   to oversee the Enterprises in carrying out their
Committee to assess the candidate’s conflicts and         delegated responsibilities. As that evaluation report
put compensating controls in place, the Committee         discusses, OIG learned from an FHFA employee that
declined to complete the requested assessment and         he raised concerns regarding the CAE candidate’s
adopt controls in a timely manner. For more than          conflicts of interest to his superiors, but nothing in
one year after the conflicted CAE began work, Fannie      the record suggested that these concerns were raised
Mae’s Internal Audit was not in full conformance          with FHFA’s then-Acting Director. Had those issues
with governing standards, but FHFA failed to impose       been socialized within senior FHFA management,
any consequences on either the individual Audit           FHFA senior officials would have been in a position
Committee directors or on Fannie Mae.                     to direct Fannie Mae to assess the candidate’s conflicts
                                                          and put controls in place to mitigate them before he
We made five remedial recommendations to address
                                                          was hired. FHFA committed to enhance its internal
these shortcomings and improve FHFA’s oversight of
                                                          processes for information sharing.
corporate governance at the Enterprises, with which
FHFA agreed. Within this reporting period, FHFA:          Oversight of Non-delegated Matters
•	 Reviewed and revised internal FHFA procedures          As stated above, as conservator, FHFA can retain
   to ensure that the FHFA Director is informed of        decisional authority for Enterprise matters as well as
   significant issues and concerns by FHFA staff on       revoke prior delegations of authority. Historically,
   all conservatorship and supervisory matters that       FHFA has retained decisional authority for matters
   require the Director’s decision;                       with significant monetary or reputational impact.
                                                          It is critical for FHFA to develop and put into place
•	 Communicated in writing to Fannie Mae
                                                          strong internal processes for information sharing and
   its expectations of enhancements to Audit
                                                          analysis to strengthen its decision-making processes.
   Committee processes; and
                                                          Under FHFA Director Watt, FHFA has made a
•	 Directed Fannie Mae to retain an independent
                                                          number of enhancements to its existing internal
   third-party consultant to conduct an assessment

                                  Semiannual Report to the Congress • April 1, 2015–September 30, 2015        13
processes to improve the information flow to the          but one were submitted to FHFA after the start of
FHFA Director with respect to non-delegated               the fiscal year. As a result, the Enterprises operated
matters. However, a recent OIG evaluation report          without conservator-approved budgets in 2013,
assessing the effectiveness of FHFA’s existing budget     2014, and 2015 for periods ranging from almost two
review and approval process for the Enterprises’          months to almost six months. The timing of budget
annual operating budgets found that additional            submissions and approvals is shown in Figure 1 (see
improvements are warranted.9                              page 15). Deficiencies in FHFA’s practices prevented
                                                          FHFA from exercising effective control over
When the conservatorships began, FHFA delegated
                                                          Enterprise spending in both amount and direction.
to the Enterprises the authority to establish their
annual operating budgets. In November 2012,               Regarding the quality of FHFA’s review of the
FHFA rescinded that delegation and determined             Enterprises’ proposed budgets, OIG found that
to require review and approval of the Enterprises’        FHFA’s analysis has been largely based on spending
annual operating budgets. FHFA’s stated purpose           totals organized into broad categories by the
for retrieving authority to review and approve the        Enterprises and that high-level summary information
Enterprises’ budgets was to ensure that the budgets       significantly limits FHFA’s ability to analyze or
aligned with FHFA’s strategic direction and safety        understand the budgets with any granularity. As a
and soundness priorities. Between 2012 and 2015,          consequence, FHFA’s budget review and approval
the Enterprises’ budgets have grown significantly.        process imposed virtually no budget control
In 2012, the last year before FHFA required that          on the Enterprises, and FHFA’s approval of the
the Enterprises obtain its approval for their budgets,    budgets endorsed Enterprise spending that was
the combined spending by both Enterprises totaled         not well understood by FHFA. FHFA’s Division of
$3.9 billion. For fiscal year 2015, FHFA approved         Conservatorship (DOC) recognized that the resources
Enterprise spending totaling $5.1 billion—an              devoted to review and summarize the Enterprises’
increase of more than $1.2 billion, or about 31%,         proposed budgets and to prepare DOC’s action
over 2012 spending. OIG conducted an evaluation to        recommendation on them were insufficient to perform
determine whether FHFA’s budget approval process          substantive and critical analyses. OIG determined
has been effective in ensuring that the budgets align     that FHFA’s approval of the Enterprises’ budgets,
with the Agency’s strategic initiatives and safety and    based on a DOC review that was constrained in
soundness priorities.                                     scope and resources, did not achieve FHFA’s stated
                                                          purpose to ensure that the budgets aligned with
OIG found that FHFA’s budget review and
                                                          FHFA’s strategic direction and safety and soundness
approval process failed to achieve FHFA’s stated
                                                          priorities and created the risk that FHFA approved
purpose for reasserting its approval authority
                                                          Enterprise spending that was not well understood
because of late timing, cursory-level analysis, and
                                                          by it.
inadequate resources. (See OIG, FHFA’s Exercise
of Its Conservatorship Powers to Review and Approve       OIG recommended that FHFA: (1) direct each
the Enterprises’ Annual Operating Budgets Has Not         Enterprise to submit its proposed operating budget
Achieved FHFA’s Stated Purpose (EVL-2015-006,             and supporting materials for the next fiscal year so
September 30, 2015), online at www.fhfaoig.gov/           that FHFA has sufficient time before the fiscal year
Reports/AuditsAndEvaluations.) For the last three         begins to adequately analyze the proposals; (2) revise
years, all Enterprise-proposed operating budgets          the existing budget review process and staff the review


14    Federal Housing Finance Agency Office of Inspector General
Figure 1. The Timing of Enterprise Board and FHFA Approval, 2013-2015

     Fannie Mae
              Beginning of                                                                                     Total Days Past the
               Fiscal Year                                                                                   Beginning of Fiscal Year

                              Jan. 14
            2015         34 days             24 days                                                                   58 days

                                                                                                 May 13
            2014                         78 days                                       92 days                         170 days
                                                           Mar. 4
            2013  a                                          157 days                                      11          168 days
                                                                                                          days

                               ry                     ry            rch        ril               Ma
                                                                                                   y             e
                             ua                 rua           Ma            Ap                             Jun
                        Jan                  Feb

     Freddie Mac
              Beginning of                                                                                     Total Days Past the
               Fiscal Year                                                                                   Beginning of Fiscal Year

                              Jan. 14
            2015                           85 days                        35 days                                      120 days

                                                                                                 May 13
            2014                          84 days                                       85 days                        169 days

                                                           Mar. 4
            2013   b
                                   59 days                                                                             59 days


                                  ry               ar y             rch          ril             Ma
                                                                                                   y             e
                              ua                 ru           Ma             Ap                            Jun
                        Jan                  Feb


                                       No. of days before Enterprise Board submits budget to FHFA
                                       No. of days before FHFA approves budget
                                       Conservatorship Scorecard publication date


a
 Fannie Mae submitted its board-approved proposed 2013 operating budget to FHFA on January 25, 2013, and was directed
by FHFA that same day to reduce its overall year-over-year budget increase from 14% to below 10%. Fannie Mae revised its
proposed 2013 budget and resubmitted the proposed budget on June 6, 2013.
b
 Freddie Mac submitted its proposed budget for 2013 to FHFA on December 21, 2012.




process with employees who have the qualifications          2016 by which FHFA will take final action on each
and experience needed for critical financial                proposed annual operating budget for 2016 and
assessments of the proposed Enterprise budgets,             approve the budget by that date; and (4) set a date
which will permit FHFA     to determine
                        Figure_X_The      whether
                                       Timing      each Board
                                              of Enterprise certain,
                                                                 andprior
                                                                     FHFA to January2013-2015
                                                                          Approval,  31 of each subsequent fiscal
Enterprise’s budget aligns with FHFA’s strategic            year, by which FHFA will take final action on each
direction and its safety and soundness priorities;          proposed annual operating budget and approve the
(3) set a date certain during the first quarter of          budget by that date.

                                             Semiannual Report to the Congress • April 1, 2015–September 30, 2015                       15
In its management response, FHFA accepted the first       examination program assesses Fannie Mae’s and
three recommendations and “generally” accepted the        Freddie Mac’s financial safety and soundness
fourth. FHFA committed to accelerate the time line        and overall risk management practices through
for budget submissions for the 2016 budget and to         ongoing monitoring, targeted examinations, and
require the Enterprises to submit board-approved          risk assessments. Prior to the creation of FHFA, the
budgets by December for fiscal years 2017 and             Enterprises were regulated by the Office of Federal
beyond. FHFA also committed to increasing staff           Housing Enterprise Oversight (OFHEO) and
resources assigned to budget review and to hiring staff   OFHEO’s first examination took place in 1994. In
members with relevant technical qualifications and        its Fiscal Year 2014 Performance and Accountability
experience. FHFA will advise OIG when it approves         Report to Congress, FHFA states, “To ensure that the
the Enterprises’ 2016 operating budgets, and has set      regulated entities are operating safely and soundly,
January 31 of each subsequent year as a target date       FHFA identifies risks to the regulated entities and
by which to take final action on the Enterprises’         takes timely supervisory actions to address risks and
proposed budgets going forward. In the event              improve their condition.” OIG agrees that effective
circumstances justify delay in taking final action by     supervision of the FHLBanks and the Enterprises is
January 31, FHFA will document the reasons for any        critical to ensuring their safety and soundness.
such delays and take final action on the proposed
                                                          OIG has determined that FHFA’s administration
budgets as soon as practicable. OIG will conduct
                                                          of its supervision responsibilities continues to be a
follow-up activities as appropriate to verify FHFA’s
                                                          critical risk. During this semiannual period, OIG
completion of those efforts.
                                                          released two reports, summarized below, in which
                                                          we assessed various aspects of FHFA’s supervision
Supervision                                               activities.

As noted earlier, FHFA plays a unique role as both        Quantity and Quality of Examiners
conservator and as regulator for the Enterprises
                                                          OIG has previously reported that both DBR and DER
and as regulator for the FHLBanks. As FHFA
                                                          lacked a sufficient number of examiners and that the
recognizes, effective supervision of the entities it
                                                          Agency lacked an adequate number of commissioned
regulates is fundamental to ensuring their safety and
                                                          examiners, both of which placed the efficiency and
soundness. Within FHFA, the Division of Federal
                                                          effectiveness of FHFA’s examination program at
Home Loan Bank Regulation (DBR) is responsible
                                                          risk.10 In response to our reports, FHFA committed
for supervision of the FHLBanks. Section 20 of
                                                          to add examiners and has added examiners.
the Federal Home Loan Bank Act (12 U.S.C. §
1440) requires each FHLBank to be examined at             OIG also assessed the quality of FHFA’s examiners.
least annually. The examination function for the          As regulator for the Enterprises and the FHLBanks,
FHLBanks descends from the old Federal Home               FHFA has long recognized that its examiners require
Loan Bank Board, through the Federal Housing              certain skills and technical knowledge necessary
Finance Board, to FHFA. As a result, there is a long      to evaluate the condition and practices specific to
history of examination practice and examination           them. In our 2011 report, Evaluation of Whether
standards for DBR to draw upon. FHFA’s Division           FHFA Has Sufficient Capacity to Examine the GSEs
of Enterprise Regulation (DER) is responsible             (EVL-2011-005, September 23, 2011), OIG found,
for supervision of the Enterprises. FHFA’s annual         among other things, that two-thirds of FHFA


16    Federal Housing Finance Agency Office of Inspector General
examiners were not commissioned: they had not                   examiners enrolled in the HFE Program had
completed a structured program of classroom and                 completed any required on-the-job training
on-the-job training designed to provide technical               assignments during 2014 and early 2015 and that
competencies and practical examination experience.              over 20% of the enrolled examiners completed
The Agency acknowledged that commissioned                       no more than one of the required courses (see
examiners were critical to strengthening the                    Figure 2, below). Many of the enrolled examiners
efficiency and effectiveness of its supervision of              failed to progress in meeting the HFE Program’s
the regulated entities and that it lacked a sufficient          requirements during its first 19 months of operation,
number of commissioned examiners, and it agreed                 and, therefore, their ability to earn HFE Program
to monitor the development and implementation                   commissions within the projected time frame of four
of an examiner commission program. In 2013, the                 years or less is at risk.
Agency inaugurated its Housing Finance Examiner
                                                                OIG recommended that the Agency determine the
Commission Program (HFE Program) that was
                                                                causes of these shortfalls and implement a strategy
designed to produce, in the four years that followed,
                                                                to ensure that the HFE Program fulfills its central
a corps of commissioned examiners for its supervision
                                                                objective. FHFA accepted the recommendation.
of the Enterprises and of the FHLBanks.

In its first published compliance review, OIG                   Accurate, Complete, and High-Quality
reported on the results of its verification testing             Examinations
of the Agency’s actions to implement FHFA’s                     Federal financial regulators, including FHFA, have
HFE Program. (See OIG’s Compliance Review                       long recognized that comprehensive internal quality
of FHFA’s Implementation of Its Housing Finance                 control reviews of examinations are a critical internal
Examiner Commission Program (COM-2015-001,                      control to ensure that examination findings and
July 29, 2015), online at www.fhfaoig.gov/Reports/              conclusions are adequately supported and to assure
AuditsAndEvaluations.)                                          the regulator that its examinations are accurate,
OIG found that that the HFE Program was not                     complete, and of uniform high quality. In October
on track to meet its central objective—to produce               2011, FHFA’s Office of Quality Assurance (OQA),
commissioned examiners who were qualified to                    which is tasked with conducting internal reviews
lead major risk sections of FHFA’s examinations.                of the FHFA divisions that perform the Agency’s
Specifically, we found that only one of the 66                  statutory examination and regulatory functions to




Figure 2. Course Completion as of March 2015 by Enrolled Examiners

         Completed Two
                                            Completed One Course                 Completed No Courses               Total
         or More Courses
                 46                                     7                                    7                       60a
a
 Excludes six examiners who enrolled after October 2014 since they may not have had the opportunity to complete required
courses yet.
Source: FHFA records.




                                     Semiannual Report to the Congress • April 1, 2015–September 30, 2015                  17
enhance the effectiveness of FHFA’s supervision,         On July 28, 2015, after completion of field work
recommended that DER, the division responsible           on this evaluation, FHFA advised OIG that DER
for supervision of the Enterprises, develop and          adopted procedures for a quality control review
implement a comprehensive quality control process.       process. OIG has not assessed whether the new
DER agreed to that recommendation in September           procedures satisfy the requirements of FHFA’s
2012. In March 2013, FHFA issued a Supervision           Directive.
Directive announcing that its examinations of its
                                                         OIG recommended that FHFA: (1) ensure that
regulated entities—Fannie Mae, Freddie Mac, and
                                                         DER’s recently adopted procedures for quality
the FHLBanks—were subject to a quality control
                                                         control reviews meet the requirements of the March
program. DBR, responsible for supervision of the
                                                         2013 Directive and require DER to document in
FHLBanks, established procedures for formal internal
                                                         detail the results and findings of each quality control
quality control reviews and conducts such reviews.
                                                         review in examination workpapers, including any
OIG conducted an evaluation to determine if DER
                                                         shortcomings found during the quality control
had implemented a formal quality control review
                                                         review; and (2) evaluate the effectiveness of the new
process, as recommended by OQA and required by
                                                         procedures one year after adoption. FHFA agreed
FHFA’s March 2013 Directive.
                                                         with the recommendations.
OIG found that almost four years after OQA issued
its recommendation in 2011 and more than two             Nonbank Sellers
years after FHFA issued its directive, DER had
not established or implemented a quality control
                                                         The Enterprises rely heavily on counterparties for a
review process for its targeted examinations.
                                                         wide array of services, including mortgage sales and
(See OIG, Intermittent Efforts Over Almost Four
                                                         servicing. That reliance exposes the Enterprises to
Years to Develop a Quality Control Review Process
                                                         counterparty risk—that the counterparty will not
Deprived FHFA of Assurance of the Adequacy and
                                                         meet its contractual obligations. Generally, FHFA
Quality of Enterprise Examinations (EVL-2015-
                                                         has delegated to the Enterprises the management of
007, September 30, 2015), online at www.fhfaoig.
                                                         their relationships with counterparties and reviews
gov/Reports/AuditsAndEvaluations.) While DER
                                                         that management largely through its regulatory
committed to develop and implement a quality
                                                         responsibilities.
control review process for its examinations in
September 2012, intermittent attempts to do so           There are numerous counterparty relationships with
in 2013 and 2014 were met with strong resistance         the Enterprises and each carries risk. One critical
from DER’s staff and senior management.                  counterparty risk is the risk posed by loan originators
Notwithstanding the lack of a comprehensive quality      that are not depository institutions (also called
control review process for DER examinations, FHFA        nonbanks). In recent years, the share of Enterprise
continued to report on its website that it had such      single-family loan purchases from depository
a review process in place for all of its examination     institutions has fallen while the share of purchases
work. Absent such a review process, FHFA lacks           from nonbanks has risen. Based on OIG analysis of
adequate assurance that DER’s targeted examinations      Enterprise data, from 2010 to 2014 Fannie Mae’s
are accurate, complete, and of uniform high quality,     share of purchases of single-family loans from non-
which puts the credibility of its examination program    depository institutions increased from 17% to 49%
at risk.


18   Federal Housing Finance Agency Office of Inspector General
($187 billion), while Freddie Mac’s share increased          other sensitive information stolen from databases
from 10% to 38% ($97 billion).                               containing background investigation information.

Nonbank sellers are not regulated by federal financial       As we explained in a white paper issued earlier this
regulatory agencies and may not have the same                year,12 cyber attacks from outside an organization
financial strength, liquidity, or operational capacity       come in numerous forms and include attack vehicles
needed to meet their obligations to the Enterprises as       such as malicious software aimed at gaining control
depository institutions. As a result, there is a risk that   of a system or efforts compromising the availability
a nonbank seller that fails to honor its contractual         of a system or network by overloading the network.
obligations, such as by selling loans to an Enterprise       Broadly speaking, external cyber attackers can be
that do not comply with the Enterprise’s lending             grouped into three categories: “hacktivists,” who use
requirements, would not have sufficient capital              digital tools to promote a political or social agenda;
or liquidity to honor repurchase demands by the              nation states; and criminals who may directly attack
Enterprises for non-compliant loans. FHFA and                an organization’s system, or may attack indirectly
other financial market participants must address the         through a third party such as a vendor, contractor,
implications of a changing marketplace, including the        or counterparty.
attendant risks from nonbanks.
                                                             IT vulnerabilities also can come from inside an
While we did not complete a specific report assessing        organization. Employees and contractors, current or
controls to mitigate the risks from nonbank sellers          former, with authorized access to an organization’s
during this reporting period, work is currently              network or data can exceed or misuse access and
underway and we anticipate that our future report            compromise the confidentiality, integrity, or
on this will serve to strengthen FHFA’s supervisory          availability of the organization’s information or
program and reduce some of the risks.                        information systems. Even when an organization
                                                             builds high barriers to protect its electronic assets
IT Security                                                  from outsiders, it may have few protections against
                                                             insiders. Insider threats can be particularly potent
                                                             because insiders typically have greater access to
In 2012, then-FBI Director Robert Mueller warned
                                                             sensitive information, a better understanding of
that “there are only two types of companies: those
                                                             internal processes, and an understanding of potential
that have been hacked and those that will be.
                                                             weaknesses in controls.
And even they are converging into one category:
companies that have been hacked and will be                  Larry Zelvin, the former Director of the National
hacked again.”11 Recent cyber security incidents             Cybersecurity and Communications Integration
affecting the federal workforce illustrate the scope         Center at the Department of Homeland Security,
of potential attacks. The Office of Personnel                opined at a cyber security roundtable that, of the 16
Management (OPM), which provides personnel                   critical infrastructure sectors in this country, “finance
services to federal government agencies, said in one         probably wins the cyber security threat award.” He
incident 4.2 million current and former federal              called the industry “a massive target” because it is
employees had personnel data stolen. In a separate           “where the money is.”13 The Enterprises own or
but related incident, OPM said that 21.5 million             guarantee $5 trillion in mortgage assets supporting
people had their Social Security numbers and                 the U.S. mortgage market. As part of their processes



                                    Semiannual Report to the Congress • April 1, 2015–September 30, 2015           19
to guarantee or purchase loans, the Enterprises            Statutory, Cooperative, and
receive a substantial amount of information about          Stakeholder Reports and
mortgage borrowers, including financial data and
                                                           Responses
personally identifiable information. Fannie Mae and
Freddie Mac have been the subject of cyber attacks,
                                                           In addition to OIG’s risk-based audit, evaluation, and
although none caused significant harm. Similarly,
                                                           compliance work, OIG also completed other work
the FHLBanks and their Office of Finance have not
                                                           required by statute, incident to cooperative efforts,
experienced material losses related to cyber attacks or
                                                           and in response to stakeholder requests.
other breaches. All of the entities regulated by FHFA
acknowledge that the substantial precautions put into
                                                           Statutory Audit: Possible Improper
place to protect their information systems may be
                                                           Payments
vulnerable to penetration. In this regard, the cyber
threat to these entities is no different from the threat   Federal agencies regularly make payments to
to other major financial institutions.                     program beneficiaries (or on behalf of them),
                                                           grantees, vendors, and contractors. Some of these
We completed two audits during the reporting               payments may be “improper” in one or more
period assessing the existing information security         respects. For example, they may be made to the
programs at OIG and at FHFA. (See OIG, Kearney             wrong recipients, in the wrong amounts, at the
& Company, P.C.’s Independent Evaluation of the            wrong times, or for the wrong reasons. The IPIA as
Federal Housing Finance Agency Office of Inspector         amended requires federal agencies to periodically
General’s Information Security Program – 2015 (AUD-        review, determine, estimate, and report programs
2015-003, September 9, 2015); and OIG, Kearney &           and activities that may be susceptible to significant
Company, P.C.’s Independent Evaluation of the Federal      improper payments. Additionally, for improper
Housing Finance Agency’s Information Security Program      payments estimated in excess of the greater of 2.5%
– 2015 (AUD-2015-002, September 9, 2015), at               of program outlay or $10 million, an agency must
www.fhfaoig.gov/Reports/AuditsAndEvaluations.)             report the potential actions it is taking to reduce
Both audits were conducted in accordance with              and recapture improper payments.
FISMA. OIG contracted with an independent public
accounting firm, Kearney & Company, to perform             OIG is required to review FHFA’s improper payment
separate FISMA evaluations of FHFA’s and OIG’s             reporting in its annual Performance and Accountability
information security programs because FHFA and             Report (PAR) to determine whether FHFA is in
OIG maintain separate IT infrastructures. The              compliance with IPIA and to report this and other
objectives of these audits were to evaluate FHFA’s and     findings. However, not all IPIA requirements are
OIG’s information security programs and practices,         applicable to FHFA. In fact, most requirements of
including compliance with FISMA and related                IPIA and implementing guidance are not applicable to
information security policies, procedures, standards,      the Agency, as noted in Figure 3 (see page 21).
and guidelines. Because information in these reports
                                                           After reviewing applicable statutes, executive orders,
could be abused to circumvent FHFA’s and OIG’s
                                                           and other compliance requirements related to
internal controls, they have not been released
                                                           improper payments; reviewing various GAO audit
publicly.
                                                           reports; interviewing key FHFA officials; obtaining




20    Federal Housing Finance Agency Office of Inspector General
sufficient and appropriate evidence regarding              Figure 4, page 22) submit proposed audit topics for
compliance actions taken; and reviewing and                consideration, and CIGFO selects the audit topic.
assessing improper payment element requirements            While one CIGFO member leads the audit, the audit
and related activities, OIG concluded that FHFA            report only issues when it has been reviewed and
complied with the applicable statutory improper            approved by CIGFO.
payment requirements, as well as related OMB
                                                           OIG proposed to CIGFO that its annual audit
criteria. (See OIG, FHFA Complied with Applicable
                                                           should assess the extent to which FSOC is
Improper Payment Requirements During Fiscal Year
                                                           monitoring interest rate risk to the financial system.
2014 (AUD-2015-001, May 14, 2015), online at
                                                           Interest rate risk is the exposure of an individual’s
www.fhfaoig.gov/Reports/AuditsAndEvaluations.)
                                                           or an institution’s financial condition to changing
                                                           interest rates and this risk affects every financial
Cooperative Effort: CIGFO Audit
                                                           institution to some degree. Interest rate risk has been
OIG is a member of CIGFO, which provides                   identified as a recurring potential threat in FSOC’s
oversight of the Financial Stability Oversight Council     annual reports since 2011. CIGFO approved OIG’s
(FSOC). By statute, CIGFO is authorized to evaluate        proposed audit and convened a Working Group, led
the effectiveness and internal operations of FSOC,         by OIG, to conduct the audit and CIGFO issued the
and it has been fulfilling this role by conducting         audit report on July 27, 2015. (See CIGFO, Audit of
annual audits of FSOC. CIGFO members (see                  the Financial Stability Oversight Council’s Monitoring


Figure 3. FHFA’s Compliance Under IPIA, As Amended, for Fiscal Year 2014

                   Compliant Element                                            FHFA Action
The agency has published an annual PAR or Annual          FHFA published its 2014 PAR and included relevant
Financial Report (AFR) for the most recent fiscal         information pertaining to improper payments.
year and posted that report and any accompanying
materials required under guidance of OMB on the
agency website.
The agency has conducted a program-specific risk          FHFA determined that this section of the IPIA, as
assessment for each program or activity that conforms     amended, is not applicable.
with the IPIA, as amended (31 U.S.C. § 3321 note) (if
required).
The agency has published improper payments                FHFA determined that this section of the IPIA, as
estimates for programs and activities identified as       amended, is not applicable.
susceptible to significant improper payments under its
risk assessment (if required).
The agency has published programmatic corrective          FHFA determined that this section of the IPIA, as
action plans in its PAR or AFR (if required).             amended, is not applicable.
The agency has published, and is meeting, improper        FHFA determined that this section of the IPIA, as
payments reduction targets for each program assessed      amended, is not applicable.
to be at risk and estimated for improper payments (if
required and applicable).
The agency has reported a gross improper payment          FHFA determined that this section of the IPIA, as
rate of less than 10% for each program and activity for   amended, is not applicable.
which an estimate was obtained and published in its
PAR or AFR.



                                  Semiannual Report to the Congress • April 1, 2015–September 30, 2015        21
Figure 4. FSOC Council Membership14

                    Federal and Independent Members                                 State Members
 •	Secretary of Treasury, Chairperson (v)                               •	 State Insurance Commissioner
 •	Chairman of the Board of Governors of the Federal Reserve System (v) •	 State Banking Supervisor
 •	Comptroller of the Currency (v)                                      •	 State Securities Commissioner
 •	Director of the Consumer Financial Protection Bureau (v)
 •	Chairman of the Securities and Exchange Commission (SEC) (v)
 •	Chairperson of the Federal Deposit Insurance Corporation (FDIC) (v)
 •	Chairperson of the Commodity Futures Trading Commission (v)
 •	Director of FHFA (v)
 •	Chairman of the National Credit Union Administration Board (v)
 •	Director of the Office of Financial Research
 •	Director of the Federal Insurance Office
 •	Independent member with insurance expertise (v)
   (v) Indicates Voting Member


of Interest Rate Risk to the Financial System (CIGFO-       In its written response, FSOC stated that its annual
2015-001, July 27, 2015), online at www.treasury.           reports are designed to focus the attention of
gov/about/organizational-structure/ig/Pages/Council-        regulators, policymakers, Congress, and members
of-Inspectors-General-on-Financial-Oversight.aspx.)         of the public on potential risks to financial stability
                                                            and how those risks should be addressed, rather than
FSOC monitors interest rate risk on an ongoing
                                                            describing all market developments and potential risk
basis by facilitating the sharing of financial
                                                            hypotheses. However, FSOC added that it remains
expertise and information among its members and
                                                            committed to providing as much transparency as
member agencies and by making annual report
                                                            possible regarding its work, and to the extent that
recommendations. However, the CIGFO audit found
                                                            it no longer recommends action related to a risk
that the lack of public documentation explaining
                                                            area identified in a prior annual report, it agreed
FSOC’s decisions to remove recommendations with
                                                            to consider how to provide additional information
respect to interest rate risk made in prior annual
                                                            regarding its analysis.
reports creates a lack of transparency around the
process for removing recommendations.                       The CIGFO audit noted that FSOC did not
                                                            specifically agree or disagree with the recommendation
CIGFO recommended that FSOC document in its
                                                            in its response. However, it stated that if FSOC
annual reports to Congress its rationale for removing
                                                            provides additional information regarding its rationale
prior year recommendations related to interest rate
                                                            for removing prior recommendations in its subsequent
risk. (While the recommendation included in the
                                                            annual reports, such FSOC action would be
report relates specifically to interest rate risk, it may
                                                            responsive to the audit recommendation.
be applied, as applicable, to other annual report
recommendations.) The recommendation, if adopted
and implemented, will increase transparency and
accountability in FSOC’s annual reports.




22    Federal Housing Finance Agency Office of Inspector General
Responses to Stakeholder Requests                         these cases and found no allegations, statements, or
                                                          judicial findings of fact that suggested that non-career
Report Responsive to Congressional Request                officials were involved, or attempted to be involved,
Regarding Involvement of Non-career Officials in          with the Agency’s FOIA process. For those reasons,
FHFA’s Responses to FOIA Requests                         OIG concluded that non-career officials had not
The Senate Committee on Homeland Security and             been involved in FHFA’s FOIA process. (See OIG,
Government Affairs asked a number of IG offices           FHFA Non-Career Employees Have Not Been Involved
to assess whether non-career officials (i.e., political   in FHFA’s Freedom of Information Act Process (COM-
appointees and employees hired under Schedule C of        2015-002, August 6, 2015), online at www.fhfaoig.
the excepted service) were involved in the respective     gov/Reports/AuditsAndEvaluations.)
agency’s FOIA 5 U.S.C. § 552 process and, if so,
whether their involvement resulted in any undue           Response to Congressional Request Relating to
delay in the agency’s response to a FOIA request or       FHFA’s Oversight of Enterprises’ Internal Controls
the withholding of any document or portion of a           Over Maintenance by Third-Party Contractors of
document that would have been provided but for            Real Estate Owned Properties in the Enterprises’
their involvement.                                        Inventories

                                                          In July 2015, OIG responded to a congressional
OIG interviewed the officials responsible for the
                                                          request for an assessment of FHFA’s oversight of
Agency’s FOIA program. In separate interviews,
                                                          the Enterprises’ internal controls over contractors’
FHFA’s General Counsel, Chief FOIA Officer,
                                                          maintenance of real estate owned (REO) properties
and FOIA Officer (all career officials) each stated,
                                                          in their inventories. (See Letter to the Honorable
unequivocally, that to the best of his or her
                                                          Elijah E. Cummings, dated July 24, 2015, online at
knowledge, non-career officials have never attempted
                                                          www.fhfaoig.gov/Reports/AdditionalActionItems.)
to involve themselves in the Agency’s FOIA process.
                                                          OIG conducted an audit survey to: (1) understand
Each stated that non-career officials never caused
                                                          the requirements imposed by the Enterprises on
or attempted to cause them to redact, withhold, or
                                                          their REO vendors for the initial and ongoing
delay the release of any information through the
                                                          maintenance of REO properties and the differences,
FOIA process. OIG tested the assertions of these
                                                          if any, in these requirements between the Enterprises;
Agency officials by determining the identities of all
                                                          (2) determine whether the Enterprises adopted
FHFA non-career officials during the relevant period
                                                          internal controls to monitor work performed by their
and reviewing a sample of 20 FOIA requests that
                                                          vendors; and (3) assess whether the Enterprises took
were partially denied or denied during the service of
                                                          remedial actions against their REO vendors when
non-career officials at FHFA. It found no evidence
                                                          their internal controls identified deficiencies.
that non-career officials influenced or attempted to
influence FHFA’s FOIA office’s decisions in these         OIG found that the Enterprises have announced
cases or caused any delays in the processing of the       virtually identical strategic goals for the maintenance
requests. OIG also analyzed all of the FOIA-related       of their REO properties: to secure and maintain
litigation brought against FHFA to date. None of          them so that they are appealing to prospective buyers
the plaintiffs in these cases alleged that they were      and ready for sale. Both Enterprises retain vendors
denied information due to the involvement of non-         to maintain their REO properties and impose
career officials in the Agency’s FOIA process. OIG        standards for the maintenance of such properties in
examined the pleadings, papers, and decisions in          their respective vendor contracts. OIG found that,

                                   Semiannual Report to the Congress • April 1, 2015–September 30, 2015       23
pursuant to their strategic goals, both Enterprises
impose contractual requirements on their REO
vendors to maintain all REO properties, regardless of
their location, without regard to race, color, religion,
sex, handicap, familial status, or national origin.
Similarly, contracts used by both Enterprises require
REO maintenance vendors to comply with anti-
discrimination laws, including the Fair Housing Act.

The Enterprises’ vendor contracts also require
vendors to perform defined “initial” and
“ongoing” maintenance activities. Both Enterprises
confirmed that contract requirements, standards,
and timing metrics are reinforced through
corresponding mandatory training provided by
the Enterprises to their vendors and supplemental
internal controls. These controls include: broker
inspection of vendors, establishment of complaint
hotlines, quality control inspections performed
by independent inspection contractors, internal
Enterprise review of independent quality control
inspection reports, and onsite assessments of REO
properties by Enterprise employees. Through
implementation of these controls, both Enterprises
have identified material deficiencies with the
maintenance performed by several REO vendors
and imposed remedial measures.


Recommendations

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




24    Federal Housing Finance Agency Office of Inspector General
OIG’s Investigations

This OIG is vested with statutory law enforcement           Investigations: Civil Cases
authority, which is exercised by OI. OI is staffed by
highly trained law enforcement officers, investigative      During the reporting period, OIG continued to
counsel, forensic auditors, and support staff               actively participate in the Residential Mortgage-
who conduct investigations related to programs              Backed Securities (RMBS) Working Group.
overseen by FHFA. Depending on the type of                  Established by the President in 2012 to investigate
misconduct uncovered during OIG investigations,             individuals and entities responsible for misconduct
the investigations may result in criminal charges,          involving the pooling of mortgage loans and sale of
civil complaints, and/or administrative sanctions           RMBS, the Working Group is a collaborative effort of
and decisions. Criminal charges filed against               dozens of federal and state law enforcement agencies.
individuals or entities may result in plea agreements       Since the inception of the RMBS Working Group,
or trials, incarceration, restitution, fines, and           DOJ has negotiated civil settlements worth over
penalties. Civil claims can lead to settlements or          $32 billion. Among other things, we have reviewed
verdicts with restitution, fines, penalties, forfeitures,   evidence produced by various parties for members of
assessments, and exclusion of individuals or entities       the Working Group, assisted with witness interviews,
from participation in federal programs. Five OIG            provided strategic litigation advice, and briefed other
investigative counsels have been appointed as Special       law enforcement agencies on the operations of the
Assistant U.S. Attorneys (SAUSA) in several judicial        RMBS market.
districts throughout the country and have prosecuted
through guilty plea or trial criminal cases arising         We continue to work closely with U.S. Attorneys’
from OI’s investigations in those districts. During         offices around the country and with state attorneys
the semiannual period, OI conducted numerous                general to investigate allegations of fraud committed
criminal, civil, and administrative investigations,         by financial institutions and individuals in
which resulted in the filing of criminal charges against    connection with RMBS.
95 individuals, the conviction of 54 individuals, and       Figure 5. Prosecutions and Recoveries from
65 sentencings, as well as court-ordered fines and          April 1, 2015, Through September 30, 2015
restitution awards. Figure 5 (see right) summarizes
                                                                                    Criminal                 Civil
the results obtained during this reporting period from                           Investigations         Investigations
our investigative efforts.                                      Finesa               $60,787,725                         $-
                                                                Settlements                       $-                     $-
For ease of review of our OI activities, we group
                                                                Restitutions         $72,068,931                         $-
our criminal investigations during this period into
                                                                Total              $132,856,656                          $-
the categories described below. In each category,
we describe the nature of the crime and include                 Charges                         95
a few highlights of matters investigated by OIG.                Convictions                     54
For a summary of publicly reportable investigative              Sentencings                     65
outcomes for each category during this reporting                Trials                            7
period, see Appendices E-M.                                 a
                                                             Fines include criminal fines, seizures, forfeiture and special
                                                            assessments, and civil fines imposed by federal court.

                                    Semiannual Report to the Congress • April 1, 2015–September 30, 2015                25
Investigations: Criminal Cases                             The three defendants were indicted on September 3,
                                                           2015.

RMBS Schemes                                               Condo Conversion and Builder
In this type of fraudulent conspiracy, traders             Bailout Schemes
fraudulently manipulate the buying and selling prices      In these types of schemes, sellers or developers
of RMBS bonds, causing customers to pay more               typically solicit investors with good credit who
to purchase the RMBS securities and to receive less        want low-risk investment opportunities by offering
when they sell RMBS securities. Below we provide           deals on properties with no money down and
one highlight of OIG investigative work during this        other lucrative incentives, such as cash back and
reporting period in this category. (See Appendix L         guaranteed and immediate rent collection. The
for a summary of publicly reportable investigative         sellers fund these incentives with inflated sales
outcomes in this category.)                                prices. The fraudsters conceal the incentives and the
                                                           true property values from the lenders, defrauding
Indictment of Nomura Bond Traders
                                                           them into making loans that are much riskier
Three former bond traders were indicted in a               than they appear. When the properties go into
10-count indictment alleging fraud in connection           foreclosure, lenders suffer large losses.
with sales of RMBS bonds. The indictment alleges
                                                           Below we provide some highlights of OIG
that the three former supervisory traders, who sat on
                                                           investigative work during this reporting period in this
the RMBS desk at Nomura Securities International,
                                                           category. (See Appendix E for a summary of publicly
Inc. (Nomura) in New York, engaged in a conspiracy
                                                           reportable investigative outcomes in this category.)
to defraud Nomura customers. The indictment
alleges that Nomura traders falsely stated the prices of   Trial Victory in South Florida Condominium Case
RMBS bonds to their customers. When a customer
                                                           In an elaborate scheme, developers of multiple
agreed to buy an RMBS bond, the traders falsely
                                                           condominium conversion projects across South
inflated the price that Nomura paid for the bond,
                                                           Florida offered incentives, including payment of
thereby inducing the customer to pay a higher overall
                                                           cash-to-close, guaranteed rent and condo fees, and
price. Alternatively, when a customer negotiated
                                                           cash rebates to so-called “investors.” Many of these
to sell an RMBS bond, the traders fraudulently
                                                           purchasers were inexperienced in financial matters
deflated the price at which Nomura could sell the
                                                           and could not understand English. For example,
bond, thereby inducing the customer to accept a
                                                           buyers at one condominium development in Palm
lower overall price. The indictment further alleges
                                                           Beach County could purchase condominium units
these actions provided Nomura, and the indicted
                                                           for $340,000 without putting up a penny of their
traders, an extra and unearned profit at the customer’s
                                                           own money and receive as much as $25,000 cash
expense. According to the indictment, the three
                                                           back after closing. The developers also promised to
co-conspirators also trained their subordinates to lie
                                                           pay the difference between the unit’s rental income
to customers and provided them with the language
                                                           and the buyer’s monthly mortgage payment and
to use to deceive customers. The indictment further
                                                           condo fees for up to two years.
alleges that defendants created fictitious third parties
in an effort to increase their profits.                    The incentives were concealed from the lenders
                                                           that provided the mortgages, and many of the


26    Federal Housing Finance Agency Office of Inspector General
fraudulently obtained mortgage loans were later                   Multiple individuals have been charged in this case.
sold to Freddie Mac. The conspirators included real               In one instance, an indictment and a superseding
estate developers, a lawyer/title agent, real estate              indictment were returned charging four individuals
brokers, a loan officer, and others. One defendant was            with conspiracy and bank fraud. Three of those four
employed as a loan officer at a major bank, and was               charged pled guilty before trial. Trial began against
paid approximately $2,000 cash per loan approved to               the developer in April 2015. The developer claimed
“look the other way.”                                             he relied on legal advice from his attorney/title agent,
                                                                  but that individual testified against him at trial.
After a short time, the developers stopped paying the
                                                                  After 10 trial days, the jury rejected the advice-of-
guaranteed rent and condo fees, and the buyers began
                                                                  counsel defense and returned a guilty verdict, finding
to default on their mortgages. Local press reported
                                                                  the developer guilty of conspiracy to commit bank
at the time a foreclosure rate exceeding 70% at the
                                                                  fraud. The court subsequently sentenced him to 3
condominium complex.




Evidence presented at trial: An email from the real estate broker to an attorney/escrow agent, two of the co-conspirators.
The real estate developer on trial is cc’d.


                                       Semiannual Report to the Congress • April 1, 2015–September 30, 2015                  27
years in prison, forfeiture of approximately $500,000        Fraud Committed Against the Enterprises,
in profits, and the payment of approximately                 the FHLBanks, or FHLBank Member
$12.5 million in restitution.                                Institutions
To date, the investigation has resulted in eight             Investigations in this category involve a variety of
convictions—seven by guilty plea—and restitution             schemes that target Fannie Mae, Freddie Mac, the
orders totaling approximately $18 million. This case         FHLBanks, or members of FHLBanks. Below we
was a referral to OIG by Freddie Mac’s Financial             provide highlights of OIG investigative work during
Fraud Investigation Unit, after which OIG partnered          this reporting period in this category. (See Appendix
with the FBI. An OI investigative counsel acting as          F for a summary of publicly reportable investigative
an SAUSA handled the prosecution of all defendants           outcomes in this category.)
in this investigation from the initiation of criminal
charges through guilty pleas, trial, and sentencing.         Fraud Involving the FHLBanks’ Affordable
                                                             Housing Fund
Two Indicted in Elaborate Condominium Scheme                 The FHLBank of Dallas provides Affordable
Resulting in Losses to the Enterprises                       Housing Program (AHP) funds to eligible entities
On April 29, 2015, two individuals were indicted             through a competitive grant funds program created
on charges of conspiracy to commit wire fraud                by Congress to address local housing needs. The
and wire fraud affecting a financial institution.            indictment alleged that, from February 2010
The indictment alleged that Osbel Sanchez and                through August 2012, Marlene Williams, Executive
David Cevallos, acting in concert with others,               Director of a nonprofit organization, Fiscal Integrity
bought or facilitated the sales of condominiums to           & Economic Development Association, Inc.
straw buyers at inflated prices. According to the            (FIED), and Kayla Lindsey, Chief Financial Officer
indictment, the inflated prices allowed the sellers          of FIED, applied to the FHLBank of Dallas for
in the transactions, also co-conspirators, to sell the       AHP funds through Trustmark Bank, an FHLBank
condominiums for more than their market value                of Dallas member bank. FIED was approved for,
and sales proceeds were allegedly divided among the          and received, the AHP funds.
participants in the scheme.
                                                             According to the indictment, Williams and Lindsey
The indictment charges that the conspirators obtained        submitted, or facilitated the submission of, inflated
mortgage loans from various financial institutions           contractor invoices to the FHLBank of Dallas in
using fraudulent mortgage applications to fund the           order to carry out their scheme. It alleged that
purchase of the condominiums. The indictment                 Williams and Lindsey convinced home repair
further alleges the mortgage applications omitted            contractors to inflate their invoices to pay for fees
material facts, including the existence of straw buyers      that were allegedly due to Williams and Lindsey for
and the payment of kickbacks to buyers, brokers,             working on the grants. The indictment charged that
and other real estate professionals and third-party          the contractors kicked back approximately 20% of
entities involved in the scheme. According to the            the AHP grant funds they received for repairs to
indictment, the scheme resulted in approximately             Williams and Lindsey or their affiliated business.
$4.2 million in losses to financial institutions including
                                                             On September 10, 2015, Williams pled guilty to a
the Enterprises. A trial date has not yet been set.
                                                             conspiracy to make false statements to the FHLBank



28    Federal Housing Finance Agency Office of Inspector General
of Dallas and is scheduled to be sentenced on              fees to individuals who referred other straw buyers
November 19, 2015. Lindsey is scheduled for trial on       to him, and to compensate himself. In his agreement
December 7, 2015.                                          to plead guilty to conspiracy, wire fraud affecting a
                                                           financial institution, and aggravated identity theft,
Loan Origination Schemes                                   Agodio admitted that he falsely represented that the
Loan or mortgage origination schemes are the most          straw buyers would use the properties as their primary
common type of mortgage fraud. These schemes               residences and provided fraudulent earnings and bank
typically involve falsifying borrowers’ income,            statements for the straw buyers to document the false
assets, employment, and credit profiles to make            representations in the loan applications. Eventually, all
them more attractive to lenders. These schemes             the loans went into default.
often use bogus Social Security numbers and fake           In early September 2015, Miles and Campbell were
or altered documents such as W-2 forms and                 sentenced to 18 and 19 months of incarceration,
bank statements to defraud lenders into making             respectively; 5 years of supervised release; and
loans they would not otherwise make. Typically,            ordered to pay Fannie Mae, Freddie Mac, and other
perpetrators pocket origination fees or inflate home       institutions roughly $1.2 million. On July 21,
prices and divert proceeds.                                2015, Agodio pled guilty and is currently awaiting
Below we provide some highlights of OIG                    sentencing.
investigative work during this reporting period in this
                                                           Loan Origination Scheme Caused Over $4 Million
category. (See Appendix G for a summary of publicly
                                                           in Losses
reportable investigative outcomes in this category.)
                                                           Lawrence Day, a recruiter, Donald Mattox, a home
Two Individuals Sentenced and One Pleads Guilty            builder/seller, and Michael Edwards, a loan officer,
in Maryland Loan Origination Scheme                        were indicted in federal court for conspiring with
Kevin Campbell, an investor in Baltimore residential       others to defraud lending institutions by inducing
real estate and Jonathan Lee Miles, a loan officer for a   them to fund mortgage loans by using material
local mortgage brokerage, caused false information to      misrepresentations and omissions of material facts in
be provided to mortgage lenders to enable prospective      HUD-1 Settlement Statements, loan applications,
purchasers to qualify for 18 home mortgage loans           and other loan documents.
on properties that they could not actually afford.         According to the indictment, the defendants
In a related case, from 2009 through 2010, Alberic         caused fraudulent loan documents to be submitted
Okou Agodio recruited straw buyers to purchase             to lending institutions knowing that the lending
almost three dozen row houses in Baltimore from            institutions would rely upon the materially
Campbell at prices far in excess of their actual market    fraudulent representations when funding the
value. Agodio secured financing of approximately           mortgage loans. Day, Mattox, Edwards, and others
$3.8 million through Miles on behalf of the straw          allegedly distributed portions of the loan proceeds to
buyers, with loans for which Campbell paid                 the conspirators for personal gain causing a loss of
$1.2 million to Agodio, which Agodio then used             approximately $4.8 million to Fannie Mae and other
to pay for the down payments and closing costs,            financial institutions.
commissions to individuals who allowed him to falsely
designate them as purchasers (“straw buyers”), referral


                                   Semiannual Report to the Congress • April 1, 2015–September 30, 2015         29
During this reporting period, Day, Mattox, and            Mae, to permit the defendants to sell the properties
Edwards pled guilty. Day was sentenced to 90              in short sales.
months in prison, 3 years of supervised release, and
                                                          During the investigation, OIG uncovered evidence
ordered to pay $3,108,998 in restitution. Edwards
                                                          of additional criminal activity, including money
was sentenced to 46 months in prison, 1 year of
                                                          laundering and trafficking of stolen credit cards
supervised release, and ordered to pay $1,300,402 in
                                                          and illegal drugs, involving these two individuals,
restitution. Mattox is awaiting sentencing.
                                                          as well as four other who were also indicted on
                                                          September 10, 2015.
Short Sale Schemes
Short sales occur when a lender allows a borrower         Loan Modification and Property
who is “underwater” on his/her loan—that is, the          Disposition Schemes
borrower owes more than the property securing the
                                                          These schemes prey on homeowners who are
loan is worth—to sell his/her property for less than
                                                          in default or are at risk of imminent default on
the debt owed. Short sale fraud usually involves
                                                          their home loans. Businesses advertise that they
a borrower intentionally misrepresenting or not
                                                          can secure loan modifications, provided that the
disclosing material facts to induce a lender to agree
                                                          homeowners pay significant upfront fees. Typically,
to a short sale to which it would not otherwise agree.
                                                          these businesses take little or no action, leaving
Below are some highlights of OIG investigative work
                                                          homeowners in a worse position. Below are some
during this reporting period in this category. (See
                                                          highlights of OIG investigative work during this
Appendix H for a summary of publicly reportable
                                                          reporting period in this category. (See Appendix I
investigative outcomes in this category.)
                                                          for a summary of publicly reportable investigative
                                                          outcomes in this category.)
Foreclosure Scam, Drug Trafficking, and Money
Laundering Scheme, Texas
                                                          Three Convicted, Sentenced in California Loan
On September 10, 2015, two individuals were               Modification Case
indicted on charges of bank fraud, conspiracy to
                                                          Between 2012 and 2014, Christopher George, a
commit bank fraud, and aggravated identity theft for
                                                          co-owner of 21st Century, Crystal Buck, and Albert
their roles in a foreclosure scam.
                                                          DiRoberto, both sales employees at 21st Century,
According to the indictment, the defendants allegedly     along with eight other individuals were indicted for
fraudulently deeded to themselves properties that         a scheme to defraud more than 4,000 financially
were vacant and going through the foreclosure             distressed homeowners of more than $7 million
process. The true owners were not aware that the          by having them pay for services, including loan
defendants had allegedly stolen their properties.         modifications, which were never provided.
Once the homes were fraudulently recorded in the
                                                          According to the indictment, the 11 defendants
defendants’ names, the defendants allegedly filed
                                                          contacted distressed homeowners and made
lawsuits that falsely asserted they were the owners
                                                          numerous false or misleading statements, including
of the properties. As a result of the lawsuits, the
                                                          that 21st Century: (1) was operating through a
foreclosure proceedings were temporarily stopped.
                                                          federal government program; (2) would be able to
The defendants then allegedly tried to convince the
                                                          obtain new mortgages with specific interest rates and
foreclosing financial institutions, including Fannie
                                                          reduced payments; and (3) would negotiate loan

30    Federal Housing Finance Agency Office of Inspector General
modifications with their lenders. The indictment                  unlicensed title agents, an attorney, another loan
alleged that, once hired, 21st Century regularly                  officer, and a real estate agent to cause lenders
instructed its clients to stop making mortgage                    to release liens on encumbered properties via
payments and to cut off all contact with their                    fraudulently arranged short sale transactions. DiValli’s
lenders because 21st Century would negotiate                      co-conspirators allegedly recruited straw buyers and
the modifications. Many of these loans had been                   submitted false loan applications and documents to
purchased by Fannie Mae and Freddie Mac.                          obtain mortgages. DiValli fraudulently induced a
                                                                  lender to secure a modification of a loan on the loan
After a five-week jury trial, three defendants were
                                                                  officer’s personal residence. As a result of misconduct
found guilty for their roles in the scheme and
                                                                  by DiValli and co-conspirators, lenders accepted
ultimately sentenced on September 28, 2015. George
                                                                  proceeds of purported short sales in full satisfaction of
was sentenced to 20 years in prison, 5 years of
                                                                  existing mortgages, and the losses to these lenders as
supervised release, and ordered to pay $7,065,117 in
                                                                  a result of the scheme allegedly totaled approximately
restitution. Buck and DiRoberto were each sentenced
                                                                  $2 million. Fannie Mae purchased or secured over
to 5 years in prison.
                                                                  100 loans from the affected lenders.
The remaining eight defendants referenced pled
                                                                  During this reporting period, DiValli pled guilty to
guilty during previous reporting cycles; two of these
                                                                  conspiracy to commit wire fraud, wire fraud, and tax
defendants were sentenced and the remaining six
                                                                  evasion. He is awaiting sentencing in federal court.
defendants await sentencing. An additional defendant
                                                                  In addition, during this reporting period five of the
was indicted in September 2015.
                                                                  co-conspirators, Delio Coutinho, Amedeo Gaglioti,
Loan Modification, Short Sale, Origination Fraud                  Carmine Fusco, Christopher Ju, and Kenneth
Scheme                                                            Sweetman received sentences ranging from supervised
                                                                  release to 36 months in prison and were ordered to
In December 2014, Joseph DiValli, a loan officer,                 pay restitution.
was indicted for conspiring with others, including




Evidence presented at trial—a script given to employees of 21st Century in order to secure victims as clients.


                                       Semiannual Report to the Congress • April 1, 2015–September 30, 2015            31
Property Management and REO Schemes                        (See Appendix K for a summary of publicly
                                                           reportable investigative outcomes in this category.)
The wave of foreclosures following the housing
crisis left the Enterprises with an inventory of REO
                                                           Four Charged in Adverse Possession Scheme
properties (i.e., properties that the Enterprises took
back in foreclosure, possess, and are responsible          On June 30, 2015, David Farr, Torrez Moore,
to maintain). This REO inventory has sparked a             Raymond Trimble, and Arshad Thomas were charged
number of different schemes to either defraud the          by criminal complaint for allegedly filing false title
Enterprises, which use contractors to secure, maintain     documents for six properties with the Cook County
and repair, price, and ultimately sell their properties,   Recorder of Deeds and using friends and family
or defraud individuals seeking to purchase REO             members to occupy the properties unlawfully. Five of
properties from the Enterprises.                           the six properties were Fannie Mae REO properties.

Below we provide some highlights of OIG                    The four defendants are allegedly sovereign citizens
investigative work during this reporting period in this    who do not recognize the authority of federal or
category. (See Appendix J for a summary of publicly        state law.
reportable investigative outcomes in this category.)
                                                           Multi-family Schemes
Three Charged in Arizona REO Scheme                        Investigations in this category involve a variety of
On August 26, 2015, Daphne Iatridis, her husband           fraud schemes that relate to loans issued by the
Arthur Telles, and son Brendyn Iatridis, all real          Enterprises to finance multi-family apartment
estate agents, were indicted by a federal grand jury       buildings. A multi-family building is a building that
for their roles in a fraud scheme involving Fannie         has four or more units available for rent. Below are
Mae REO properties. According to the indictment,           highlights of OIG investigative work during this
Iatridis, a Fannie Mae REO-approved agent, along           reporting period in this category. (See Appendix M
with her husband and son, conspired to purchase 28         for a summary of publicly reportable investigative
Fannie Mae REO properties in violation of Fannie           outcomes in this category.)
Mae rules by using the identities of others. The
indictment further alleged that, among other things,       Fraudulent Multi-family Loan/Extortion Plea,
the co-conspirators purchased the REO properties           Carbondale, Illinois
at a discounted price, overcharged Fannie Mae for          In May 2015, Maximus Yaney, an owner of multi-
maintenance and expenses, and rented the REO               family properties in Carbondale, Illinois, was indicted
properties for personal benefit.                           for allegedly acting in concert with his employees,
                                                           including James Russell, for conspiring to commit
Adverse Possession Schemes                                 fraud to obtain a loan to purchase an apartment
Adverse possession schemes use illegal adverse             building. The indictment alleged that Yaney used
possession (also known as “home squatting”) or             one of his companies, H.G. Capital, LLC, to
fraudulent documentation to control distressed             purchase an apartment building for $2,710,000
homes, foreclosed homes, and REO properties.               and then caused H.G. Capital to sell the building
Below we provide highlights of OIG investigative           to another company that he owned for $9,780,000.
work during this reporting period in this category.        To obtain the necessary financing, Yaney allegedly



32    Federal Housing Finance Agency Office of Inspector General
made material misrepresentations and omissions to        Office, King County Washington District Attorney’s
lenders, including failure to disclose his ownership     Office, Hudson County Prosecutor’s Office,
in both companies and submitting false information       Florida Office of Financial Regulation, Broward
regarding the rental status of apartments in the         County Sheriff’s Office, Florida Department of Law
building. As a result of the alleged fraud, Fannie       Enforcement, Broward County State Attorney’s
Mae lost $6,602,226 and one of its delegated             Office, Chicago Police Department, Cook County
underwriting servicers, Greystone Servicing, lost        State Attorney’s Office, Wayne County Prosecutor’s
$1,146,793.                                              Office, DuPage County State Attorney’s Office, Burr
                                                         Ridge Police Department, Elk Grove Village Police
During this reporting period, both Yaney and Russell
                                                         Department, Flossmoor Police Department, and
were sentenced. Yaney was sentenced to 18 months
                                                         the attorneys general of California, New York, New
in prison. Prior to sentencing, Yaney made full
                                                         Jersey, Florida, and Mississippi.
restitution payments to Fannie Mae and Greystone
Servicing. Russell was sentenced to 18 months in
prison and ordered to pay $204,484 in restitution.       Investigations: Administrative
                                                         Actions
Outreach
                                                         Many OIG investigations result in administrative
OIG develops public-private partnerships where           referrals to other entities for action based upon the
appropriate. We delivered 43 fraud awareness             results of OI’s investigative work. For example, a
briefings to different audiences to raise awareness of   guilty plea of participation in a bank fraud scheme
OIG’s law enforcement mission and of fraud schemes       by a licensed real estate agent or attorney or certified
targeting FHFA programs.                                 public accountant may result in a referral to a state
                                                         licensing body for disciplinary actions. By the same
OIG has developed and intends to further strengthen      token, participation by a real estate professional in
ongoing close working relationships with other law       mortgage fraud may result in a referral to another
enforcement agencies, including DOJ and U.S.             federal agency for possible suspension or debarment
Attorneys’ offices; the FBI; HUD-OIG; the Federal        from participation in federal programs. During
Deposit Insurance Corporation Office of Inspector        this reporting period, OIG made 83 referrals for
General; IRS-CI; SIGTARP; the Financial Crimes           suspension and debarment.
Enforcement Network; state attorneys general;
mortgage fraud working groups; and other federal,
                                                         Suspended Counterparty
state, and local law enforcement agencies nationwide.
OI also works closely with Fannie Mae’s Mortgage
                                                         Referrals
Fraud Program and with Freddie Mac’s Financial
Fraud Investigation Unit.                                FHFA has adopted a Suspended Counterparty
                                                         Program under which it issues “suspension orders
During this reporting period OIG worked with             directing the regulated entities to cease or refrain”
additional local and state partners including the        from doing business with counterparties (and
Stanislaus County California District Attorney’s         their affiliates) who were previously found to have
Office, Ventura County California District Attorney’s    “engaged in covered misconduct.” Suspension of such



                                  Semiannual Report to the Congress • April 1, 2015–September 30, 2015        33
counterparties is warranted to protect the safety and
soundness of the regulated entities. For purposes of
the program, covered misconduct means:

     Any conviction or administrative sanction
     within the past three (3) years if the
     basis of such action involved fraud,
     embezzlement, theft, conversion, forgery,
     bribery, perjury, making false statements
     or claims, tax evasion, obstruction of
     justice, or any similar offense, in each case
     in connection with a mortgage, mortgage
     business, mortgage securities or other
     lending product.

During this reporting period, OIG made 40 referrals
of counterparties to FHFA for consideration
of potential suspension under its Suspended
Counterparty Program.

A summary of OIG’s referrals during the reporting
period is captured in Figure 6 (see below).

Figure 6. Administrative Actions from April 1,
2015, Through September 30, 2015

               Administrative Actions
Suspension/Debarment Referrals                       83
Referral to FHFA Suspended Counterparty              40
Program




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

Regulatory Activities                                     Public and Private Partnerships,
                                                          Outreach, and Communications
Pursuant to the Inspector General Act, OIG is
tasked with assessing whether proposed legislation        The Enterprises and the FHLBanks play a critical
and regulations related to FHFA are efficient,            role in the U.S. housing finance system and recent
economical, legal, and susceptible to fraud and           history has shown that financial distress at the
abuse. During this reporting period, FHFA sought          Enterprises and deteriorating conditions in U.S.
OIG review on one proposed rule and six final             housing and financial markets threatened the U.S.
rules, which OIG provided. Five of these final rules      economy. American taxpayers put their money and
have been published; the sixth has not. Of the five       confidence in the hands of regulators and lawmakers
published final rules, OIG provided substantive           to restore stability to the economy and decisions were
comment for two during FHFA’s proposed rule-              made to invest $187.5 billion in the Enterprises.
making procedures. (For more information about            The continuing outsized role of the Enterprises and
OIG’s comments on the proposed rules, see OIG,            FHLBanks in housing finance demands constant
Semiannual Report to the Congress: April 1, 2014,         supervision and monitoring. Fundamental to OIG’s
through September 30, 2014, at page 44 “Enterprise        mission is independent and transparent oversight
Housing Goals;” and OIG, Semiannual Report to the         of Agency programs and operations, and of the
Congress: October 1, 2011, through March 31, 2012,        Enterprises to the extent FHFA, as conservator, has
at page 47 “Federal Home Loan Bank Community              delegated responsibilities to them.
Support Requirements.” Both reports are online at
www.fhfaoig.gov/Reports/Semiannual.)                      Our focus on risk-based oversight demands that we
                                                          are sufficiently nimble to evaluate the sufficiency
With respect to the sixth final rule, which has not       of existing controls to mitigate known risks and to
been published, FHFA sought OIG review of a               identify new and emerging risks and the systems
preliminary draft final rule concerning corporate         in place to control those risks. We have created an
governance, for which it had not sought public notice     internal resource, ORA (discussed above), to assist
and comment. Because FHFA’s draft rule was not            in identification of emerging risks and appropriate
published in the Federal Register and FHFA continues      revisions to our work plan as new risks emerge and
to consider OIG’s comments, disclosure of OIG’s           existing risks are well-controlled. OIG prioritizes
comments could adversely affect internal Agency           outreach and engagement to communicate its
deliberations and will not be disclosed in this report.   mission and work to members of Congress and to the
OIG will report on the substance of its comments          public and to actively participate in government-wide
once the Agency publishes the final rule.                 oversight community activities. We continue to forge
                                                          public and private partnerships to prevent fraud,
                                                          encourage transparency, and ensure accountability,
                                                          responsibility, and ethical leadership.




                                  Semiannual Report to the Congress • April 1, 2015–September 30, 2015      35
Highlights of our efforts during this reporting period    Close Coordination with Other Oversight
include:                                                  Organizations
                                                          OIG shares oversight of federal housing program
Congress
                                                          administration with other federal agencies, including
To fulfill its mission, OIG works in close partnership    HUD, the Department of Veterans Affairs, the
with Congress and is committed to keeping it fully        Department of Agriculture, and Treasury’s Office
apprised of our oversight of FHFA. OIG provided           of Financial Stability (which manages the Troubled
information and briefings to key congressional            Asset Relief Program); their IGs; and other law
committees and offices. Briefing topics included          enforcement organizations. To further the oversight
recommendations from OIG reports and FHFA’s               mission, we coordinate with these entities to exchange
progress in implementing them, themes emerging in         best practices, case information, and professional
OIG’s body of work, OIG’s organization and strategy,      expertise. During the reporting period, OIG made
and areas of ongoing work.                                numerous presentations to law enforcement agencies,
                                                          mortgage fraud working groups across the country,
Additionally, we endeavor to inform Congress
                                                          and individual federal agencies responsible for
through responses to numerous technical assistance
                                                          investigating mortgage fraud, such as HUD-OIG,
and information requests, as well as replies to formal
                                                          the FBI, the Secret Service, and DOJ.
written inquiries from members of Congress on
various topics.                                           We maintained active participation in coordinated
                                                          oversight activities during this reporting period:
Anonymous Hotline
                                                          •	 RMBS Working Group. OIG continued its
During this reporting period, the OIG anonymous              significant role in the RMBS Working Group.
hotline continued to serve as a vehicle through which        (See discussion at “Investigations: Civil Cases,”
Agency, Enterprise, and FHLBank employees and                page 25.)
members of the public can report suspected fraud,
waste, abuse, mismanagement, or misconduct in             •	 FBI Cybercrimes Task Force. The FBI’s
Agency programs and operations. OIG actively                 Washington, DC, field office spearheads a
promotes its anonymous hotline in multiple ways,             cybercrimes task force, and OIG has assigned
including its website, posters, emails targeted to           a special agent to it. This multi-agency task
FHFA and GSE employees, and public reports.                  force focuses on investigating cybercrimes. OIG
During this reporting period, the hotline received           made this assignment to help combat such
984 contacts, which included: reports of alleged             crimes and to work in partnership with multiple
misconduct that were referred to OI for potential            federal agencies. This concerted effort will help
civil and/or criminal investigation; reports of alleged      prosecute cybercriminals and stop cyber attacks
wrongdoing in connection with other agencies that            made against institutions maintaining personally
were referred to the appropriate resource; requests for      identifiable information, trade secrets, and
assistance on housing-related issues; and complaints         financial data.
on OIG-related issues.




36    Federal Housing Finance Agency Office of Inspector General
•	 CIGIE. OIG actively participates in several               Another committee working group began a
   CIGIE committees and working groups.                      project to review and make recommendations
                                                             regarding the quality standards for
   ºº The Inspection and Evaluation Committee                investigations and the investigations peer
      provides leadership for the CIGIE inspection           review process. Finally, OIG participated in a
      and evaluation community’s effort to improve           joint subcommittee of CIGIE’s Investigation
      agency program effectiveness by maintaining            and Information Technology Committees
      professional standards, developing protocols,          that focuses on digital forensics and computer
      promoting the use of advanced techniques,              crime investigations.
      and fostering awareness of best practices.
      During this semiannual period, the committee      •	 CIGFO. CIGFO was created by the Dodd-Frank
      continued its work on a pilot “peer review”         Wall Street Reform and Consumer Protection
      program for inspection and evaluation units         Act of 2010 to oversee FSOC, which is charged
      in the IG community. The peer review is             with strengthening the nation’s financial system.
      designed to assess organizations’ work under        OIG is a permanent member of CIGFO, along
      CIGIE’s Blue Book (January 2012) and to             with the IGs of Treasury, the FDIC, the SEC,
      promote credibility of such work by validating      and others. By statute, CIGFO audits FSOC
      the organizations’ work processes and               each year. This year, OIG led the CIGFO audit
      evaluating their objectivity, independence, and     of FSOC’s monitoring of interest rate risk to
      rigorous adherence to applicable standards.         the financial system. The report recommended
      The Committee’s training team, of which             that FSOC document in its annual reports to
      OIG is an active member, also planned and           Congress its rationale for removing prior year
      sponsored training and development sessions         recommendations related to interest rate risk.
      for inspection and evaluation staff from            (See discussion at pages 21-22.)
      across the IG community, including a new
      weeklong course teaching the fundamentals         Private-Public Partnerships
      of conducting and writing inspections and         Housing finance professionals are on the frontlines
      evaluations. Finally, the committee began         and often have a real-time understanding of emerging
      work on a new website to share documents          threats and misconduct. We speak regularly with
      among various community members.                  officials at the FHLBanks and the Enterprises to
                                                        benefit from their insights and made presentations
   ºº The Investigation Committee advises the
                                                        to industry groups, including the Mortgage Bankers
      IG community on issues involving criminal
                                                        Association, International Association of Financial
      investigations, criminal investigations
                                                        Crimes Investigators, banks, and Fidelity National
      personnel, and establishing criminal
                                                        Title Group, focusing on fraud trends and emerging
      investigative guidelines. During this
                                                        schemes in the mortgage industry. We also speak with
      semiannual period, the Investigations
                                                        homeowners’ groups and associations.
      Committee, in conjunction with the
      Legislation Committee, created a working
      group to gather information about the
      history, requirements, and necessity of law
      enforcement authority in the IG community.


                                 Semiannual Report to the Congress • April 1, 2015–September 30, 2015    37
Appendices

Appendix A:                                                by improving accountability and transparency in the
                                                           financial system, ending “too big to fail,” protecting
Glossary and Acronyms                                      the American taxpayer by ending bailouts, and
                                                           protecting consumers from abusive financial services
                                                           practices.
Glossary of Terms
                                                           Emergency Economic Stabilization Act of 2008:
                                                           Legislation that authorizes Treasury to undertake
Bankruptcy: A legal procedure for resolving debt
                                                           specific measures to provide stability and prevent
problems of individuals and businesses; specifically, a
                                                           disruption in the financial system and the economy.
case filed under one of the chapters of Title 11 of the
                                                           It also provides funds to preserve homeownership.
U.S. Code.
                                                           Fannie Mae: A federally chartered corporation that
Bonds: Obligations by a borrower to eventually
                                                           purchases residential mortgages and pools them into
repay money obtained from a lender. The buyer of
                                                           securities that are sold to investors. By purchasing
the bond (or “bondholder”) is entitled to receive
                                                           mortgages, Fannie Mae supplies funds to lenders so
payments from the borrower.
                                                           they may make loans to home buyers.
Conservatorship: Conservatorship is a legal
                                                           Federal Home Loan Banks: The FHLBanks are
procedure for the management of financial
                                                           11 regional cooperative banks that U.S. lending
institutions for an interim period during which the
                                                           institutions use to finance housing and economic
institution’s conservator assumes responsibility for
                                                           development in their communities. Created by
operating the institution and conserving its assets.
                                                           Congress, the FHLBanks have been the largest
Under the Housing and Economic Recovery Act of
                                                           source of funding for community lending for
2008, the Enterprises entered into conservatorships
                                                           eight decades. The FHLBanks provide loans (or
overseen by FHFA. As conservator, FHFA has
                                                           “advances”) to their member banks but do not lend
undertaken to preserve and conserve the assets of the
                                                           directly to individual borrowers.
Enterprises and restore them to safety and soundness.
FHFA also has assumed the powers of the boards of          Federal Housing Administration: Part of HUD,
directors, officers, and shareholders; however, the day-   FHA insures residential mortgages made by approved
to-day operational decision making of each company         lenders against payment losses. It is the largest insurer
is delegated by FHFA to the Enterprises’ existing          of mortgages in the world, insuring over 34 million
management.                                                properties since its inception in 1934.
Default: Occurs when a mortgagor misses one or             Foreclosure: A legal process used by a lender to
more payments.                                             obtain possession of a mortgaged property in order to
Dodd-Frank Wall Street Reform and Consumer
                                                           repay part or all of the debt.
Protection Act of 2010: Legislation that intends to        Freddie Mac: A federally chartered corporation that
promote the financial stability of the United States       purchases residential mortgages, pools them into


38    Federal Housing Finance Agency Office of Inspector General
securities, and sells them to investors. By purchasing   Inspector General Reform Act of 2008:
mortgages, Freddie Mac supplies funds to lenders so      Legislation that amends the Inspector General Act to
they may make loans to home buyers.                      enhance the independence of inspectors general and
                                                         to create the Council of the Inspectors General on
Ginnie Mae: A government-owned corporation
                                                         Integrity and Efficiency.
within HUD. Ginnie Mae guarantees investors the
timely payment of principal and interest on privately    Internal Controls: Internal controls are an integral
issued MBS backed by pools of government-insured         component of an organization’s management that
and -guaranteed mortgages.                               provide reasonable assurance that the following
                                                         objectives are achieved: (1) effectiveness and
Government-Sponsored Enterprises: Business
                                                         efficiency of operations, (2) reliability of financial
organizations chartered and sponsored by the federal
                                                         reports, and (3) compliance with applicable laws and
government.
                                                         regulations. Internal controls relate to management’s
Guarantee: A pledge to investors that the guarantor      plans, methods, and procedures used to meet its
will bear the default risk on a pool of loans or other   mission, goals, and objectives and include the
collateral.                                              processes and procedures for planning, organizing,
                                                         directing, and controlling program operations as
Housing and Economic Recovery Act of 2008:               well as the systems for measuring, reporting, and
Legislation that establishes OIG and FHFA, which         monitoring program performance.
oversee the GSEs’ operations. HERA also expanded
Treasury’s authority to provide financial support to     Mortgage-Backed Securities: MBS are debt
the GSEs.                                                securities that represent interests in the cash flows—
                                                         anticipated principal and interest payments—from
Inspector General Act of 1978: Legislation that          pools of mortgage loans, most commonly on
authorizes establishment of offices of inspectors        residential property.
general, “independent and objective units” within
federal agencies, that: (1) conduct and supervise        Real Estate Owned: Foreclosed homes owned by
audits and investigations relating to the programs and   government agencies or financial institutions, such as
operations of their agencies; (2) provide leadership     the Enterprises or real estate investors. REO homes
and coordination and recommend policies for              represent collateral seized to satisfy unpaid mortgage
activities designed to promote economy, efficiency,      loans. The investor or its representative then must sell
and effectiveness in the administration of agency        the property on its own.
programs and to prevent and detect fraud, waste,
                                                         Securitization: A process whereby a financial
or abuse in such programs and operations; and
                                                         institution assembles pools of income-producing
(3) provide a means for keeping the head of the
                                                         assets (such as loans) and then sells securities
agency and Congress fully and currently informed
                                                         representing an interest in the assets’ cash flows to
about problems and deficiencies relating to the
                                                         investors.
administration of such programs and operations and
the necessity for and progress of corrective action.


                                   Semiannual Report to the Congress • April 1, 2015–September 30, 2015      39
Senior Preferred Stock Purchase Agreements:                Straw Buyer: A straw buyer is a person whose credit
Entered into at the time the conservatorships were         profile is used to serve as a cover in a loan transaction.
created, the PSPAs authorize the Enterprises to            Straw buyers are chosen for their ability to qualify for
request and obtain funds from Treasury, among other        a mortgage loan, causing loans that would ordinarily
matters. Under the PSPAs, the Enterprises agreed           be declined to be approved. Straw buyers may be paid
to consult with Treasury concerning a variety of           a fee for their involvement in purchasing a property
significant business activities, capital stock issuance,   and usually never intend to own or occupy the
dividend payments, ending the conservatorships,            property.
transferring assets, and awarding executive
                                                           Underwater: Term used to describe situations in
compensation.
                                                           which the homeowner’s equity is below zero (i.e.,
Servicers: Servicers act as intermediaries between         the home is worth less than the balance of the
mortgage borrowers and owners of the loans, such           loan(s) it secures).
as the Enterprises or MBS investors. They collect the
                                                           Underwriting: The process of analyzing a loan
homeowners’ mortgage payments, remit them to the
                                                           application to determine the amount of risk
owners of the loans, maintain appropriate records,
                                                           involved in making the loan; it includes a review of
and address delinquencies or defaults on behalf
                                                           the potential borrower’s credit worthiness and an
of the owners of the loans. For their services, they
                                                           assessment of the property value.
typically receive a percentage of the unpaid principal
balance of the mortgage loans they service. The recent     Upfront Fees: One-time payments made by lenders
financial crisis has put more emphasis on servicers’       when a loan is acquired by an Enterprise. Fannie
handling of defaults, modifications, short sales, and      Mae refers to upfront fees as “loan level pricing
foreclosures, in addition to their more traditional        adjustments” and Freddie Mac refers to them as
duty of collecting and distributing monthly mortgage       “delivery fees.”
payments.

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




40    Federal Housing Finance Agency Office of Inspector General
References                                               Federal Housing Finance Agency, “Introduction,”
                                                         Federal Home Loan Bank Membership, at 1 (March
United States Courts, Bankruptcy Basics: Glossary.       2013). Accessed: October 1, 2015, at www.fhfa.
Accessed: October 1, 2015, at www.uscourts.gov/          gov/SupervisionRegulation/Documents/Federal_
FederalCourts/Bankruptcy/BankruptcyBasics/               Home_Loan_Bank_Membership_Module_Final_
Glossary.aspx.                                           Version_1.0_508.pdf.

Freddie Mac, Glossary of Finance and Economic Terms.     Department of Housing and Urban Development,
Accessed: October 1, 2015, at www.freddiemac.com/        The Federal Housing Administration (FHA). Accessed:
smm/a_f.htm.                                             October 1, 2015, at http://portal.hud.gov/hudportal/
                                                         HUD?src=/program_offices/housing/fhahistory.
Federal Housing Finance Agency, FHFA as
Conservator of Fannie Mae and Freddie Mac. Accessed:     Freddie Mac, About Freddie Mac. Accessed: October
October 1, 2015, at www.fhfa.gov/Conservatorship/        1, 2015, at www.freddiemac.com/corporate/about_
Pages/History-of-Fannie-Mae--Freddie-                    freddie.html.
Conservatorships.aspx.                                   Freddie Mac, “Who Issues Mortgage Securities?,”
Federal Housing Finance Agency, FHFA Announces           “How Safe are Mortgage Securities?,” An Investor’s
Suspension of Capital Classifications During             Guide to Pass~Through and Collateralized Mortgage
Conservatorship: Discloses Minimum and Risk-             Securities: Long-term income paid monthly, quarterly or
Based Capital Classifications as Undercapitalized        semiannually, at 2, 12. Accessed: October 1, 2015, at
for the Second Quarter 2008 for Fannie Mae and           www.freddiemac.com/mbs/docs/about_MBS.pdf.
Freddie Mac (October 9, 2008). Accessed: October         W. Scott Frame and Lawrence J. White, Regulating
1, 2015, at www.fhfa.gov/Media/PublicAffairs/            Housing GSEs: Thoughts on Institutional Structure
Pages/FHFA-Announces-Suspension-of-Capital-              and Authorities, Federal Reserve Bank of Atlanta:
Classifications-During-Conservatorship-and-              Economic Review, Vol. Q2 2004, at 87 (2004).
Discloses-Minimum-and-RiskBased-Cap.aspx.                Accessed: October 1, 2015, at www.frbatlanta.org/
Office of the Special Inspector General for the          research/publications/economic-review/2004/q2/
Troubled Asset Relief Program, “Glossary of Terms,”      vol89no2_regulating-housing-gses.aspx (click on pdf
“Genesis and Passage of EESA,” SIGTARP: Initial          “Download the full text of this article”).
Report to the Congress, at 29, 111 (February 6, 2009).   Freddie Mac, Glossary of Finance and Economic Terms.
Accessed: March 12, 2015, at www.sigtarp.gov/            Accessed: March 12, 2015, at www.freddiemac.com/
Quarterly%20Reports/SIGTARP_Initial_Report_to_           smm/g_m.htm.
the_Congress.pdf.
                                                         Government Accountability Office, Management
Dodd-Frank Wall Street Reform and Consumer               Report: Opportunities for Improvements in FHFA’s
Protection Act of 2010, Pub. L. No. 111-203.             Internal Controls and Accounting Procedures, GAO-
Emergency Economic Stabilization Act of 2008, Pub.       10-587R, at 1 (June 3, 2010). Accessed: October 1,
L. No. 110-343.                                          2015, at www.gao.gov/assets/100/96782.pdf.

Department of Housing and Urban Development,             Inspector General Act of 1978, Pub. L. No. 95-452.
Glossary. Accessed: October 1, 2015, at www.huduser.     Inspector General Reform Act of 2008, Pub. L. No.
org/portal/glossary/glossary_g.html#gse.                 110-409.
                                  Semiannual Report to the Congress • April 1, 2015–September 30, 2015      41
Government Accountability Office, “Introduction,”         Letter from David H. Stevens, Assistant Secretary
“Internal Control Standards,” Internal Control:           for Housing, Department of Housing and Urban
Standards for Internal Control in the Federal             Development, to All Approved Mortgagees, FHA
Government, GAO/AIMD-00-21.3.1, at 4, 6, 8                Refinance of Borrowers in Negative Equity Positions
(November 1999). Accessed: October 1, 2015, at            (August 6, 2010). Accessed: October 1, 2015,
www.gao.gov/special.pubs/ai00021p.pdf.                    at www.hud.gov/offices/adm/hudclips/letters/
                                                          mortgagee/files/10-23ml.pdf.
Securities and Exchange Commission, Mortgage-
Backed Securities. Accessed: October 1, 2015, at www.     Freddie Mac, “Straw Buyers,” Shut the Door on
sec.gov/answers/mortgagesecurities.htm.                   Mortgage Fraud: Information on How to Avoid
                                                          Mortgage Fraud, at 13, 15. Accessed: October
Office of the Special Inspector General for
                                                          1, 2015, at www.freddiemac.com/singlefamily/
the Troubled Asset Relief Program, “Recent
                                                          preventfraud/toolkit.html (scroll to “Shut the Door
Developments,” SIGTARP: Quarterly Report to
                                                          on Mortgage Fraud,” then click “English [PPT]”
Congress, at 150 (October 26, 2010). Accessed:
                                                          under “Educational Presentation: Avoid Mortgage
October 1, 2015, at www.sigtarp.gov/Quarterly%20
                                                          Fraud,” then download the PowerPoint file).
Reports/October2010_Quarterly_Report_to_
Congress.pdf.                                             Office of the Special Inspector General for the
                                                          Troubled Asset Relief Program, “Homeowner
Freddie Mac, Our Business: Single-Family Credit
                                                          Support Programs,” SIGTARP: Quarterly Report to
Guarantee Business. Accessed: October 1, 2015, at
                                                          Congress, at 65 (January 26, 2011). Accessed: October
www.freddiemac.com/corporate/company_profile/
                                                          1, 2015, at www.sigtarp.gov/Quarterly%20Reports/
our_business/index.html.
                                                          January2011_Quarterly_Report_to_Congress.pdf.
Federal Housing Finance Agency, Senior
                                                          Indiana Secretary of State Securities Division,
Preferred Stock Purchase Agreements. Accessed:
                                                          Investment Terms. Accessed: October 1, 2015, at
October 1, 2015, at www.fhfa.gov/
                                                          www.in.gov/sos/securities/2494.htm.
senior-preferred-stock-purchase-agreements.
                                                          Freddie Mac, “PCs,” Form 10-K for the Fiscal Year
Federal Housing Finance Agency Office of Inspector
                                                          Ended December 31, 2013, at 10. Accessed: October
General, “Treasury Agreements,” White Paper: FHFA-
                                                          1, 2015, at www.freddiemac.com/investors/er/
OIG’s Current Assessment of FHFA’s Conservatorships
                                                          pdf/10k_022714.pdf.
of Fannie Mae and Freddie Mac, WPR-2012-001, at
19 (March 28, 2012). Accessed: October 1, 2015, at
www.fhfaoig.gov/Content/Files/WPR-2012-001.pdf.




42    Federal Housing Finance Agency Office of Inspector General
Acronyms and Abbreviations                             FOIA	        Freedom of Information Act

                                                       FSOC	        Financial Stability Oversight Council
AFR	         Annual Financial Report
                                                       GAO	         Government Accountability Office
Agency	      Federal Housing Finance Agency
                                                       GSEs	        Government-Sponsored Enterprises
AHP	         Affordable Housing Program
                                                       HERA	        Housing and Economic Recovery Act
Blue Book	 Quality Standards for Inspection and 	                   of 2008
             Evaluation
                                                       HFE 	        Housing Finance Examiner
CAE	         Chief Audit Executive                     Program	     Commission Program
CIGFO	       Council of Inspectors General on 		       HUD-OIG	     Department of Housing and Urban
             Financial Oversight                                    Development Office of Inspector
CIGIE	       Council of the Inspectors General on                   General
             Integrity and Efficiency                  IG	          Inspector General
CSP	         Common Securitization Platform            IPIA	        Improper Payments Information Act of
DBR	         Division of Federal Home Loan Bank                     2002
             Regulation                                IRS-CI	      IRS-Criminal Investigation
DER	         Division of Enterprise Regulation         IT	          Information Technology
DHMG	        Division of Housing Mission and Goals     LPI	         Lender-Placed Insurance
DOC	         Division of Conservatorship               Nomura	      Nomura Securities International, Inc.
DOJ	         Department of Justice                     OA	          Office of Audits
Enterprises	 Fannie Mae and Freddie Mac                OAd	         Office of Administration
EO	          Executive Office                          OC	          Office of Chief Counsel
FBI	         Federal Bureau of Investigation           OCo	         Office of Compliance and Special
FDIC	        Federal Deposit Insurance Corporation                  Projects

FHA	         Federal Housing Administration            OE	          Office of Evaluations

FHFA	        Federal Housing Finance Agency            OFHEO	       Office of Federal Housing Enterprise
                                                                    Oversight
FHLBanks	 Federal Home Loan Banks
                                                       OI	          Office of Investigations
FIED	        Fiscal Integrity & Economic
             Development Association, Inc.             OICF	        Office of Internal Controls and
                                                                    Facilities
FISMA	       Federal Information Security
             Management Act of 2002

                                 Semiannual Report to the Congress • April 1, 2015–September 30, 2015   43
OIG	          Federal Housing Finance Agency Office        RMBS	       Residential Mortgage-Backed Securities
              of Inspector General
                                                           SAI	        Servicing Alignment Initiative
OMB	          Office of Management and Budget
                                                           SAUSA	      Special Assistant U.S. Attorney
OPM	          Office of Personnel Management
                                                           SEC	        Securities and Exchange Commission
OQA	          Office of Quality Assurance
                                                           SIGTARP	    Office of the Special Inspector General
ORA	          Office of Risk Analysis                                  for the Troubled Asset Relief Program

PAR	          Performance and Accountability Report        SIR	        Systemic Implication Report

PSPAs	        Senior Preferred Stock Purchase              Treasury	   Department of the Treasury
              Agreements
                                                           Yellow 	    Government Auditing Standards
REO	          Real Estate Owned                            Book	




44     Federal Housing Finance Agency Office of Inspector General
Semiannual Report to the Congress • April 1, 2015–September 30, 2015   45
Appendix B:                                               Agency’s operations and aid in the prevention and
                                                          detection of fraud, waste, or abuse. Figure 7 (see page
OIG Recommendations                                       47) summarizes OIG’s formal recommendations
                                                          that were made, pending, or closed during the
In accordance with the provisions of the Inspector        reporting period. Figure 8 (see page 60) lists OIG’s
General Act, one of the key duties of OIG is to           audit and evaluation reports for which all of the
provide to FHFA recommendations that promote              recommendations were closed in prior semiannual
the transparency, efficiency, and effectiveness of the    periods.




46    Federal Housing Finance Agency Office of Inspector General
Figure 7. Summary of OIG Recommendations
       No.                     Recommendation                       Report              Status

  AUD-2014-017-1    FHFA should conduct a comprehensive       FHFA Oversight      Recommendation
                    examination to determine whether          of Freddie Mac’s    partially agreed
                    Freddie Mac has implemented and           Information         to by FHFA;
                    enforces an effective IT investment       Technology          implementation of
                    management process.                       Investments         recommendation
                                                                                  pending.

  AUD-2014-017-2    FHFA should develop and issue             FHFA Oversight      Closed—Final
                    Enterprise IT investment management       of Freddie Mac’s    action taken by
                    guidance.                                 Information         FHFA.
                                                              Technology
                                                              Investments

  AUD-2014-017-3    FHFA should evaluate whether Freddie      FHFA Oversight      Closed—Final
                    Mac reports currently used by FHFA        of Freddie Mac’s    action taken by
                    examiners provide the information         Information         FHFA.
                    necessary to conduct effective            Technology
                    supervisory monitoring of Freddie Mac’s   Investments
                    portfolio of IT investments.


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




                             Semiannual Report to the Congress • April 1, 2015–September 30, 2015   47
        No.                       Recommendation                        Report                Status

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


 AUD-2014-015-1        FHFA should communicate a written          FHFA Oversight        Closed—Final
                       supervisory expectation to Fannie          of Fannie Mae’s       action taken by
                       Mae requiring that its business units      Collection of Funds   FHFA.
                       perform a review of non-delegated          from Servicers
                       short sale transactions to identify        that Closed Short
                       any transactions where the servicer        Sales Below the
                       submitted net proceeds that were less      Authorized Prices
                       than the sale amount approved by
                       Fannie Mae and draft a remediation
                       plan, as appropriate.

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

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




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

AUD-2014-012-1   FHFA should direct the Enterprises to       FHFA Oversight        Closed—Final
                 jointly assess the effectiveness of their   of Enterprise         action taken by
                 pre-foreclosure property inspection         Controls Over         FHFA.
                 processes. OIG identified several           Pre-Foreclosure
                 specific areas to review as part of the     Property
                 assessment, including: (1) identifying      Inspections
                 pre-foreclosure property inspection
                 risk and objectives, (2) identifying
                 cost-effective control alternatives
                 for achieving the objective(s), and
                 (3) recommending inspection standards
                 and quality controls with regard to the
                 content and frequency of inspections.


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

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




                          Semiannual Report to the Congress • April 1, 2015–September 30, 2015       49
        No.                       Recommendation                        Report                Status

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


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


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


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




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

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


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


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


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


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




                          Semiannual Report to the Congress • April 1, 2015–September 30, 2015      51
        No.                       Recommendation                         Report                Status

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


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


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


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


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


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




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

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


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



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



EVL-2015-006-1    FHFA should direct each Enterprise to      FHFA’s Exercise of      Recommendation
                  submit its proposed operating budget       Its Conservatorship     agreed to by FHFA;
                  and supporting materials for the next      Powers to Review        implementation of
                  fiscal year so that FHFA has sufficient    and Approve the         recommendation
                  time before the fiscal year begins to      Enterprises’ Annual     pending.
                  adequately analyze the proposals.          Operating Budgets
                                                             Has Not Achieved
                                                             FHFA’s Stated
                                                             Purpose




                           Semiannual Report to the Congress • April 1, 2015–September 30, 2015        53
        No.                       Recommendation                          Report                Status

 EVL-2015-006-2        FHFA should revise the existing budget       FHFA’s Exercise of    Recommendation
                       review process and staff the review          Its Conservatorship   agreed to by FHFA;
                       process with employees who have the          Powers to Review      implementation of
                       qualifications and experience needed         and Approve the       recommendation
                       for critical financial assessments of        Enterprises’ Annual   pending.
                       the proposed Enterprise budgets to           Operating Budgets
                       permit FHFA to determine whether each        Has Not Achieved
                       Enterprise’s budget aligns with FHFA’s       FHFA’s Stated
                       strategic direction and its safety and       Purpose
                       soundness priorities.


 EVL-2015-006-3        FHFA should set a date certain during        FHFA’s Exercise of    Recommendation
                       the first quarter of 2016 by which FHFA      Its Conservatorship   agreed to by FHFA;
                       will take final action on each proposed      Powers to Review      implementation of
                       annual operating budget for 2016 and         and Approve the       recommendation
                       approve the budget by that date.             Enterprises’ Annual   pending.
                                                                    Operating Budgets
                                                                    Has Not Achieved
                                                                    FHFA’s Stated
                                                                    Purpose




 EVL-2015-006-4        FHFA should set a date certain, prior to     FHFA’s Exercise of    Recommendation
                       January 31 of each subsequent fiscal         Its Conservatorship   generally agreed
                       year, by which FHFA will take final action   Powers to Review      to by FHFA;
                       on each proposed annual operating            and Approve the       implementation of
                       budget and approve the budget by that        Enterprises’ Annual   recommendation
                       date.                                        Operating Budgets     pending.
                                                                    Has Not Achieved
                                                                    FHFA’s Stated
                                                                    Purpose


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




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

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


EVL-2015-004-3   FHFA should conduct a comprehensive         FHFA’s Oversight    Recommendation
                 evaluation of the Audit Committee’s         of Governance       agreed to by FHFA;
                 effectiveness, which should                 Risks Associated    implementation of
                 include: whether all members of the         with Fannie Mae’s   recommendation
                 Committee are independent from              Selection and       pending.
                 management; whether the Committee’s         Appointment of a
                 responsibilities are clearly articulated;   New Chief Audit
                 whether each Committee member               Executive
                 understands what is expected of him/
                 her under the Committee’s Charter
                 and regulatory requirements; whether
                 the Committee’s interactions with
                 Fannie Mae’s financial executives,
                 Internal Audit, and the external audit
                 firm are robust and occur regularly;
                 whether the Committee raises critical
                 questions with management and the
                 CAE, including questions that indicate
                 the Committee’s understanding of key
                 accounting policies and judgments
                 and that challenge management’s
                 judgments and conclusions; whether
                 the Committee has been responsive
                 to issues raised by the external
                 auditor; and whether the Committee
                 periodically assesses the list of top
                 risks and determines responsibility for
                 management of each risk.




                          Semiannual Report to the Congress • April 1, 2015–September 30, 2015    55
        No.                       Recommendation                         Report                 Status

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


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


 EVL-2015-003-1        FHFA should test the new human              Women and              Recommendation
                       resource system to ensure that it will      Minorities in FHFA’s   agreed to by FHFA;
                       provide data sufficient to enable the       Workforce              implementation of
                       Agency to perform comprehensive                                    recommendation
                       analyses of workforce issues.                                      pending.


 EVL-2015-003-2        FHFA should regularly analyze Agency        Women and              Recommendation
                       workforce data and assess trends in         Minorities in FHFA’s   agreed to by FHFA;
                       hiring, awards, and promotions.             Workforce              implementation of
                                                                                          recommendation
                                                                                          pending.


 EVL-2015-003-3        FHFA should adopt a diversity and           Women and              Recommendation
                       inclusion strategic plan.                   Minorities in FHFA’s   agreed to by FHFA;
                                                                   Workforce              implementation of
                                                                                          recommendation
                                                                                          pending.


 EVL-2015-003-4        FHFA should research opportunities to       Women and              Recommendation
                       partner with inner-city and other high      Minorities in FHFA’s   agreed to by FHFA;
                       schools, where feasible, to ensure          Workforce              implementation of
                       compliance with HERA.                                              recommendation
                                                                                          pending.




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

EVL-2015-001-1   DER should (1) adopt a comprehensive       Evaluation of          Recommendation
                 examination workpaper index; and           the Division           partially agreed
                 (2) standardize electronic workpaper       of Enterprise          to by FHFA;
                 folder structures and naming               Regulation’s 2013      implementation of
                 conventions between the two core           Examination            recommendation
                 teams. In addition, FHFA and DER           Records: Successes     pending.
                 should upgrade recordkeeping               and Opportunities
                 practices as necessary to enhance the
                 identification and retrieval of critical
                 workpapers.


EVL-2014-009-1   FHFA should assess the merits of           FHFA’s Oversight       Closed—Final
                 litigation by the Enterprises against      of the Enterprises’    action taken by
                 their servicers and lender-placed          Lender-Placed          FHFA.
                 insurance (LPI) providers to remedy        Insurance Costs
                 potential damages caused by past
                 abuses in the LPI market and, then,
                 take appropriate action in this regard.


EVL-2014-008-1   To strengthen its management of the        Status of the          Recommendation
                 Common Securitization Platform (CSP),      Development            agreed to by FHFA;
                 FHFA should establish schedules            of the Common          implementation of
                 and time frames for completing key         Securitization         recommendation
                 components of the project, as well         Platform               pending.
                 as an overall completion date as
                 appropriate.


EVL-2014-008-2   To strengthen its management of            Status of the          Recommendation
                 the CSP, FHFA should establish cost        Development            agreed to by FHFA;
                 estimates for varying stages of the        of the Common          implementation of
                 initiative, as well as an overall cost     Securitization         recommendation
                 estimate.                                  Platform               pending.


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


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




                           Semiannual Report to the Congress • April 1, 2015–September 30, 2015      57
        No.                       Recommendation                         Report                 Status

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


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


 EVL-2014-002-2        FHFA should develop a process that          Update on              Recommendation
                       links annual Enterprise examination         FHFA’s Efforts to      agreed to by FHFA;
                       plans with core team resource               Strengthen its         implementation of
                       requirements.                               Capacity to Examine    recommendation
                                                                   the Enterprises        pending.


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


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


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




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

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


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


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


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




                          Semiannual Report to the Congress • April 1, 2015–September 30, 2015    59
Figure 8. Summary of OIG Reports Where All Recommendations Are Closed

                                     Report                                      No. of Recommendations
 FHFA’s Oversight of Risks Associated with the Enterprises Relying                         1
 on Counterparties to Comply with Selling and Servicing Guidelines
 (AUD-2014-018)

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

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

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

 FHFA’s Use of Government Purchase Cards (AUD-2014-006)                                    4

 FHFA Oversight of Fannie Mae’s Reimbursement Process for Pre-Foreclosure                  4
 Property Inspections (AUD-2014-005)

 FHFA Oversight of Fannie Mae’s Remediation Plan to Refund Contributions to                3
 Borrowers for the Short Sale of Properties (AUD-2014-004)

 Fannie Mae’s Controls Over Short Sale Eligibility Determinations Should be                6
 Strengthened (AUD-2014-003)

 FHFA Can Strengthen Controls over Its Office of Quality Assurance                         7
 (AUD-2013-013)

 Additional FHFA Oversight Can Improve the Real Estate Owned Pilot Program                 3
 (AUD-2013-012)

 FHFA Can Improve Its Oversight of Fannie Mae’s Recoveries from Borrowers                  1
 Who Possess the Ability to Repay Deficiencies (AUD-2013-011)

 FHFA Can Improve Its Oversight of Freddie Mac’s Recoveries from Borrowers                 4
 Who Possess the Ability to Repay Deficiencies (AUD-2013-010)

 Action Needed to Strengthen FHFA Oversight of Enterprise Information Security             5
 and Privacy Programs (AUD-2013-009)

 FHFA Should Develop and Implement a Risk-Based Plan to Monitor the                        1
 Enterprises’ Oversight of Their Counterparties’ Compliance with Contractual
 Requirements Including Consumer Protection Laws (AUD-2013-008)

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

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




60   Federal Housing Finance Agency Office of Inspector General
                                    Report                                        No. of Recommendations
FHFA’s Oversight of the Asset Quality of Multifamily Housing Loans Financed by              2
Fannie Mae and Freddie Mac (AUD-2013-004)

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

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

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

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

FHFA’s Call Report System (AUD-2012-006)                                                    3

FHFA’s Supervisory Risk Assessment for Single-Family Real Estate Owned                      1
(AUD-2012-005)

FHFA’s Supervisory Framework for Federal Home Loan Banks’ Advances and                      7
Collateral Risk Management (AUD-2012-004)

FHFA’s Oversight of Fannie Mae’s Single-Family Underwriting Standards                       2
(AUD-2012-003)

FHFA’s Supervision of Freddie Mac’s Controls over Mortgage Servicing                        5
Contractors (AUD-2012-001)

FHFA’s Oversight of Fannie Mae’s Default-Related Legal Services                             3
(AUD-2011-004)

Clifton Gunderson LLP’s Independent Audit of the Federal Housing Finance                    9
Agency’s Privacy Program and Implementation - 2011 (AUD-2011-003)

Clifton Gunderson LLP’s Independent Audit of the Federal Housing Finance                    5
Agency’s Information Security Program - 2011 (AUD-2011-002)

Audit of the Federal Housing Finance Agency’s Consumer Complaints Process                   3
(AUD-2011-001)

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

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

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




                                 Semiannual Report to the Congress • April 1, 2015–September 30, 2015      61
                                      Report                                     No. of Recommendations
 FHFA’s Oversight of Derivative Counterparty Risk                                          1
 (ESR-2014-001)

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

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

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

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

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

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

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

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

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

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

 Fannie Mae’s and Freddie Mac’s Participation in the 2011 Mortgage Bankers                 2
 Association Convention and Exposition (ESR-2012-004)

 FHFA’s Oversight of the Enterprises’ Charitable Activities                                2
 (ESR-2012-003)

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

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

 Evaluation of the Federal Housing Finance Agency’s Oversight of Freddie Mac’s             2
 Repurchase Settlement with Bank of America (EVL-2011-006)

 Evaluation of Whether FHFA Has Sufficient Capacity to Examine the GSEs                    4
 (EVL-2011-005)




62   Federal Housing Finance Agency Office of Inspector General
                                   Report                                      No. of Recommendations
Evaluation of FHFA’s Oversight of Fannie Mae’s Management of Operational                  3
Risk (EVL-2011-004)

Evaluation of FHFA’s Role in Negotiating Fannie Mae’s and Freddie Mac’s                   1
Responsibilities in Treasury’s Making Home Affordable Program
(EVL-2011-003)

Evaluation of Federal Housing Finance Agency’s Oversight of Fannie Mae’s and              8
Freddie Mac’s Executive Compensation Programs (EVL-2011-002)

Federal Housing Finance Agency’s Exit Strategy and Planning Process for the               2
Enterprises’ Structural Reform (EVL-2011-001)




                                 Semiannual Report to the Congress • April 1, 2015–September 30, 2015   63
Appendix C:                                                     dozen categories of information that we must include
                                                                in our semiannual reports.
Information Required                                            Below, OIG presents a table that directs the reader
by the Inspector General                                        to the pages of this report where the information
Act and Subpoenas Issued                                        required by the Inspector General Act may be found.

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


                                              Source/Requirement                                                  Pages
Section 5(a)(1)- A description of significant problems, abuses, and deficiencies relating to the administration   12-21
of programs and operations of FHFA.
Section 5(a)(2)- A description of the recommendations for corrective action made by OIG with respect to           13-18
significant problems, abuses, or deficiencies.                                                                    47-59
Section 5(a)(3)- An identification of each significant recommendation described in previous semiannual            47-51
reports on which corrective action has not been completed.                                                        54-59
Section 5(a)(4)- A summary of matters referred to prosecutive authorities and the prosecutions and                25-34
convictions that have resulted.                                                                                   68-94
Section 5(a)(5)- A summary of each report made to the Director of FHFA.                                           12-21
Section 5(a)(6)- A listing, subdivided according to subject matter, of each audit and evaluation report issued    12-21
by OIG during the reporting period and for each report, where applicable, the total dollar value of questioned     65
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.                                               12-24
Section 5(a)(8)- Statistical tables showing the total number of audit and evaluation reports and the total        12-21
dollar value of questioned and unsupported costs.                                                                  65
Section 5(a)(9)- Statistical tables showing the total number of audit and evaluation reports and the dollar       12-21
value of recommendations that funds be put to better use by management.                                            65
Section 5(a)(10)- A summary of each audit and evaluation report issued before the commencement of the              65
reporting period for which no management decision has been made by the end of the reporting period.
Section 5(a)(11)- A description and explanation of the reasons for any significant revised management              65
decision made during the reporting period.
Section 5(a)(12)- Information concerning any significant management decision with which the Inspector              65
General is in disagreement.
Section 5(a)(13)- The information described under section 05(b) of the Federal Financial Management                66
Improvement Act of 1996.
Section 5(a)(14)- An appendix containing the results of any peer review conducted by another IG; or the date       66
of the last peer review, if no peer review was conducted during the reporting period.
Section 5(a)(15)- A list of any outstanding recommendations from any peer review conducted by another IG           66
that have not been fully implemented.
Section 5(a)(16)- A list of any peer reviews of another IG during the reporting period.                            66


64    Federal Housing Finance Agency Office of Inspector General
Audit and Evaluation Reports                                decision has been made by the end of the reporting
with Recommendations of                                     period. There were no audit or evaluation reports
                                                            issued before April 1, 2015, that await a management
Questioned Costs, Unsupported                               decision.
Costs, and Funds to Be Put to
Better Use by Management                                    Significantly Revised
                                                            Management Decisions
Section 5(a)(6) of the Inspector General Act, as
amended, requires that OIG list its reports during
                                                            Section 5(a)(11) of the Inspector General Act, as
the semiannual period that include questioned costs,
                                                            amended, requires that OIG report information
unsupported costs, and funds to be put to better
                                                            concerning the reasons for any significant revised
use. Section 5(a)(8) and section 5(a)(9), respectively,
                                                            management decision made during the reporting
require OIG to publish statistical tables showing
                                                            period. During the six-month reporting period ended
the dollar value of questioned and unsupported
                                                            September 30, 2015, there were no significantly
costs, and of recommendations that funds be put to
                                                            revised management decisions on OIG’s audits and
better use by management. The reports that OIG
                                                            evaluations.
issued during the reporting period did not include
recommendations with dollar values of questioned
costs, unsupported costs, or funds to be put to better      Significant Management Decision
use by management.                                          with Which the Inspector General
Figure 9 (see below) discloses OIG’s questioned and         Disagrees
unsupported cost findings, and recommendations
that funds be put to better use.                            Section 5(a)(12) of the Inspector General Act, as
                                                            amended, requires that OIG report information
Audit and Evaluation Reports                                concerning any significant management decision
with No Management Decision                                 with which the Inspector General is in disagreement.
                                                            During the six-month reporting period ended
Section 5(a)(10) of the Inspector General Act, as           September 30, 2015, there were no management
amended, requires that OIG report on each audit and         decisions with which the Inspector General disagreed.
evaluation report issued before the commencement
of the reporting period for which no management




Figure 9. Funds to Be Put to Better Use by Management, Questioned Costs, and Unsupported Costs
for the Period April 1, 2015, Through September 30, 2015

                                                                          Potential Monetary Benefits
   Report Issued       Recommendation No.            Date         Questioned      Unsupported    Funds Put to
                                                                    Costs            Costs        Better Use
                                                                             $-              $-              $-
Total                                                                        $-              $-              $-



                                   Semiannual Report to the Congress • April 1, 2015–September 30, 2015      65
Federal Financial Management                              Peer Reviews
Improvement Act of 1996
                                                          Sections 5(a)(14), (15), and (16) of the Inspector
Section 5(a)(13) of the Inspector General Act, as         General Act, as amended, require that OIG provide
amended, requires that OIG report information             information—relevant to the semiannual period—
concerning instances of and reasons for failures          on any peer reviews of OIG, unimplemented
to meet any remediation plan intermediate target          recommendations from any peer reviews of OIG,
dates designed to remedy findings that the Agency’s       and any peer reviews conducted by OIG. During
financial management systems do not comply with           the reporting period, there were no peer reviews
federal financial management system requirements,         of OIG’s audit or investigative activities. The most
applicable federal accounting standards, and the          recent—and only—peer reviews of OIG’s audit and
United States Government Standard General Ledger          investigative activities were reported on March 20,
at the transaction level. During the reporting period,    2014, and August 25, 2014, respectively. (For full
the Agency did not fail to meet any intermediate          copies of these reports, see www.fhfaoig.gov/About/
target dates in any remediation plans relating to the     PlanningAndPerformance.) Neither of these peer
condition of its financial management system.             review reports includes recommendations. However,
In its Financial Audit: Federal Housing Finance           in connection with the peer review of OIG’s audit
Agency’s Fiscal Years 2014 and 2013 Financial             activities, the reviewer issued a separate finding
Statements report, GAO did not identify any               and recommendation “that was not considered to
deficiencies in FHFA’s internal controls over financial   be of sufficient significance to affect” the reviewer’s
reporting that it considered to be a material weakness    opinion that OIG’s “system of quality control
or significant deficiency. Further, GAO issued FHFA’s     for the audit organization . . . has been suitably
prior and current financial statements audit reports      designed and complied with to provide FHFA
as follows: fiscal year 2014 on November 17, 2014;        OIG with reasonable assurance of performing
fiscal year 2013 on December 16, 2013; fiscal year        and reporting in conformity with applicable
2012 on November 15, 2012; and fiscal year 2011 on        professional standards in all material respects.” OIG
November 15, 2011. For all four audits, GAO found:        has implemented the recommendation. OIG did
(1) FHFA’s financial statements were presented            not conduct any peer reviews during the six-month
fairly, in all material respects, in accordance with      reporting period ended September 30, 2015.
generally accepted accounting principles; (2) FHFA
maintained, in all material respects, effective           Subpoenas Issued
internal controls over financial reporting as of the
last day of the audit period; and (3) no reportable       During the reporting period, OIG issued 25
noncompliance for the fiscal year tested with             subpoenas as summarized in Figure 10 (see below).
provisions of applicable laws, regulations, contracts,
and grant agreements it tested. HERA requires GAO         Figure 10. Subpoenas Issued for the Period
to conduct this audit.                                    April 1, 2015, Through September 30, 2015
                                                                   Issuing Office       Number of Subpoenas
                                                           OA                                    0
                                                           OE                                    0
                                                           OI                                   25
                                                           Total                                25

66    Federal Housing Finance Agency Office of Inspector General
Appendix D:                                                 Other Reports
OIG Reports                                                 FHFA Non-Career Employees Have Not Been Involved
                                                            in FHFA’s Freedom of Information Act Process (COM-
See www.fhfaoig.gov for OIG’s reports.                      2015-002, August 6, 2015).

                                                            OIG’s Compliance Review of FHFA’s Implementation
Evaluation Reports                                          of Its Housing Finance Examiner Commission Program
                                                            (COM-2015-001, July 29, 2015).
Intermittent Efforts Over Almost Four Years to Develop
a Quality Control Review Process Deprived FHFA of           Letter to Congress: Real Estate Owned Maintenance
Assurance of the Adequacy and Quality of Enterprise         Vendors (July 24, 2015).
Examinations (EVL-2015-007, September 30, 2015).

FHFA’s Exercise of Its Conservatorship Powers to Review
and Approve the Enterprises’ Annual Operating Budgets
Has Not Achieved FHFA’s Stated Purpose (EVL-2015-
006, September 30, 2015).


Audit Reports

Kearney & Company, P.C.’s Independent Evaluation of
the Federal Housing Finance Agency Office of Inspector
General’s Information Security Program – 2015 (AUD-
2015-003, September 9, 2015).

Kearney & Company, P.C.’s Independent Evaluation
of the Federal Housing Finance Agency’s Information
Security Program – 2015 (AUD-2015-002, September
9, 2015).

Audit of the Financial Stability Oversight Council’s
Monitoring of Interest Rate Risk to the Financial System:
Report to the Financial Stability Oversight Council and
the Congress (CIGFO-2015-001, July 27, 2015).

FHFA Complied with Applicable Improper Payment
Requirements During Fiscal Year 2014 (AUD-2015-
001, May 14, 2015).




                                    Semiannual Report to the Congress • April 1, 2015–September 30, 2015        67
Appendix E:                                              In these types of schemes, sellers or developers
                                                         typically solicit investors with good credit who want
OI Publicly Reportable                                   low-risk investment opportunities by offering deals
Investigative Outcomes                                   on properties with no money down and other
                                                         lucrative incentives, such as cash back and guaranteed
Involving Condo                                          and immediate rent collection. The sellers fund these
Conversion and Builder                                   incentives with inflated sales prices. The fraudsters
                                                         conceal the incentives and the true property values
Bailout Schemes                                          from the lenders, defrauding them into making loans
                                                         that are much riskier than they appear. When the
                                                         properties go into foreclosure, lenders suffer large
                                                         losses.




     DEFENDANT                 ROLE                  MOST RECENT ACTION                         DATE

Bank Fraud Schemes in West Palm Beach and Tampa
Individuals were allegedly involved in marketing and selling condominiums at developments in both Palm Beach
County and in the Tampa area. The schemes were similar and involved seller-provided incentive packages that
included cash to close, cash rebates, and guaranteed rent, which were not disclosed to the lenders that funded
the mortgages.
                                                  Sentenced to 24 months in prison,
                                                  60 months of supervised release,
Brendan Bolger           Marketer                                                         September 18, 2015
                                                  forfeiture of $4,322,264, and ordered
                                                  to pay $13,641,197 in restitution.
                                                  Was involved in two cases, one in
                                                  the U.S. District Court for the Middle
                                                  District of Florida, Tampa, which was
                                                  transferred to and combined with
                                                  the case in the U.S. District Court
                                                  for the Southern District of Florida.
                                                  Concurrently sentenced to 6 months
Jordana Ende-Tobel       Real Estate Broker       of home confinement, 36 months            September 4, 2015
                                                  of supervised release, forfeiture of
                                                  $106,217 in the Southern District
                                                  case and $56,883 in the Tampa case,
                                                  and ordered to pay $1,878,211 in
                                                  restitution, joint and several, in the
                                                  Southern District case and $499,500,
                                                  joint and several, in the Tampa case.
                                                  Charged with wire fraud, bank fraud,
                         Real Estate Agent/
Gary Blankenship                                  and wire fraud affecting a financial        August 6, 2015
                         Co-Conspirator
                                                  institution.




68   Federal Housing Finance Agency Office of Inspector General
   DEFENDANT                    ROLE                  MOST RECENT ACTION                          DATE
                                                 Sentenced to 36 months in prison,
                                                 36 months of supervised release,
                                                 forfeiture of $506,651, and ordered to
Eli Riesel              Developer                pay $12.5 million in restitution, joint       July 16, 2015
                                                 and several. (Also convicted by jury
                                                 trial during this reporting period on
                                                 April 16, 2015.)
                                                 Was involved in two cases, one in
                                                 the U.S. District Court for the Middle
                                                 District of Florida, Tampa, which was
                                                 transferred to and combined with the
                                                 case in the U.S. District Court for the
                                                 Southern District of Florida. She was
                        Attorney and Escrow/     concurrently sentenced to 1 year, 1
Rashmi Airan-Pace                                                                             June 16, 2015
                        Title Agent              day in prison, 36 months of supervised
                                                 release, forfeiture of $26,973 in
                                                 the Tampa case, and ordered to pay
                                                 $16,496,242 in restitution, joint and
                                                 several, in the Southern District Case
                                                 and $2,652,974 in restitution, joint
                                                 and several, in the Tampa case.
                                                 Sentenced to 6 months in prison,
                                                 24 months of supervised release,
Joaquin Cossio          Real Estate Broker                                                    April 24, 2015
                                                 and ordered to pay $1,215,729 in
                                                 restitution, joint and several.
                        Contract Coordinator     Pled guilty to making a false
Mike Zaric              Manager for Broadmor     declaration before a grand jury             March 25, 2015
                        Development, LLC         proceeding.
                                                 Charged with one count of conspiracy
                        Real Estate Broker/
Joseph L. Pasquale                               to commit bank fraud and two counts         March 17, 2015
                        Straw Buyer Recruiter
                                                 of bank fraud.
                       Former Home
                                                 Sentenced to 18 months in prison and
Florencio Luis Tezanos Mortgage Consultant                                                  February 18, 2015
                                                 36 months of supervised release.
                       at Wells Fargo Bank
                                                 Sentenced to 12 months, 1 day in
                                                 prison, 24 months of supervised
Jose Aller              Marketer                 release, and ordered to pay                 August 29, 2014
                                                 $2,951,263 in restitution, joint and
                                                 several.
                                                 Sentenced to 12 months, 1 day in
                                                 prison, later reduced to 6 months,
Ernesto Rodriguez       Recruiter                24 months of supervised release,            August 29, 2014
                                                 and ordered to pay $2,951,263 in
                                                 restitution, joint and several.

Builder Bailout Scheme
Defendant conspired with others to allegedly induce buyers to purchase homes at inflated prices by providing
undisclosed financial incentives to buyers to keep the sales price of the new homes high, thereby protecting the
financial interests of the builders.
                                                  Pled guilty to conspiracy to commit
Ayman Shahid               Company President                                                 August 20, 2015
                                                  bank fraud.


                                    Semiannual Report to the Congress • April 1, 2015–September 30, 2015       69
     DEFENDANT                  ROLE                 MOST RECENT ACTION                          DATE
A Condo Developer Ponzi Scheme Involving Enterprise Properties
The Cay Clubs Resorts, which operated resort-style hotels/condominiums throughout the U.S., allegedly operated
as a massive Ponzi and securities fraud scheme. It allegedly defrauded 1,400 investors, FDIC-insured banks,
and the Enterprises out of over $300 million. The scheme caused a loss to Freddie Mac of $8,390,663 and to
Fannie Mae of $2,850,086.
Cristal Clark (also
                        Cay Clubs Owner/
known as Cristal                                 Acquitted.                                 August 14, 2015
                        Executive
Coleman)
                        Director of Sales for    Sentenced to 60 months in prison and
Barry J. Graham                                                                             March 30, 2015
                        Cay Clubs                36 months of supervised release.
                        Director of Investor     Sentenced to 60 months in prison and
Ricky L. Stokes                                                                             March 24, 2015
                        Relations/Sales Agent 36 months of supervised release.
Fred Davis Clark Jr.
                        Cay Clubs Owner/         Arrested and charged with bank fraud
(also known as Dave                                                                       September 16, 2014
                        Scheme Leader            conspiracy.
Clark)

A Loan Origination Scheme Involving Kickbacks to Straw Buyers and Others
Conspirators allegedly owned or controlled real estate properties and enlisted others to recruit straw buyers to
fraudulently purchase condominiums in the properties. The defendants prepared and caused to be prepared
loan documents containing false statements, which induced lenders to make loans to finance the purchases.
Conspirators allegedly used the loan proceeds to pay kickbacks to the brokers, recruiters, and straw buyers, as
well as to pay the mortgages to conceal the conspiracy. The scheme caused losses of over $20 million, with
loss exposure to Fannie Mae and Freddie Mac at $5,216,873 and $5,646,264, respectively. The sentenced
defendants have been ordered to pay $21,240,064 in restitution, joint and several, with each individual assigned
a portion of the total amount.
                                                  Sentenced to 108 months in prison,
                                                  60 months of supervised release, and
Lazaro Mendez            Owner/Seller                                                            July 8, 2015
                                                  ordered to pay restitution, joint and
                                                  several.
                                                  Sentenced to 57 months in prison,
                                                  60 months of supervised release, and
Marie Mendez             Straw Buyer                                                             July 8, 2015
                                                  ordered to pay restitution, joint and
                                                  several.
                                                  Sentenced to 135 months in prison,
                                                  60 months of probation, forfeiture
Stavroula Mendez         Developer-Seller                                                        July 8, 2015
                                                  of $35,252,331, and ordered to pay
                                                  restitution, joint and several.
                                                  Sentenced to 30 months in prison,
                                                  36 months of supervised release, and
Enrique Angulo           Straw Buyer Recruiter                                                 March 24, 2015
                                                  ordered to pay restitution, joint and
                                                  several.
                                                  Sentenced to 12 months in prison,
                                                  60 months of supervised release, and
Frank Ibarzabal          Straw Buyer Recruiter                                                  March 5, 2015
                                                  ordered to pay restitution, joint and
                                                  several.
                                                  Sentenced to 6 months of home
                                                  confinement, 24 months of supervised
Dorian A. Magarino       Straw Buyer Recruiter                                               February 10, 2015
                                                  release, and ordered to pay restitution,
                                                  joint and several.


70   Federal Housing Finance Agency Office of Inspector General
   DEFENDANT                     ROLE                  MOST RECENT ACTION                           DATE
                                                  Sentenced to 33 months in prison,
                         Loan Officer/Broker/
                                                  60 months of supervised release, and
Leidy Masvidal           Owner of Mortgage                                                    December 4, 2014
                                                  ordered to pay restitution, joint and
                         Company
                                                  several.
                                                  Sentenced to 15 months in prison,
                                                  5 years of supervised release, and
Douglas Ponce            Straw Buyer Recruiter                                                December 3, 2014
                                                  ordered to pay restitution, joint and
                                                  several.
                                                  Sentenced to 35 months in prison,
                                                  60 months of supervised release, and
Tania Masvidal           Loan Officer                                                         December 3, 2014
                                                  ordered to pay restitution, joint and
                                                  several.
                                                  Sentenced to 36 months in prison,
                         Mortgage Broker/
                                                  36 months of supervised release, and
Wilkie Perez             Owner of Mortgage                                                    December 2, 2014
                                                  ordered to pay restitution, joint and
                         Company
                                                  several.
                                                  Sentenced to 51 months in prison,
                                                  3 years of supervised release, and
Luis Michael Mendez      Owner/Seller                                                         December 2, 2014
                                                  ordered to pay restitution, joint and
                                                  several.
                                                  Sentenced to 31 months in prison,
                                                  36 months of supervised release, and
Alfredo Chacon           Straw Buyer Recruiter                                               September 26, 2014
                                                  ordered to pay restitution, joint and
                                                  several.
                                                  Sentenced to 30 months in prison,
                                                  36 months of supervised release, and
Francisco Martos         Loan Officer                                                        September 26, 2014
                                                  ordered to pay restitution, joint and
                                                  several.
                                                  Sentenced to 24 months in prison,
                                                  36 months of supervised release, and
Dorian W. Magarino       Straw Buyer                                                         September 26, 2014
                                                  ordered to pay restitution, joint and
                                                  several.
                                                  Indicted for bank fraud, wire fraud, and
                         Owner/Developer/
Luis Mendez Sr.                                   conspiracy to commit bank and wire           March 13, 2014
                         Seller
                                                  fraud.

Two Indicted in Elaborate Condo Scheme
The indictment alleged that Sanchez and Cevallos, acting in concert with others, bought or facilitated the sale of
condominiums to straw buyers at inflated prices. The inflated prices allowed the sellers in the transactions, also
co-conspirators, to sell the condominiums for more than their market value.
                                                 Charged with conspiracy and wire fraud
David Cevallos            Mortgage Broker                                                        April 29, 2015
                                                 affecting a financial institution.
                                                 Charged with conspiracy and wire fraud
Osbel Sanchez             Sales Associate                                                        April 29, 2015
                                                 affecting a financial institution.




                                  Semiannual Report to the Congress • April 1, 2015–September 30, 2015          71
Appendix F:                                               Investigations in this category involve a variety of
                                                          schemes that target Fannie Mae, Freddie Mac, the
OI Publicly Reportable                                    FHLBanks, or members of FHLBanks.
Investigative Outcomes
Involving Fraud
Committed Against
the Enterprises, the
FHLBanks, or FHLBank
Member Institutions



     DEFENDANT                  ROLE                 MOST RECENT ACTION                           DATE

Fraud Against La Jolla Bank
In February 2010, La Jolla Bank failed and was taken over by the FDIC. At the time of failure, La Jolla had
outstanding advances from the FHLBank of San Francisco of $700 million. Beginning in 2004, Martinez and
senior bank officers agreed to issue loans under favorable terms to high-volume borrowers they referred to as
“Friends of the Bank,” or “FOBs,” several of whom made large cash kickbacks in return for the loans.
                                                 Pled guilty to conspiracy to misapply
Amalia Martinez          Head of SBA Lending                                                 September 25, 2015
                                                 bank funds.
                                                 Indicted for false statements,
Jocelyn Brown            Loan Broker                                                            August 6, 2015
                                                 conspiracy, and bank bribery.

Nonprofit Defrauds FHLBank Member
According to the indictment, from February 2010 through August 2012, Williams, Executive Director of a nonprofit
organization, Fiscal Integrity & Economic Development Association, Inc. (FIED), and a co-conspirator allegedly
submitted intentionally fraudulent documentation to the FHLBank of Dallas under the auspices of obtaining
AHP funds.
                          Executive Director of
Marlene Williams                                  Pled guilty to conspiracy.                September 10, 2015
                          Nonprofit
                                                  Charged with conspiracy and false
Kayla Lindsey             Chief Financial Officer                                               April 7, 2015
                                                  statements.

Former Title Company President Charged with Bank Fraud
A criminal complaint alleges that between 2010 and 2011 the defendant engaged in a scheme that caused
approximately $1.3 million in losses to two financial institutions.
                         Former Title Company
Mark Andreotti                                    Charged with bank fraud.              August 14, 2015
                         President




72   Federal Housing Finance Agency Office of Inspector General
   DEFENDANT                     ROLE                  MOST RECENT ACTION                            DATE
Bank CEO Committed Bank Fraud Involving FHLBank Member
Owens allegedly abused his position with Voyager Bank to circumvent the bank’s lending procedures to obtain
letters of credit, which included a $7.5 million irrevocable confirming letter of credit from the FHLBank of
Des Moines. The loss to Voyager is estimated at $9.7 million.
                           Former CEO and
                                                     Pled guilty to obstruction of an
Timothy Owens              Chairman of the Board                                                    July 30, 2015
                                                     examination of a financial institution.
                           at Voyager Bank




                                   Semiannual Report to the Congress • April 1, 2015–September 30, 2015             73
Appendix G:                                               Loan or mortgage origination schemes are the most
                                                          common type of mortgage fraud. These schemes
OI Publicly Reportable                                    typically involve falsifying borrowers’ income, assets,
Investigative Outcomes                                    employment, and credit profiles to make them
                                                          more attractive to lenders. These schemes often use
Involving Loan                                            bogus Social Security numbers and fake or altered
Origination Schemes                                       documents such as W-2 forms and bank statements
                                                          to defraud lenders into making loans they would
                                                          not otherwise make. Typically, perpetrators pocket
                                                          origination fees or inflate home prices and divert
                                                          proceeds.




     DEFENDANT                  ROLE                  MOST RECENT ACTION                           DATE

Former Loan Officer Charged with Bank Fraud
An indictment alleges that from 2003 to 2008, the defendant obtained five cash-out mortgages for a property
located in Massachusetts. Bruce allegedly submitted false information to the banks regarding employment
history, income, assets, and debt. Bruce also allegedly filed fraudulent discharges of mortgages to create the
appearance that earlier loans had been paid in full.

Denise Bruce            Former Loan Officer      Indicted on five counts of bank fraud.    September 30, 2015

Bank Examiner Charged
In December 2014, an individual allegedly submitted a loan application with a false letter of employment. At the
time, the individual was employed as a bank examiner for the Office of the Comptroller of the Currency.
                         Borrower/Treasury      Charged with attempted residential
Sophelia Alexander                                                                          September 29, 2015
                         Employee               mortgage fraud.

Two Indicted in Michigan for Loan Origination and Short Sale Fraud
The indictment cites that two individuals allegedly applied for two separate cash-out mortgage refinance loans
using material misrepresentations and false statements.

Mohamed Al Teremish     Straw Buyer              Charged with false pretenses.            September 29, 2015

Souad Abdallah          Straw Buyer              Charged with false pretenses.            September 29, 2015




74   Federal Housing Finance Agency Office of Inspector General
   DEFENDANT                    ROLE                 MOST RECENT ACTION                           DATE
$10 Million Scheme
Several conspirators agreed to defraud mortgage lenders and financial institutions by obtaining over $10 million
in fraudulent mortgages for the purchase of 20 multi-family properties in New Haven, Connecticut.
                                                Sentenced to 12 months and 1 day in
                                                prison, 3 years of supervised release,
Jeffrey Weisman         Closing Attorney        forfeiture of $28,538, and ordered to      September 25, 2015
                                                pay $2,021,053 in restitution, joint
                                                and several.
                                                Sentenced to 12 months in prison,
                                                36 months of probation, forfeiture
Charles Lesser          Mortgage Broker         of $41,316, and ordered to pay                  July 15, 2015
                                                $906,108 in restitution (a portion of
                                                which is joint and several).
                                                Sentenced to 28 months in prison,
                        Property Investor/
                                                36 months of supervised release,
Ronald Hutchison Jr.    Former New York                                                       February 9, 2015
                                                and ordered to pay $2,605,036 in
                        Correctional Officer
                                                restitution, joint and several.
                                                Sentenced to 22 months in prison,
                                                60 months of supervised release,
                                                and ordered to pay $2,605,036
                                                in restitution, joint and several. As
Menachem Yosef          Real Estate Company
                                                part of his plea, Levitin agreed to
Levitin (also known as Owner/Property                                                        January 16, 2015
                                                forfeit approximately $163,000, as
Joseph Levitin)         Manager
                                                well as his ownership interests in
                                                19 properties in New Haven, which
                                                resulted in over $1.4 million in net
                                                proceeds.
                                                Sentenced to 60 months in prison,
                                                60 months of supervised release,
                        Former GMAC and         and ordered to pay $2,105,277
Andrew Constantinou     Countrywide Loan        in restitution, joint and several. In       December 16, 2014
                        Officer                 addition, Constantinou was ordered not
                                                to engage in the business of mortgage
                                                lending.
                                                Sentenced to 15 months in prison,
                        Property Investor/
                                                60 months of supervised release, and
Jacques Kelly           Former New York                                                         July 23, 2014
                                                ordered to pay $179,769 in restitution,
                        Correctional Officer
                                                joint and several.
                                                Restitution was ordered in the amount
                                                of $1,262,889, joint and several.
                                                She was previously sentenced to
                                                24 months in prison, 36 months of
Genevieve Salvatore     Closing Attorney        supervised release, and ordered to              June 2, 2014
                                                forfeit $19,000. Additionally, Salvatore
                                                was ordered suspended for a period of
                                                6 years from practicing law in the state
                                                of Connecticut.




                                  Semiannual Report to the Congress • April 1, 2015–September 30, 2015       75
     DEFENDANT                  ROLE                 MOST RECENT ACTION                          DATE
                                                Sentenced to 20 months of
                                                incarceration, 36 months of supervised
Lawrence Dressler       Closing Attorney        release, forfeiture of $5,100, and          March 20, 2014
                                                ordered to pay $403,450 in restitution,
                                                joint and several.
                                                Sentenced to 48 months of
Kwame Nkrumah           Owner of Real Estate    incarceration, 60 months of supervised
(also known as Roger    Company/Property        release, forfeiture of $113,080, and      September 12, 2013
Woodson)                Manager                 ordered to pay $2,939 in restitution,
                                                joint and several.
                                                Sentenced to 24 months in prison,
                        Owner of Mortgage       60 months of supervised release,
Charmaine Davis                                                                           September 6, 2013
                        Brokerage Firm          forfeiture of $39,434, and ordered to
                                                pay a $6,000 fine.
                                                Restitution ordered in the amount
                                                of $743,016, joint and several.
Bradford J. Rieger      Closing Attorney        Previously sentenced to 24 months of       January 16, 2013
                                                incarceration, 60 months of supervised
                                                release, and a $10,000 fine.

Unlicensed Appraiser/Identity Theft Scheme
Subjects allegedly fraudulently obtained and used the identity of a licensed appraiser to prepare real estate
appraisals, which were subsequently used to support mortgage loans sold to the Enterprises. White submitted
over 400 appraisals for use in mortgage loans using the stolen identity.
                         President/Loan Officer
Diana Merritt            at Merit Home Finance Convicted of mortgage fraud.                  September 24, 2015
                         Inc.
                                                 Pled guilty to identity theft and
Douglas White            Unlicensed Appraiser                                                  August 19, 2015
                                                 mortgage fraud.

A Loan Origination Fraud Involving Kickbacks to Straw Buyers, Buyers, and
Other Participants
Conspirators allegedly participated in a mortgage fraud scheme in which they entered into agreements to
purchase properties for amounts in excess of the original asking price. The loss exposure to the Enterprises is
$1,192,125.
                                                 Pled guilty to conspiracy to commit
Carlos Morales           Developer/Seller                                                  September 16, 2015
                                                 bank fraud.
                                                 Sentenced to 18 months in prison,
                                                 36 months of supervised release, and
Guillermo Rincon         Straw Buyer                                                           May 5, 2015
                                                 ordered to pay $549,100 in restitution,
                                                 joint and several.
                                                 Pled guilty to one count of conspiracy
                                                 to commit mail fraud affecting a
                         Loan Officer/Straw      financial institution and bank fraud.
Enrique Hernandez                                                                           February 23, 2015
                         Buyer Recruiter         Hernandez agreed to pay restitution
                                                 in the amount of $899,700, joint and
                                                 several, and forfeit $108,724.




76   Federal Housing Finance Agency Office of Inspector General
   DEFENDANT                    ROLE                  MOST RECENT ACTION                           DATE
Builder Loan Origination Fraud Scheme
An information alleges that the builder, along with co-conspirators, participated in preparing a false HUD-1 form
that falsely represented that the borrower provided a down payment.
                                                   Charged with making a false statement
Timothy Ritchie          Builder/Investor                                                      September 15, 2015
                                                   with intent to defraud.

$3.8 Million Origination Scheme
Campbell and Miles participated in a mortgage fraud scheme wherein false financial information was provided
to secure home mortgage loans. Agodio subsequently participated in a variation of the scheme targeting
unsuspecting immigrants, wherein he used false financial information to secure $3.8 million in loans through
Miles to purchase approximately three dozen row houses. All of these properties are now in default or
foreclosure.
                                                Sentenced to 19 months in prison, 60
                       Property Investor/       months of probation, and ordered to
Kevin Campbell                                                                            September 11, 2015
                       Seller                   pay $1,182,822 in restitution, joint
                                                and several.
                                                Sentenced to 18 months in prison, 60
                                                months of probation, and ordered to
Jonathan Lee Miles     Loan Officer                                                       September 10, 2015
                                                pay $1,182,822 in restitution, joint
                                                and several.
                                                Pled guilty to conspiracy, wire fraud,
Alberic Okou Agodio    Real Estate Broker                                                      July 21, 2015
                                                and aggravated identity theft.

Sentencing in Origination Scheme
Several individuals conspired to defraud lending institutions by inducing them to fund mortgage loans by using
material misrepresentations and omissions of material fact in HUD-1 forms, Settlement Statements, loan
applications, and other loan documents. The scheme caused estimated losses of $967,989 to Fannie Mae and
$130,265 to Freddie Mac.
                                                  A previous sentence was vacated
                                                  and Edwards was re-sentenced to
                                                  46 months in prison, 12 months of
Michael Edwards          Loan Officer                                                       September 11, 2015
                                                  supervised release, and ordered to pay
                                                  $1,300,402 in restitution, joint and
                                                  several.
                                                  A previous sentence was vacated
                         Home Builder/Straw       resulting in Mattox pleading guilty to
Donald Mattox                                                                                 August 4, 2015
                         Buyer                    one count of conspiracy to commit wire
                                                  fraud.
                                                  Sentenced to 90 months in prison,
                                                  36 months of supervised release,
Lawrence Day             Recruiter                forfeiture of $1,877,032, and ordered        July 28, 2015
                                                  to pay $3,108,998 in restitution, joint
                                                  and several.
                                                  Sentenced to 20 months in prison,
                                                  12 months of supervised release, and
Scott Sherman            Builder                                                            November 13, 2014
                                                  ordered to pay $493,500 in restitution,
                                                  joint and several, and a $7,500 fine.




                                  Semiannual Report to the Congress • April 1, 2015–September 30, 2015        77
     DEFENDANT                 ROLE                 MOST RECENT ACTION                        DATE
                                                Sentenced to 21 months of
                                                incarceration, 36 months of
Donna Cobb             Escrow Officer           supervised release, and ordered to pay    May 28, 2014
                                                $2,151,376 in restitution, joint and
                                                several.

CPA Plea in Multimillion Dollar Mortgage Fraud Scheme
Austin and others allegedly defrauded banks, mortgage lenders, the Enterprises, and the Federal Housing
Administration (FHA) by assisting others to obtain mortgage loans on residential real estate properties
through false loan applications and documents and fraudulent settlements.
                                                Sentenced to 60 months of probation,
                                                8 weekends of incarceration, and
Anthony Young            Recruiter/Straw Buyer                                            September 4, 2015
                                                ordered to pay $300,600 in restitution,
                                                joint and several.
                                                Sentenced to 60 months in prison,
                                                36 months of supervised release,
Frank Davis Jr.          Ringleader             forfeiture of $2,296,463, and ordered       August 7, 2015
                                                to pay $2,730,345 in restitution, joint
                                                and several.
                                                Sentenced to 72 months in prison,
                                                60 months of supervised release,
                         Settlement Agent and
Edward Dacy                                     forfeiture of $2,730,345, and ordered       August 6, 2015
                         Lawyer
                                                to pay $2,730,345 in restitution, joint
                                                and several.
                                                Sentenced to 5 years of probation,
                                                forfeiture of $42,600, and ordered to
Cheryl Morrison          Settlement Processor                                               August 5, 2015
                                                pay $41,600 in restitution, joint and
                                                several.
                                                Sentenced to 60 months of probation,
                                                20 weekends of incarceration,
Howard Tutman III        Loan Officer           forfeiture of $606,414, and ordered to      August 4, 2015
                                                pay $484,370 in restitution, joint and
                                                several.
                                                Sentenced to 27 months in prison,
                                                36 months of supervised release,
Frederick Robinson Sr. Second Ringleader        forfeiture of $971,900, and ordered to       July 31, 2015
                                                pay $925,311 in restitution, joint and
                                                several.
                                                Sentenced to 36 months of probation,
                                                8 weekends of incarceration, forfeiture
Pauline Pilate           Real Estate Agent      of $1 million, and ordered to pay            July 16, 2015
                                                $1 million in restitution, joint and
                                                several.
                                                Sentenced to 366 days in prison, 36
                                                months of supervised release, and
Lonnie Johnson           Bank Employee                                                       July 15, 2015
                                                ordered to pay $277,000 in restitution,
                                                joint and several.
                                                Sentenced to 60 months of probation,
                                                4 weekends of incarceration, forfeiture
A. Conrad Austin         CPA                                                                 May 15, 2015
                                                of $5,001, and ordered to pay $5,001
                                                in restitution.


78   Federal Housing Finance Agency Office of Inspector General
   DEFENDANT                       ROLE               MOST RECENT ACTION                           DATE
                                                 Sentenced to 15 months in prison,
Derrick Cannon          Recruiter/Straw Buyer    36 months of supervised release, and         August 31, 2012
                                                 ordered to pay $173,165 in restitution.

Property Flipping Scheme Results in Charge and Guilty Plea
An indictment alleges that individuals were utilizing inflated appraisals and loan-level misrepresentations to
lenders to carry out a property flipping scheme. The investigation came to OIG through a referral from the Freddie
Mac Financial Fraud Investigation Unit.

Abdulkarim Saad         Investor                 Pled guilty to fraud by false pretenses.   September 3, 2015

                        Short Seller/Straw       Charged with false pretenses with
Omar Dalton                                                                                 August 10, 2015
                        Buyer                    intent to defraud.

Multi-defendant Origination Scheme
Subjects allegedly conspired to commit various types of financial fraud including mortgage fraud, federal student
loan fraud, and small business loan fraud. The scheme involved submitting false documents and straw buyers.
The loss exposure to the Enterprises is approximately $800,000.
                                                 Sentenced to 6 months in prison, 24
                                                 months of supervised release with first
Derrek L. Campbell II   Straw Buyer              6 months under home detention, and           August 21, 2015
                                                 ordered to pay $133,715 in restitution,
                                                 joint and several.
                        Owner Credit Repair      Pled guilty to mail fraud and
Anthony Trice                                                                                  July 14, 2015
                        Business                 aggravated identity theft.

David Edwards           Organizer                Pled guilty to mail fraud.                    June 30, 2015

                        Owner Credit Repair      Pled guilty to mail fraud and
Jerrod Weathersby                                                                              May 26, 2015
                        Business                 aggravated identity theft.
                                                 Charged in a 12-count superseding
Noreen Mian             Loan Officer             indictment alleging mail, wire, and           March 5, 2015
                                                 other fraud charges.
                                                 Charged in a 12-count superseding
Sirarthur McClelland    Organizer                indictment alleging mail, wire, and           March 5, 2015
                                                 other fraud charges.
                                                 Charged in a 12-count superseding
Warren Taylor           Organizer                indictment alleging mail, wire, and           March 5, 2015
                                                 other fraud charges.

Straw Buyer Scheme
The defendant, owner of Joon Asset Management Corp., orchestrated a straw-buying scheme on a Fannie Mae
property.
                                             Sentenced to time served, 36 months
                        Owner of Joon Asset
                                             of supervised release, forfeiture
Patrick Mullings        Management/Scheme                                                August 3, 2015
                                             of $525,000, and ordered to pay
                        Leader
                                             $25,000 in fines.




                                    Semiannual Report to the Congress • April 1, 2015–September 30, 2015        79
     DEFENDANT                  ROLE                  MOST RECENT ACTION                           DATE
Loan Officers and Property Investors Team Up in Scheme
In this scheme loan officers and property investors allegedly submitted false information to qualify buyers. The
false information allegedly included gift letters to disguise the nature of the down payments, false employment,
and income, as well as false leases.
                                                     Sentenced to 14 months in prison,
Joe Brogan               Loan Officer                60 months of supervised release, and         July 17, 2015
                                                     ordered to pay $353,984 in restitution.

Property Flipping Scheme
Co-conspirators allegedly engaged in a property flipping scheme wherein straw buyers were paid undisclosed
incentives to purchase houses sold by Payne.
                         Mortgage Broker/         Pled guilty to wire fraud and aggravated
Marcus Payne                                                                                 July 16, 2015
                         Company President        identity theft.

Condo Conversion Fraud Scheme in Northern Illinois
This scheme involved providing undisclosed incentives by the seller of a condo conversion project. The scheme
resulted in a $16 million loan origination fraud.

Walter Vali             Loan Originator          Pled guilty to mail fraud.                    July 16, 2015

Nunzio Grieco           Loan Originator          Charged with wire and mail fraud.              July 1, 2015

A Loan Origination with Undisclosed Incentives and Misrepresentations
King, Hearns, and others allegedly conspired to launder proceeds by means of committing wire fraud. King and
Hearns had allegedly formed an agreement with others to assist in providing buyers of homes with the funds
to close on real estate transactions, which they would falsely represent to lenders were provided by the buyers.
The scheme caused a loss exposure of approximately $866,000 to the Enterprises, which bought or secured
mortgages on 10 properties.

Euneisha Hearns         Loan Officer             Convicted by a jury at trial.                  July 9, 2015

                                                 Sentenced to 33 months in prison,
                                                 36 months of supervised release, and
Stephen King            Real Estate Agent                                                     March 18, 2015
                                                 ordered to pay $685,704 in restitution,
                                                 joint and several.

Sentencings in Short Sale Scheme
Lyles and others allegedly conspired to defraud lenders of more than $1.2 million in a short sale flipping scheme
by facilitating fraudulent short sales and subsequent fraudulent loan originations on four properties. Freddie Mac
suffered a loss of $334,328 in one of the transactions.
                           Title Company
                                                  Sentenced to 48 months in prison and
Sasha Cortes               Principal/                                                           June 19, 2015
                                                  ordered to pay $15,000 in restitution.
                           Co-Conspirator

Brian Lyles             Lead Conspirator         Sentenced to 96 months in prison.             May 28, 2015

                        Entity Controlled/
BKL Property
                        Utilized by Lyles to     Sentenced to $200,000 in restitution.         May 28, 2015
Management, LLC
                        Facilitate the Fraud



80   Federal Housing Finance Agency Office of Inspector General
   DEFENDANT                    ROLE                 MOST RECENT ACTION                         DATE
                        Former Bank             Sentenced to 24 months of probation
Cristian Rampello       Employee/Provided       and ordered to pay $20,000 in             February 27, 2015
                        False Verifications     restitution.
                        Former Bank
Pedro Espada Jr.        Employee/Provided       Sentenced to 36 months of probation.      February 27, 2015
                        False Verifications

$3.5 Million Loan Origination Fraud
The defendants diverted $1.3 million in funds from over $8.2 million in fraudulently obtained loans,
which resulted in losses of over $1.2 million to the Enterprises and losses of $3.5 million to FHA and
conventional lenders.
                         Facilitated False Credit Sentenced to 57 months in prison and
Carmen Johnson                                                                                   June 3, 2015
                         History                   60 months of supervised release.
                                                   Sentenced to 5 months in prison, 36
                                                   months of supervised release, and
Peter Ligate             Realtor                                                               March 31, 2015
                                                   ordered to pay $352,091 in restitution,
                                                   joint and several.
                                                   Sentenced to 57 months in prison,
                                                   60 months of supervised release,
                                                   and ordered to pay $2,482,856
Edgar Tibakweitira       Realtor                   in restitution, joint and several.          March 31, 2015
                                                   Tibakweitira must surrender to U.S.
                                                   Immigration officials upon conclusion
                                                   of incarceration.
                                                   Sentenced to 6 months of home
                                                   detention, 60 months of supervised
                                                   release, and ordered to pay $352,091
Cane Mwihava             Straw Buyer               in restitution, joint and several.          March 23, 2015
                                                   Mwihava must surrender to U.S.
                                                   Immigration officials upon conclusion
                                                   of his home detention.
                                                   Sentenced to 27 months in prison,
                                                   60 months of supervised release, and
                                                   ordered to pay $511,147 in restitution,
Annika Boas              Straw Buyer                                                           January 7, 2015
                                                   joint and several. Boas must surrender
                                                   to U.S. Immigration officials upon
                                                   conclusion of incarceration.
                                                   Sentenced to 15 months in prison,
                                                   60 months of supervised release,
Abdallah Kitwara         Straw Buyer               and ordered to pay a $50,000 fine          December 2, 2014
                                                   and $290,954 in restitution, joint and
                                                   several.
                                                   Sentenced to 21 months in prison,
                                                   24 months of supervised release, and
                                                   ordered to pay $999,726 in restitution,
Ayoub Luziga             Straw Buyer                                                         November 24, 2014
                                                   joint and several. Luziga must
                                                   surrender to U.S. Immigration officials
                                                   upon conclusion of incarceration.




                                 Semiannual Report to the Congress • April 1, 2015–September 30, 2015       81
     DEFENDANT                    ROLE               MOST RECENT ACTION                           DATE
                                                 Sentenced to 33 months in prison,
                                                 60 months of supervised release, and
                        Facilitated Straw        ordered to pay $999,726 in restitution,
Raymond Abraham                                                                             October 27, 2014
                        Buyers with False IDs    joint and several. Abraham must
                                                 surrender to U.S. Immigration officials
                                                 upon conclusion of incarceration.
                                                 Due to be sentenced but fled back
                                                 to Tanzania and is now a fugitive.
Mrisho Mzese            Seller                                                               August 7, 2014
                                                 Previously found guilty by a jury on 11
                                                 felony counts.
                                                 Sentenced to 6 months of home
                                                 confinement, 36 months of probation,
Gladyness Silaa         Realtor                                                               June 16, 2014
                                                 and ordered to pay $378,602 in
                                                 restitution, joint and several.
                                                 Sentenced to 60 months in prison,
                                                 60 months of supervised release, and
Mokorya Wambura         Straw Buyer              ordered to pay $434,867 in restitution,      June 16, 2014
                                                 joint and several. Wambura faces
                                                 deportation upon release.
                                                 Sentenced to time served and 24
Flavia Makundi          Straw Buyer                                                           June 2, 2014
                                                 months of supervised release.
                                                 Sentenced to 8 months in prison and
                        Facilitated a Straw
Larry Johnson                                    ordered to pay $352,091 in restitution,    February 24, 2014
                        Buyer
                                                 joint and several.

Straw Buyer Scheme Falls Flat
Senior managers of a company allegedly profited by selling homes to straw buyers at inflated prices. The homes
fell into foreclosure, causing losses to the lending institutions including Freddie Mac.
                                                    Sentenced to 36 months of probation
Susan Rendino             Co-Conspirator            and ordered to pay $2,504 in              May 19, 2015
                                                    restitution and a $2,000 fine.

$11 Million Fraudulent Loan Scheme
Co-conspirators of the scheme allegedly prepared mortgage applications that contained false information about
borrowers’ income, employment, and assets, and generated dozens of mortgage loans for unqualified borrowers.
The co-conspirators then allegedly took a commission or fee. The allegedly fraudulent loans were worth more
than $11 million.
                         Real Estate Broker/
                                                Pled guilty to conspiracy to commit
Jose Garcia              Co-Owner of Mortgage                                                 April 10, 2015
                                                bank fraud.
                         Brokerage
                         Real Estate Broker/
                                                Pled guilty to conspiracy to commit
Lucy Garcia              Co-Owner of Mortgage                                                  April 9, 2015
                                                bank fraud.
                         Brokerage

Property Sales Kickback Scheme
Williams and co-conspirators allegedly conspired to commit bank fraud by inflating home prices, selling the
homes, and then kicking back proceeds to those involved in the scheme.
                                                 Sentenced to 102 months in prison,
Herbert Williams        Recruiter                60 months of supervised release, and          April 2, 2015
                                                 ordered to pay $965,900 in restitution.


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




   DEFENDANT                   ROLE                  MOST RECENT ACTION                          DATE

Foreclosure Scheme in Texas
According to the indictment, the defendants allegedly fraudulently deeded to themselves properties that were
vacant and going through the foreclosure process. The true owners were not aware that the defendants had
allegedly stolen their properties. Once the homes were fraudulently recorded in the defendants’ names, the
defendants allegedly filed lawsuits that falsely asserted they were the owners of the properties.
                                                   Charged with conspiracy to produce,
                          Supplier of Counterfeit use, or traffic in counterfeit access
Andra Hubbard                                                                               September 10, 2015
                          Devices                  devices and to possess 15 or more
                                                   counterfeit access devices.
                                                   Charged with conspiracy to produce,
                                                   use, or traffic in counterfeit access
                                                   devices and to possess 15 or more
Kendeverick Williams      Organizer                                                         September 10, 2015
                                                   counterfeit access devices; produce,
                                                   use, or traffic in counterfeit access
                                                   devices and aiding and abetting.
                                                   Charged with conspiracy to produce,
                                                   use, or traffic in counterfeit access
                                                   devices and to possess 15 or more
                                                   counterfeit access devices; produce,
                          Supplier of Counterfeit
Montelyus Jackson                                  use, or traffic in counterfeit access    September 10, 2015
                          Devices
                                                   devices and aiding and abetting; and
                                                   possession of 15 or more counterfeit
                                                   access devices and aiding and
                                                   abetting.
                                                   Charged with conspiracy to produce,
                                                   use, or traffic in counterfeit access
                                                   devices and to possess 15 or more
Aviyah Webb               Organizer                                                         September 10, 2015
                                                   counterfeit access devices; and
                                                   possession of 15 or more counterfeit
                                                   access devices and aiding and abetting.

                                 Semiannual Report to the Congress • April 1, 2015–September 30, 2015       83
     DEFENDANT                   ROLE                  MOST RECENT ACTION                           DATE
Short Sale Scheme in Brooklyn
Conspirators attempted to engage in a short sale property flipping scheme with a property located in Brooklyn,
New York. Freddie Mac held the property and raised concerns after analysis of the submitted documentation.

Fedlaire Aristide        Short Sale Facilitator   Pled guilty.                                August 25, 2015

Short Sale Schemes in Michigan
An indictment alleges that multiple individuals were involved in short sale schemes that involved finding a
straw buyer for the purchase of homes that were not listed for sale at the time of purchase. According to the
indictment, cash buyers allegedly conveyed the properties to relatives of the original homeowner, who then
allegedly originated a loan for less than the original loan amount.
                          Short Seller/Straw        Charged with false pretense with intent
Bassam Hamood                                                                                  August 14, 2015
                          Buyer                     to defraud.
                          Short Seller/Straw        Charged with false pretense with intent
Mariam Dakroub                                                                                 August 13, 2015
                          Buyer                     to defraud.
                          Short Seller/Straw        Charged with false pretense with intent
Chadi Rustom                                                                                   August 13, 2015
                          Buyer                     to defraud.
                          Short Seller/Straw        Charged with false pretense with intent
Walid Fawaz, Sr.                                                                               August 13, 2015
                          Buyer                     to defraud.
                          Short Seller/Straw        Charged with false pretense with intent
Zinab Allie                                                                                    August 13, 2015
                          Buyer                     to defraud.
                          Short Seller/Straw        Charged with false pretense with intent
Bahij El-fadl                                                                                  August 13, 2015
                          Buyer                     to defraud.

Three Pleas in Short Sale Scheme
Conspirators allegedly engaged in several schemes to fraudulently obtain money, including: a “flopping” scheme
where banks were convinced to accept short sale prices that were lower than a legitimate buyer would be willing
to pay; recording false second and third liens; tricking distressed homeowners into signing their properties over
to criminal actors; and renting distressed properties while simultaneously stalling foreclosure through the use of
fraudulent documents.
                          Scheme Leader and         Sentenced to 128 months in prison
Jackalyn Bashara          Licensed Real Estate      and ordered to pay $836,165 in               June 29, 2015
                          Salesperson               restitution and $600 in fines.
                          Property Manager for      Pled guilty to theft of personal
Deanna Bashara                                                                                   June 26, 2015
                          Rent Scheme               property.
                          Scheme Leader/            Pled guilty to conspiracy, grand theft,
Eric Wolfe                Licensed Real Estate      preparing false documents, and               June 25, 2015
                          Broker                    mortgage fraud.
                          Straw Buyer and
                                                    Sentenced to 36 months of probation
                          Opened Bank
Billie Bryant                                       and ordered to pay $300,000 in               May 13, 2015
                          Accounts Used in the
                                                    restitution and $300 in fines.
                          Scheme
                          Straw Buyer and
                          Opened Bank
Gerald Bryant                                       Charges dropped.
                          Accounts Used in the
                          Scheme




84   Federal Housing Finance Agency Office of Inspector General
   DEFENDANT                    ROLE                 MOST RECENT ACTION                          DATE
                        Intimidated Victims     Sentenced to 36 months in prison (18
                        and Collected Rent      months suspended), 18 months of
Jered Bryant                                                                                 May 13, 2015
                        Generated by the        supervised release, and ordered to pay
                        Scheme                  $124,467 in restitution.
                        Generated False/        Pled guilty to grand theft and
Lindsay Petty                                                                              January 29, 2015
                        Forged Documents        conspiracy to commit mortgage fraud.
                        Assisted with
                        Shell Companies
Delia Wolfe             and Opened Bank         Pled guilty to forgery.                    January 29, 2015
                        Accounts Used in the
                        Scheme
                        Generated and
                                                Pled guilty to grand theft and mortgage
James Styring           Filed False/Forged                                                  October 1, 2014
                                                fraud.
                        Documents
                                                Charged with conspiracy, grand theft,
                        Notary/Licensed Real
Brian Deden                                     mortgage fraud, and procuring/offering       June 25, 2014
                        Estate Broker
                                                false/forged instruments.
                                                Charged with conspiracy, grand theft,
                        Licensed Real           mortgage fraud, procuring/offering
Joseph Jaime            Estate Salesperson/     false/forged instruments, perjury,           June 25, 2014
                        Facilitated Short Sales bribery of a witness, and intimidation
                                                of a witness.

Attorney and Others Involved in Short Sale Mortgage Fraud
Foley allegedly submitted false documents and recruited a straw buyer to support a short sale transaction where
the property was deeded back to Foley. This scheme caused a loss to Freddie Mac of approximately $148,000.
                                                Sentenced to 30 days in prison, 36
                         Organized Scheme/
Gary Foley                                      months of supervised release, and             June 25, 2015
                         Attorney
                                                ordered to pay $79,786 in restitution.

$3 Million Short Sale Fraud Scheme
An indictment alleges that the defendants conspired to defraud mortgage lending companies and financial
institutions by making false statements on loan applications and short-sale documents in order to obtain
properties in their names and the names of others. The conspiracy allegedly involved at least 24 properties,
some of which were owned by the GSEs, and caused losses to lenders of at least $3 million.
                                                 Indicted for loan and credit application
                         Licensed Real Estate
Jyoteshna Karan                                  fraud, mail fraud, conspiracy to commit      June 25, 2015
                         Broker
                                                 bank fraud, and asset forfeiture.
                                                 Indicted for loan and credit application
Praveen Singh            Karan’s Husband         fraud, mail fraud, conspiracy to commit      June 25, 2015
                                                 bank fraud, and asset forfeiture.
                         Participated in         Indicted for loan and credit application
Nani Isaac               Non-arm’s Length        fraud, mail fraud, conspiracy to commit      June 25, 2015
                         Transaction             bank fraud, and asset forfeiture.
                         Participated in         Indicted for loan and credit application
Mahendra Prasad          Non-arm’s Length        fraud, mail fraud, conspiracy to commit      June 25, 2015
                         Transaction             bank fraud, and asset forfeiture.




                                 Semiannual Report to the Congress • April 1, 2015–September 30, 2015          85
     DEFENDANT                  ROLE                  MOST RECENT ACTION                           DATE
                        Participated in          Indicted for loan and credit application
Sunita Singh            Non-arm’s Length         fraud, mail fraud, conspiracy to commit       June 25, 2015
                        Transaction              bank fraud, and asset forfeiture.
                        Participated in          Indicted for loan and credit application
Phul Singh              Non-arm’s Length         fraud, mail fraud, conspiracy to commit       June 25, 2015
                        Transaction              bank fraud, and asset forfeiture.
                                                 Indicted for loan and credit application
Martin Bahrami          Straw Buyer              fraud, mail fraud, conspiracy to commit       June 25, 2015
                                                 bank fraud, and asset forfeiture.

Attorney Allegedly Commits Short Sale Fraud
Farrace, an attorney specializing in real estate transactions, owned two investment properties with substantial
mortgage loans. After receiving foreclosure notices for both, Farrace allegedly created an entity called “Dignitas
LLC” that he wholly controlled but used a friend’s name as the company’s registered agent to conceal that fact,
and then allegedly submitted short sale offers to the bank that serviced the loans on both properties. Because
the servicing bank did not know of the true relationship between Farrace and Dignitas LLC, it approved one of the
short sales. The other sale was stopped by law enforcement and the bank.
                                                    Indicted for wire fraud and criminal
Robert Farrace           Attorney                                                                June 18, 2015
                                                    asset forfeiture.

Attorney Involved in Short Sale Fraud
A senior attorney with the FDIC allegedly sold her home to her live-in boyfriend in a fraudulent short sale.
The individual allegedly submitted hardship material to the lender stating she had suffered a loss of income
associated with the federal pay freeze and that the transaction would be at arm’s length. The individual was not
actually subject to the pay freeze and made over $230,000 in pay.
                          Scheme Organizer/        Charged with bank fraud and false
Michelle Borzillo                                                                                 May 14, 2015
                          Attorney                 statements.




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




   DEFENDANT                    ROLE                 MOST RECENT ACTION                             DATE

Plea and Multiple Charges in Loan Modification Scheme
Defendants conspired to operate a loan modification scheme. Co-conspirators allegedly made false promises
and guarantees to financially distressed homeowners regarding their company’s ability to negotiate loan
modifications from the homeowner’s mortgage lenders, as well as false guarantees of specific interest rates and
mortgage payments.
                                                Sentenced to 60 months in prison.
Crystal Buck            Sales Employee          Also ordered to return to court at a       September 28, 2015
                                                future date for a restitution hearing.
                                                Sentenced to 60 months in prison.
Albert DiRoberto        Sales Employee          Also ordered to return to court at a       September 28, 2015
                                                future date for a restitution hearing.
                                                Sentenced to 20 years in prison,
                                                5 years of supervised release,
Christopher George      Co-Owner of Company                                                September 28, 2015
                                                and ordered to pay $7,065,117 in
                                                restitution.
                        Handled Customer        Sentenced to 48 months in prison.
Yadira Padilla          Complaints and          Also ordered to return to court at a       September 28, 2015
                        Refund Requests         future date for a restitution hearing.

Ruby Encina                                     Indicted for filing a false tax return.      September 9, 2015

                                                Sentenced to 48 months in prison and
Iris Pelayo             Appointment Setter                                                      July 27, 2015
                                                36 months of supervised release.
                                                Pled guilty to conspiracy to commit
Andrea Ramirez          Scheme Leader                                                        February 25, 2015
                                                mail fraud.

Michael Bates           Sales Employee          Pled guilty to mail fraud.                    February 5, 2015




                                 Semiannual Report to the Congress • April 1, 2015–September 30, 2015           87
     DEFENDANT                  ROLE                  MOST RECENT ACTION                         DATE
                        Received Customer
                        Complaints and           Pled guilty to conspiracy to commit
Catalina Deleon                                                                            December 9, 2014
                        Managed Processing       wire fraud.
                        Department
                                                 Pled guilty to conspiracy to commit
Michael Parker          Sales Employee                                                     December 3, 2014
                                                 wire fraud.
                        Directed Distressed
                        Homeowners to Sign
Hamid Shalviri          a Fractional Interest in Pled guilty to mail fraud.                December 2, 2014
                        Their Properties Over
                        to Him
                        Supervised Processing
Mindy Holt                                       Pled guilty to wire fraud.               September 20, 2013
                        Department

Quit Claim Bankruptcy Scheme
A complaint alleges a company was quit claiming properties belonging to several individuals who were undergoing
potential foreclosure, and that they later filed bogus bankruptcy petitions in the names of the property owners
to tie up the properties while they rented them out. The original owners never gave permission to the company to
file bankruptcies on their behalf.
                                                    Pled guilty to bankruptcy fraud and
                          Recruiter—Owner of
David Griffin                                       making a false statement under oath     September 16, 2015
                          Bay 2 Bay
                                                    during a bankruptcy proceeding.

Former Loan Officer Charged
Defendants allegedly conspired to cause lenders to release liens on encumbered properties via fraudulently
arranged short sale transactions. To complete the transactions, they submitted false loan applications and
documents and recruited straw buyers. The losses to financial institutions/lenders total approximately
$2 million. Fannie Mae purchased or secured over 100 loans from the mortgage lenders.
                                                 Sentenced to 36 months in prison,
                                                 36 months of supervised release,
Delio Coutinho          Loan Officer                                                         August 11, 2015
                                                 and ordered to pay $1,312,334 in
                                                 restitution, joint and several.
                                                 Sentenced to 24 months in prison,
                                                 36 months of supervised release,
Kenneth Sweetman        Unlicensed Title Agent                                                 July 27, 2015
                                                 and ordered to pay $2,223,131 in
                                                 restitution, joint and several.
                                                 Sentenced to 27 months in prison,
                                                 36 months of supervised release,
Carmine Fusco           Unlicensed Title Agent forfeiture of $370,334, and ordered             July 14, 2015
                                                 to pay $2,233,131 in restitution, joint
                                                 and several.
                                                 Sentenced to 24 months of
                                                 supervised release, 4 months of
                        Former Real Estate
Christopher Ju                                   home confinement, and ordered to              June 8, 2015
                        Agent
                                                 pay $256,511 in restitution, joint and
                                                 several.
                                                 Sentenced to 12 months in prison,
                                                 36 months of supervised release,
Amedeo Gaglioti         Closing Attorney         forfeiture of $1 million, and ordered         June 4, 2015
                                                 to pay $2,001,245 in restitution, joint
                                                 and several.

88   Federal Housing Finance Agency Office of Inspector General
   DEFENDANT                     ROLE                 MOST RECENT ACTION                           DATE
                                                 Pled guilty to conspiracy to commit
Joseph DiValli          Loan Officer                                                           May 28, 2015
                                                 wire fraud, wire fraud, and tax evasion.
                                                 Pled guilty to a one-count information
                                                 with conspiracy to commit wire fraud
Paul Chemidlin          Unlicensed Appraiser     and one count of distribution and              July 22, 2014
                                                 possession with intent to distribute
                                                 Methylone.

Loan Modification Scheme
Defendants, along with others, allegedly devised a scheme to obtain upfront payments from victims who were
trying to obtain a loan modification by leading them to believe they were receiving federally funded home loan
modifications under the government’s Home Affordable Modification Program.
                                                   Pled guilty to conspiracy to commit
Joshua Sanchez           Scheme Leader                                                           August 4, 2015
                                                   wire fraud.
                                                   Pled guilty to conspiracy to commit
Kristen Ayala            Co-Conspirator                                                           July 28, 2015
                                                   wire fraud.

Foreclosure Rescue and Loan Modification Scheme
Caballero engaged in a foreclosure rescue/loan modification scheme where he solicited and accepted payments
from homeowners to modify their loans, submitted false loan documentation in homeowners’ names to lenders,
and fraudulently accepted rents and mortgage payments while not forwarding these payments to lenders.
                                                 Sentenced to 24 months in prison,
Jose Antonio Caballero Owner/Operator            12 months of supervised release, and           July 20, 2015
                                                 ordered to pay $997,712 in restitution.

Loan Modification Scheme
Defendants operated a loan modification scheme and allegedly made a number of false statements to clients in
an effort to induce them to pay upfront fees, with little or no services rendered.
                                                  Charged with mail fraud and
Charlie Rose             Trained Telemarketers                                              July 8, 2015
                                                  subscribing to a false tax return.
                         Office Manager           Pled guilty to conspiracy to commit
Stacy Tuers              of Telemarketing         mail and wire fraud and failure to file a May 21, 2015
                         Company                  tax return.

Loan Modification Scheme
Jalan allegedly operated a scheme to defraud distressed homeowners by representing that she was an attorney
offering loan modification services. Jalan is alleged to have failed to disclose that the Consumer Financial
Protection Bureau had obtained a preliminary injunction that prohibited her from offering loan modification
services.
                                                    Pled guilty to mail fraud and
Najia Jalan               Scheme Leader                                                          July 1, 2015
                                                    aggravated identity theft.




                                  Semiannual Report to the Congress • April 1, 2015–September 30, 2015            89
Appendix J:                                                The wave of foreclosures following the housing crisis
                                                           left the Enterprises with a large inventory of REO
OI Publicly Reportable                                     properties. This large REO inventory has sparked a
Investigative Outcomes                                     number of different schemes to either defraud the
                                                           Enterprises, who use contractors to secure, maintain
Involving Property                                         and repair, price, and ultimately sell their properties,
Management and                                             or defraud individuals seeking to purchase REO
                                                           properties from the Enterprises.
REO Schemes




     DEFENDANT                   ROLE                 MOST RECENT ACTION                            DATE

False REO Escrow Scheme
In 2011, Leyva allegedly created a fictitious escrow company and falsely claimed to have the right and authority
to sell foreclosed properties owned by the Enterprises at a significant discount. The scheme resulted in victim
losses of at least $500,000.
                         Controlled Fictitious     Sentenced to 48 months in prison and
Ralph Leyva                                                                                September 10, 2015
                         Companies                 ordered to pay $355,708 in restitution.

False REO Scheme
In 2013, Moore filed documents with the Cook County Recorder’s Office obscuring title ownership of a property,
which gave the appearance he had claim to ownership or possession of the property when in fact he did not.
Moore also proceeded to collect rent from tenants. The scheme obstructed sale of the property by Fannie Mae,
the true owner of the property.
                                                In a jury trial, Moore was convicted of
Anatoly Moore            Owner/Landlord                                                  September 10, 2015
                                                multiple counts of theft and burglary.

Family of Real Estate Agents Allegedly Commit REO Fraud
The subjects, all real estate agents, allegedly conspired to use trusts and the identities of others to purchase
Fannie Mae REO properties in violation of Fannie Mae rules.
                                                   Indicted for aggravated identity theft,
Daphne Iatridis           Real Estate Agent        wire fraud, mail fraud, and conspiracy        August 26, 2015
                                                   to commit bank fraud.
                                                   Indicted for aggravated identity theft,
Arthur Telles             Real Estate Agent        wire fraud, mail fraud, and conspiracy        August 26, 2015
                                                   to commit bank fraud.
                                                   Indicted for aggravated identity theft,
Brendyn Iatridis          Real Estate Agent        wire fraud, mail fraud, and conspiracy        August 26, 2015
                                                   to commit bank fraud.



90   Federal Housing Finance Agency Office of Inspector General
   DEFENDANT                      ROLE                  MOST RECENT ACTION                            DATE
Three Charged for Fraud Scheme Using Warranty Deeds
An indictment alleges that individuals were charged with wire and mail fraud based on a scheme that involved
filing false documents intended to obtain residential properties held by the lenders or investors.

Terry Teague             Notary                    Charged with wire and mail fraud.              April 21, 2015

Marcus Lenton            Scheme Leader             Charged with wire and mail fraud.              April 21, 2015

Arnetra Ferguson         Notary                    Charged with wire and mail fraud.              April 21, 2015

Contractor REO Fraud
Unlicensed contractors operating in south Florida were performing repairs/renovations on GSE REO and other
conventional properties without the applicable contractors’ license or insurance, which is required by state law.
                                                   Sentenced to 6 months of probation
Antonio Rivere           Unlicensed Contractor                                                    April 17, 2015
                                                   and ordered to pay $540 in fines.
                                                   Sentenced to 2 days in prison and
Steve Bacall             Unlicensed Contractor                                                    April 7, 2015
                                                   ordered to pay $563 in fines.

Flipping REO Scheme
This scheme involved investor flipping of foreclosure properties by offering financial incentives to the borrowers
that were not disclosed to the lenders. Allegations also involve loan officers facilitating the sales by falsifying
loan applications.
                         Mortgage Broker/Loan Pled guilty to conspiracy to commit
Cedric Scott                                                                                        April 8, 2015
                         Officer                  mail, wire, and bank fraud.




                                   Semiannual Report to the Congress • April 1, 2015–September 30, 2015            91
Appendix K:                                                Adverse possession schemes use illegal adverse
                                                           possession (also known as “home squatting”) or
OI Publicly Reportable                                     fraudulent documentation to control distressed
Investigative Outcomes                                     homes, foreclosed homes, and REO properties.

Involving Adverse
Possession Schemes




     DEFENDANT                   ROLE                  MOST RECENT ACTION                           DATE

Deed Theft Scheme
Subjects allegedly operated a scheme to steal Fannie Mae and Freddie Mac properties by filing forged grant
deeds and then selling the stolen properties to unwitting investors. At least 10 Enterprise properties were stolen,
which caused a loss of over $2.5 million.
                                                 Charged in a superseding indictment
                                                 with aggravated identity theft, mail
Mazen Alzoubi           Scheme Leader                                                         September 3, 2015
                                                 fraud, conspiracy to commit mail fraud,
                                                 wire fraud, and money laundering.
                        Allowed His Company
Mohamad Daoud           to be Used to Obscure Pled guilty to money laundering.                   July 6, 2015
                        Chain of Title
                        Interacted with Escrow
                        Companies During
Daniel Deaibes                                   Pled guilty to mail fraud.                    March 18, 2015
                        Sales of Stolen
                        Properties

Sovereign Citizen Group Charged in REO Scheme
Four individuals were allegedly commandeering vacant or recently foreclosed homes owned by Fannie Mae or
other lenders. Those charged were part of a sovereign citizens group known as “Moors;” the group does not
believe that they must comply with state or federal law. The individuals allegedly moved into the properties or
rented them to family members. In some cases, the renters were unaware of the scheme.
                                                  Charged with theft, burglary, and
David Farr                                                                                      June 30, 2015
                                                  financial institution fraud.
                                                  Charged with theft, burglary, and
Torrez Moore                                                                                    June 30, 2015
                                                  financial institution fraud.
                                                  Charged with theft, burglary, and
Raymond Trimble                                                                                 June 30, 2015
                                                  financial institution fraud.
                                                  Charged with theft, burglary, and
Arshad Thomas                                                                                   June 30, 2015
                                                  financial institution fraud.

92   Federal Housing Finance Agency Office of Inspector General
Appendix L:                                             In this type of fraudulent conspiracy, traders
                                                        fraudulently manipulate the buying and selling prices
OI Publicly Reportable                                  of RMBS bonds, causing customers to pay more
Investigative Outcomes                                  to purchase the RMBS securities and to receive less
                                                        when they sell RMBS securities.
Involving RMBS
Schemes




   DEFENDANT                   ROLE                 MOST RECENT ACTION                         DATE

Three Former Bond Traders Charged
Three former bond traders were indicted in a 10-count indictment alleging they committed fraud in connection
with sales of RMBS bonds. The indictment alleges that the three former supervisory traders, who sat on the
RMBS desk at Nomura in New York, engaged in a conspiracy to defraud customers of Nomura.
                        Managing Director of
Ross Shapiro                                     Indicted.                                 September 3, 2015
                        Nomura
                        Executive Director of
Michael Gramins         the RMBS Desk at         Indicted.                                 September 3, 2015
                        Nomura
                        Senior Vice President
Tyler Peter             of the RMBS Desk at      Indicted.                                 September 3, 2015
                        Nomura




                                 Semiannual Report to the Congress • April 1, 2015–September 30, 2015     93
Appendix M:                                                Investigations in this category involve a variety of
                                                           fraud schemes that relate to loans issued by the
OI Publicly Reportable                                     Enterprises to finance multi-family apartment
Investigative Outcomes                                     buildings. A multi-family building is a building that
                                                           has four or more units available for rent.
Involving Multi-family
Schemes




     DEFENDANT                   ROLE                 MOST RECENT ACTION                           DATE

Multi-family Scheme
Yaney and Russell allegedly conspired to devise a scheme to defraud Washington Mutual Bank and Greystone
Bank. Conspirators inflated the sale prices of a multi-family property and used false rent rolls to obtain an
$8.4 million loan. Conspirators further used false rent roles, leases, information, and financials to obtain an
$8.1 million refinance loan. The scheme caused over $6.6 million in losses to Fannie Mae.
                                                  Sentenced to 18 months in prison, 3
                         Submitted False
James Russell                                     years of probation, and ordered to pay          July 29, 2015
                         Documents
                                                  $204,484 in restitution.
                                                  Sentenced to 18 months in prison,
                         Submitted False          24 months of probation, and ordered
Maximus Yaney                                                                                     May 27, 2015
                         Documents                to pay $7,748,019 in restitution and
                                                  $7,500 in fines.

Fraud Involving Condo Conversion Project
Co-conspirators allegedly obtained fraudulent loans by misrepresenting information in order to secure a
condominium conversion property.

Alex Ogoke              Organizer/Recruiter      Acquitted at trial.                            July 27, 2015

                                                 Sentenced to 42 months in prison, 36
                                                 months of probation, and ordered to
James Vani              Loan Officer                                                            July 7, 2015
                                                 pay $1,601,470 in restitution, joint
                                                 and several.

Matthew Okusanya        Organizer/Recruiter      Pled guilty to wire fraud.                     May 6, 2015




94   Federal Housing Finance Agency Office of Inspector General
Appendix N: Fiscal Year 2016 Management
and Performance Challenges.




                                               October 5, 2015


    TO:            Melvin L. Watt, Director



    FROM:          Laura S. Wertheimer, Inspector General


    SUBJECT:       Fiscal Year 2016 Management and Performance Challenges


    In accordance with the Reports Consolidation Act of 2000 (P.L. 106-531), the attached annual
    statement summarizes and assesses the most serious management and performance challenges
    facing the Federal Housing Finance Agency (FHFA or Agency).

    FHFA serves two distinct roles for Fannie Mae and Freddie Mac (collectively, the Enterprises):
    currently, it acts as conservator for the Enterprises and as their regulator. It is also the regulator
    of the Federal Home Loan Banks (FHLBanks). In the attached statement, FHFA Office of
    Inspector General (OIG) identifies four key challenges the Agency faces in fulfilling these
    duties: conservatorship operations, supervision, non-bank sellers, and information technology
    security.

    The attached summary and assessment statement is based on ongoing OIG work, OIG reports,
    other publicly available information, and OIG’s general knowledge of FHFA’s operations and
    the external environment.




                              Semiannual Report to the Congress • April 1, 2015–September 30, 2015           95
           The Federal Housing Finance Agency Office of Inspector General’s Summary of the
             Agency’s FY 2016 Management and Performance Challenges and Assessment

     The Federal Housing Finance Agency (FHFA) was created in July 2008 by the Housing and
     Economic Recovery Act of 2008 (HERA) (P.L. 110-289) to serve as regulator of Fannie Mae
     and Freddie Mac (collectively, the Enterprises) and the Federal Home Loan Banks (FHLBanks),
     overseeing the safety and soundness and statutory missions of these government-sponsored
     enterprises (GSEs). In September 2008, FHFA exercised its authority under HERA to place
     Fannie Mae and Freddie Mac into conservatorship. According to FHFA, it placed the
     Enterprises into conservatorship “in response to a substantial deterioration in the housing
     markets that severely damaged Fannie Mae and Freddie [Mac’s] financial condition and left
     them unable to fulfill their mission without government intervention.”1 FHFA currently serves
     in a unique role: it is both conservator of and regulator for the Enterprises; and regulator for the
     FHLBanks.

     Pursuant to the Reports Consolidation Act of 2000 (P.L. 106-531), the FHFA Office of Inspector
     General (OIG) has identified four significant management and performance challenges facing
     FHFA, based on ongoing OIG work, OIG published reports, other publicly available
     information, and OIG’s general knowledge of FHFA’s operations and the external environment:
     conservatorship operations; supervision; non-bank sellers; and information technology security.
     In this statement, OIG explains each of the four significant management and performance
     challenges and discusses specific aspects of those challenges. Both FHFA and OIG have
     previously acknowledged the difficulties resulting from the ongoing uncertainty regarding the
     future role of the Enterprises in the housing finance system. In identifying and assessing these
     four serious management and performance challenges facing FHFA, OIG remains mindful of
     this uncertainty and recognizes that such ongoing uncertainty adds additional difficulties for
     FHFA as it seeks to address these challenges.

     Challenge: Conservatorship Operations

     HERA, which vested FHFA with the power to place the Enterprises into conservatorship, grants
     FHFA sweeping authority over the Enterprises while they remain in conservatorship. As
     conservator, FHFA possesses all rights and powers of any stockholder, officer, or director of the
     Enterprises; it may operate the Enterprises and conduct all of the Enterprises’ business activities;
     it may take actions necessary to put the Enterprises in a sound and solvent condition; and it may
     take actions appropriate to carry on the Enterprises’ business and preserve and conserve the
     Enterprises’ assets and property.

     When then-Secretary of the Treasury Paulson announced the conservatorships in September
     2008, he explained that the following period of time was meant to be a “‘time out’ where we
     have stabilized the” Enterprises, during which the “new Congress and the next Administration
     must decide what role government in general, and these entities in particular, should play in
     the housing market.” The current FHFA Director has echoed that view in recognizing that

     1
      FHFA, FHFA as Conservator of Fannie Mae and Freddie Mac (online at
     www.fhfa.gov/Conservatorship/Pages/History-of-Fannie-Mae--Freddie-Conservatorships.aspx).



                                                          2
96       Federal Housing Finance Agency Office of Inspector General
conservatorship “cannot and should not be a permanent state” for the Enterprises. However,
putting the Enterprises into conservatorships has proven to be far easier than ending them, and
the “time out” period for the conservatorships has now entered its eighth year.

Since September 2008, FHFA has administered two conservatorships of unprecedented scope
and undeterminable duration over two entities that dominate the secondary mortgage market
and the mortgage securitization sector in the United States, and thus affect the entire mortgage
finance industry. The lack of consensus in Congress about the nation’s future mortgage finance
system and the role, if any, for the Enterprises may mean that the Enterprises will continue
to operate under FHFA’s conservatorship for a considerably longer period. Since entering
conservatorship, the Enterprises have required $187.5 billion in financial support from the U.S.
Department of the Treasury (Treasury) to avert insolvency, and, through September 2015, the
Enterprises have paid to Treasury approximately $239 billion in dividends. Although market
conditions have improved and the Enterprises have returned to profitability, their ability to
sustain profitability in the future cannot be assured for a number of reasons: the winding down
of their investment portfolios and reduction in net interest income; the level of guarantee fees
they will be able to charge; the future performance of their business segments; the elimination by
2018 of a capital cushion to buffer against losses; and the significant uncertainties involving key
market drivers such as mortgage rates, homes prices, and credit standards. (For a detailed
discussion of the uncertainty of the Enterprises’ future profitability, see OIG, The Continued
Profitability of Fannie Mae and Freddie Mac Is Not Assured (Mar. 18, 2015) (WPR-2015-001)
(online at www.fhfaoig.gov/Content/Files/WPR-2015-001.pdf).)

As noted above, as conservator, FHFA is vested with express authority under HERA to operate
the Enterprises and has expansive authority over trillions of dollars in assets and billions of
dollars in revenue. FHFA also makes business and policy decisions that influence the entire
mortgage finance industry. For reasons of efficiency, concordant goals with the Enterprises,
and operational savings, FHFA has determined to delegate revocable authority for general
corporate governance and day-to-day matters to the Enterprises’ boards of directors and
executive management. The Enterprises recognize that FHFA, as conservator, has succeeded
to—all rights, titles, powers, and privileges of the Enterprises and of any shareholder, officer, or
director of the Enterprises, and that the directors of the Enterprises “no longer ha[ve] the power
or duty to manage, direct or oversee [the] business and affairs” of the Enterprises.2

Given the taxpayers’ enormous investment in the Enterprises, the unknown duration of the
conservatorships, the Enterprises’ critical role in the secondary mortgage market, and their
unknown ability to sustain future profitability, OIG has determined that FHFA’s administration
of the conservatorships continues to be a critical risk. OIG identified this risk in each prior
management and performance challenges statement and reiterates here that FHFA is challenged
to increase its oversight of the Enterprise conservatorships. In particular, FHFA should
strengthen its oversight of delegated matters and continue to strengthen its internal process
to decide non-delegated matters.
2
 See Fannie Mae, Annual Report (Form 10-K), at 25, 162 (Feb. 20, 2015) (online at
www.fanniemae.com/resources/file/ir/pdf/quarterly-annual-results/2014/10k_2014.pdf). See also Freddie Mac,
Annual Report (Form 10-K), at 20 (Feb. 19, 2015) (online at
www.freddiemac.com/investors/er/pdf/10k_021915.pdf).



                                                      3
                               Semiannual Report to the Congress • April 1, 2015–September 30, 2015          97
              Oversight of Delegated Matters

     As conservator of the Enterprises, FHFA owes duties to the U.S. taxpayers, the largest
     shareholders in the Enterprises, and has statutory responsibilities to ensure that the Enterprises
     achieve their statutory purpose. Pursuant to its powers under HERA to take actions “necessary
     to put [Fannie Mae and Freddie Mac] in a sound and solvent condition” and “appropriate to carry
     on the business of [Fannie Mae and Freddie Mac]” and “preserve and conserve” their assets, 12
     U.S.C. § 4617(b)(2)(D), FHFA has delegated authority for many matters, both large and small, to
     the Enterprises and, since 2008, has issued more than 200 conservatorship directives in which it
     instructs the Enterprises to take certain actions, most of which relate to delegated responsibilities.
     The Enterprises acknowledge in their public securities filings that their directors serve on behalf
     of the conservator and exercise their authority as directed by and with the approval, when
     required, of the conservator.3 As Fannie Mae states, “Our directors have no fiduciary duties to
     any person or entity except to the conservator.” FHFA, as conservator, can revoke delegated
     authority at any time (and retains authority for certain significant decisions). As conservator,
     FHFA is ultimately responsible for all decisions made and actions taken by the Enterprises,
     pursuant to FHFA’s revocable grant of delegated authority.

     Historically, FHFA’s oversight of delegated matters, in its role as conservator, has largely been
     limited to attendance at Enterprise internal management and board meetings as observers and
     discussions with Enterprise managers and directors. For the most part, FHFA, as conservator,
     has not assessed the reasonableness of Enterprise actions pursuant to delegated authority,
     including actions taken by the Enterprises to implement conservatorship directives. FHFA has
     not clearly defined the Agency’s expectations of the Enterprises for delegated matters and has
     not established the accountability standard that it expects the Enterprises to meet for such
     matters.

     FHFA should clearly define the Agency’s expectations of the Enterprises for delegated matters;
     should define the standard it intends to apply when it assesses the actions of Enterprise directors,
     pursuant to the authority delegated to them by FHFA; and should strengthen its oversight of the
     Enterprises for matters delegated to them by the conservator. In a recent report, OIG assessed
     FHFA’s conservatorship oversight of Fannie Mae’s October 2013 appointment of its Chief
     Audit Executive—who heads Internal Audit, which is a critical element of Fannie Mae’s risk
     management controls—and found that it was ineffective. Among other things, OIG found that
     FHFA had delegated to Fannie Mae’s Board of Directors’ Audit Committee the responsibility to
     hire a Chief Audit Executive and that Committee did not develop a plan to assess the appointee’s
     conflicts or develop comprehensive controls to address them. As a consequence, Fannie Mae
     hired a candidate who was burdened by conflicts without controls in place to mitigate them.
     Even after FHFA, acting in its capacity as regulator, directed the Audit Committee to assess
     the candidate’s conflicts and put compensating controls in place, the Committee declined to
     complete the requested assessment and adopt controls in a timely manner. For more than a year
     after the conflicted Chief Audit Executive began work, Fannie Mae’s Internal Audit was not in

     3
       See, e.g., Fannie Mae, Annual Report (Form 10-K), at 25, 162 (Feb. 20, 2015) and Freddie Mac, Annual Report
     (Form 10-K), at 20 (Feb. 19, 2015).



                                                            4
98       Federal Housing Finance Agency Office of Inspector General
full conformance with governing standards, but FHFA failed to impose any consequences on
either the individual Committee directors or on Fannie Mae. FHFA agreed with our remedial
recommendations and, among other things, committed to instruct Fannie Mae to retain an
independent third party to conduct a comprehensive evaluation of the Audit Committee’s
effectiveness, communicate to Fannie Mae its expectations for enhanced Audit Committee
processes, and examine in 2016 the processes and criteria used by Fannie Mae to select and
rotate members of board committees.

While FHFA employees attend Enterprise internal management and board meetings as observers,
review materials provided by the Enterprises, and participate in discussions with Enterprise
managers and directors, the Agency has lacked a structured process to share the information
obtained by different FHFA employees with senior FHFA officials regarding matters delegated
to the Enterprises. Lack of information sharing impedes the Agency’s ability to oversee the
Enterprises in carrying out their delegated responsibilities. For example, in our evaluation of
Fannie Mae’s hiring of a Chief Audit Executive, an FHFA employee told us that he raised
concerns regarding the candidate’s conflicts of interest to his superiors, but nothing in the record
suggested that these concerns were raised with FHFA’s then-Acting Director. Had those issues
been socialized within senior FHFA management, FHFA senior officials would have been able
to direct Fannie Mae to assess the candidate’s conflicts and put controls in place to mitigate them
before he was hired. FHFA committed to enhance its internal processes for information sharing.

       Non-Delegated Matters

As noted, FHFA has retained authority to decide specific issues and can, at any time, revoke
previously delegated authority. The Agency also should strengthen its processes for review
and approval of non-delegated items. While FHFA has reported to OIG that it has made a
number of enhancements to existing internal processes to improve the information flow to the
FHFA Director, it has acknowledged, in response to a recent report from OIG, that additional
improvements are warranted and have been put into place. (OIG, FHFA’s Exercise of Its
Conservatorship Powers to Review and Approve the Enterprises’ Annual Operating Budgets
Has Not Achieved FHFA’s Stated Purpose (Sept. 30, 2015) (EVL-2015-006) (online at
www.fhfaoig.gov/Content/Files/EVL-2015-006.pdf).)

In that evaluation, we assessed the effectiveness of FHFA’s existing budget review and approval
process for the Enterprises’ annual operating budgets, which had increased approximately 31%
between 2012 and 2015. We found budget submissions by the Enterprises after the fiscal year
had begun, combined with cursory level analysis by FHFA’s Division of Conservatorship and
inadequate resources within that Division to assess the reasonableness of the proposed budgets,
prevented FHFA from exercising effective control over Enterprise spending, both in amount
and direction, and FHFA’s approval of the budgets created the risk that it endorsed Enterprise
spending that was not well understood by FHFA. OIG recommended, and FHFA agreed, to
require the Enterprises to submit Board-approved proposed annual operating budgets before the
end of a fiscal year so that the Agency has sufficient time to analyze them; to staff the internal
FHFA review process with employees who have the skills and experience necessary to critically
assess whether the proposed budgets align with the Agency’s strategic direction and safety and




                                                 5
                            Semiannual Report to the Congress • April 1, 2015–September 30, 2015       99
  soundness priorities; and to set a date certain early in the fiscal year by which the Agency will
  act on the proposed budgets.

          Selected FHFA Actions Taken

  We now summarize a number of recent actions taken by FHFA relating to its conservatorship
  responsibilities, in addition to the actions discussed above that it has committed to take relating
  to our remedial recommendations. OIG has not assessed the impact of these actions on FHFA’s
  responsibilities as conservator. In January 2015, FHFA issued its 2015 conservatorship
  scorecard outlining the measures the Agency will use to assess the Enterprises’ performance for
  the year. During the first six months of 2015, FHFA issued 17 conservatorship directives to the
  Enterprises providing instruction on a broad range of delegated responsibilities. FHFA continues
  to work on development of a single mortgage-backed security to be issued by Fannie Mae or
  Freddie Mac and development of a common securitization platform.

  Challenge: Supervision

  As noted earlier, FHFA plays a unique role, as both conservator and as regulator for the
  Enterprises, and as regulator for the FHLBanks. As FHFA recognizes, effective supervision of
  the entities it regulates is fundamental to ensuring their safety and soundness. Within FHFA, the
  Division of Federal Home Loan Bank Regulation (DBR) is responsible for supervision of the
  FHLBanks. Section 20 of the Federal Home Loan Bank Act (12 U.S.C. 1440) requires each
  FHLBank to be examined at least annually. The exam function for the FHLBanks descends from
  the old Federal Home Loan Bank Board, through the Federal Housing Finance Board, to FHFA.
  As a result, there is a long history of examination practice and examination standards for DBR to
  draw upon.

  FHFA’s Division of Enterprise Regulation (DER) is responsible for supervision of the
  Enterprises. FHFA’s annual examination program assesses Fannie Mae’s and Freddie Mac’s
  financial safety and soundness and overall risk management practices through ongoing
  monitoring, targeted examinations, and risk assessments. Prior to the creation of FHFA, the
  Enterprises were regulated by the Office of Federal Housing Enterprise Oversight (OFHEO),
  and OFHEO’s first examination took place in 1994. In its Fiscal Year 2014 Performance and
  Accountability Report to Congress, FHFA stated, “To ensure that the regulated entities are
  operating safely and soundly, FHFA identifies risks to the regulated entities and takes timely
  supervisory actions to address risks and improve their condition.” OIG agrees that effective
  supervision of the FHLBanks and the Enterprises is critical to ensuring their safety and
  soundness. OIG has determined that FHFA’s administration of its supervision responsibilities
  continues to be a critical risk. OIG identified this risk in prior management and performance
  challenges statements and reiterates here that FHFA is challenged to increase the robustness of
  its supervision over the entities it regulates.

          Quantity and Quality of Examiners

  OIG has previously reported that both DBR and DER lacked a sufficient number of examiners
  and that the Agency lacked an adequate number of commissioned examiners, both of which



                                                     6
100   Federal Housing Finance Agency Office of Inspector General
placed the efficiency and effectiveness of FHFA’s examination program at risk.4 In response
to our reports, FHFA committed to add examiners and has added examiners.

As regulator for the Enterprises and the FHLBanks, FHFA has long recognized that its
examiners require certain skills and technical knowledge necessary to evaluate the condition
and practices specific to them. In its 2011 report, Evaluation of Whether FHFA Has Sufficient
Capacity to Examine the GSEs (Sept. 23, 2011) (EVL-2011-005), OIG found, among other
things, that two-thirds of FHFA examiners were not commissioned: they had not completed
a structured program of classroom and on-the-job training designed to provide technical
competencies and practical examination experience. The Agency acknowledged that
commissioned examiners were critical to strengthening the efficiency and effectiveness of its
supervision of the regulated entities and that it lacked a sufficient number of commissioned
examiners, and it agreed to monitor the development and implementation of an examiner
commission program. In 2013, the Agency inaugurated its Housing Finance Examiner
commission program that was designed to produce, in the next four years, a corps of
commissioned examiners for its supervision of the Enterprises and of the FHLBanks. Our
compliance review this year found that the commissioning program was not on track to graduate
commissioned examiners with the knowledge, skills, and technical expertise necessary to
conduct successful, risk-based examinations in the projected timeframe. OIG recommended,
and FHFA agreed, to take steps to address shortfalls in the program.

        Accurate, Complete, and High-Quality Examinations

In 2011, FHFA’s Office of Quality Assurance (OQA), which is tasked with conducting internal
reviews of DER and DBR examinations to enhance the effectiveness of FHFA’s supervision,
recommended that DER develop and implement a comprehensive quality control process. DER
agreed to that recommendation in September 2012. In March 2013, FHFA issued a supervision
directive in which it required formal internal quality control reviews to be conducted for all
examinations conducted by DER and DBR.

DBR put into place formal internal quality control reviews. Notwithstanding DER’s
commitment in September 2012 to establish and implement formal quality control reviews for
its examinations of the Enterprises and FHFA’s March 2013 directive that such reviews be
conducted for examinations, DER did not establish and implement a comprehensive internal
quality control review process for its targeted examinations of the Enterprises. Only after OIG
commenced an evaluation of this issue and completed its fieldwork did DER advise OIG that on
July 28, 2015, a comprehensive internal quality control process had been launched. Without a
comprehensive internal quality control review of DER examinations, FHFA lacked assurance
that DER’s targeted examinations were accurate, complete, and of uniform high quality, which
put at risk the quality of its examination program for the Enterprises.



4
  OIG, Evaluation of Whether FHFA Has Sufficient Capacity to Examine the GSEs, at 23, 31 (Sept. 23, 2011) (EVL-
2011-005), online at www.fhfaoig.gov/Content/Files/EVL-2011-005.pdf; Update on FHFA’s Efforts to Strengthen
its Capacity to Examine the Enterprises (Dec. 19, 2013) (EVL-2014-002), online at
www.fhfaoig.gov/Content/Files/EVL-2014-002.pdf.



                                                      7
                              Semiannual Report to the Congress • April 1, 2015–September 30, 2015           101
          Consistency of DER Examination Work

  Observations made by OIG during its ongoing evaluation work of other DER programs has led
  us to question whether all DER examiners regularly follow the examination requirements set
  forth in FHFA’s Examination Manual and DER’s Operating Procedures Bulletins, which
  supplement the Examination Manual.

          Records Management System

  In 2014, OIG found that DER’s recordkeeping practices impeded the efficient retrieval of
  workpapers by FHFA personnel and oversight organizations, including OIG. (OIG, Evaluation
  of the Division of Enterprise Regulation’s 2013 Examination Records: Successes and
  Opportunities (Oct. 6, 2014) (EVL-2015-001) (online at www.fhfaoig.gov/Content/Files/EVL-
  2015-001.pdf).)

  In that evaluation, OIG found that DER maintained no index or directory for the universe of
  workpapers, examination teams within DER used different document naming conventions, and
  electronic folders did not adhere to a cohesive, common structure. To strengthen records
  management, DER advised OIG that it would institute a practice in 2015 to align folder names
  with each team’s examination plan. In addition, DER advised that it would use standardized
  workpaper folders in 2015 and would consider a permanent change. OIG’s observations, from
  fieldwork conducted in 2015, are that little improvement has been made in DER’s records
  management system.

          Selected FHFA Actions Taken

  We now summarize a number of recent actions taken by FHFA relating to its supervision
  responsibilities, in addition to the actions discussed above that it has committed to take relating
  to our remedial recommendations. OIG has not assessed the impact of these actions on FHFA’s
  supervision responsibilities. For the first nine months of 2015, FHFA issued seven Advisory
  Bulletins addressing fraud risk management, information technology investment management,
  the rescission of guidance documents issued by OFHEO, Enterprise fraud reporting, FHLBank
  fraud reporting, FHLBank unsecured credit exposure reporting, and FHLBank core mission
  achievement. It approved the merger of the FHLBanks of Des Moines and Seattle in December
  2014, which was finalized in May 2015. At the beginning of the fiscal year the Agency also
  reorganized personnel within its supervisory divisions, bringing the Agency’s examination
  standards and examination execution groups together under one executive.

  Challenge: Non-Bank Sellers

  The Enterprises rely heavily on counterparties for a wide array of services, including mortgage
  origination and servicing. That reliance exposes the Enterprises to counterparty risk—that the
  counterparty will not meet its contractual obligations. Generally, FHFA has delegated to the
  Enterprises the management of their relationships with counterparties and reviews that
  management largely through its regulatory responsibilities.



                                                     8
102   Federal Housing Finance Agency Office of Inspector General
There are numerous counterparty relationships with the Enterprises and each carries risk. One
critical counterparty risk is the risk posed by loan originators that are not depository institutions
(also called non-banks). In recent years, the share of Enterprise single-family loan purchases
from depository institutions has fallen while the share of purchases from non-banks has risen.
Based on OIG analysis of Enterprise data, from 2010 to 2014, Fannie Mae’s share of purchases
of single-family loans from non-depository institutions increased from 17% to 49% ($187
billion), while Freddie Mac’s share increased from 10% to 38% ($97 billion).

Non-bank sellers are not regulated by federal financial regulatory agencies and may not have the
same financial strength, liquidity, or operational capacity needed to meet their obligations to the
Enterprises as depository institutions. As a result, there is a risk that a non-bank seller that failed
to honor its contractual obligations, such as by selling loans to an Enterprise that did not comply
with the Enterprise’s lending requirements, would not have sufficient capital or liquidity to honor
repurchase demands by the Enterprises for non-compliant loans. FHFA and other financial
market participants must address the implications of a changing marketplace, including the
attendant risks from non-banks.

       Selected FHFA Actions Taken

We now summarize a number of recent actions taken by FHFA relating to its supervision of
the Enterprises in connection with non-bank sellers. OIG has not assessed the impact of these
actions on FHFA’s responsibilities. In December 2014, FHFA issued an Advisory Bulletin in
which it articulated its supervisory expectation that the Enterprises will effectively manage
counterparty risks and directed the Enterprises to implement a board-approved risk management
framework that includes risk-based oversight of single-family seller/servicers. In May 2015,
FHFA announced that the Enterprises were issuing new capital and liquidity requirements for
non-depository sellers and servicers of single-family mortgages, effective December 31, 2015.

Challenge: Information Technology Security

In 2012, then-FBI Director Robert Mueller warned that “there are only two types of companies:
those that have been hacked and those that will be. And even they are converging into one
category: companies that have been hacked and will be hacked again.” Recent cyber security
incidents affecting the federal workforce illustrate the scope of potential attacks. The Office
of Personnel Management (OPM), which provides personnel services to federal government
agencies, said in one incident 4.2 million current and former federal employees had personnel
data stolen. In a separate incident, OPM said that 21.5 million people had their Social Security
numbers and other sensitive information stolen from databases containing background
investigation information.

Cyber attacks from outside an organization come in numerous forms and include attack vehicles
such as malicious software aimed at gaining control of a system or efforts compromising the
availability of a system or network by overloading the network. Broadly speaking, external
cyber attackers can be grouped into three categories: “hacktivists,” who use digital tools to
promote a political or social agenda; nation states; and criminals who may directly attack an



                                                  9
                           Semiannual Report to the Congress • April 1, 2015–September 30, 2015         103
  organization’s system, or they may attack indirectly through a third party such as a vendor,
  contractor, or counterparty.

  Information technology vulnerabilities also can come from inside an organization. Employees
  and contractors, current or former, with authorized access to an organization’s network or data
  can exceed or misuse access and compromise the confidentiality, integrity, or availability of
  the organization’s information or information systems. Even when an organization builds high
  barriers to protect its electronic assets from outsiders, it may have few protections against
  insiders. Insider threats can be particularly potent because insiders typically have greater access
  to sensitive information, a better understanding of internal processes, and an understanding of
  potential weaknesses in controls.

  Larry Zelvin, the former Director of the National Cybersecurity and Communications Integration
  Center at the Department of Homeland Security, opined at a cyber security roundtable that, of
  the 16 critical infrastructure sectors in this country, “finance probably wins the cyber security
  threat award.” He called the industry “a massive target” because it is “where the money is.” The
  Enterprises own or guarantee $5 trillion in mortgage assets supporting the U.S. mortgage market.
  As part of their processes to guarantee or purchase loans, the Enterprises receive a substantial
  amount of information about mortgage borrowers, including financial data and personally
  identifiable information. Fannie Mae5 and Freddie Mac6 have been the subject of cyber attacks,
  although none caused significant harm. Similarly, the FHLBanks and their Office of Finance
  have not experienced material losses related to cyber attacks or other breaches.7 All of the
  entities regulated by FHFA acknowledge that the substantial precautions put into place to protect
  their information systems may be vulnerable to penetration. In this regard, the cyber threat to
  these entities is no different from the threat to other major financial institutions.




  5
    As disclosed by Fannie Mae in its 2014 Annual Report (Form 10-K): “From time to time we have been, and likely
  will continue to be, the target of attempted cyber attacks, computer viruses, malicious code, phishing attacks and
  other information security breaches. To date, we have not experienced any material losses relating to cyber attacks
  or other information security breaches, but we could suffer such losses in the future.”
  6
   As disclosed by Freddie Mac in its 2014 Annual Report (Form 10-K): “Like many corporations and government
  entities, from time to time we have been, and likely will continue to be, the target of attempted cyber attacks.
  Although we devote significant resources to protecting our various systems and processes, there is no assurance that
  our security measures will provide fully effective security.”
  7
    As disclosed by the FHLBank Office of Finance in the 2014 Annual Report (FHLBanks Combined Financial
  Report for the Year Ended December 31, 2014) (online at www.fhlb-
  of.com/ofweb_userWeb/resources/2014Q4Document-web.pdf): “To date, the FHLBanks and the Office of Finance
  have not experienced any material effect or losses related to cyber attacks or other breaches. . . . Although each of
  the FHLBanks and the Office of Finance takes measures to protect the security of its information systems, these
  actions may not be able to prevent or mitigate the negative effects of certain failures or breaches. As such, a failure
  or breach of information systems could disrupt and adversely affect an FHLBank’s or the Office of Finance’s ability
  to conduct and manage its business effectively and could also result in significant losses, reputational damage, or
  other harm.”



                                                            10
104   Federal Housing Finance Agency Office of Inspector General
As conservator, FHFA has delegated to the Enterprises the responsibility to manage the security
of their computer systems, software, and networks to best protect them from cyber attacks,
breaches, unauthorized access, misuse, computer viruses or other malicious codes, or other
attempts. The FHLBanks and their Office of Finance are responsible for such security
management. In light of the significant financial, governance, and reputational risks that could
flow from a cyber attack on either of the Enterprises, any of the FHLBanks, and/or their Office
of Finance, FHFA must ensure adequate supervision of the information technology security
controls put into place at each of the entities it regulates.

        Selected FHFA Actions Taken

We now summarize recent actions taken by FHFA relating to its supervision of the Enterprises
and the FHLBanks in connection with cyber security. OIG has not assessed the impact of these
actions on FHFA’s responsibilities. In 2014, FHFA issued an Advisory Bulletin to provide
guidance to the entities it regulates for a risk-based approach to cyber security management. The
Advisory Bulletin requires each entity to select a cyber security standard it will follow and then
sets forth, in broad terms, characteristics of a cyber risk management program that FHFA
believes should enable the entities to safeguard their cyber environments.8 FHFA also
incorporated assessment of the adequacy of cyber security controls into its 2015 examination
program.

                                                      *****


To best leverage OIG’s resources, we determined to focus our work on programs and operations
that pose the greatest financial, governance, operational, and reputational risks to FHFA, the
Enterprises, and the FHLBanks. Accordingly, our Audit and Evaluation Plan aligns to the
challenges outlined above. OIG remains focused on assessing the adequacy of the controls put
into place by FHFA and at the entities regulated by FHFA to mitigate those risks.




8
  The characteristics are: proportionality; cyber risk management; risk assessments; monitoring and response;
system, patch, and vulnerability management; third-party management; and privacy and data protection.



                                                        11
                               Semiannual Report to the Congress • April 1, 2015–September 30, 2015             105
Appendix O: Figure Sources
Figure 1.   Federal Housing Finance Agency Office of Inspector General, “Timeliness,” FHFA’s Exercise of Its Conservatorship
            Powers to Review and Approve the Enterprises’ Annual Operating Budgets Has Not Achieved FHFA’s Stated Purpose,
            EVL-2015-006, at 13 (September 30, 2015). Accessed: October 21, 2015, at www.fhfaoig.gov/Content/Files/EVL-
            2015-006.pdf.
Figure 2.   Federal Housing Finance Agency Office of Inspector General, “More Than 20% of Enrolled Examiners in the HFE
            Program Had Completed No More than One of the Required Courses as of March 2015,” OIG’s Compliance Review
            of FHFA’s Implementation of Its Housing Finance Examiner Commission Program, COM-2015-001, at 13 (July 29,
            2015). Accessed: October 21, 2015, at www.fhfaoig.gov/Content/Files/COM-2015-001.pdf.
Figure 3.   Federal Housing Finance Agency Office of Inspector General, “FHFA Has Determined that Not All Requirements
            Under IPIA, as Amended, Are Applicable to FHFA,” FHFA Complied with Applicable Improper Payment Requirements
            During Fiscal Year 2014, AUD-2015-001, at 9 (May 14, 2015). Accessed: October 21, 2015, at www.fhfaoig.gov/
            Content/Files/AUD-2015-001_0.pdf.
Figure 4.   Council of Inspectors General on Financial Oversight, “Background,” Audit of the Financial Stability Oversight
            Council’s Monitoring of Interest Rate Risk to the Financial System: Report to the Financial Stability Oversight Council
            and the Congress, CIGFO-2015-001, at 6 (July 27, 2015). Accessed: October 21, 2015, at www.treasury.gov/about/
            organizational-structure/ig/Documents/CIGFO%20Document/Audit%20of%20the%20Financial%20Stability%20
            Oversight%20Councils%20Monitoring%20of%20Interest%20Rate%20Risk.pdf.




106     Federal Housing Finance Agency Office of Inspector General
Appendix P: Endnotes                                            FHFA-Announces-Suspension-of-Capital-
                                                                Classifications-During-Conservatorship-and-
                                                                Discloses-Minimum-and-RiskBased-Cap.aspx.
1	   12 U.S.C. § 4617(b)(2)(A), (B), (D) (2011).               The Safety and Soundness Act does not expressly
      Accessed: October 28, 2015, at www.gpo.                   permit the FHFA Director to suspend this
      gov/fdsys/pkg/USCODE-2011-title12/pdf/                    requirement, but FHFA asserts that it suspended
      USCODE-2011-title12-chap46-subchapII-                     the requirement using its incidental powers.
      sec4617.pdf.                                              See FHFA final rule on Conservatorship and
                                                                Receivership, 76 Fed. Reg. 35,724 (June 20,
2	   Council of the Inspectors General on Integrity            2011) (to be codified at 12 C.F.R. pt. 1229 and
      and Efficiency, “Followup,” Quality Standards for         1237). Accessed: October 28, 2015, at www.gpo.
      Inspection and Evaluation, at 18 (January 2012).          gov/fdsys/pkg/FR-2011-06-20/pdf/2011-15098.
      Accessed: October 23, 2015, at www.ignet.gov/             pdf. FHFA currently does not publish the data
      sites/default/files/files/committees/inspect-eval/        necessary for third parties to determine whether
      iestds12r.pdf.                                            the Enterprises meet the definition of “critically
                                                                undercapitalized.”
3	   See Freddie Mac Update July 2015 and Fannie
      Mae and Freddie Mac monthly volume                   4	    ederal Housing Finance Agency, Division
                                                                F
      summaries for market share information.                   of Housing Mission and Goals, Quarterly
      For a discussion of the capital reserve and its           Performance Report of the Housing GSEs: First
      reduction under PSPAs with Treasury, see OIG              Quarter 2015, at 14-17 (June 29, 2015).
      white paper FHFA’s Conservatorships of Fannie             Accessed: October 21, 2015, at www.fhfa.
      Mae and Freddie Mac: A Long and Complicated               gov/AboutUs/Reports/ReportDocuments/
      Journey, WPR-2015-002 (March 25, 2015).                   PerformanceReportofHousingGSEs-1Q2015.pdf.
      Accessed: October 28, 2015, at www.fhfaoig.
      gov/Content/Files/WPR-2015-002_0.pdf. By             5	    or a detailed discussion of the uncertainty
                                                                F
      operation of the PSPAs, the Enterprises’ capital          of the Enterprises’ future profitability, see
      cushion will be eliminated over time. Given               Federal Housing Finance Agency Office of
      their paucity of capital, it is believed that the         Inspector General, The Continued Profitability
      Enterprises meet the definition of “critically            of Fannie Mae and Freddie Mac Is Not Assured,
      undercapitalized” set forth in the Federal Housing        WPR-2015-001 (March 18, 2015). Accessed:
      Enterprises Financial Safety and Soundness Act            October 28, 2015, at www.fhfaoig.gov/Reports/
      of 1992, as amended (the Safety and Soundness             AuditsAndEvaluations.
      Act). However, shortly after FHFA placed the
      Enterprises in conservatorship, it suspended         6	    annie Mae, Form 10-K for the Fiscal Year
                                                                F
      the statutory requirement that the Agency                 Ended December 31, 2014, at 25, 162. Accessed:
      issue quarterly capital classifications. See FHFA         October 28, 2015, at www.fanniemae.
      press release FHFA Announces Suspension of                com/resources/file/ir/pdf/quarterly-annual-
      Capital Classifications During Conservatorship            results/2014/10k_2014.pdf. Freddie Mac, Form
      (October 9, 2008). Accessed: October 28, 2015,            10-K for the Fiscal Year Ended December 31, 2014,
      at www.fhfa.gov/Media/PublicAffairs/Pages/                at 20. Accessed: October 28, 2015, at www.


                                  Semiannual Report to the Congress • April 1, 2015–September 30, 2015       107
      freddiemac.com/investors/er/pdf/10k_021915.                 Capacity to Examine the Enterprises, EVL-2014-
      pdf.                                                        002 (December 19, 2013). Accessed: October 21,
                                                                  2015, at www.fhfaoig.gov/Content/Files/EVL-
7	    See, e.g., Fannie Mae, Form 10-K for the Fiscal            2014-002.pdf.
       Year Ended December 31, 2014, at 25, 162.
       Accessed: October 28, 2015, at www.fanniemae.        11	    ederal Bureau of Investigation, Remarks of
                                                                  F
       com/resources/file/ir/pdf/quarterly-annual-                FBI Director Robert S. Mueller, III to RSA Cyber
       results/2014/10k_2014.pdf. Freddie Mac, Form               Security Conference in San Francisco, CA (March
       10-K for the Fiscal Year Ended December 31, 2014,          1, 2012). Accessed: October 28, 2015, at www.
       at 20. Accessed: October 28, 2015, at www.                 fbi.gov/news/speeches/combating-threats-in-the-
       freddiemac.com/investors/er/pdf/10k_021915.                cyber-world-outsmarting-terrorists-hackers-and-
       pdf.                                                       spies.

8	    For the full report and recommendations, see         12	    ederal Housing Finance Agency Office of
                                                                  F
       Federal Housing Finance Agency Office of                   Inspector General, Cyber Security: An Overview of
       Inspector General, FHFA’s Oversight of Governance          FHFA’s Oversight of and Attention to the Enterprises’
       Risks Associated with Fannie Mae’s Selection and           Management of Their IT Infrastructures, WPR-
       Appointment of a New Chief Audit Executive,                2015-003 (March 31, 2015). Accessed: October
       EVL-2015-004 (March 11, 2015). Accessed:                   21, 2015, at www.fhfaoig.gov/Content/Files/
       October 28, 2015, at www.fhfaoig.gov/Reports/              WPR-2015-003.pdf.
       AuditsAndEvaluations.
                                                            13	   S ecurities and Exchange Commission,
9	    For the full report and recommendations,                    Cybersecurity Roundtable, Statement of Larry
       see Federal Housing Finance Agency Office                   Zelvin (March 26, 2014). Accessed: October 28,
       of Inspector General, FHFA’s Exercise of Its                2015, at www.sec.gov/news/otherwebcasts/2014/
       Conservatorship Powers to Review and Approve                cybersecurity-roundtable-032614.shtml.
       the Enterprises’ Annual Operating Budgets Has
       Not Achieved FHFA’s Stated Purpose, EVL-             14	   1 2 U.S.C. § 5321(b) (2014). Accessed: October
       2015-006 (September 30, 2015). Accessed:                    28, 2015, at www.gpo.gov/fdsys/pkg/USCODE-
       October 28, 2015, at www.fhfaoig.gov/Reports/               2014-title12/pdf/USCODE-2014-title12-
       AuditsAndEvaluations.                                       chap53-subchapI-partA-sec5321.pdf.

10	    ederal Housing Finance Agency Office of
      F
      Inspector General, Evaluation of Whether FHFA
      Has Sufficient Capacity to Examine the GSEs,
      EVL-2011-005, at 23, 31 (September 23, 2011).
      Accessed: October 21, 2015, at www.fhfaoig.
      gov/Content/Files/EVL-2011-005.pdf. Federal
      Housing Finance Agency Office of Inspector
      General, Update on FHFA’s Efforts to Strengthen its



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

Se m iann ual R e p ort
to t h e Cong r e ss
April 1, 2015, through September 30, 2015




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