oversight

Thirteenth Semiannual Report to the Congress

Published by the Federal Housing Finance Agency, Office of Inspector General on 2017-03-31.

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

Federal Housing Finance Agency
  Office of Inspector General

  Se m iann ual R ep ort to t he Cong r e ss
           October 1, 2016, through March 31, 2017
Federal Housing Finance Agency
 Office of Inspector General




 Semiannual Report           to the       Congress
       October 1, 2016, through March 31, 2017
Table of Contents

Our Vision.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                             1
Our Mission. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                                1
Core Values. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                                2
Snapshot of OIG Accomplishments. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                                                               4
OIG Investigations Monetary Results October 1, 2016–March 31, 2017 .  .  .  .  .  .                                                                                                              5
A Message from the Inspector General. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                                                                   6
Executive Summary.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                                           8
    Overview .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 8
    This Report .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 9
OIG’s Oversight.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 10
    OIG’s Risk-Based Oversight Strategy .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 10
    OIG Oversight Initiatives .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 12
OIG’s Oversight of FHFA’s Programs and Operations Through Audit, Evaluation,
             and Compliance Activities During This Reporting Period .  .  .  .  .  .  . 14
    Conservatorship Operations .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                          15
    Supervision of the Regulated Entities. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                                   18
    Counterparties and Third Parties.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                              30
    Information Technology Security. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                             31
    Agency Operations .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .              32
    Reports and Recommendations. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                                 33
Oversight Through OIG’s Investigations .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 35
    Investigations: Civil Cases .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                      36
    Investigations: Criminal Cases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                                                                        39
    Outreach.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .   51
    Investigations: Administrative Actions .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                                   51
    Suspended Counterparty Referrals .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .                                   51
OIG’s Regulatory Activities and Outreach.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 53
    Regulatory Activities.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 53
    Public and Private Partnerships, Outreach, and Communications.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 53
Appendix A: Glossary and Acronyms. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 56
Appendix B: OIG Recommendations.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 61
Appendix C: Information Required by the Inspector General Act .  .  .  .  .  .  .  .  .  . 130
Appendix D: OIG Reports.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 136




            Federal Housing Finance Agency Office of Inspector General
Appendix E: O I Publicly Reportable Investigative Outcomes Involving Condo
             Conversion and Builder Bailout Schemes.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 137
Appendix F: OI Publicly Reportable Investigative Outcomes Involving Loan
             Origination Schemes.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 143
Appendix G: OI Publicly Reportable Investigative Outcomes Involving
              Short Sale Schemes.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 146
Appendix H: OI Publicly Reportable Investigative Outcomes Involving
              Loan Modification and Property Disposition Schemes .  .  .  .  .  .  .  . 149
Appendix I: O
             I Publicly Reportable Investigative Outcomes Involving
            Property Management and REO Schemes.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 153
Appendix J: OI Publicly Reportable Investigative Outcomes Involving
            Adverse Possession and Distressed Property Schemes.  .  .  .  .  .  .  . 155
Appendix K: OI Publicly Reportable Criminal Investigative Outcomes Involving
             RMBS Schemes .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 158
Appendix L: OI Publicly Reportable Investigative Outcomes
             Involving Multifamily Schemes. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 159
Appendix M: OI Publicly Reportable Investigative Outcomes Involving
              Fraud Affecting the Enterprises, the FHLBanks, or
              FHLBank Member Institutions .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 160
Appendix N: Endnotes .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 165




                                           Semiannual Report to the Congress • October 1, 2016–March 31, 2017
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 holds accountable those, whether inside or outside of the federal government,
who waste, steal, or abuse government funds in connection with the Agency, Fannie Mae and Freddie Mac (the
Enterprises), or any of the Federal Home Loan Banks (FHLBanks).


Our Mission
OIG promotes economy, efficiency, and effectiveness and protects FHFA and the entities it regulates against
fraud, waste, and abuse, contributing to the liquidity and stability of the nation’s housing finance system. We
accomplish this mission by providing independent, relevant, timely, and transparent oversight of the Agency
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 • October 1, 2016–March 31, 2017               1
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 in its role as regulator, and its operation of Fannie Mae and Freddie Mac in its role as conservator).

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

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

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




2       Federal Housing Finance Agency Office of Inspector General
Semiannual Report to the Congress • October 1, 2016–March 31, 2017   3
              Snapshot of OIG Accomplishments
                         October 1, 2016–March 31, 2017




                      Dollar Impact                                  Investigative
                                                                    Activities and
            Monetary Results from OIG Investigations               Accomplishments
     Criminal Restitution                     $15,382,297        Indictments/Charges   71
     Criminal Fines/Special                                      Arrests               60
     Assessments/Forfeitures                  $13,085,417        Convictions/Pleas     60
     Civil Settlements/Fines             $12,582,000,000         Sentencings           52

            INVESTIGATIONS TOTAL $12,610,467,714                 Suspension/
                                                                 Debarment Referrals   72
             Monetary Results from OIG Reports
     Questioned Costs                      $24,200,000

                  REPORTS TOTAL $24,200,000




                                            Reports
                                     TOTAL REPORTS ISSUED 14

                       Includes audits, evaluations, compliance reports,
                       special project reports, management alerts, and
                       risk assessments

                                TOTAL RECOMMENDATIONS MADE 15




4   Federal Housing Finance Agency Office of Inspector General
               OIG Investigations Monetary Results
                             October 1, 2016–March 31, 2017


OIG’s fiscal year 2017 (FY17) budget is $49.9 million. During this reporting period the monetary results
as an outcome of OIG criminal and civil investigations are more than 252 times greater than the fiscal year
budget, as demonstrated in Figure 1 (see below).


                    Figure 1. OIG Criminal and Civil Investigations Monetary Results
                    October 1, 2016, Through March 31, 2017, vs. FY17 OIG Budget


    $14,000,000,000


    $12,000,000,000


    $10,000,000,000


      $8,000,000,000
                                        Criminal Results
                                         $28,467,714
      $6,000,000,000
                                                +
                                          Civil Results
                                       $12,582,000,000
      $4,000,000,000


      $2,000,000,000




                                    OIG Investigations             FY17 OIG Budget
                                     Monetary Results       Oct 1, 2016, to Sept 30, 2017
                             Oct 1, 2016, to March 31, 2017
                                    $12,610,467,714




                                 Semiannual Report to the Congress • October 1, 2016–March 31, 2017           5
A Message from the Inspector General
I am pleased to present this Semiannual Report on the operations of OIG,
which covers the period from October 1, 2016, to March 31, 2017.

Created by statute in July 2008, FHFA is charged with serving as regulator of
the Enterprises and the FHLBanks. Additionally, in September 2008, FHFA
placed the Enterprises in conservatorship and undertook the extraordinary
dual role of supervisor and conservator. FHFA’s conservatorships of the
Enterprises, now in their ninth year, are of unprecedented scope, scale, and
complexity. FHFA continues to serve in a unique role: it is both conservator
and regulator of the Enterprises and regulator of the FHLBanks, and these
dual roles present novel challenges. Consequently, OIG must structure its
oversight program to examine FHFA’s exercise of its dual responsibilities,
which differ significantly from the typical federal financial regulator.

To best leverage our resources to strengthen OIG’s oversight, our audit and
                                                                                     Laura S. Wertheimer
evaluation efforts are risk-based. In this Semiannual Report, we provide a           Inspector General of the
snapshot of the 14 reports—including audits, evaluations, compliance reviews, Federal Housing Finance Agency
management alerts, special reports, and risk assessments—published during
this reporting period. Our audit, evaluation, and compliance work during this reporting period centered on
the four areas of the greatest financial, governance, and/or reputational risks to FHFA, the Enterprises in its
conservatorship, and the entities it regulates. During the prior three semiannual periods, we published 12
reports examining different elements of FHFA’s annual supervisory cycle of the Enterprises and identified
significant deficiencies with each element. One of the reports we issued during this period was a synthesis
of our findings in these 12 reports, titled Safe and Sound Operation of the Enterprises Cannot Be Assumed
Because of Significant Shortcomings in FHFA’s Supervision Program for the Enterprises. Among the other 13
reports issued during this period include our assessments of FHFA’s oversight of Enterprise risk management
relating to nonbank sellers and servicers, the costs to date incurred by the Enterprises in the development and
implementation of the Common Securitization Platform, and FHFA’s implementation of examiner rotation
and examiner commission programs. Two of the 14 reports issued this period set forth our findings in two
administrative investigations of hotline complaints, one involving alleged use of FHFA vehicles and employees
in a manner inconsistent with law and regulation and the other involving a potential conflict of interest. These
reports demonstrate the diversity and quality of our work during the past six months.




6       Federal Housing Finance Agency Office of Inspector General
OIG is also active in criminal investigations, recognizing that the best deterrent against mortgage and financial
institutional fraud is a proactive and visible criminal law enforcement effort. Our Office of Investigations
conducts vigorous investigations into a wide variety of potential fraud schemes. Working closely with
prosecutors, we follow the evidence wherever it leads to develop sufficient evidence to prove the elements of
a crime and hold those persons accountable who seek to prey on innocent victims and defraud the regulated
entities. When we do not find evidence sufficient to refer the matter to prosecutors to consider bringing
criminal charges, we examine whether the evidence supports civil claims. The quality of the investigations
conducted during this period and the monetary results from OIG investigations described in this report
demonstrate the importance of effective, fair, and objective investigative oversight conducted by OIG.

During this reporting period, OIG successfully conducted a number of investigations involving civil and
criminal fraud, which resulted in significant criminal prosecutions and civil fraud enforcement, including:

•	 71 indictments/charges;

•	 60 convictions/pleas;

•	 52 sentencings;

•	 More than $28 million in criminal restitutions, fines, special assessments, and forfeitures; and

•	 Over $12 billion in civil settlements and fines.

Through our written reports and our law enforcement efforts, both civilly and criminally, we hold institutions
and their officials accountable for their actions or inactions. We continue to work diligently to be a catalyst
for effective management, accountability, and positive change within FHFA and the Enterprises in its
conservatorship.

Our achievements described in this Semiannual Report to the Congress would not be possible without the
dedication and hard work of the professionals at OIG. I appreciate their exceptional commitment to OIG’s
important mission.



Laura S. Wertheimer
Inspector General
April 28, 2017




                                  Semiannual Report to the Congress • October 1, 2016–March 31, 2017              7
Executive Summary

Overview                                                  Initially, conservatorship was intended to be a “time
                                                          out” during a period of extreme stress to stabilize the
The Federal Housing Finance Agency (FHFA                  mortgage markets and promote financial stability.
or Agency) was created on July 30, 2008, when             Now in their ninth year, FHFA’s conservatorships
the President signed into law the Housing and             of the Enterprises are of unprecedented scope, scale,
Economic Recovery Act of 2008 (HERA).*                    and complexity. Since September 2008, FHFA
HERA charged the newly created FHFA to serve              has served in the unique role of conservator and
as regulator of Fannie Mae and Freddie Mac (the           regulator of the Enterprises and regulator of the
Enterprises) and of the Federal Home Loan Bank            FHLBank System.
(FHLBank) System (collectively, the government-           HERA also amended the Inspector General Act
sponsored enterprises, or the GSEs) and enhanced          of 1978 to establish an Office of Inspector General
its resolution authority.                                 (OIG) within FHFA. OIG began operations on
In September 2008, FHFA exercised its authority           October 12, 2010, when its first Inspector General
under HERA to place Fannie Mae and Freddie                (IG) was sworn in. Because FHFA has acted as
Mac into conservatorship in an effort to                  both regulator and conservator of the Enterprises
stabilize the residential mortgage finance market.        since September 2008, OIG’s responsibilities are
Concurrently, the Department of the Treasury              correspondingly broader than those of an IG for
(Treasury) entered into a Senior Preferred Stock          any other prudential federal financial regulator
Purchase Agreement (PSPA) with each Enterprise            because they include oversight of FHFA’s actions as
to ensure that each maintained a positive net             conservator in order to protect the U.S. taxpayers’
worth going forward. Under these PSPAs, U.S.              investment of $187.5 billion in the Enterprises.
taxpayers, through Treasury, have invested a total of     Our mission is to promote economy, efficiency,
$187.5 billion into the Enterprises since 2008. As        and effectiveness and protect FHFA and the
conservator of the Enterprises, FHFA succeeded to         entities it regulates against fraud, waste, and abuse,
all rights and powers of any stockholder, officer, or     contributing to the liquidity and stability of the
director of the Enterprises and is authorized under       nation’s housing finance system. We accomplish our
HERA to:                                                  mission by providing independent, relevant, timely,
•	 Operate the Enterprises and                            and transparent oversight in order to promote
                                                          accountability, integrity, economy, and efficiency;
•	 Take such action as may be:                            advising the Director of the Agency and Congress;
                                                          informing the public; and engaging in robust
    űű Necessary to put the Enterprises in a sound
                                                          enforcement efforts to protect the interests of the
       and solvent condition and
                                                          American taxpayers.
    űű Appropriate to carry on the Enterprises’
       business and preserve and conserve the
       Enterprises’ assets and property.1



8       Federal Housing Finance Agency Office of Inspector General
OIG’s operations are funded by annual assessments
that FHFA levies on the Enterprises and the               *Terms and phrases in bold are defined in
FHLBanks pursuant to 12 U.S.C. § 4516. For fiscal         Appendix A, Glossary and Acronyms. If you
year 2017, OIG’s operating budget is $49.9 million.       are reading an electronic version of this
                                                          Semiannual Report, then simply move your
                                                          cursor to the term or phrase and click for
This Report                                               the definition.

This Semiannual Report to the Congress summarizes
the work of OIG and discusses OIG operations
for the reporting period of October 1, 2016, to
March 31, 2017. Among other things, it:

•	 Explains our risk-based oversight strategy;

•	 Discusses the 14 audits, evaluations, compliance
   reports, management alerts, special reports, and
   risk assessments published during the period;

•	 Provides highlights of some of the numerous OIG
   investigations that resulted in 71 indictments/
   charges, 60 convictions/pleas, and 52 sentencings
   against individuals responsible for fraud, waste,
   or abuse in connection with programs and
   operations of FHFA and the Enterprises; more
   than $28 million in criminal restitutions, fines,
   special assessments, and forfeitures; and over
   $12 billion in civil settlements and fines;

•	 Summarizes our outreach during the period; and

•	 Reviews the status of OIG’s audit, evaluation,
   and compliance recommendations.




                                 Semiannual Report to the Congress • October 1, 2016–March 31, 2017    9
OIG’s Oversight

OIG’s Risk-Based Oversight                                and performance challenges facing FHFA for fiscal
Strategy                                                  year 2017. (Our current Audit and Evaluation
                                                          Plan is available at www.fhfaoig.gov/Reports/
                                                          AuditAndEvaluationPlan.) These challenges include:
Currently, FHFA serves as supervisor of the
Enterprises and the FHLBanks and as conservator           •	 Conservatorship Operations. Since
of the Enterprises. FHFA’s conservatorships of               September 2008, FHFA has administered two
the Enterprises, now in their ninth year, are of             conservatorships of unprecedented scope and
unprecedented scope, scale, and complexity. FHFA             undetermined duration. Under HERA, the
serves in a unique role: it is both conservator and          Agency’s actions as conservator are not subject
supervisor of the Enterprises and regulator of the           to judicial review or intervention, nor are
FHLBanks, and these dual roles present novel                 they subject to procedural safeguards that are
challenges. Consequently, OIG must structure its             ordinarily applicable to regulatory activities such
oversight program to examine FHFA’s exercise of its          as rulemaking. As conservator of the Enterprises,
dual responsibilities, which differ significantly from       FHFA exercises control over trillions of dollars in
the typical federal financial regulator. Beginning in        assets and billions of dollars in revenue and makes
Fall 2014, OIG determined to focus its resources             business and policy decisions that influence and
on programs and operations that pose the greatest            impact the entire mortgage finance industry.
financial, governance, and/or reputational risk to the       For reasons of efficiency, concordant goals
Agency, the Enterprises, and the FHLBanks in order           with the Enterprises, and operational savings,
to best leverage its resources to strengthen oversight.      FHFA has determined to delegate revocable
We established an integrated approach to identify            authority for general corporate governance and
these programs and operations of greatest risk and           day-to-day matters to the Enterprises’ boards
published our risk-based Audit and Evaluation Plan           of directors and executive management. Given
in February 2015, which has been updated annually.           the taxpayers’ enormous investment in the
                                                             Enterprises, the Enterprises’ critical role in the
An integral part of OIG’s oversight is to identify
                                                             secondary mortgage market, their unknown
and assess FHFA’s management and performance
                                                             ability to sustain future profitability, and the
challenges and to align its work with these
                                                             unreviewability of FHFA’s decisions by a court
challenges. In October 2016, we updated our
                                                             of law, OIG has determined that FHFA’s
assessment of FHFA’s major management and
                                                             administration of the conservatorships continues
performance challenges and briefly assessed its
                                                             to be a critical risk. Our efforts should assist
progress addressing those challenges. (See OIG,
                                                             FHFA in improving the effective management of
Fiscal Year 2017 Management and Performance
                                                             the conservatorships.
Challenges (October 6, 2016), online at
www.fhfaoig.gov/Content/Files/FHFA%20                     •	 Supervision of the Regulated Entities. As
management%20challenges%20FY2017.pdf.)                       discussed earlier, FHFA plays a unique role as
                                                             both conservator and regulator for the Enterprises
Our current Audit and Evaluation Plan, adopted
                                                             and as regulator for the FHLBank System. FHFA
in March 2017, builds on the top management
                                                             has repeatedly stated that effective supervision
10      Federal Housing Finance Agency Office of Inspector General
  of the FHLBanks and the Enterprises is critical          Mac. In recent years, the Enterprises’ businesses
  to ensuring their safety and soundness, and we           have changed dramatically in terms of the types
  have determined that FHFA’s administration of            of institutions originating and selling mortgages
  its supervision responsibilities continues to be         to them and servicing mortgages on their
  a critical risk. Within FHFA, the Division of            behalf. Both Enterprises report that the share
  Federal Home Loan Bank Regulation (DBR)                  of Enterprise single-family loan purchases from
  is responsible for supervision of the FHLBank            depository institutions has fallen while the share
  System, and the Division of Enterprise                   of purchases from nonbanks has risen. We will
  Regulation (DER) is responsible for supervision          continue our efforts to examine the adequacy
  of the Enterprises. Based on our assessments of          of controls put into place by FHFA to manage
  different elements of DER’s supervision program,         counterparty and third-party risk.
  OIG has identified four recurring themes:
                                                         •	 Information Technology Security. Systems
  (1) FHFA lacks adequate assurance that DER’s
                                                            security continues to be a preeminent issue for
  supervisory resources are devoted to examining
                                                            businesses and individuals alike. The regulated
  the highest risks of the Enterprises; (2) many
                                                            entities, like most modern institutions, rely on
  supervisory standards and guidance issued by
                                                            numerous, complex information technology
  FHFA and DER lack the rigor of those issued by
                                                            (IT) systems to conduct almost every aspect
  other federal financial regulators; (3) the flexible
                                                            of their work. These systems manage processes
  and less prescriptive nature of many requirements
                                                            to guarantee and purchase loans, supporting
  and guidance promulgated by FHFA and DER
                                                            more than $5 trillion in Fannie Mae and Freddie
  has resulted in inconsistent supervisory practices;
                                                            Mac mortgage assets. Both Enterprises and the
  and (4) where clear requirements and guidance
                                                            FHLBanks have been the subject of cyber attacks,
  for specific elements of DER’s supervisory
                                                            although none caused significant harm. All of the
  program exist, DER examiners-in-charge and
                                                            entities regulated by FHFA acknowledge that the
  examiners have not consistently followed them.
                                                            substantial precautions put into place to protect
•	 Counterparties and Third Parties. The                    their information systems may be vulnerable
   Enterprises rely heavily on counterparties and           and penetration of their systems poses a material
   third parties for a wide array of professional           risk to their business operations. Further, the
   services, including mortgage origination and             Enterprises are increasingly relying on third-
   servicing. That reliance exposes the Enterprises         party service providers, requiring the sharing of
   to counterparty risk—that is, the risk that              sensitive information between Enterprise and
   the counterparty will not meet its contractual           third-party systems. We plan to continue our
   obligations. FHFA has delegated to the                   efforts to assess the rigor of FHFA’s oversight of
   Enterprises the management of their relationships        the IT security systems and controls in place in
   with counterparties, and FHFA reviews that               the entities it regulates.
   management largely through its supervisory
                                                         OIG focused much of its oversight during this
   activities. One significant counterparty risk is
                                                         reporting period (and during prior reporting
   the risk posed by loan originators and servicers
                                                         periods) on identifying vulnerabilities in these areas,
   that are not depository institutions (also called
                                                         recommending positive, meaningful actions that
   nonbanks). As participants in the mortgage
                                                         the Agency could take to mitigate these risks, and
   market change, counterparties can affect the
                                                         fulfilling statutory mandates.
   risks to be managed by Fannie Mae and Freddie
                                 Semiannual Report to the Congress • October 1, 2016–March 31, 2017           11
OIG’s Oversight Initiatives                               Supervision Program for the Enterprises (OIG-2017-
                                                          003, December 15, 2016), online at www.fhfaoig.
In addition to adopting a risk-based strategy for         gov/Reports/AuditsAndEvaluations.) As we explain
OIG oversight, during the tenure of Inspector             in that report, our 12 reports on different critical
General Wertheimer, OIG has developed and                 elements of DER’s supervision program for the
implemented new initiatives and enhanced existing         Enterprises, when read together, call into question the
processes to strengthen its oversight and provide         effectiveness of FHFA’s supervision program for the
FHFA with critical information necessary to               Enterprises. The purpose of this roll-up report is to
improve its programs and operations. Below are            provide FHFA management and OIG stakeholders
some highlights of our oversight initiatives.             with a summary of the shortcomings identified in our
                                                          prior reports and to facilitate a better understanding
Roll-Up Reports                                           of the critical need for FHFA to strengthen its
                                                          supervision program for the Enterprises. A more
As discussed earlier, OIG has adopted a risk-based
                                                          complete discussion of this roll-up report appears on
oversight strategy based on its identification of the
                                                          pages 19-23.
four most significant financial, governance, and/or
reputational risks to the Agency, the Enterprises,        When the results of individual evaluation, audit,
and the FHLBanks. One of the areas of significant         and compliance reviews suggest a recurring theme in
risk OIG identified was the lack of rigor in FHFA’s       an area of risk, OIG will publish a roll-up report to
supervision program for the Enterprises. As FHFA          bring further attention to the matter and promote a
recognizes, effective supervision of the entities it      better understanding of the need for action.
regulates is fundamental to ensuring their safety and
soundness. OIG published 12 evaluation, audit,            Management Alerts
and compliance review reports between July 2015           OIG uses management alerts to make FHFA aware
and September 2016 in which we assessed different         of a significant matter requiring immediate attention
critical elements of DER’s supervision program for        and corrective action. During Inspector General
the Enterprises. For each element that we assessed,       Wertheimer’s tenure, OIG has issued four alerts,
we found shortcomings and recommended actions             three during this reporting period. The issues OIG
to improve DER’s supervision. Our published               identified relate to potentially excessive spending
reports set forth the facts, findings, conclusions, and   by Fannie Mae on the build-out of its newly leased
recommendations on each of these critical elements.       space for its headquarters in Washington, D.C., and
A listing of those reports is included on page 34.        its offices in Plano, Texas; use of FHFA vehicles and
FHFA steadfastly maintains that its supervision of        employees in a manner inconsistent with law and
the Enterprises is effective and ensures their safe and   regulation; and the adequacy of disclosures pertaining
sound operation.                                          to a potential conflict of interest.
During this reporting period, we issued a roll-up
report in which we identified and discussed four          Special Reports and Status Reports
recurring themes over the 12 evaluation, audit,           In its role as supervisor of the Enterprises and the
and compliance review reports. (See OIG, Safe             FHLBanks and as conservator of the Enterprises,
and Sound Operation of the Enterprises Cannot Be          FHFA serves in a unique role, and OIG has adapted
Assumed Because of Significant Shortcomings in FHFA’s     its oversight program to accommodate the challenges


12      Federal Housing Finance Agency Office of Inspector General
presented by FHFA’s novel role. In addition to           examiners within the four-year projected completion
management alerts, OIG issues special reports and        period and also identified a number of other
status reports to inform FHFA senior management,         shortcomings with FHFA’s implementation of its
stakeholders, and the public at large of significant     HFE program. We recommended that the Agency
developments involving matters and issues previously     determine the causes of these weaknesses and
identified and assessed by OIG. During this reporting    develop and implement a strategy to ensure the
period, OIG issued two special reports: one involving    HFE program fulfills its objectives. After FHFA
the costs to date incurred by the Enterprises in the     asked OIG to close its recommendations from the
development and implementation of the Common             2015 compliance review, OCom assessed the status
Securitization Platform and the other concerning         of FHFA’s implementation of its corrective actions.
FHFA’s continuing implementation of its examiner         That assessment found that although FHFA made
commission program.                                      considerable progress, more remains to be done to
                                                         ensure that FHFA’s HFE program gets on track to
Office of Compliance and Special Projects                produce commissioned examiners. OIG declined
In December 2014, OIG created an Office of               to close its 2015 recommendation pending further
Compliance and Special Projects (OCom) to                actions by FHFA and published the results of its
strengthen OIG’s efforts to determine whether FHFA       assessment in an update report.
has fully implemented OIG recommendations and            OCom also conducts reviews and administrative
to undertake other special projects. Verification        investigations of hotline complaints alleging non-
testing conducted by this office of FHFA’s actual        criminal misconduct.
implementation efforts holds FHFA accountable
for the corrective actions that it has agreed to         Office of Risk Analysis
undertake. OCom issues compliance review reports
                                                         Central to OIG’s ability to vigorously oversee the
based upon its efforts to verify that FHFA has
                                                         Agency’s programs and operations is our ability to
implemented the corrective actions it has agreed to
                                                         identify and assess emerging risks and revise our work
undertake. In addition to holding FHFA accountable
                                                         plan to accommodate them. To assist in executing
for implementing such corrective actions, OCom
                                                         this portion of OIG’s mission, Inspector General
reports on whether its implementation efforts have
                                                         Wertheimer established the Office of Risk Analysis
corrected the shortcomings identified by OIG
                                                         (ORA). ORA employs data mining and quantitative
in its initial report. OCom’s compliance reviews
                                                         analytics to identify, analyze, monitor, and prioritize
strengthen OIG’s efforts to stimulate positive change
                                                         emerging and ongoing risks. Its efforts enable
in critical areas and promote the economy, efficiency,
                                                         OIG to strategically align and employ its resources
and effectiveness of FHFA. OIG has issued eight
                                                         against such risks and thereby fulfill our oversight
compliance reviews since December 2014.
                                                         responsibility. ORA issues white papers on emerging
OCom’s first compliance review, published in 2015,       risks and its efforts inform the annual Management
assessed whether FHFA had fully implemented              and Performance Challenges memorandum issued by
recommendations in a 2011 OIG evaluation that            OIG to FHFA.
identified the need for FHFA to further develop and
implement its Housing Finance Examiner (HFE)
commission program and found that FHFA’s HFE
program was not on track to produce commissioned

                                 Semiannual Report to the Congress • October 1, 2016–March 31, 2017           13
OIG’s Oversight of FHFA’s Programs and Operations
Through Audit, Evaluation, and Compliance
Activities During This Reporting Period

OIG actively strives to fulfill its mission through       Standards for Inspection and Evaluation (Blue Book),
audit, evaluation, and compliance projects,               issued by the Council of the Inspectors General on
management alerts, and reports, and through               Integrity and Efficiency (CIGIE). OE performs its
investigations. In this section, OIG discusses its        evaluations in accordance with the Blue Book.
oversight activities through three of its operational
offices: the Office of Audits, the Office of              Office of Compliance and Special Projects
Evaluations, and the Office of Compliance and             The Office of Compliance and Special Projects
Special Projects.                                         (OCom) addresses the reputational risk arising
                                                          from the practical necessity of closing OIG
Office of Audits                                          recommendations based largely upon representations
The Office of Audits (OA) is tasked with designing        from the Agency. Pursuant to the Inspector General
and conducting independent performance audits             Act, IGs recommend remedial actions to correct
with respect to the Agency’s programs and operations.     shortcomings identified through reviews of agency
OA also undertakes projects to address statutory          programs and operations. When an agency accepts
requirements and stakeholder requests. For example,       an IG recommendation and takes steps to begin
the Federal Information Security Modernization Act        implementation of the corrective action, the agency
of 2014 (FISMA) directs OIG annually to perform           reports on its efforts to the IG and the IG typically
an independent evaluation of whether FHFA’s and           relies on materials and representations from the
OIG’s information security programs and practices         agency to close the recommendation.
meet FISMA’s security requirements. OIG issued two
                                                          OCom is charged with several critical responsibilities.
audits during this reporting period in satisfaction of
                                                          First, it consults with each division in the
this statutory requirement.
                                                          development of recommendations to ensure that such
Under the Inspector General Act, inspectors general       recommendations, if accepted and implemented,
are required to comply with the audit standards           will be susceptible to follow-up verification testing.
promulgated by the Comptroller General of the             Second, it tracks, in real time, the status of all
United States. OA performs its audits in accordance       OIG recommendations, from issuance to closure
with these standards, which are known as generally        to subsequent follow-up and testing. Third, it
accepted government auditing standards or GAGAS.          consults with each division prior to closure of
                                                          a recommendation to facilitate application of
Office of Evaluations                                     a single standard across the office for closing
The Office of Evaluations (OE) conducts                   recommendations. Last, it conducts verification
program and management assessments and makes              testing on closed recommendations to verify
recommendations for improvement where applicable.         independently whether FHFA has implemented in
OE provides independent and objective reviews,            full the corrective actions it represented to OIG that
studies, and analyses of FHFA’s programs and              it intended to take. The results of OCom’s testing are
operations. The Inspector General Reform Act              published in compliance reviews.
of 2008 requires that IGs adhere to the Quality


14      Federal Housing Finance Agency Office of Inspector General
OCom also undertakes special projects, which             conservatorship, and, according to FHFA, their
includes reviews and administrative investigations of    combined market share of newly issued mortgage-
hotline complaints alleging non-criminal misconduct      backed securities (MBS) is more than 65%. The
and assessments of significant ongoing issues that, in   Enterprises’ combined total assets are approximately
OIG’s view, require prompt attention from FHFA           $5.3 trillion and their combined debt exceeds
leadership. OCom performs its compliance reviews         $5 trillion. Although market conditions have
and special projects in accordance with the Blue         improved and the Enterprises have returned to
Book.                                                    profitability, their ability to sustain profitability
                                                         in the future cannot be assured for a number of
Our Audit and Evaluation Plan identifies the four
                                                         reasons: the winding down of their investment
risk areas on which our audit, evaluation, and
                                                         portfolios and reduction in net interest income; the
compliance projects have been focused. We now
                                                         level of guarantee fees they will be able to charge
discuss our oversight activities during the reporting
                                                         and keep; the future performance of their business
period, executed by OA, OE, and OCom, by risk
                                                         segments; the elimination by 2018 of a capital
area.
                                                         cushion to buffer against losses; and the significant
                                                         uncertainties involving key market drivers such as
Conservatorship Operations                               mortgage rates, homes prices, and credit standards.3

                                                         As of this writing, the duration of the
When then-Secretary of the Treasury Henry Paulson
                                                         conservatorships is still unknown. In January 2017,
announced the conservatorships in September
                                                         now Treasury Secretary Mnuchin provided the
2008, he explained that they were meant to be a
                                                         following answer to the written question posed
“time out” during which the Enterprises would be
                                                         by Senator Hatch, “Do you agree with the views
stabilized, enabling the “new Congress and the next
                                                         of many that the ‘time out’ on the GSEs ought to
Administration [to] decide what role government
                                                         end, and Fannie and Freddie need to somehow be
in general, and these entities in particular, should
                                                         restructured or ended?”:
play in the housing market.”2 The current FHFA
Director has echoed that view, recognizing that             [T]he United States needs a comprehensive
conservatorship “cannot [and] should not be a               approach to its housing finance policy.
permanent state” for the Enterprises. However,              With Fannie Mae and Freddie Mac both in
putting the Enterprises into conservatorships has           conservatorship it is difficult to articulate their
proven to be far easier than taking them out, and           long-term role within our housing finance
the “time out” period for the conservatorships is           policy. Eight years passed since they entered
now in its ninth year.                                      conservatorship and there has been a significant
                                                            recovery of housing prices across the country. So
Earlier in conservatorship, the Enterprises
                                                            that lends itself to be a good time, in my view,
required $187.5 billion in financial investment
                                                            to address the desired future state we seek for
from Treasury to avert their insolvency. Through
                                                            housing finance in our country.
December 2016, the Enterprises have paid to
Treasury approximately $255.8 billion in dividends       Given the taxpayers’ enormous investment in
on its investment. Despite their high leverage, lack     the Enterprises, the unknown duration of the
of capital, conservatorship status, and uncertain        conservatorships, the Enterprises’ critical role
future, the Enterprises have grown in size during        in the secondary mortgage market, and their


                                  Semiannual Report to the Congress • October 1, 2016–March 31, 2017         15
unknown ability to sustain future profitability,          delegated to Fannie Mae the authority to
OIG determined that FHFA’s administration of the          consolidate and relocate its Dallas metro offices.
conservatorships has been, and continues to be, a         Fannie Mae’s presence in the Dallas metro area is
critical risk.                                            significant: its Dallas metro offices are the second
                                                          largest of the Fannie Mae offices and employ
Delegated Matter: Fannie Mae Dallas                       approximately 2,000 full-time employees and
Regional Headquarters Project                             contractors. Fannie Mae determined to consolidate
OIG conducted a review of an anonymous hotline            these offices and relocate to leased space in a new
complaint alleging, among other things, excessive         building in Plano, and its budget for the build-
spending on Fannie Mae’s consolidation and                out of this leased space is $234.02 per square foot.
relocation of its offices. Our review of the facts        Although the cost of living in Plano is 31.3% lower
involving consolidation and relocation of Fannie          than in the D.C. metro area, Fannie Mae’s budgeted
Mae’s offices in the Dallas metro area found a lack       build-out of its leased space in Plano is virtually
of oversight by FHFA as to the reasonableness             identical to its budgeted build-out costs of $235.35
of budgeted build-out costs for the project, and          per square foot for its D.C. headquarters.
we questioned $24.2 million in budgeted build-            FHFA’s delegation of authority does not relieve
out costs for the building leased by Fannie Mae           FHFA of responsibility to obtain adequate
in Plano, Texas, for its consolidated offices in the      information to satisfy itself that Fannie Mae is
Dallas metro area. (See OIG, Fannie Mae Dallas            properly exercising that delegated authority. We
Regional Headquarters Project (OIG-2017-002,              found that FHFA lacks any basis on which to
December 15, 2016), online at www.fhfaoig.gov/            determine whether Fannie Mae’s current budget
Reports/ManagementAlerts.)                                for its build-out costs in Plano is reasonable for an
In a management alert issued earlier in 2016              entity in conservatorship. The expert consultant
reporting on spending in connection with                  retained by FHFA to assist in overseeing both
Fannie Mae’s consolidation and relocation of its          Fannie Mae’s build-out of its new headquarters in
corporate headquarters in Washington, D.C., we            D.C. and its leased space in Plano questioned the
questioned whether the anticipated efficiencies of        basis for Fannie Mae’s budgeted build-out costs
features proposed by Fannie Mae for the build-            for Plano, but was directed by FHFA to focus its
out of its newly leased space warranted the cost          attention on the build-out of Fannie Mae’s D.C.
of $235.35 per square foot. Because FHFA had              corporate headquarters.
rescinded its delegated authority for this project,       Absent review by FHFA, we believe that the same
we recommended that FHFA increase its oversight           significant financial and reputational risks that we
for the D.C. project and determine whether                identified in connection with Fannie Mae’s build-
the anticipated efficiencies of specific proposed         out of its headquarters space in D.C. attach to its
features warranted the costs as well as whether           build-out of its Plano space.
the proposed features for leased space in a non-
government building are appropriate for an entity in      Delegated Matter: Update on Enterprise
conservatorship.                                          Efforts to Develop and Implement the
We recognize that FHFA, as conservator, may               Common Securitization Platform
delegate authority for certain actions to an entity       In 2012, FHFA, as conservator, directed Fannie
in conservatorship. Here, FHFA, as conservator,           Mae and Freddie Mac to build a Common

16      Federal Housing Finance Agency Office of Inspector General
Securitization Platform (CSP or Platform). As            underway. We also found that FHFA had not
originally envisioned by FHFA, the CSP was               adopted schedules and timelines for the completion
intended to provide a platform for multiple market       of the project and lacked an estimate of the cost to
participants to issue MBS in a future housing            complete the CSP project. We recommended that
finance reform system that had yet to be defined.        FHFA take steps to address these limitations in its
FHFA believed the Enterprises’ back-office systems       oversight, and it agreed to do so. In June 2016, we
were “outmoded” and assumed that the cost to             closed our recommendations based on the corrective
build the CSP and integrate the Enterprises’ legacy      actions reported by FHFA.
financial and IT systems into the Platform would be
less than the combined costs for the Enterprises to      FHFA Has Not Fully Met its Commitment to Be
upgrade their back-office systems. In 2013, FHFA         Transparent About CSP’s Development
directed the Enterprises to establish and fund a joint   When FHFA announced its revised goals for
venture, Common Securitization Solutions, LLC            the CSP in May 2014, FHFA committed to be
(CSS), to develop and ultimately operate the CSP.        transparent in its development—a commitment
In May 2014, after extensive discussion within           the Agency reaffirmed on several occasions. From
FHFA and with the Enterprises, FHFA concluded            May 2014 through early July 2016, FHFA issued a
that the many variables in the CSP project created       number of public reports in which it discussed the
extreme risks and determined to de-risk the project      status of the CSP’s development.
by breaking it down into smaller pieces. In its May      In view of FHFA’s repeated commitment to
2014 Strategic Plan for the Conservatorships, FHFA       transparency about the development of the CSP, we
clarified that the CSP’s primary focus would be on       reviewed these reports to assess the extent to which
supporting the Enterprises’ current securitization       they disclosed information about the project’s status.
activities, although the Platform would use standard     (See OIG, Update on the Status of the Development of
industry technology and interfaces so that future        the Common Securitization Platform (COM-2017-
market participants could connect to it. FHFA also       001, December 9, 2016), online at www.fhfaoig.
announced three key goals of the conservatorships,       gov/Reports/StatusReports.) We found that FHFA
one of which was to build a new infrastructure for       had collected a significant amount of information
the Enterprises’ securitization functions and enable     on the actual and projected costs of the CSP
them to replace their separate MBS with a single,        from the Enterprises and had conducted regular
common security that would be issued and serviced        assessments of the risks to successful completion
via the CSP. According to FHFA, Enterprise               of the CSP. In our view, FHFA has not disclosed
issuance of a single common security through the         this information, even at a high level, in its public
CSP would improve liquidity in the housing finance       reports.
system.
                                                         •	 Actual and Projected Costs of the CSP. All of
In a May 2014 evaluation report, we assessed                the costs associated with the development of
the status of the CSP’s development since 2012.             the CSP have been, and will be, borne by the
Among other things, we found that, as of December           Enterprises. Since 2014, FHFA has collected data
31, 2013, the Enterprises had spent a total of              from the Enterprises on the costs to develop the
$65 million on the CSP program. FHFA and the                CSP and the costs they have incurred to modify
team building the CSP had constructed a Platform            their legacy financial and information systems
prototype, and associated software testing was

                                 Semiannual Report to the Congress • October 1, 2016–March 31, 2017        17
  to integrate them into the CSP. We found that            DER is responsible for supervision of the
  FHFA only disclosed specific CSP cost data once          Enterprises. Section 1317 of the Federal Housing
  in a September 2015 status report, and those             Enterprises Financial Safety and Soundness Act
  reported costs totaled $146 million to develop           of 1992, as amended, requires FHFA to conduct
  the actual Platform. We found that FHFA never            annual on-site examinations of each Enterprise
  reported the costs incurred by the Enterprises           (12 U.S.C. § 4517). FHFA’s annual examination
  from 2012 through 2015 to integrate their legacy         program assesses Fannie Mae’s and Freddie Mac’s
  systems into the Platform, even though it had            financial safety and soundness and overall risk
  collected this data from the Enterprises. These          management practices through ongoing monitoring,
  unreported costs are substantially higher than the       targeted examinations, and risk assessments.
  $146 million reported by FHFA as the costs to            Prior to the creation of FHFA, the Enterprises
  develop the actual Platform.                             were regulated by the Office of Federal Housing
                                                           Enterprise Oversight (OFHEO), and OFHEO’s
•	 CSP Software Development Risks. FHFA
                                                           first examination took place in 1994. In its Fiscal
   reported publicly that the Enterprises and CSS
                                                           Year 2014 Performance and Accountability Report
   were “making progress” in developing and testing
                                                           to Congress, FHFA stated, “[to] ensure that the
   the CSP’s software. FHFA has not disclosed that
                                                           regulated entities are operating safely and soundly,
   since 2014 it has internally rated the risks to
                                                           FHFA identifies risks to the regulated entities and
   the CSP’s successful development on a monthly
                                                           takes timely supervisory actions to address risks and
   basis. These internal reports identify elevated risks
                                                           improve their condition.”
   facing the CSP’s development, particularly related
   to integrating the Enterprises’ legacy systems with     During this reporting period we continued our
   the Platform.                                           assessment of DER’s supervision of the Enterprises.
                                                           Between July 2015 and September 2016, OIG
Supervision of the Regulated                               published 12 evaluation, audit, and compliance
                                                           review reports in which we assessed different critical
Entities                                                   elements of DER’s supervision program for the
                                                           Enterprises. During this reporting period, we issued
As FHFA recognizes, effective supervision of the           a roll-up report in which we identified and discussed
entities it regulates is fundamental to ensuring           four recurring themes over the 12 evaluation,
their safety and soundness. Within FHFA, DBR               audit, and compliance review reports. (See OIG,
is responsible for supervision of the FHLBanks.            Safe and Sound Operation of the Enterprises Cannot
Section 20 of the Federal Home Loan Bank Act               Be Assumed Because of Significant Shortcomings
requires each FHLBank to be examined at least              in FHFA’s Supervision Program for the Enterprises
annually. The exam function for the FHLBanks               (OIG-2017-003, December 15, 2016), online at
descends from the prior Federal Home Loan Bank             www.fhfaoig.gov/Reports/AuditsAndEvaluations.)
Board, through the Federal Housing Finance Board,          As discussed below, our evaluation, audit, and
to FHFA. As a result, there is a long history of           compliance review reports, when read together,
examination practice and examination standards for         call into question the effectiveness of FHFA’s
DBR to draw upon.                                          supervision program for the Enterprises.




18      Federal Housing Finance Agency Office of Inspector General
        Supervision of the Enterprises: Summary of Roll-Up
          of Recent OIG Reports on FHFA’s Supervision
                   Program for the Enterprises

                                                                 In the 2015 and 2016 OIG Audit and Evaluation
                                                                 Plans, we explained our intent to focus our
                  Federal Housing Finance Agency
                                                                 resources on programs and operations that
                      Office of Inspector General
                                                                 pose the greatest financial, governance, and
                                                                 reputational risk to FHFA, the Enterprises, and
          Safe and Sound Operation of the                        the FHLBanks. One of the areas of significant risk
           Enterprises Cannot Be Assumed
        Because of Significant Shortcomings in
                                                                 we identified was FHFA’s rigor in its supervision
        FHFA’s Supervision Program for the                       of the Enterprises and the FHLBanks. As FHFA
                     Enterprises
                                                                 recognizes, effective supervision of the entities it
                                                                 regulates is fundamental to ensuring their safety
                                                                 and soundness. OIG published 12 evaluation,
                                                                 audit, and compliance review reports between July
                                                                 2015 and September 2016 in which we assessed
                                                                 different critical elements of DER’s supervision
         OIG Report  OIG-2017-003  December 15, 2016
                                                                 program for the Enterprises. These elements
                                                                 included:

•	 DER’s assessment of risks at the Enterprises and documentation of those risks in semiannual
   risk assessments;

•	 DER’s plan for each annual supervisory cycle, based on the results of its risk assessments, and
   risk-related changes and updates to that plan;

•	 DER’s planned examination procedures for its supervisory activities, which are designed to
   identify the objectives of the activity and describe the examination steps to be performed,
   including sampling and testing;

•	 DER’s communication of its findings from its supervisory activities, including its supervisory
   concerns, to each Enterprise’s board of directors;

•	 DER’s follow-up on efforts by each Enterprise to correct identified deficiencies throughout
   the remediation period to ensure that remediation is timely and adequate; and

•	 DER’s communication of its examination conclusions, findings, and composite/component
   examination ratings after the end of each annual supervisory cycle to each Enterprise board of
   directors in a written Report of Examination (ROE).




                                            Semiannual Report to the Congress • October 1, 2016–March 31, 2017          19
     For each element that we assessed, we found shortcomings and recommended actions to address these
     shortcomings and upgrade DER’s supervisory activities. We published reports setting forth the facts,
     findings, conclusions, and recommendations on each of these critical elements. FHFA steadfastly
     maintains that its supervision of the Enterprises is effective and ensures their safe and sound operation.
     In our view, our evaluation, audit, and compliance review reports, when read together, call into
     question the effectiveness of FHFA’s supervision program for the Enterprises.

     Based on our assessments of different elements of DER’s supervision program, we identified four
     recurring themes and published a roll-up identifying and discussing the themes we identified in
     the course of our reports. (See OIG, Safe and Sound Operation of the Enterprises Cannot Be Assumed
     Because of Significant Shortcomings in FHFA’s Supervision Program for the Enterprises (OIG-2017-003,
     December 15, 2016), online at www.fhfaoig.gov/Reports/AuditsAndEvaluations.) In that roll-up, we
     discuss each of the following themes:

     1.	 FHFA lacks adequate assurance that DER’s supervisory resources are devoted to examining
         the highest risks of the Enterprises.

        Among our findings was that FHFA had difficulty completing its planned targeted examinations
        over four supervisory cycles from 2012 through 2015 and that the number of targeted
        examinations planned and completed during each supervisory cycle has fallen since 2012 for
        Freddie Mac and has diminished significantly for Fannie Mae. We found that DER did not
        conduct more than half of the targeted examinations it planned for Fannie Mae between 2012 and
        2015 and did not conduct slightly less than half of the targeted examinations it planned for Freddie
        Mac for that same period. We also found that no targeted examinations of Fannie Mae planned for
        the 2015 supervisory cycle were completed before the annual ROE was issued.

        In addition, DER’s practices for assessing Enterprise risks called into question the utility of the risk
        assessments and the basis on which priorities are assigned to planned targeted examinations. Almost
        half of DER’s planned high-priority targeted examinations for 2014 and 2015 could not be traced
        to underlying risk assessments, and none of the risk assessments supported the priority assigned
        to planned targeted examinations. Further, DER failed to implement its commission program to
        develop a corps of commissioned examiners with the necessary technical competencies and practical
        examination experience to lead risk-based examinations.




20      Federal Housing Finance Agency Office of Inspector General
2.	 Many supervisory standards and guidance issued by FHFA and DER lack the rigor of those
    issued by other federal financial regulators.

  FHFA’s statutory supervisory obligations are similar to the obligations imposed on the Office of
  the Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve System
  (Federal Reserve), and the Federal Deposit Insurance Corporation (FDIC), and FHFA has been
  afforded the same legal privileges as federal banking regulators. We found, however, that FHFA’s
  requirements and guidance are less prescriptive and more flexible than the other federal financial
  regulators for a number of elements of DER’s supervision program. FHFA has offered no reason to
  explain why its requirements and guidance should be less robust than those of its peer regulators.
  FHFA has consistently rejected our recommendations to revise its requirements and guidance to
  align them with those adopted by other federal financial regulators.

3.	 The flexible and less prescriptive nature of many requirements and guidance promulgated by
    FHFA and DER has resulted in inconsistent supervisory practices.

  The determination by FHFA and DER to refrain from adoption of defined requirements and
  comprehensive standards for structuring and communicating ROEs, preparing risk assessments,
  and following up on Enterprise correction of identified deficiencies leaves the execution of these
  elements to the discretion of the examiners-in-charge (EICs) and examiners. We found that exercise
  of discretion has resulted in a lack of consistency in supervisory practices for these elements.

4.	 Where clear requirements and guidance for specific elements of DER’s supervisory program
    exist, DER EICs and examiners have not consistently followed them.

  Our assessments found that DER EICs and examiners, in contravention of requirements issued
  by FHFA and DER: revised supervisory plans without risk-related reasons; failed to create
  and maintain complete supervisory documentation in the official system of records; failed to
  ensure issuance of the annual ROEs to Enterprise directors and obtain written affirmations
  that supervisory concerns will be addressed; and did not consistently conduct and document
  independent assessments of the Enterprises’ remediation activities during the period of ongoing
  remediation. Further, DER did not establish a comprehensive quality control review process for
  examinations over a four-year period, including two years in which the Division was required to do
  so by Agency directive. Taken together, these practices demonstrate a lack of commitment to follow
  established requirements.




                           Semiannual Report to the Congress • October 1, 2016–March 31, 2017          21
     Although FHFA asserted in its management responses that it was generally receptive toward our
     recommendations, it rejected a number of them and did not propose alternative corrective actions
     for most of the recommendations it rejected. Given FHFA’s disagreement with a number of our
     recommendations to correct shortcomings identified in our reports as well as its unwillingness to
     propose alternative corrective actions, it was our view that these elements of DER’s supervisory
     program remained deficient. It remains to be seen whether the corrective actions that FHFA has agreed
     to take to address other shortcomings identified by us will, in fact, be implemented effectively.

     Together, the Enterprises own or guarantee approximately $5 trillion in mortgages and are among
     the largest financial institutions in this country. Should either or both Enterprises sustain losses in
     the future that exceed their decreasing capital reserves, the Treasury—and the American taxpayers—
     will be on the hook for those losses. Pursuant to HERA, FHFA is charged with ensuring the safety
     and soundness of the Enterprises. Without prompt and robust Agency attention to address the
     shortcomings we have identified, we cautioned stakeholders that the safe and sound operation of the
     Enterprises could not be assumed from FHFA’s supervisory program.

     Other regulators have sought the assistance of independent third parties in assessing the effectiveness
     of their supervision programs. In 1997 and again in 2009, the Federal Reserve Bank of New York
     retained an outside independent expert to assess the effectiveness of its supervisory procedures and its
     internal processes to understand and foresee systemic problems and undertook internal initiatives to
     improve its practices and procedures. In 2013, the OCC asked a team of international regulators to
     provide an independent perspective on the OCC’s approach to the supervision of large and midsize
     banks and thrifts and, based on that team’s recommendations, the OCC reorganized its supervision
     programs and instituted practices designed to foster better communication and assessment of risks,
     among other things. FHFA has acknowledged that it considers the guidance and examination practices
     of its peer financial regulators when developing its own guidance and requirements. In view of FHFA’s
     unwillingness to accept a number of OIG recommendations to address shortcomings in critical
     elements of DER’s supervision program, we concluded that it would be prudent for FHFA to follow
     the lead of the Federal Reserve Bank of New York and the OCC and engage independent external
     experts to review different critical elements of DER’s supervision program.

     The Agency stated that it would continue to pursue the corrective actions to which it previously agreed
     and consider additional ways to make its supervision program more effective and efficient. According
     to FHFA, it previously agreed to accept and implement 83% of the recommended corrective actions
     in the 12 referenced reports. We note, by way of clarification, that FHFA, in its response, overstated
     the rate of its acceptance of recommendations in these reports. Our review of FHFA’s prior responses
     found that FHFA accepted only 64% of OIG’s recommended remedial measures, partially agreed with
     17%, and rejected outright 19%.




22      Federal Housing Finance Agency Office of Inspector General
                            OIG Reports Contributing to Supervision Roll-Up Report
FHFA’s Targeted Examinations of Fannie Mae: Less than Half of the Targeted           AUD-2016-006
Examinations Planned for 2012 through 2015 Were Completed and No
Examinations Planned for 2015 Were Completed Before the Report of
Examination Issued

FHFA’s Targeted Examinations of Freddie Mac: Just Over Half of the Targeted          AUD-2016-007
Examinations Planned for 2012 through 2015 Were Completed

FHFA’s Supervisory Planning Process for the Enterprises: Roughly Half of FHFA’s      AUD-2016-005
2014 and 2015 High-Priority Planned Targeted Examinations Did Not Trace
to Risk Assessments and Most High-Priority Planned Examinations Were Not
Completed

FHFA Failed to Consistently Deliver Timely Reports of Examination to the             EVL-2016-009
Enterprise Boards and Obtain Written Responses from the Boards Regarding
Remediation of Supervisory Concerns Identified in those Reports

FHFA’s Failure to Consistently Identify Specific Deficiencies and Their Root         EVL-2016-008
Causes in Its Reports of Examination Constrains the Ability of the Enterprise
Boards to Exercise Effective Oversight of Management’s Remediation of
Supervisory Concerns

FHFA’s Inconsistent Practices in Assessing Enterprise Remediation of Serious         EVL-2016-007
Deficiencies and Weaknesses in its Tracking Systems Limit the Effectiveness of
FHFA’s Supervision of the Enterprises

FHFA’s Supervisory Standards for Communication of Serious Deficiencies to            EVL-2016-005
Enterprise Boards and for Board Oversight of Management’s Remediation
Efforts are Inadequate

FHFA’s Examiners Did Not Meet Requirements and Guidance for Oversight of             EVL-2016-004
an Enterprise’s Remediation of Serious Deficiencies

FHFA Should Map Its Supervisory Standards for Cyber Risk Management to               EVL-2016-003
Appropriate Elements of the NIST Framework

Utility of FHFA’s Semi-Annual Risk Assessments Would Be Enhanced Through             EVL-2016-001
Adoption of Clear Standards and Defined Measures of Risk Levels

Intermittent Efforts Over Almost Four Years to Develop a Quality Control Review      EVL-2015-007
Process Deprived FHFA of Assurance of the Adequacy and Quality of Enterprise
Examinations

OIG’s Compliance Review of FHFA’s Implementation of Its Housing Finance              COM-2015-001
Examiner Commission Program




                                 Semiannual Report to the Congress • October 1, 2016–March 31, 2017   23
Supervision of the GSEs: FHFA’s Practice                  this period. Our testing of DBR’s records found
for Rotation of its Examiners                             that, from January 2013 through December 2016
                                                          (review period), DBR followed its examiner rotation
According to FHFA, its supervisory authority over
                                                          practice. Based on our review of DBR records, we
its regulated entities “is virtually identical to—and
                                                          determined that each of the 11 FHLBanks was
clearly modeled on—Federal bank regulators’
                                                          assigned a different associate director, a different
supervision of banks.” Federal bank regulators
                                                          EIC, and a different examination team at least every
recognize that effective supervision of a bank
                                                          four years.
requires examiner independence. One control
used by federal financial regulators to achieve           The Deputy Director of DER acknowledged
examiner independence is mandatory rotation               to DER staff in a November 2015 email that
of certain examiners among supervised entities.           “[r]egular rotation of on-site examination staff is a
Federal financial regulators also recognize other         best practice of supervisory agencies.” In that same
benefits from examiner rotation, such as enhancing        email, the Deputy Director announced the rotation
examiners’ professional and leadership skills and         of the EICs of the examination teams for the
improving their ability to conduct comparisons            Enterprises and committed that DER intended to
among institutions and apply regulatory standards         adopt “meaningful” examiner rotation.
consistently.
                                                          A senior DER official recalled to us that DER has
In this evaluation, we reviewed the rotation policies     rotated staff on its examination teams since the
and/or practices of the OCC, the Federal Reserve,         fall of 2012. In May 2016, the Deputy Director
and the FDIC and compared them to the rotation            of DER reported to us that DER has an informal
policies and practices of DBR and DER. (See               rotation process.
OIG, FHFA’s Practice for Rotation of its Examiners
Is Inconsistent between its Two Supervisory Divisions     To verify those recollections, we sought
(EVL-2017-004, March 28, 2017), online at www.            documentation from DER to show its efforts to
fhfaoig.gov/Reports/AuditsAndEvaluations.)                track examiner assignments over time or evidence
                                                          of an examiner rotation practice, informal or
We found that the OCC, the Federal Reserve, and           otherwise. DER provided no such materials, apart
the FDIC have recognized the benefits of examiner         from the November 2015 email from the Deputy
rotation and have adopted written policies and/or         Director, internal organization charts, staffing
practices requiring examiner rotation. Former             spreadsheets, and a number of internal and public
FHFA leadership acknowledged the benefits of              announcements of organization changes. A DER
examiner rotation but left implementation to DBR          official reported to us that DER maintained no
and DER.                                                  records of examiner assignments and reassignments
                                                          or the period of time examiners have been
DBR officials reported to us that, at least since
                                                          assigned to a particular Enterprise or specific risk
January 2013, DBR has an established practice
                                                          area, and had not created or maintained records
of rotating all of its examination teams every
                                                          to track examiner assignments over time, and
four years and communicates the reasons for its
                                                          no documentation was produced to us by DER
rotation practice and specific rotation assignments
                                                          showing that it systematically tracked examiner
annually. DBR has created and maintained records
                                                          assignments over the review period.
of examiner assignments and reassignments during


24      Federal Housing Finance Agency Office of Inspector General
However, DER maintained to us that DER                  •	 8 were assigned to examine the same Enterprise
management was aware of its movement of                    but not the same risk area for the entire review
examiners through its review and approval of               period (29%);
staffing assignments and reassignments during the
                                                        •	 4 were assigned to non-examination work for
review period and that information about examiner
                                                           some parts of the review period but otherwise
assignments could be found in the personnel
                                                           were assigned to examine the same Enterprise
records for each examiner and in emails. No claim
                                                           during the review period (14%); and
was made by DER that its management reviews
the personnel records for each examiner and             •	 2 were rotated between the Enterprises as
associated emails when it considers assignments            examiners during the review period (7%).
and reassignments, and it did not produce such
materials to us in response to our request for          We also found that 22 of the 28—79%—examined
materials evidencing examiner rotation. We found        only one Enterprise during the entire review period.
no evidence that DER has systematically tracked the     DER’s lack of easily accessible and reliable data on
length of time each examiner has been assigned to a     examiner assignments over time limits its capacity to
particular Enterprise or risk area.                     make reasoned and effective management decisions
Because we were not able to readily verify              about examination resources. Sixteen months
statements from DER leadership that informal            after the Deputy Director of DER announced the
examiner rotation had occurred within DER,              rotation of EICs and pledged to adopt “meaningful”
and in light of DBR’s demonstrated practice             examiner rotation, we found no evidence, based on
of rotating its examiners every four years and          our review of DER documents and communications
DER’s acknowledgment that regular rotation of           with DER officials, that DER has implemented its
examination staff is a “best practice,” we sought to    pledge of “meaningful” examiner rotation.
determine what practice, if any, had been followed      DER agreed to our recommendation to develop,
within DER to rotate examiners between the two          communicate to DER examination staff, and
Enterprises and risk areas during the review period     implement an examiner rotation practice or policy
from the materials provided to us by DER.               that explains the timeframe for examiner rotation,
From these materials, we traced examiner                whether examiners would be rotated across or
assignments to determine how many DER                   within Enterprises, and which types of examiners,
examiners: (1) had been assigned to a particular        in addition to the EICs, would be subject to
Enterprise or risk area for the entire review period    the rotation practice or policy. DER plans to
and (2) had been rotated between the Enterprises        develop internal guidance on rotation of EICs and
during the review period. Our review of these DER       examination managers by March 1, 2018. DER
materials found that 28 employees were assigned to      also agreed to our recommendation to implement a
DER throughout the review period, although not          mechanism for tracking DER examiner assignments
all served as examiners throughout the entire period.   over time by Enterprise and risk area to facilitate
Of those 28, we found:                                  implementation of its examiner rotation practice or
                                                        policy.
•	 14 were assigned to examine the same Enterprise
   and same risk area for the entire review period
   (50%);


                                 Semiannual Report to the Congress • October 1, 2016–March 31, 2017        25
Supervision of the GSEs: Update on                       2013 to March 2015. We found that the HFE
FHFA’s Housing Finance Examiner                          program was not on track to produce commissioned
Commission Program                                       examiners within the four-year projected
                                                         completion period because many enrollees were not
FHFA has safety and soundness oversight
                                                         completing their on-the-job training and course
responsibility for Fannie Mae, Freddie Mac, and the
                                                         requirements. We also identified a number of
FHLBanks. FHFA’s oversight responsibilities are
                                                         other shortcomings with FHFA’s implementation
critical because, among other things, the Enterprises
                                                         of the HFE program. We recommended that the
own or guarantee approximately $5 trillion in
                                                         Agency determine the causes of these weaknesses
mortgage assets. Should either or both Enterprises
                                                         and develop and implement a strategy to ensure the
sustain losses that exceed their decreasing capital
                                                         HFE program fulfills its objectives.
reserves, Treasury, and hence taxpayers, will be
responsible for their losses.                            FHFA agreed with our recommendation and
                                                         committed to implementing five corrective
Since 2011, FHFA has publicly acknowledged
                                                         actions to resolve the problems we identified. In
the need for a commissioned examiner program
                                                         December 2015, FHFA submitted documentation
to provide classroom and on-the-job training to
                                                         to OIG indicating that it had completed the
examiners to further their development of technical
                                                         implementation of the five corrective actions. We
competencies and practical examination experience.
                                                         conducted this review to assess the status of FHFA’s
According to FHFA, commissioned examiners
                                                         implementation of its corrective actions. (See OIG,
have the skills and technical knowledge necessary
                                                         Update on FHFA’s Implementation of its Housing
to lead the examination of a major risk area at an
                                                         Finance Examiner Commission Program (COM-
entity supervised by FHFA. In an evaluation issued
                                                         2017-003, March 22, 2017), online at www.fhfaoig.
in September 2011 reporting on the Agency’s
                                                         gov/Reports/StatusReports.) We found that FHFA
examination capacity, OIG found that only about
                                                         implemented four of the five corrective actions.
one-third of FHFA’s examiners—roughly 40—were
                                                         While considerable progress has been made to
commissioned, in that they received commissions
                                                         implement the fifth corrective action, more remains
from other federal or state regulators prior to their
                                                         to be done to ensure that FHFA’s HFE program
employment with the Agency. At that time, FHFA
                                                         gets on track to produce commissioned examiners.
acknowledged that its relative lack of commissioned
                                                         In addition, FHFA has not completed development
examiners impeded the efficiency and effectiveness
                                                         of a final examination for the HFE program,
of its supervision program.
                                                         which precludes any enrollee from earning an HFE
In June 2013, FHFA established its HFE                   commission through completion of the program.
commission program, consisting of on-the-
                                                         We will hold open our 2015 recommendation
job training, course requirements, and a final
                                                         pending action on FHFA’s part to implement
examination. When it rolled out the HFE
                                                         the fifth corrective action as it committed to do,
commission program, FHFA advised its employees,
                                                         complete the HFE examination, and otherwise
in an internal communication, that it would take
                                                         take steps to demonstrate that the HFE program
approximately four years to complete.
                                                         can produce, and is producing, commissioned
Roughly two years later, we assessed FHFA’s              examiners.
administration of the HFE program from August


26     Federal Housing Finance Agency Office of Inspector General
Supervision of the GSEs: FHFA’s Reporting                  measure. FHFA sought uniform criteria to be used
to Congress About Remediation of Serious                   by DBR and DER to measure performance during
Deficiencies by the GSEs                                   fiscal year 2015. According to FHFA’s Performance
The Government Performance and Results Act of              and Accountability Report (PAR) for fiscal year
1993, as amended by the GPRA Modernization                 2015, published in November 2015, its regulated
Act of 2010, (GPRA) requires FHFA (and other               entities exceeded this target during fiscal year 2015:
federal agencies) to establish strategic plans, develop    the “FHLBanks reported a 97% compliance rate and
performance goals aligned with those strategic plans,      Fannie Mae and Freddie Mac both reported a 100%
and set performance indicators to measure whether          compliance rate.”
those goals are met. Pursuant to GPRA, each federal        In the past, we have issued several reports regarding
agency must report, after the end of each fiscal year,     FHFA’s oversight of the Enterprises’ remediation
whether it has met its performance goals.                  of MRAs in which we identified a number
To meet its GPRA obligations for fiscal year 2015,         of shortcomings. In light of the outstanding
FHFA established three strategic goals and identified      performance results for this performance
three performance goals for each strategic goal.           measure reported by FHFA in its 2015 PAR, we
For its first strategic goal, “Ensure Safe and Sound       undertook this evaluation to assess FHFA’s bases
Regulated Entities,” FHFA set three performance            for those reported results. (See OIG, FHFA’s Use of
goals tied to its supervisory activities: “assess the      Inconsistent Criteria Materially Affected its Reporting
safety and soundness of regulated entity operations;”      of Remediation of Serious Deficiencies in its 2015
“identify risks to the regulated entities and set          Performance and Accountability Report (EVL-2017-
expectations for strong risk management;” and              001, November 9, 2016), online at www.fhfaoig.
“require timely remediation of risk management             gov/Reports/AuditsAndEvaluations.)
weaknesses.” Risk management weaknesses, and               Contrary to FHFA’s expectations, we found that
other deficiencies, at a regulated entity are identified   DER and DBR used different criteria to calculate
by FHFA during its supervisory activities. When            compliance rates, which materially affected the
FHFA finds a risk management weakness or other             reported compliance rates. Moreover, DER and
deficiency, it will classify the weakness or other         DBR did not fully disclose their differing criteria
deficiency as a Matter Requiring Attention (MRA),          to the FHFA office responsible for coordinating
a violation, or a recommendation. At the time of           the development and publication of the PAR—
our work on this report, FHFA reserved MRAs for            the Office of Budget and Financial Management.
“the most serious supervisory matters” that required       Within DBR, senior officials were vested with
“prompt remediation” by the affected regulated             complete discretion to determine whether 20 of
entity.4                                                   80 MRAs were “on track” or “off track” to meet
For fiscal year 2015, FHFA determined that it would        agreed-upon timetables and exercised that discretion
measure success in achieving its stated performance        to find that 17 of the 20 were “on track.” Absent
goal—“require timely remediation of risk                   the exercise of such discretion, DBR could have
management weaknesses”—by measuring whether                reported a compliance rate as low as 75%. From
its “[r]egulated entities complete remedial action for     our review of internal documents and interviews
MRAs within agreed upon timeframes.” The Agency            with DER officials, it appears that DER initially set
established a 90% target for this performance              out to report on all MRAs open during fiscal year
                                                           2015, as DBR did. However, DER developed no

                                   Semiannual Report to the Congress • October 1, 2016–March 31, 2017           27
methodology during the year to capture the data to       FHFA’s practice was inconsistent with the guidance
calculate a compliance rate. When asked by FHFA          issued by other federal financial regulators and
several weeks after the close of fiscal year 2015        created the risk that Enterprise management, whose
to report a compliance rate for this performance         actions or inactions gave rise to the MRAs, would
measure for the 2015 PAR, DER determined that it         filter the MRA-related information it provided to the
would report only on those MRAs it closed during         board, which could constrain the board’s ability to
fiscal year 2015—or only 29% of the total MRAs           oversee MRA remediation.
open at one point during fiscal year 2015. As a
                                                         In this follow-up evaluation, we reviewed Freddie
consequence, DER reported a 100% compliance
                                                         Mac management’s reporting on MRAs to the
rate.
                                                         Freddie Mac board. (See OIG, Directives from the
GPRA requires each federal agency to report              Audit Committee of the Freddie Mac Board of Directors
any limitations to data it reports, including            Caused Management to Improve its Reporting about
inconsistencies with data collection procedures.         Remediation of Serious Deficiencies from October 2015
Because the Office of Budget and Financial               through September 2016 (ESR-2017-003, March
Management was not made aware of the different           22, 2017), online at www.fhfaoig.gov/Reports/
criteria used by DER and DBR, it did not report          AuditsAndEvaluations.) We found that from March
the inconsistencies with internal data collection        2013 through September 2015, Freddie Mac
procedures nor did it qualify or otherwise caveat        management provided the Freddie Mac board with
FHFA’s reported compliance rates in the PAR for          quarterly remediation reports in which information
this performance measure.                                about MRAs was pooled with information about
                                                         other deficient, unsafe, or unsound practices giving
Supervision of the Enterprises: Freddie                  rise to supervisory concern, making it quite difficult,
Mac’s Reporting About Remediation of                     if not impossible, for the board to identify the
Serious Deficiencies to its Board                        most serious supervisory matters and to oversee
During the period, we closed an evaluation of            management’s progress in remediating those
the MRA-related information provided by the              deficiencies.
management of Freddie Mac to the Freddie Mac             In October 2015, the same month we initiated
board of directors from March 2013 to September          our prior evaluation, the Audit Committee of
2016. We commenced this evaluation as a follow-up        Freddie Mac’s board of directors asked management
to an OIG report issued in March 2016. (See OIG,         to include an itemized list of deficiencies in
FHFA’s Supervisory Standards for Communication           the quarterly remediation report, allowing that
of Serious Deficiencies to Enterprise Boards and         committee to distinguish MRAs from other audit
for Board Oversight of Management’s Remediation          concerns. The first remediation report to include that
Efforts are Inadequate (EVL-2016-005, March              list, presented to the Audit Committee in December
31, 2016), online at www.fhfaoig.gov/Reports/            2015, contained a brief description of each
AuditsAndEvaluations.) In that report, we found          deficiency, its remediation deadline, and its most
that FHFA relied on the management of the                recent status. At the request of the Audit Committee
Enterprises to communicate information about             of the Freddie Mac board, and after FHFA received
FHFA’s most serious supervisory findings, MRAs,          a draft of our March 2016 evaluation, Freddie Mac
to the Enterprises’ respective boards. We noted that



28     Federal Housing Finance Agency Office of Inspector General
management began providing the Audit Committee            Supervision of the FHLBanks: Compliance
with a standalone MRA report on a quarterly basis,        Review of FHLBank Fraud Reporting to
beginning in June 2016. The two MRA reports               FHFA
that we reviewed (June and September 2016),
                                                          FHFA is responsible for ensuring the safety and
which focused only on MRAs issued by FHFA
                                                          soundness of its regulated entities, which include 11
to Freddie Mac, provided the committee with
                                                          regional FHLBanks. The FHLBanks loan funds to
detailed MRA-specific information isolated from
                                                          member financial institutions to finance housing,
other Enterprise audit deficiencies for the first time.
                                                          economic development, infrastructure, and jobs.
Both of these reports contained an itemized list of
open MRAs, which included a brief description of          During the course of a criminal investigation
each MRA, its remediation deadline, and its most          in 2014, OIG’s Office of Investigations (OI)
recent status. Both reports also contained a section      determined that one of the FHLBanks delayed
titled “Performance” that identified remediation          reporting fraud and employee misconduct to FHFA.
delays and MRAs at risk of missing a remediation          OI also found that FHFA’s policy and related
target date. We found no evidence that Freddie            guidance in effect at that time did not explicitly
Mac management provided its remediation plan for          require FHLBanks to notify the Agency of potential
each MRA to the Audit Committee to enable the             fraud and employee misconduct. Consequently, on
committee to track management’s actual remedial           June 27, 2014, OI recommended to FHFA that it
progress against its plan.                                amend its policy to require FHLBanks to report,
                                                          among other things, fraud and employee misconduct
After we completed our fieldwork and after
                                                          to FHFA.
management began providing the Audit Committee
with the requested MRA-specific remediation               FHFA’s DBR agreed with OI’s written
reports, FHFA issued an advisory bulletin on              recommendation. In its management response
“Internal Audit Governance and Function” to               dated July 28, 2014, the Deputy Director for DBR
provide “an additional level of detail on the             committed to align his division’s standards for
responsibilities of [regulated entities’] audit           reporting employee misconduct or insider fraud
committees in their oversight of the [internal audit]     with those of other federal financial regulators by
function.” The advisory bulletin sets forth FHFA’s        January 15, 2015. On February 12, 2015, DBR
supervisory expectation that each Enterprise’s Audit      issued Advisory Bulletin 2015-01, FHLBank Fraud
Committee “regularly receive clear, timely, and           Reporting (AB 2015-01). As set forth below, AB
detailed reports” on all open deficiencies, including     2015-01 establishes the following guidelines and
MRAs, from each Enterprise’s Internal Audit               deadlines for the 11 FHLBanks:
division to assist the committee in its oversight
                                                          •	 Notify DBR within one calendar day of fraud
responsibilities.5
                                                             or possible fraud that is “significant,” which AB
The closing memorandum is intended to promote                2015-01 defines as that “which may affect the
the Agency’s efficient supervision of Enterprise             integrity of or public confidence in the FHLBank
remediation of supervisory deficiencies. We intend to        or the U.S. Government.”
monitor developments on this issue.
                                                          •	 Notify DBR on the day of the filing of a
                                                             Suspicious Activity Report (SAR) with Treasury’s
                                                             Financial Crimes Enforcement Network


                                  Semiannual Report to the Congress • October 1, 2016–March 31, 2017        29
  (FinCEN). A SAR provides information to                exceptions) the immediate notifications, SAR filing
  FinCEN involving known or suspected criminal           notifications, quarterly reports, and annual reports
  offenses or financial transactions of at least         by the required deadlines. We determined that each
  $5,000 that financial institutions—such as             FHLBank designated an employee responsible for
  FHLBanks—suspect involve money laundering              reporting fraud and each described in its annual
  or violate relevant statutes.                          report fraud-related policies, procedures, training,
                                                         and serious deficiency remediation efforts. Based
•	 Report fraudulent activity to DBR via the
                                                         on our compliance testing, we concluded that the
   Cumulative Quarterly Status Report within 10
                                                         FHLBanks successfully implemented AB 2015-01.
   calendar days after quarter-end. The FHLBanks
   summarize previously submitted immediate
   notifications and SAR filings in this quarterly       Counterparties and Third Parties
   report.

•	 Designate an employee as a fraud officer and          Enterprise Compliance with Advisory
   submit an Annual Conformance Report by                Bulletins Related to Nonbank Sellers and
   September 30 of the respective year. The annual       Servicers
   report primarily describes an FHLBank’s fraud         The Enterprises carry out their statutory mission
   policies, procedures, internal controls, and          to provide stability and liquidity to the secondary
   training as well as the FHLBank’s efforts to          mortgage market by, in large part, purchasing
   remediate serious fraud-related deficiencies          mortgage loans from banks and other lenders that
   identified during DBR examinations.                   originate them. The Enterprises did not originate
                                                         and do not service the over $5 trillion in loans
OI deemed DBR’s actions to be responsive
                                                         they hold or are exposed to in MBS. Instead,
to its recommendation and considered the
                                                         the Enterprises rely upon third parties for loan
recommendation closed as of February 20, 2015.
                                                         origination and servicing, according to standards
The Deputy Director of DBR reported to us that           and guidelines set by the Enterprises.
our recommendation identified a weakness in
                                                         Since 2010, the role of nonbanks—non-depository
prior guidance and that DBR’s adoption of our
                                                         firms unaffiliated with commercial banks—in selling
recommendation strengthened the FHLBanks’ fraud
                                                         and servicing single-family mortgages has increased
reporting and notified DBR of fraud that previously
                                                         dramatically. While nonbanks originated less than
would have been unreported. In his view, this
                                                         10% of the mortgages purchased by the Enterprises
additional reporting has enhanced DBR’s oversight
                                                         in 2010, the nonbank share of mortgages purchased
of the FHLBanks.
                                                         in 2015 increased to almost 50%. On the servicing
In this compliance review, we determined that            side, the nonbank share of mortgages held by the
the FHLBanks generally complied with the                 Enterprises saw similar growth, increasing five-fold
four requirements in AB 2015-01. (See OIG,               between 2010 and 2015 from 7% to almost 35%.
Compliance Review of Federal Home Loan Bank
                                                         The increase in nonbank sellers and servicers has
Fraud Reporting to FHFA (COM-2017-002, January
                                                         yielded increased risk. Between 2012 and 2016,
24, 2017), online at www.fhfaoig.gov/Reports/
                                                         both the Enterprises and FHFA have acknowledged
Compliance_Reviews.) Through our testing, we
                                                         several risk factors associated with nonbank seller/
found that the FHLBanks submitted (with marginal

30     Federal Housing Finance Agency Office of Inspector General
servicers, including the lack of a federal prudential     We also reviewed DER’s supervisory plan for 2016
regulator, potential liquidity and financial strength     and found no targeted examinations that would
issues, and operational problems caused by rapidly        position DER to reach conclusions regarding
expanding servicing portfolios and the higher             whether the second Enterprise’s practices comply
costs associated with servicing delinquent loans.         with the supervisory expectations set forth in
In the 2016 OIG Audit and Evaluation Plan, we             these two advisory bulletins. Although DER is
explained that we intended to focus our resources         conducting limited ongoing monitoring of the
on four areas of significant risk facing FHFA. One        Enterprise’s risk management related to seller/
of the four risk areas we identified was the risk         servicers, these activities are not specific to nonbank
from counterparties the Enterprises rely upon as          seller/servicers and do not identify nonbank risk
part of their business operations to fulfill their        management as a focus area.
mission. One of the largest counterparty risks
                                                          Identifying and communicating supervisory
to the Enterprises is the risk posed by nonbank
                                                          expectations does not meet the goal of safety and
seller/servicers because of their growing share
                                                          soundness if an Enterprise fails to meet those
of originations and servicing of mortgage loans
                                                          expectations. Absent sufficient examination work,
acquired by the Enterprises.
                                                          FHFA does not have assurance that the Enterprises
FHFA has issued three advisory bulletins setting          have met its expectations and are exercising
forth its supervisory expectations for Enterprise         sufficient risk management with respect to nonbank
oversight of single-family mortgage sellers and           seller/servicers.
servicers, whether depository institutions or
                                                          Based on our findings, we recommended that
nonbanks. In this evaluation, we assessed FHFA’s
                                                          FHFA conduct examination activities necessary
efforts to determine whether the Enterprises’
                                                          to determine whether the Enterprise’s risk
practices were in compliance with these advisory
                                                          management of nonbank seller/servicers satisfies
bulletins regarding risk management of nonbank
                                                          FHFA’s supervisory expectations as expressed in
seller/servicers. (See OIG, FHFA’s Examinations
                                                          its advisory bulletins. FHFA generally agreed with
Have Not Confirmed Compliance by One Enterprise
                                                          this recommendation. FHFA’s response, however,
with its Advisory Bulletins Regarding Risk
                                                          did not commit the Agency to complete the
Management of Nonbank Sellers and Servicers (EVL-
                                                          specific actions described in our recommendation.
2017-002, December 21, 2016), online at www.
                                                          Given the Agency’s statement that it “generally
fhfaoig.gov/Reports/AuditsAndEvaluations.)
                                                          agree[s]” with our recommendation, we are treating
We found that DER conducted supervisory                   its response as an agreement to implement the
activities to assess whether one Enterprise’s practices   recommendation as written.
comply with the supervisory expectations set
forth in the three advisory bulletins. We further         Information Technology Security
found that DER examined the other Enterprise’s
compliance with only one of the advisory bulletins.
DER conducted no supervisory activities to                Statutory Audits: FHFA’s and OIG’s
determine that Enterprise’s compliance with the           Information Security Programs
other two advisory bulletins and, as a result, issued     We completed two audits during the reporting
no findings or conclusions related to its compliance.     period assessing the existing information


                                  Semiannual Report to the Congress • October 1, 2016–March 31, 2017         31
security programs at FHFA and OIG. (See OIG,             allegation in the complaint regarding use by the
Performance Audit of the Federal Housing Finance         senior government employee’s spouse. However,
Agency’s Information Security Program Fiscal Year        OIG found that the senior government employee
2016 (AUD-2017-001, October 26, 2016) and                used government support staff multiple times
Performance Audit of the Federal Housing Finance         to book personal travel. According to FHFA’s
Agency Office of Inspector General’s Information         Designated Agency Ethics Official, this use was
Security Program Fiscal Year 2016 (AUD-2017-002,         not required in the performance of official duties
October 26, 2016), both online at www.fhfaoig.           or authorized in accordance with law or regulation.
gov/Reports/AuditsAndEvaluations.) Both audits           OIG also found that the senior government
were conducted in accordance with FISMA. OIG             employee used a government vehicle multiple times
contracted with an independent public accounting         inconsistent with applicable law. Our investigation
firm, Kearney & Company, P.C., to perform                found that FHFA officials responsible for providing
separate FISMA audits of FHFA’s and OIG’s                transportation lacked knowledge about the
information security programs because FHFA               governing statutory and regulatory requirements.
and OIG maintain separate IT infrastructures.            We referred this matter to the Department of Justice
The objectives of these audits were to evaluate the      (DOJ) on January 5, 2016, and the referral was
effectiveness of FHFA’s and OIG’s information            declined on the same date. OIG issued a report
security programs and practices, and respond to          on this matter to our oversight committees and
the Department of Homeland Security’s Fiscal             published a Privacy Act compliant report on our
Year 2016 Inspector General Federal Information          website. We made seven recommendations, which
Security Modernization Act of 2014 Reporting             the Agency accepted.
Metrics, dated September 26, 2016. Because
information in these reports could be abused to          Conflict of Interest
circumvent FHFA’s and OIG’s internal controls, the       OIG received whistleblower complaints raising
complete text of the reports has not been released       questions about a conflicts of interest issue,
publicly.                                                conducted an administrative investigation into these
                                                         allegations, and reported the results in March 2017
Agency Operations                                        to the FHFA Director and to our congressional
                                                         oversight committees in a Management Alert
                                                         and accompanying expert report pursuant to our
Use of FHFA Vehicles and Employees
                                                         responsibilities under the Inspector General Act.
OIG conducted an investigation of an anonymous           Public release by OIG of the Management Alert and
hotline complaint alleging improper use of               accompanying expert report is prohibited by the
government resources by a senior government              Privacy Act of 1974 (Pub.L. 93–579, 88 Stat. 1896,
employee and his spouse. (See OIG, Administrative        enacted December 31, 1974, 5 U.S.C. § 552a).
Investigation of an Anonymous Hotline Complaint
Alleging Use of FHFA Vehicles and FHFA Employees         FHFA’s Government Purchase and Travel
in a Manner Inconsistent with Law and Regulation         Card Programs
(OIG-2017-001, December 6, 2016), online at
                                                         The Government Charge Card Abuse Prevention
www.fhfaoig.gov/Reports/ManagementAlerts.)
                                                         Act of 2012 and implementing instructions by
OIG’s investigation did not substantiate the
                                                         the Office of Management and Budget (OMB)


32     Federal Housing Finance Agency Office of Inspector General
require that the inspector general of each executive      Reports and Recommendations
agency conduct periodic risk assessments of the
agency’s purchase card and travel card programs to        Below are the 14 audits, evaluations, compliance
identify and analyze the risks of illegal, improper, or   reports, management alerts, special reports, and
erroneous purchases and payments to guide analyses        risk assessments published during the period. See
or audits of these programs as necessary. Where           www.fhfaoig.gov for a complete list of all reports
annual travel card spending for an agency exceeds         issued by OIG since its inception. A complete list
$10 million, this Act and OMB require periodic            of the recommendations made in all OIG reports is
audits or reviews of the agency’s travel card program.    provided in Appendix B.
For fiscal years 2016 and 2015, FHFA reported that
its purchase card expenditures were $1,129,161
and $970,916, respectively, and travel card
expenditures were $1,938,859 and $1,824,252,
respectively. Because travel card expenditures in each
of those two fiscal years were significantly less than
$10 million, no audit of FHFA’s travel card program
is required.

We conducted a risk assessment of FHFA’s purchase
and travel card programs for fiscal years 2016 and
2015 to assess the risks of illegal, improper, or
erroneous purchases and payments to determine
whether an audit of either program would be
prudent. (See OIG, Risk Assessment of FHFA’s Fiscal
Years 2016 and 2015 Government Purchase Card and
Travel Card Programs (OIG-RA-2017-001, March
27, 2017), online at www.fhfaoig.gov/Reports/
RiskAssessments.) We looked at the annual amount
of purchase and travel card spending during those
two fiscal years, the number of FHFA cardholders,
FHFA’s internal control over its purchase and
travel card programs, the results of internal and
external purchase and travel card-related activities
and reviews, and the results of prior financial
audits of FHFA performed by the Government
Accountability Office (GAO). Based on our risk
assessment, we concluded that the risk of illegal,
improper, or erroneous purchases and payments
through FHFA’s purchase and travel card programs
during the prior two fiscal years was low and,
accordingly, an audit of these programs would not
be warranted during fiscal year 2017.

                                  Semiannual Report to the Congress • October 1, 2016–March 31, 2017     33
                                      Report                                             Date
 Performance Audit of the Federal Housing Finance Agency’s Information             October 26, 2016
 Security Program Fiscal Year 2016 (AUD-2017-001)

 Performance Audit of the Federal Housing Finance Agency Office of Inspector       October 26, 2016
 General’s Information Security Program Fiscal Year 2016 (AUD-2017-002)

 FHFA’s Use of Inconsistent Criteria Materially Affected its Reporting             November 9, 2016
 of Remediation of Serious Deficiencies in its 2015 Performance and
 Accountability Report (EVL-2017-001)

 Administrative Investigation of an Anonymous Hotline Complaint Alleging Use       December 6, 2016
 of FHFA Vehicles and FHFA Employees in a Manner Inconsistent with Law and
 Regulation (OIG-2017-001)

 Update on the Status of the Development of the Common Securitization              December 9, 2016
 Platform (COM-2017-001)

 Fannie Mae Dallas Regional Headquarters Project (OIG-2017-002)                    December 15, 2016

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

 FHFA’s Examinations Have Not Confirmed Compliance by One Enterprise with          December 21, 2016
 its Advisory Bulletins Regarding Risk Management of Nonbank Sellers and
 Servicers (EVL-2017-002)

 Compliance Review of Federal Home Loan Bank Fraud Reporting to FHFA                January 24, 2017
 (COM-2017-002)

 Directives from the Audit Committee of the Freddie Mac Board of Directors          March 22, 2017
 Caused Management to Improve its Reporting about Remediation of Serious
 Deficiencies from October 2015 through September 2016 (ESR-2017-003)

 Update on FHFA’s Implementation of its Housing Finance Examiner Commission         March 22, 2017
 Program (COM-2017-003)

 Administrative Investigation of Hotline Complaints: Conflicts of Interest Issue    March 23, 2017
 (OIG-2017-004)

 Risk Assessment of FHFA’s Fiscal Years 2016 and 2015 Government Purchase           March 27, 2017
 Card and Travel Card Programs (OIG-RA-2017-001)

 FHFA’s Practice for Rotation of its Examiners Is Inconsistent between its Two      March 28, 2017
 Supervisory Divisions (EVL-2017-004)




34     Federal Housing Finance Agency Office of Inspector General
Oversight Through OIG’s Investigations

OIG is vested with statutory law enforcement                The type of misconduct OI special agents (SAs)
authority that is exercised by its Office of                investigate varies, as does the complexity of the
Investigations (OI). OI is staffed with highly trained      schemes involved. Various elements contribute
law enforcement officers, investigative counsels,           to determining the resources necessary for each
analysts, and attorney advisors. OI conducts criminal       investigation and the length of time necessary to see
and civil investigations into those, whether inside or      each investigation through to the end. For example,
outside of government, who waste, steal, or abuse           loan or mortgage origination schemes, a common
government monies in connection with programs               type of mortgage fraud, can be very labor intensive.
and operations of the Agency and the GSEs.                  Experienced SAs review and analyze mortgage loan
                                                            files in order to detect red flags. SAs understand
To maximize criminal and civil law enforcement,
                                                            how to identify the indicators of fraud and, just as
OI works closely with other law enforcement
                                                            importantly, how to gather necessary evidence and
agencies, including DOJ, the Federal Bureau of
                                                            put together a case.
Investigation (FBI), the Department of Housing and
Urban Development Office of Inspector General               Since its inception, OIG has maintained a hotline
(HUD-OIG), Internal Revenue Service-Criminal                to provide easy access for individuals to report tips,
Investigation (IRS-CI), and state and local law             complaints, or referrals (TCRs) of alleged violations
enforcement entities nationwide.                            of criminal and civil laws in connection with
                                                            programs and operations of the Agency. OI is also
Depending on the type of misconduct uncovered,
                                                            responsible for conducting a preliminary review of
OI investigations may result in criminal charges,
                                                            all hotline TCRs. Our hotline is staffed by a third-
civil complaints, and/or administrative sanctions and
                                                            party vendor to protect the anonymity of the callers
decisions. Criminal charges filed against individuals
                                                            and to provide easy access for reporting. Every TCR,
or entities may result in plea agreements or trials,
                                                            whether made by telephone directly to the hotline,
incarceration, restitutions, fines, and penalties.
                                                            email, website, or in person, is sent to the hotline and
Civil claims can lead to settlements or verdicts with
                                                            logged by the hotline, and attorneys in OI conduct a
restitutions, fines, penalties, forfeitures, assessments,
                                                            preliminary assessment to determine whether further
and exclusion of individuals or entities from
                                                            review and investigation is appropriate. Each TCR
participation in federal programs. Four of OIG’s
                                                            can result in multiple contacts with a complainant.
attorney-investigators have been appointed as Special
                                                            During this reporting period, 690 discrete contacts
Assistant U.S. Attorneys in several judicial districts
                                                            to the hotline were made involving TCRs, and
throughout the country. They have been assigned
                                                            171 separate TCRs were logged by the hotline.
criminal matters arising from OI’s investigations
                                                            When OI determines an investigation of a report
in the districts where they have been appointed
                                                            is warranted, OIG conducts that investigation. The
and have pursued these investigations through to
                                                            three management alerts issued during this reporting
conviction and sentencing, which has contributed to
                                                            period present the findings and conclusions of
an increase in OIG’s effectiveness.
                                                            administrative investigations of hotline TCRs.



                                   Semiannual Report to the Congress • October 1, 2016–March 31, 2017           35
Figure 2. OI Monetary Results from                                Figure 3. Reports, Referrals, Prosecutions, and
October 1, 2016, Through March 31, 2017                           Convictions from October 1, 2016, Through
                                                                  March 31, 2017a
                       Criminal                  Civil
                    Investigations          Investigations
    Finesa            $13,085,417          $5,630,000,000             Investigative Reportsb                             30
    Settlements                   $-       $6,952,000,000             Criminal Referrals to DOJ                          58
    Restitutions      $15,382,297                          $-         Criminal Referrals to State and Local              13
    Total             $28,467,714        $12,582,000,000              Prosecuting Authorities
                                                                      Indictments and Informations During                45
a
 Fines include criminal fines, seizures, forfeiture and special       the Reporting Period That Resulted
assessments, and civil fines imposed by federal court.                from Referral to Prosecutors During
                                                                      Prior Reporting Periods
                                                                      Total Number of Indictments and                    71
                                                                      Informations During the Reporting
During the semiannual reporting period,                               Period Resulting from OIG Referrals
OI conducted numerous criminal, civil, and                            Trials                                               6
administrative investigations, which resulted in the                  Convictions/Pleas                                  60

filing of criminal charges against 71 individuals, the                Sentencings                                        52

conviction of 60 individuals, and 52 sentencings, as              a
                                                                   All criminal charges and successive actions (pleas/
well as court-ordered fines and restitution awards.               convictions/sentencings) are supported with documents filed
                                                                  with the corresponding federal or state court. This includes
                                                                  both public and non-public documents (sealed). All referrals
Figures 2 and 3 (see above and right) summarize the               made to DOJ and to state prosecutors are captured within
results obtained during this reporting period from                each investigative file; these actions are tabulated via a
                                                                  statistical report run in OIG’s case management system.
our investigative efforts.                                        Criminal referrals on this chart include both individuals and
                                                                  entities.
For ease of review, we group our criminal                         b
                                                                   For the purposes of this SAR, an investigative report is
investigations during this period into the categories             defined as the Report of Investigation finalized at the
                                                                  conclusion of the investigation, prior to case closure.
described below. In each category, we describe the
nature of the crime and include a few highlights
of matters investigated by OIG. For a summary of
publicly reportable investigative outcomes for each               U.S. Attorneys’ offices around the country and with
category during this reporting period, see Appendices             a state attorney general to investigate allegations
E–M.                                                              of fraud committed by financial institutions and
                                                                  individuals in connection with RMBS. OIG, as
                                                                  the lead investigating agency on RMBS frauds,
Investigations: Civil Cases                                       has conducted its investigatory activities through
                                                                  OI. OI special agents and attorneys have reviewed
During the semiannual reporting period, OI                        evidence produced by various parties for members
continued to actively participate in residential                  of the Working Group, assisted with witness
mortgage-backed securities (RMBS) investigations.                 interviews, provided strategic litigation advice,
In 2012, an RMBS Working Group was created                        and briefed other law enforcement agencies on
to investigate individuals and entities responsible               the operations of the RMBS market. Since the
for misconduct involving the pooling of mortgage                  inception of the RMBS Working Group, DOJ has
loans and sale of RMBS. During the reporting                      negotiated civil settlements worth over $51 billion.
period OI SAs continued to work closely with                      As discussed below, during this semiannual

36         Federal Housing Finance Agency Office of Inspector General
reporting period, civil settlements were reached          Credit Suisse Agrees to Pay $5.28 Billion in
with Société Générale S.A. (SocGen), Credit Suisse,       Connection with its Sale of RMBS
Deutsche Bank, and Ally Financial.                        On January 18, 2017, DOJ announced a
                                                          $5.28 billion settlement with Credit Suisse related
Société Générale S.A. Agrees to Pay $50 Million
                                                          to Credit Suisse’s conduct in the packaging,
Penalty to Settle RMBS Fraud Claims
                                                          securitization, issuance, marketing, and sale of
On January 20, 2017, a settlement agreement was           RMBS between 2005 and 2007. The investigation
reached between DOJ and several affiliates of the         revealed that Credit Suisse made false and misleading
bank SocGen for fraud claims involving RMBS               representations to prospective investors about the
and collateralized debt obligations. In order to          characteristics of the mortgage loans it securitized.
resolve the fraud claims SocGen agreed to pay a           Credit Suisse agreed to pay $2.48 billion as a civil
$50 million civil monetary penalty, acknowledge           penalty under the Financial Institutions Reform,
certain false statements or representations made to       Recovery, and Enforcement Act. It will also provide
investors, including Fannie Mae, Freddie Mac, and         $2.8 billion in other relief in the form of loan
federally insured financial institutions, and cooperate   forgiveness and financing for affordable housing.
fully with DOJ in all future investigations and any
                                                          As part of the settlement, Credit Suisse agreed to a
prosecution arising out of the conduct covered by the
                                                          detailed statement of facts. That statement describes
agreement.
                                                          how the bank knowingly made false and misleading
The settlement includes a statement of facts agreed       representations to investors about the characteristics
to by SocGen, whereby SocGen acknowledges                 of the mortgage loans it securitized in RMBS worth
responsibility for its conduct. For example, SocGen       billions of dollars issued by the bank.
acknowledged that it falsely represented to investors
                                                          For example, Credit Suisse acknowledged in the
that the loans underlying an RMBS were originated
                                                          statement of facts that it “repeatedly received
generally in accordance with the loan originator’s
                                                          information indicating that many of the loans
underwriting guidelines. As detailed in the statement
                                                          reviewed did not conform to the representations
of facts, SocGen’s third-party due diligence vendor
                                                          that were made by Credit Suisse to investors about
for the RMBS at issue determined that almost 40%
                                                          the loans to be securitized.” It further acknowledged
of the loans it reviewed were underwritten outside of
                                                          that in many cases, it purchased and securitized loans
guidelines and lacked adequate compensating factors
                                                          into its RMBS that “did not comply with applicable
to make the loans eligible for securitization. SocGen
                                                          underwriting guidelines and lacked sufficient
acknowledged that it did not disclose these results
                                                          compensating factors” and/or “w[ere] not originated
to investors. The investigation also determined that
                                                          in compliance with applicable laws and regulations.”
SocGen falsely represented facts about the combined
                                                          Credit Suisse agreed that its employees even referred
loan-to-value of mortgages in its securitizations.
                                                          to some loans they securitized as “bad loans,”
Fannie Mae and Freddie Mac purchased nearly               “complete crap,” and “[u]tter complete garbage.”
$1.2 billion in RMBS sponsored and underwritten
                                                          Between September 2005 and November 2007,
by SocGen. The Enterprises purchased over
                                                          Fannie Mae and Freddie Mac purchased over
$354.4 million of certificates issued in connection
                                                          $14.1 billion in RMBS from Credit Suisse in
with a SocGen securitization covered by this
                                                          43 transactions.
investigation.


                                  Semiannual Report to the Congress • October 1, 2016–March 31, 2017          37
Deutsche Bank Agrees to Pay $7.2 Billion for              Ally Financial Settlement in RMBS Investigation;
Misleading Investors in its Sale of RMBS                  Agrees to Pay $52 Million, California

On January 17, 2017, DOJ announced a $7.2 billion         On November 21, 2016, Ally Financial Inc. agreed to
settlement with Deutsche Bank resolving federal           pay the United States $52 million to settle allegations
civil claims that Deutsche Bank misled investors          that its subsidiaries acted improperly in relation to 10
in the packaging, securitization, marketing, sale,        subprime RMBS in 2006 and 2007.
and issuance of RMBS between 2006 and 2007.
                                                          Under the settlement agreement, Ally was also
This $7.2 billion agreement represents the single
                                                          required to discontinue operations of its registered
largest RMBS resolution for the conduct of a single
                                                          broker-dealer, Ally Securities, LLC, which served as
entity. The settlement requires Deutsche Bank to
                                                          the lead underwriter on the subprime RMBS at issue
pay a $3.1 billion civil penalty and to also provide
                                                          in this matter.
$4.1 billion in relief to underwater homeowners,
distressed borrowers, and affected communities.           The subsidiary will be wound-down immediately and
                                                          de-registered as a broker-dealer as acknowledgment
As part of the settlement, Deutsche Bank agreed to a
                                                          of the improper conduct. The broker-dealer
detailed statement of facts. That statement describes
                                                          served as the lead underwriter on the 10 subprime
how Deutsche Bank knowingly made false and
                                                          RMBS offerings issued in the RASC-EMX series
misleading representations to investors about the
                                                          between 2006 and 2007. Ally Securities dedicated a
characteristics of the mortgage loans it securitized in
                                                          specialized marketing effort to create the RASC-EMX
RMBS worth billions of dollars issued by the bank
                                                          brand, securing investors for the RMBS offerings and
between 2006 and 2007.
                                                          directing third-party due diligence on samples of the
For example, Deutsche Bank represented to investors       mortgage loan pools underlying the RMBS to test
that loans securitized in its RMBS were originated        whether the loans complied with disclosures made to
generally in accordance with mortgage loan                investors in the public offering documents.
originators’ underwriting guidelines. But as Deutsche
                                                          As the lead underwriter, Ally Securities recognized
Bank acknowledged in the statement of facts, the
                                                          in 2006 and 2007 that there was a consistent trend
bank’s own reviews confirmed that “aggressive”
                                                          of deterioration in the quality of the mortgage loan
revisions to the loan originators’ underwriting
                                                          pools underlying the RASC-EMX securities that
guidelines allowed for loans to be underwritten to
                                                          stemmed, at least in part, from deficiencies in the
anyone with “half a pulse.” More generally, Deutsche
                                                          subprime mortgage loan underwriting guidelines
Bank knew, based on the results of due diligence,
                                                          and diligence applied to the collateral prior to
that for some securitized loan pools, more than 50%
                                                          securitization. All the RASC-EMX securities
of the loans subjected to due diligence did not meet
                                                          sustained losses as a result of underlying mortgage
loan originators’ guidelines.
                                                          loans falling delinquent. Freddie Mac purchased
Freddie Mac and Fannie Mae purchased RMBS in              RMBS in four of the RASC-EMX transactions.
several of the Deutsche Bank RMBS transactions that
                                                          See Appendix K for a summary of publicly reportable
were the primary focus of the investigation.
                                                          criminal investigative outcomes involving RMBS.




38      Federal Housing Finance Agency Office of Inspector General
Investigations: Criminal Cases                          loan application documents to induce lenders
                                                        to fund mortgage loans for condominium units.
Below we set forth highlights of OIG criminal           The documents misrepresented the borrowers’
investigations during this semiannual reporting         occupations, occupancy intentions, income and
period in a number of different categories that         assets/liabilities, earnest money deposits, cash to
resulted in criminal indictments, convictions, plea     close, fees paid to the marketing company, the
agreements, sentencings, and court-ordered fines and    seller’s payment of kickbacks to borrowers by using
restitution judgments.                                  a marketing company, and other information that
                                                        was material to borrowers’ qualifications to borrow
Condo Conversion and Builder Bailout                    money from the lenders. Co-conspirators, acting
Schemes                                                 as title settlement agents, disbursed mortgage loan
                                                        proceeds even though the borrowers did not pay
In these types of schemes, the sellers or developers
                                                        the earnest money deposits and/or cash to close
wrongfully conceal from prospective lenders the
                                                        payments required by their loan applications and
incentives they’ve offered to investors and the true
                                                        HUD-1 Settlement Statements. As part of this
value of the properties. The lenders, acting on this
                                                        scheme, distributions through the settlement
misinformation, make loans that are far riskier than
                                                        transactions were made to a marketing company
they have been led to believe. Such loans often
                                                        used to disguise the kickback payments to the
default and go into foreclosure, causing the lenders
                                                        buyers.
to suffer large losses.
                                                        Multiple indictments, guilty pleas, and sentencings
Below we summarize three OIG investigations
                                                        occurred during the reporting period in this matter.
in this category that resulted in indictments, plea
                                                        Of the 17 co-conspirators who were indicted
agreements, sentencings, court-ordered fines, and
                                                        in January 2017, four defendants pled guilty to
a restitution judgment during this semiannual
                                                        conspiracy to commit bank fraud and wire fraud
reporting period. (See Appendix E for a summary
                                                        affecting a financial institution during the reporting
of publicly reportable investigative outcomes in this
                                                        period. Two additional defendants had previously
category.)
                                                        pled guilty in November 2016.

Multiple Indictments, Guilty Pleas, and                 Additionally, on January 19, 2017, five defendants
Sentencings in Condominium Bank Fraud Scheme,           were sentenced for their roles in this scheme. Rafael
Florida                                                 Amador and Osvaldo Sanchez were sentenced
Seventeen defendants were indicted in January           to 12 months and 1 day in prison, 5 years of
2017 on charges of conspiracy to commit bank and        supervised release, and ordered to pay restitution of
wire fraud and bank fraud, and five others were         $2,146,242 and $1,749,014, respectively, and three
sentenced, in connection with a condominium             other defendants received sentences of prison time
bank fraud scheme in Miami, Florida. The                and restitution.
co-conspirators allegedly enriched themselves by        The Enterprises purchased several loans involved
using straw buyers and unqualified buyers to            in this fraud. The loss is currently estimated at over
purchase and finance residential properties. The        $1.5 million.
co-conspirators prepared and submitted fraudulent



                                 Semiannual Report to the Congress • October 1, 2016–March 31, 2017        39
                      Letter and check detailing $3 million restitution payment to the Enterprises.




Sentencing of Former President and Corporation                DSI sold new homes in the East Bay area of
in Builder Bailout Scheme: $3 Million in                      Northern California. Shahid directed and managed
Restitution Ordered Paid to the Enterprises,                  all of the day-to-day operations of DSI. Shahid
California                                                    and others conspired to induce buyers to purchase
On March 16, 2017, Ayman Shahid, the former                   homes at inflated prices by providing undisclosed
President of Discovery Sales, Inc. (DSI) was                  financial incentives to the buyers to keep the sales
sentenced to 46 months in prison, 3 years of                  prices of the new homes high, thereby protecting
supervised release, and ordered to pay a $50,000              the financial interest of the builders.
fine.

40     Federal Housing Finance Agency Office of Inspector General
On December 8, 2016, DSI, a privately held
corporation, pled guilty to bank fraud due to
its corporate liability for the actions of its three
former employees, and the acknowledgment that
it sold homes using incentive programs that were
undisclosed to lenders. DSI was sentenced to 5
years of probation and ordered to pay an $8 million
fine and restitution totaling $3 million to the
Enterprises.

Trial Conviction of Former CFO of Resort and
Indictment of Former JP Morgan Chase Bank
Officer in Connection with Multimillion-Dollar
Fraud, Florida

On March 3, 2017, former Cay Clubs Resorts
Chief Financial Officer (CFO) David Schwarz was
convicted after a jury trial on charges of conspiracy
to commit bank fraud, bank fraud, and interference
with the administration of Internal Revenue laws.

Schwarz was CFO and partial owner of the Cay
Clubs Resorts, which marketed vacation rental
units for 17 locations in Florida, Las Vegas, and
                                                        The Pirate’s Choice Rum company was purchased with
the Caribbean and raised more than $300 million         proceeds from the Cay Clubs fraud scheme. The rum
from investors by promising to develop dilapidated      company is no longer operational.

properties into luxury resorts. Cay Clubs Resorts
incentivized investors by promising an upfront          was a senior loan officer at JP Morgan Chase Bank.
“leaseback” payment of 15–20% of the unit sales         He allegedly conspired with others in a scheme
price at the time of closing. These incentives were     to defraud the bank by completing, certifying,
concealed from the lenders and the Enterprises.         and submitting mortgage loan applications on
As the Cay Clubs enterprise experienced financial       behalf of borrowers that contained false and
difficulties, Schwarz conspired with others at Cay      fraudulent statements. The alleged false statements
Clubs to recruit insiders as straw buyers to obtain     included, but were not limited to, false occupancy,
mortgages on Cay Clubs condominiums. The loan           overinflated income and assets, and the understated
proceeds were then diverted to the failing Cay          liabilities. By relying on Pickard’s false and
Clubs company and to pay out investor leaseback         fraudulent statements on the loan applications, JP
payments.                                               Morgan Chase was induced into funding mortgage
                                                        loans for otherwise unqualified borrowers.
In a related case, on December 6, 2016, Ross
Pickard was indicted on charges of conspiracy and       The fraud scheme caused losses to Fannie Mae and
loan and credit application fraud for his role in       Freddie Mac in excess of $11 million.
this scheme. According to the indictment, Pickard

                                 Semiannual Report to the Congress • October 1, 2016–March 31, 2017          41
Loan Origination Schemes                                  of the properties using backdated and falsified
                                                          documents. The backdated documents concealed
Loan or mortgage origination schemes are the
                                                          from the lenders that the purchase and the sale had
most common type of mortgage fraud. They
                                                          occurred on the same day and made it appear as if
typically involve falsifying borrowers’ income,
                                                          the transaction between the homeowner and the
assets, employment histories, and credit profiles to
                                                          co-defendant had occurred over 60 days prior to the
make them more attractive to lenders. Perpetrators
                                                          sale from the co-defendant to the straw purchaser.
often employ bogus Social Security numbers and
fake or altered documents such as W-2s and bank           In related cases, during December 2016 Dirk
statements to cause lenders to make loans they            Ameen Hall and Michelle Baker pled guilty to
would not otherwise make.                                 conspiracy to commit bank fraud and wire fraud for
                                                          their roles in this scheme.
Below we summarize three OIG investigations in
this category that resulted in plea agreements, a trial   As a result of this scheme, the lending institutions
conviction, and sentencings during this semiannual        were fraudulently induced to issue millions of
reporting period. (See Appendix F for a summary           dollars of mortgage loans, many of which later
of publicly reportable investigative outcomes in this     defaulted. The co-defendants collectively caused
category.)                                                the financial lending institutions to loan out over
                                                          $5.5 million, of which over $2.7 million was their
Guilty Trial Verdict and Guilty Pleas in Multimillion-    profit from the scheme. Freddie Mac suffered losses.
Dollar Origination Fraud Scheme, New York

On January 19, 2017, after a two-week trial, James        Three Sentenced in Scheme Involving Fraudulent
Bayfield was found guilty of conspiracy to commit         Loan Applications, California
bank fraud and wire fraud and bank fraud.                 John Martynec, a real estate broker and the owner
                                                          of JTR Real Estate, Inc. (JTR), along with JTR
The evidence at trial established that Bayfield,
                                                          employees Elek Andrade, a licensed real estate
together with co-defendants, submitted fraudulent
                                                          salesperson, and Mireya Espinoza, a licensed tax
mortgage loan applications to lending institutions.
                                                          preparer, defrauded lenders by using straw buyers to
These applications contained inflated purchase
                                                          purchase properties from JTR’s inventory.
prices and appraisals for the properties as well as
false information about the assets and income of the      JTR bought, renovated, and resold residential
purchasers of the properties, many of whom were           properties. Because JTR struggled to sell the
paid to act as straw purchasers. The co-defendants        renovated homes in its portfolio profitably,
also falsified HUD forms and provided false down          the defendants recruited straw buyers to buy
payment checks to make it appear as if the straw          the properties. The defendants facilitated the
purchasers and the other borrowers had made down          submission of the straw borrowers’ fraudulent
payments in connection with the purchase of the           loan applications, which contained materially false
properties, which was a condition of the lending          information regarding the buyers’ employment,
institutions for issuing the mortgage loans.              income, assets, and intent to reside in the properties.
                                                          Espinoza was paid to prepare false documentation
To conceal their criminal involvement and to
                                                          regarding her preparation of the straw buyers’
inflate the value of the properties, the co-defendants
                                                          tax returns and verification of employment listed
conducted simultaneous purchases and sales
                                                          on the loan applications. Lenders relied on these

42      Federal Housing Finance Agency Office of Inspector General
misrepresentations and approved over $2.4 million         defendant. Typically, these businesses take little or
in loans to straw buyers. Some of the loans were          no action, leaving homeowners in a worse position.
subsequently bought by the Enterprises.
                                                          Below we summarize three OIG investigations in
In February 2017, Martynec was sentenced to 24            this category that resulted in criminal indictments
months in prison, while Andrade and Espinoza were         and plea agreements during this semiannual
each sentenced to 12 months and 1 day in prison.          reporting period. (See Appendix H for a summary
Each defendant’s prison term is followed by 3 years       of publicly reportable investigative outcomes in this
of supervised release. Andrade and Martynec were          category.)
ordered to pay $2,573,092 in restitution, while
Espinoza’s ordered restitution was $1,476,966.            Guilty Plea in $30 Million Mortgage Relief Fraud
All restitution in this case was ordered jointly and      Scheme, California
severally. Andrade was additionally ordered to            On October 21, 2016, an indictment was unsealed
perform 3,120 hours of community service.                 charging the alleged architect of a $30 million
                                                          mortgage relief fraud scheme and four of her
24-Year Prison Sentence in Mortgage Fraud
                                                          relatives. Dorothy Matsuba, Thomas Matsuba, Jane
Scheme, Colorado
                                                          Matsuba-Garcia, Jamie Matsuba, and Young Park
On October 28, 2016, Jose Ricardo Sarabia-                were charged with conspiracy to commit wire fraud,
Martinez was sentenced to 288 months in prison            false statements in loan and credit applications,
followed by 5 years of parole and on March                and identity theft. Additionally, Dorothy Matsuba
21, 2017, he was ordered to pay $951,571 in               and Matsuba-Garcia were charged with aggravated
restitution, jointly and severally, for his role in a     identity theft.
fraud scheme.
                                                          According to the indictment, the Matsuba family
Sarabia-Martinez and others used their status as          operated a number of companies that claimed
professionals in the real estate industry to facilitate   to help struggling homeowners burdened with
a mortgage fraud scheme. Sarabia-Martinez and             large mortgages. The Matsubas allegedly falsely
co-defendants collaborated to fraudulently acquire        promised the victims they would short sell the
loans on behalf of victim straw buyers. Eventually        homes and relieve the borrowers of their mortgage
the borrowers defaulted, resulting in foreclosure         debt. Relying on the Matsubas’ promises, the
of their homes and the destruction of their credit.       homeowners deeded their properties to entities
The investigation of this fraud scheme identified         controlled by the Matsubas. The Matsubas promised
12 properties and $4.6 million in fraudulent loans        that they would make the mortgage payments while
acquired for securitization by the Enterprises and        they negotiated with the homeowners’ lenders to
others.                                                   short sell the properties. Instead, the Matsubas
                                                          failed to make any mortgage payments and rented
Loan Modification and Property                            out the properties to third parties. To delay the
Disposition Schemes                                       inevitable foreclosures and maximize the time
These schemes prey on homeowners. Businesses              period over which the Matsubas could collect rental
typically advertise that they can secure loan             payments, the co-conspirators submitted fraudulent
modifications if the homeowners pay significant           short sale purchase offers to the lenders and
upfront fees or take other action that enriches the       filed false bankruptcy petitions. Loss calculations


                                   Semiannual Report to the Congress • October 1, 2016–March 31, 2017       43
impacting the Enterprises as a result of this scheme      falsely advised homeowners—including some
are ongoing.                                              who had already been victimized by de Leon and
                                                          Bonilla—that MJLAG could help them obtain
On March 2, 2017, a superseding information was
                                                          mortgage modifications, avoid foreclosure, and
filed charging Jane Matsuba-Garcia with subscribing
                                                          eliminate any debt or liens against their properties.
to a false tax return. Four days later, Matsuba-Garcia
pled guilty to conspiracy to commit wire fraud, false     MJLAG allegedly required its customers to sign
statements relating to loan applications, identity        a “Contract Fee Agreement” that requested a
theft, and subscribing to a false tax return.             loan audit of the homeowner’s property. Jordan
                                                          and Welsh told homeowners the audits would
Indictments and Guilty Pleas in Loan Modification         be used for many things, including to uncover
and Foreclosure-Delay Scheme, Maryland                    fraud committed by their lenders, to be used as
On November 29 and December 21, 2016, Rene de             evidence in lawsuits against the lenders, or to
Jesus de Leon and Pedrina Rodriguez Bonilla pled          convince the lenders to modify their loans. The
guilty to conspiracy to commit mail and wire fraud.       “Contract Fee Agreement” included the seal of the
Bonilla, de Leon, and others convinced struggling         National Association of Mortgage Underwriters.
homeowners to stop paying their mortgages and             The co-conspirators and their businesses, however,
communicating with their lenders. Instead, the            were not affiliated with the National Association of
homeowners were instructed to pay one or more of          Mortgage Underwriters. Jackson allegedly prepared
the companies run by de Leon, Bonilla’s husband,          fraudulent audit reports for the properties belonging
with assurances that he and other co-conspirators         to MJLAG’s customers and was paid for these
would negotiate with the victims’ lenders on their        fraudulent reports by Jordan and Welsh. Jordan
behalf to obtain loan modifications. De Leon              also directed homeowners in foreclosure to file for
victimized at least 60 homeowners in this scheme,         bankruptcy in order to delay the proceedings, and
and Bonilla victimized at least 24 homeowners.            assisted the customers by preparing false bankruptcy
                                                          petitions and court documents. In exchange for
Many of the victims in this scheme were victimized        these services, MJLAG customers made payments
twice: first with a failed attempt to acquire a           to companies controlled and operated by Jordan,
loan modification working with one of de Leon’s           Welsh, Jackson, and other co-conspirators.
companies, then as victims of another alleged
foreclosure rescue scam. The three below individuals      At least 20 of the properties involved in this
were indicted during the reporting period in              investigation were financed through Enterprise-
connection with that fraud.                               backed loans. Overall scheme losses and those
                                                          attributed to the Enterprises have not yet been
On February 6, 2017, Michelle Jordan, her husband         determined.
Michael Welsh, and Carrol Jackson were indicted
on charges of mail fraud, wire fraud, and conspiracy      Three Indicted in Multi-state Loan Modification
to commit mail and wire fraud.                            Scheme with Over 550 Victims, Kansas

According to the indictment, Jordan, Chief                On November 30, 2016, Tyler Korn, Amjad
Executive Officer (CEO) and Director of MJ Loan           Daoud, and Ruby Price were indicted on charges
Auditor Group, LLC (MJLAG), and Welsh, the                of conspiracy to commit mail and wire fraud, and
president, vice president, and director of MJLAG,         mail fraud for their roles in a loan modification/


44      Federal Housing Finance Agency Office of Inspector General
foreclosure rescue scheme. Korn and Price were          Prison Sentences and Restitution Ordered in
additionally charged with wire fraud.                   Short Sale and Bank Fraud Schemes, Texas

Korn and Daoud operated Reliant Home Financial          On November 15, 2016, Daylon Esaw was
Group, and Price operated the Arize Group,              sentenced to 41 months in prison, 3 years of
Incorporated. Together, they allegedly devised a        supervised release, and ordered to pay $111,744
scheme to defraud homeowners with false promises        in restitution, jointly and severally, for his role in
of protecting them from foreclosure. The indictment     schemes involving bank fraud, money laundering,
alleges the defendants fraudulently promised the        and trafficking stolen access devices that resulted
victims to lower their interest rates, lower their      in three separate criminal cases. Esaw received the
monthly mortgage payments, and help them                same sentence for each criminal case, to be served
obtain loan modifications. When victims received        concurrently.
foreclosure notices, the defendants allegedly advised   Esaw and co-defendant Melvin Layman forged quit
them not to worry about it. In some instances, the      claim deeds of distressed properties to Esaw or to
victims would stop making their monthly mortgage        individuals under their control in an effort to cloud
payments to their lenders and instead, make             the titles. Once accomplished, they filed lawsuits
payments to Reliant Home Financial Group or             against the lending institutions to stop the pending
Arize Group. The co-conspirators allegedly used the     foreclosure, then demanded that the banks provide
victims’ monies for personal gain.                      them a settlement or authorize short sales for the
To date, over 550 victims have been identified          properties prior to clearing the property title.
in 24 states. The victims suffered approximately        In a separate criminal case, Layman and Rebecca
$1,271,640 in direct monetary loss; this loss does      Quinn conspired to have Quinn lie while testifying
not include additional fees paid by victims to their    under oath during federal grand jury proceedings.
lenders or losses to lenders caused by subsequent       Quinn testified that she notarized certain mortgage
foreclosures.                                           documents, which was untrue. The false loan
                                                        documents containing Quinn’s notary stamp
Short Sale Schemes                                      were submitted to lenders in a house flipping
Short sales occur when a lender allows a borrower       scheme. For her role in this scheme, Quinn was
who is “underwater” on his/her loan—that is, the        previously sentenced to 5 months in prison and 2
borrower owes more than the property is worth—to        years of supervised release with 5 months of home
sell his/her property for less than the debt owed.      detention.
Short sale fraud usually involves a borrower who
                                                        On January 11, 2017, Melvin Layman was
intentionally misrepresents or fails to disclose
                                                        sentenced to 51 months in prison, 5 years of
material facts to induce a lender to agree to a short
                                                        supervised release, and ordered to pay $111,744
sale.
                                                        in restitution, jointly and severally, for his role as
Below we summarize two OIG investigations in            an organizer in the bank fraud scheme. On the
this category that resulted in criminal charges,        same date, Layman was sentenced to 16 months in
sentencings, and court-ordered restitution during       prison and 5 years of supervised release, to be served
this semiannual reporting period. (See Appendix G       concurrently, for his role in the conspiracy case.
for a summary of publicly reportable investigative
outcomes in this category.)

                                 Semiannual Report to the Congress • October 1, 2016–March 31, 2017         45
Two Real Estate Professionals Charged in Short            CEO Pleads Guilty and Notaries Charged in
Sale Fraud Scheme, California                             Property Investment Scheme, Michigan

On December 2, 2016, Angelo Naemi and Steve               On March 21, 2017, Sameer Beydoun pled guilty
Gonzales were charged with grand theft by false           to conspiracy to commit wire fraud. Beydoun was
pretenses and conspiracy to commit grand theft.           the founder and CEO of Metro Property Group
                                                          (MPG). Beydoun and others allegedly conspired
Naemi, a real estate salesperson, and Gonzales, a
                                                          with overseas real estate firms to locate and market
real estate broker, allegedly engaged in a short sale
                                                          REO properties not under MPG’s control or
fraud scheme by personally selecting investors to
                                                          ownership for sale to foreign investors. The schemers
purchase short sale properties and failing to properly
                                                          advertised the properties as tenanted and fully
market the properties to other potential buyers,
                                                          refurbished, when they were often vacant and in
in violation of the arm’s length affidavit. In some
                                                          extreme disrepair. Once the foreign investors wired
instances, short sellers remained in their homes and
                                                          deposit funds to the title company, Beydoun and
rented the properties from the investors. In other
                                                          others would purchase the REO property. The REO
cases, the short sellers repurchased their properties
                                                          property would then be sold to the foreign investor
for drastically less than what was owed to the
                                                          for up to three or four times the original REO
lenders, effectively receiving a principal reduction.
                                                          sale price. Many of the foreign investors would
Naemi and Gonzales allegedly received significant
                                                          also agree to have the property management arm
commissions for their roles in the fraud. The
                                                          of MPG manage the property for a fee. In many
Enterprises owned seven of the properties involved
                                                          instances, Beydoun and other MPG employees
in this scheme and sustained more than $500,000
                                                          would send money or fraudulent rental agreements
in losses because of the fraud.
                                                          to the foreign investor, falsely representing that the
                                                          property had a tenant and was producing income.
Property Management and REO Schemes
                                                          Numerous REO properties purchased by Beydoun
Numerous foreclosures left the Enterprises with an        and his associates were Fannie Mae REOs.
inventory of real estate owned (REO) properties.
The REO inventory has sparked a number of                 In related cases, on March 29, 2017, Phillip and
different schemes to either defraud the Enterprises,      Sandra Hayes were charged with violations of the
which use contractors to secure, maintain and             Michigan Notary Public Act by performing notary
repair, price, and ultimately sell their properties,      acts in transactions of real properties and mortgages.
or defraud individuals seeking to purchase REO
                                                          Recruiter in REO Property Flipping Scheme
properties from the Enterprises.
                                                          Sentenced, Tennessee
Below we summarize two OIG investigations in
                                                          On November 17, 2016, Thomas Munn, Jr. was
this category that resulted in criminal charges, a
                                                          sentenced to 24 months in prison, 3 years of
plea agreement, sentencing, and court-ordered
                                                          supervised release, and ordered to pay $605,801 in
restitution during this semiannual reporting
                                                          restitution and $605,801 in forfeiture, both ordered
period. (See Appendix I for a summary of publicly
                                                          jointly and severally, for his role in an REO property
reportable investigative outcomes in this category.)
                                                          flipping scheme.




46      Federal Housing Finance Agency Office of Inspector General
Munn recruited individuals to purchase properties        Alzoubi and co-defendants operated a scheme to
from co-conspirators who were engaged in a               steal properties from the Enterprises and others
property flipping scheme. Munn provided buyers           by forging grant deeds granting the underlying
with incentives that were not disclosed on the           properties to shell companies they created and
HUD-1 Settlement Statements, including providing         filing the deeds in the county recorder’s office. By
the cash for their down payments. Munn directed          recording these fraudulent deeds, the co-defendants
a co-conspirator to open a bank account in the           made the transfers appear legitimate. Using a
name of a shell company, which was used to funnel        legitimate title and escrow company, the stolen
undisclosed kickback payments from the sellers to        properties were then marketed and sold to unwitting
the buyers.                                              investors. Once the sale proceeds were wired to the
                                                         co-defendants’ bank accounts, the money was either
Adverse Possession and Distressed                        wired overseas or transferred numerous times in an
Property Schemes                                         attempt to launder the money.
Adverse possession schemes use illegal adverse           As investigators closed in on the co-defendants and
possession (also known as “home squatting”) or           successfully stopped the sale of stolen properties,
fraudulent documentation to control distressed           the co-defendants changed tactics and fraudulently
homes, foreclosed homes, and REO properties.             assumed control over an LLC that owned many
In distressed property schemes, perpetrators             investment properties. The co-defendants, while
falsely purport to assist struggling homeowners          acting as owners of the stolen LLC, attempted to
seeking to delay or avoid foreclosure. They use          obtain loans using the properties owned by the LLC
fraudulent tactics, such as filing false bankruptcy      as collateral.
petitions, while collecting significant fees from the
homeowners.                                              By the time the co-defendants were indicted and
                                                         arrested, they had either sold or attempted to sell
Below we summarize three OIG investigations              15 properties worth more than $3.6 million. On at
in this category that resulted in a plea agreement,      least 10 occasions, the defendants were successful
trial convictions, sentencings, and court-ordered        and earned nearly $2.2 million in illicit proceeds. At
restitution during this semiannual reporting             least 10 of the properties stolen by the defendants
period. (See Appendix J for a summary of publicly        were owned by the Enterprises, valued at over
reportable investigative outcomes in this category.)     $2.5 million. The loss to the Enterprises has yet to
                                                         be determined.
Prison Sentences and Restitution Ordered in
Scheme to Steal Properties from the Enterprises          In a related case, on October 24, 2016, Daniel
and Others, California                                   Deaibes was sentenced to 24 months in prison,
                                                         3 years of supervised release, and ordered to pay
On November 7, 2016, Mazen Alzoubi was
                                                         restitution of $1,819,591, jointly and severally with
sentenced to 75 months in prison, 3 years of
                                                         co-defendants for his role in this scheme.
supervised release, and ordered to pay $2,506,414
in restitution, jointly and severally, and $2,192,931
in forfeiture, for his role in a fraudulent deed theft
scheme.




                                  Semiannual Report to the Congress • October 1, 2016–March 31, 2017       47
Guilty Verdict and Sentencing of Sovereign                Lenton created fraudulent deeds to steal foreclosed
Citizens; Falsely Asserted Ownership of                   properties from Fannie Mae and lenders. Ferguson
Foreclosed Properties Owned by Fannie Mae or              and Teague either signed the deeds as representatives
Other Lenders, Illinois                                   of the financial institutions or notarized the deeds.
On October 21, 2016, Torrez Moore was found               For example, Ferguson fraudulently signed at least
guilty at trial of theft, financial institution fraud,    one warranty deed as an agent of Fannie Mae that
and continuing a financial crimes enterprise in           was later notarized by Teague. The deeds were then
connection with his role in a foreclosure fraud           filed with the county recorder’s office, causing title
scheme.                                                   to be fraudulently transferred from Fannie Mae and
                                                          lenders to Lenton.
Moore and co-conspirators falsely asserted
ownership of foreclosed or vacant properties owned        Between February and March 2017, all three
by Fannie Mae or other lenders and either moved           co-defendants were sentenced for their roles in this
into the property themselves, or rented the home to       scheme. Lenton was sentenced to 24 months in
a third party and acted as a landlord. On multiple        prison with 3 years of supervised release, Ferguson
occasions the defendant unlawfully entered the            was sentenced to 12 months and 1 day in prison
properties, changed the locks, and filed fraudulent       with 2 years of supervised release, and Teague was
documents with the county recorder’s office to verify     sentenced to 3 months of probation. In addition to
their alleged ownership of the properties.                these sentences, all three co-defendants were ordered
                                                          to pay $86,000 in restitution, jointly and severally.
Moore and co-conspirators identified themselves as
“Moors,” one segment of a sovereign citizens group        Multifamily Schemes
that claims they do not recognize the government as
                                                          Investigations in this category involve a variety of
having jurisdiction over them.
                                                          fraud schemes that relate to loans purchased by
In a related case, on December 21, 2016, Raymond          the Enterprises to finance multifamily properties.
Trimble pled guilty to theft and was sentenced to 48      Multifamily properties have five or more units and
months in prison and 2 years of supervised release        are primarily rental apartment communities.
for his role in this scheme.
                                                          Below we summarize an OIG investigation in this
                                                          category that resulted in an indictment during this
Jury Trial Convictions and Sentencings in Scheme
                                                          semiannual reporting period. (See Appendix L
to Steal Properties from Fannie Mae and Others
                                                          for a summary of publicly reportable investigative
Using Fraudulent Deeds, Illinois
                                                          outcomes in this category.)
On October 26, 2016, a jury found co-defendants
Arnetra Ferguson and Terry Teague guilty of mail          Multifamily Property Accountant Indicted, Arizona
and wire fraud for their roles in a scheme to defraud
                                                          On February 1, 2017, Shana Johnson was indicted
Fannie Mae and others by recording false affidavits
                                                          on charges of wire fraud, money laundering, and
and promissory notes. Co-defendant Marcus
                                                          aggravated identity theft for allegedly stealing
Lenton previously pled guilty to charges of mail and
                                                          approximately $2.9 million combined from two real
wire fraud for his role in this scheme.
                                                          estate companies.




48      Federal Housing Finance Agency Office of Inspector General
Johnson worked as an accountant for a property            Former Bank Employees Indicted and Pled Guilty
management company in Arizona. Johnson                    in Bank Fraud Scheme; Fraudulent Mortgage
allegedly embezzled over $2.4 million from bank           Applications Totaled at Least $19.4 Million,
accounts associated with properties managed by her        Washington
employer, including four multifamily properties           On January 26, 2017, four former employees of PC
financed by Freddie Mac. Johnson allegedly stole          Bank Home Loans (PCBHL), the mortgage lending
the money by using the company’s accounts to              branch of Pierce Commercial Bank (PCBank), were
issue approximately 450 fraudulent checks, totaling       indicted for their alleged roles in a large-scale bank
over $1.4 million, to a relative. Johnson also            fraud scheme. Sam Tuttle, former vice president and
caused the company to initiate nearly $1 million in       loan officer, Benjamin Leske, former loan officer,
unauthorized electronic transfers to pay for personal     Angela Crozier, former senior loan processor, and
expenses, including her purchase of two cars. In an       Ed Rounds, former loan officer, were indicted
attempt to hide her theft, Johnson allegedly falsified    for conspiracy to make false statements on loan
journal entries, bank statements, bank reconciliation     applications and to commit bank fraud and bank
reports, and financial statements. Johnson was fired      fraud.
after her employer discovered the fraud.
                                                          PCBHL offered mortgage loans to borrowers and
Johnson then relocated to Atlanta, Georgia, where         assisted borrowers with their loan applications.
she became employed in a similar capacity with            The mortgages originated by PCBHL were funded
yet another property management company and               by its parent, PCBank. In turn, PCBank sold the
allegedly resumed her fraudulent activity. Once           mortgages to financial institution investors. The
again, Johnson allegedly used her position in the         investors relied on the representations made by
company to issue approximately $500,000 in                borrowers in the loan application prepared by
fraudulent electronic transfers to pay for a variety of   PCBHL.
personal expenses.
                                                          Tuttle, Leske, Crozier, Rounds, and other
Fraud Affecting the Enterprises, the                      co-conspirators allegedly defrauded PCBank and
FHLBanks, or FHLBank Member                               investors by facilitating the submission of fraudulent
Institutions                                              loan applications to PCBank. According to the
                                                          indictment, the misrepresentations included inflated
Investigations in this category include a variety of
                                                          appraisals, fake employment histories and rental
schemes involving Fannie Mae, Freddie Mac, the
                                                          agreements, and false statements regarding loan
FHLBanks, or members of FHLBanks.
                                                          applicant’s intentions to live in the homes as their
Below we summarize three OIG investigations               primary residences. As a result of their intentional
in this category that resulted in indictments, plea       submission of false documents, the co-conspirators
agreements, a trial conviction, and a sentencing          caused PCBank to personally enrich them with
during this semiannual reporting period. (See             salaries, commissions, fees, and bonuses. During
Appendix M for a summary of publicly reportable           their employment at PCBHL, the co-conspirators
investigative outcomes in this category.)                 originated fraudulent loans of at least $19.4 million.
                                                          Many of the borrowers defaulted on the loans,
                                                          resulting in large losses that contributed to the
                                                          eventual failure of PCBank, a member bank of the


                                  Semiannual Report to the Congress • October 1, 2016–March 31, 2017        49
FHLBank of Seattle.6 At the time of its failure,
PCBank had more than $17 million in outstanding
advances with the FHLBank of Seattle. The
Enterprises, as owners of some loans involved in this
scheme, suffered additional losses.

During March 2017, Tuttle and Rounds pled guilty
to bank fraud for their roles in this scheme.

In a related case, on January 19, 2017, Craig Meyer,
a former vice president and loan officer at PCBHL,
pled guilty to making false statements in a loan
application.

Business Owner Indicted in Bankruptcy Estate
Embezzlement Scheme, Florida

On November 17, 2016, Clark D. East was indicted
for embezzlement of a bankruptcy estate.

According to the indictment, East obtained a loan
from Sterns Bank, a member bank of the FHLBank
of Minneapolis, to develop a property in Clearwater,
Florida. East personally guaranteed the $4,615,219
held by Sterns Bank for the development of the
property.                                                This graphic represents text messages sent by the defendant
                                                         (blue message bubbles). The content of this graphic was
                                                         provided to the jury as a trial exhibit.
East subsequently defaulted on the loan, and
Sterns Bank obtained approval to sell the property
at foreclosure. The day before the scheduled
foreclosure sale, East filed for bankruptcy protection   device fraud, access device fraud, and aggravated
with the United States Bankruptcy Court. During          identity theft.
the bankruptcy proceedings, East was ordered by the
Court to sell the property and pay $1.2 million in       According to court records and evidence presented
sales proceeds to Sterns Bank. Rather than repaying      at trial, Jones conspired with others to use
Sterns Bank, East allegedly embezzled $828,854 of        personally identifiable information (PII) associated
proceeds that were part of the bankruptcy estate and     with current and former employees of Freddie Mac
due to Sterns Bank.                                      and the Department of Veterans Affairs. The Freddie
                                                         Mac PII was obtained from a computer located
Trial Conviction in Identity Theft Scheme, Virginia      at Freddie Mac’s headquarters. In total, Jones and
                                                         her co-conspirators had illegal access to personal
On February 16, 2017, Allise Jones was found             information from over 100 Department of Veterans
guilty by a federal jury on charges of conspiracy to     Affairs employees and as many as 2,500 Freddie
commit identity theft, conspiracy to commit access       Mac employees. The schemers used the stolen


50     Federal Housing Finance Agency Office of Inspector General
information to obtain fraudulent identification           Investigations: Administrative
documents and credit accounts used to defraud             Actions
financial institutions, retailers, and others. Jones,
in particular, used the information to obtain credit
                                                          In addition to the criminal cases brought as a result
cards that she used to purchase goods and services,
                                                          of OIG investigations, OI’s investigative work
such as plastic surgery, expensive jewelry, and travel.
                                                          regularly results in administrative referrals to other
                                                          entities for action. For example, a criminal case
Outreach                                                  of mortgage fraud that results in a guilty plea by
                                                          a licensed real estate agent, attorney, or certified
OIG develops public-private partnerships where            public accountant for participation in a bank fraud
appropriate. We delivered 36 fraud awareness              scheme may result in a referral by OIG to a state
briefings to different audiences to raise awareness       licensing body for disciplinary actions. When a real
of OIG’s law enforcement mission and of fraud             estate professional is prosecuted for mortgage fraud,
schemes targeting FHFA programs.                          that prosecution may cause OIG to refer the matter
                                                          to another federal agency for possible suspension
OIG has developed and intends to further
                                                          or debarment of that individual from participation
strengthen ongoing close working relationships with
                                                          in federal programs. During this reporting
other law enforcement agencies, including DOJ and
                                                          period, OIG made 72 referrals for suspension and
U.S. Attorneys’ offices; FBI; HUD-OIG; FDIC-
                                                          debarment.
OIG; IRS-CI; the Office of the Special Inspector
General for the Troubled Asset Relief Program;
FinCEN; state attorneys general; mortgage fraud           Suspended Counterparty
working groups; and other federal, state, and local       Referrals
law enforcement agencies nationwide. OI also
works closely with Fannie Mae’s Mortgage Fraud            FHFA has adopted a Suspended Counterparty
Program and with Freddie Mac’s Financial Fraud            Program under which it issues “suspension orders
Investigation Unit.                                       directing the regulated entities to cease or refrain”
                                                          from doing business with counterparties (and
During this reporting period OIG worked with
                                                          their affiliates) that were previously found to have
additional local and state partners, including the
                                                          “engaged in covered misconduct.” Suspension of
Wayne County, Michigan, District Attorney’s
                                                          such counterparties is warranted to protect the
Office; the Sacramento County, California, District
                                                          safety and soundness of the regulated entities. For
Attorney’s Office; the Montgomery County,
                                                          purposes of the program, covered misconduct
Maryland, Police Department; the California
                                                          means “convictions or administrative sanctions
Attorney General’s Office; the Mesquite, Texas,
                                                          within the past three years based on fraud or similar
Police Department; the Tampa, Florida, Police
                                                          misconduct in connection with the mortgage
Department; the Colorado Attorney General’s
                                                          business.”7
Office; the Mississippi State Attorney General’s
Office; the Hillsborough County, Florida, Sheriff’s       During this reporting period, OIG made
Office; and the Florida Department of Law                 28 referrals of counterparties to FHFA for
Enforcement.                                              consideration of potential suspension under its
                                                          Suspended Counterparty Program.


                                  Semiannual Report to the Congress • October 1, 2016–March 31, 2017         51
A summary of OIG’s referrals during the reporting
period is captured in Figure 4 (see below).

Figure 4. Administrative Actions from
October 1, 2016, Through March 31, 2017

               Administrative Actions
Suspension/Debarment Referrals                 72
Referrals to FHFA Suspended Counterparty       28
Program




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

Regulatory Activities                                       Highlights of our efforts during this reporting period
                                                            include the following:
Pursuant to the Inspector General Act, OIG assesses
whether proposed legislation and regulations                Congress
related to FHFA are efficient, economical, legal, or        To fulfill its mission, OIG works closely with
susceptible to fraud and abuse. OIG is currently            Congress and is committed to keeping it fully
assessing proposed, interim final, and final rules          apprised of our oversight of FHFA. During this
published by FHFA in the Federal Register. Any              semiannual reporting period, OIG provided
recommendations or comments upon those rules will           information and briefings to congressional staff on
be made after these assessments conclude.                   OIG work.


Public and Private Partnerships,                            Hotline
Outreach, and Communications                                During this reporting period, the OIG hotline
                                                            continued to serve as a vehicle through which Agency,
The Enterprises and the FHLBanks play a critical            Enterprise, and FHLBank employees and members
role in the U.S. housing finance system, and the            of the public can report suspected fraud, waste, abuse,
financial crisis has shown that financial distress at the   mismanagement, or misconduct in Agency programs
Enterprises can threaten the U.S. economy. American         and operations. The individuals reporting can choose
taxpayers put their money and confidence in the             to remain anonymous or disclose their identity.
hands of regulators and lawmakers to restore stability
to the economy and decisions were made to invest            Close Coordination with Other Oversight
$187.5 billion in the Enterprises. The continuing           Organizations
significant role of the Enterprises and FHLBanks            During the reporting period, OIG made numerous
in housing finance demands constant supervision             presentations to state and local law enforcement
and monitoring. Fundamental to OIG’s mission is             agencies, prosecutors, mortgage fraud working groups
independent and transparent oversight of Agency             across the country, and individual federal agencies
programs and operations, and of the Enterprises             sometimes involved in mortgage fraud investigations,
to the extent FHFA, as conservator, has delegated           such as HUD-OIG, FBI, U.S. Postal Inspection
responsibilities to them.                                   Service, IRS-CI, and DOJ.

OIG prioritizes outreach and engagement to                  We maintained active participation in coordinated
communicate its mission and work to members of              oversight activities during this reporting period:
Congress and to the public and to actively participate
                                                            •	 FBI Cybercrimes Task Force. The FBI’s
in government-wide oversight community activities.
                                                               Washington, D.C., field office spearheads a
We continue to forge public and private partnerships
                                                               cybercrimes task force, and OIG has assigned
to prevent fraud, encourage transparency, and ensure
                                                               two special agents to it. This multiagency task
accountability, responsibility, and ethical leadership.


                                   Semiannual Report to the Congress • October 1, 2016–March 31, 2017            53
  force focuses on investigating cybercrimes. OIG           However, the wide range of views that still exists
  made this assignment to help combat such crimes           on the issue of “too big to fail” indicates that
  and to work in partnership with multiple federal          there is a lack of consensus regarding whether
  agencies. This concerted effort will help prosecute       FSOC has eliminated expectations on the part
  cybercriminals and stop cyber attacks made                of shareholders, creditors, and counterparties
  against institutions maintaining PII, trade secrets,      of large bank holding companies or nonbank
  and financial data.                                       financial companies that the federal government
                                                            will shield them from losses in the event of
•	 CIGIE. OIG actively participates in several
                                                            failure.
   CIGIE committees and working groups:

   ºº The Inspection and Evaluation Committee             Private-Public Partnerships
                                                          Housing finance professionals are on the frontlines
   ºº The Investigation Committee
                                                          and often have a real-time understanding of
   ºº The Audit Committee                                 emerging threats and misconduct. We speak with
                                                          officials at the FHLBanks and the Enterprises
•	 Council of Inspectors General on Financial
                                                          to benefit from their insights and also make
   Oversight (CIGFO). CIGFO was created by
                                                          presentations to industry groups. Recent
   the Dodd-Frank Wall Street Reform and
                                                          presentations include: the Texas Department of
   Consumer Protection Act of 2010 to oversee the
                                                          Insurance; Tucson, Arizona, bankruptcy trustees;
   Financial Stability Oversight Council (FSOC),
                                                          Phoenix, Arizona, bankruptcy trustees; EDMI,
   which is charged with identifying risks to the
                                                          Los Angeles; Center for NYC Neighborhoods; the
   financial stability of the United States; promoting
                                                          National Insurance Crime Bureau; the Mortgage
   market discipline; and responding to emerging
                                                          Bankers Associations of Kansas City, Kentucky,
   risks to the stability of the U.S. financial system.
                                                          Puerto Rico, and Minnesota; the First Annual
   OIG is a permanent member of CIGFO, along
                                                          Disability and Aging Resource Faire; CoreLogic
   with the IGs of Treasury, FDIC, the Securities
                                                          Mortgage Fraud and Evaluation Consortium; the
   and Exchange Commission, and others. By
                                                          International Association of Financial Crimes
   statute, CIGFO may convene working groups to
                                                          Investigators; the National Cyber-Forensics and
   evaluate the effectiveness and internal operations
                                                          Training Alliance; and local and regional banks.
   of FSOC. During the reporting period, OIG
   participated in a CIGFO working group audit
   that assessed FSOC’s efforts to promote market
   discipline by eliminating expectations on the part
   of shareholders, creditors, and counterparties of
   large, interconnected bank holding companies
   and nonbank financial companies that the
   U.S. government will shield them from losses
   in the event of failure, also known as “too
   big to fail.” The audit, which was issued on
   February 28, 2017, concluded that FSOC has
   made progress in promoting market discipline.



54      Federal Housing Finance Agency Office of Inspector General
Semiannual Report to the Congress • October 1, 2016–March 31, 2017   55
Appendices

Appendix A:                                               Default: Occurs when a mortgagor misses one or
                                                          more payments.
Glossary and Acronyms                                     Dodd-Frank Wall Street Reform and Consumer
                                                          Protection Act of 2010: Legislation that intends to
Glossary of Terms                                         promote the financial stability of the United States
                                                          by improving accountability and transparency in the
                                                          financial system, to end “too big to fail,” to protect
Bankruptcy: A legal procedure for resolving debt
                                                          the American taxpayer by ending bailouts, and to
problems of individuals and businesses; specifically, a
                                                          protect consumers from abusive financial services
case filed under one of the chapters of Title 11 of the
                                                          practices.
U.S. Code.
                                                          Fannie Mae: A federally chartered corporation that
CAMELSO: FHFA’s examiners use a uniform
                                                          purchases residential mortgages and pools them into
rating system called CAMELSO, under which each
                                                          securities that are sold to investors. By purchasing
regulated entity and the Office of Finance is assigned
                                                          mortgages, Fannie Mae supplies funds to lenders so
a common composite rating based on an evaluation
                                                          they may make loans to home buyers.
of various aspects of its operations. Specifically, the
composite rating of an FHLBank, Fannie Mae, or            Federal Home Loan Bank System: The FHLBanks
Freddie Mac is based on an evaluation and rating          are 11 regional cooperative banks that U.S. lending
of seven components: Capital, Asset Quality,              institutions use to finance housing and economic
Management, Earnings, Liquidity, Sensitivity to           development in their communities. Created by
Market Risk, and Operational Risk.                        Congress, the FHLBanks have been the largest source
                                                          of funding for community lending for eight decades.
Conservatorship: Conservatorship is a legal
                                                          The FHLBanks provide loans (or “advances”) to their
procedure for the management of financial
                                                          member banks but do not lend directly to individual
institutions for an interim period during which
                                                          borrowers.
the institution’s conservator assumes responsibility
for operating the institution and conserving its          Foreclosure: A legal process used by a lender to
assets. Under the Housing and Economic Recovery           obtain possession of a mortgaged property in order to
Act of 2008, the Enterprises were placed into             repay part or all of the debt.
conservatorships overseen by FHFA. As conservator,
FHFA has undertaken to preserve and conserve the          Freddie Mac: A federally chartered corporation that
assets of the Enterprises and restore them to safety      purchases residential mortgages and pools them into
and soundness. FHFA also has assumed the powers           securities that are sold to investors. By purchasing
of the boards of directors, officers, and shareholders;   mortgages, Freddie Mac supplies funds to lenders so
however, the day-to-day operational decision making       they may make loans to home buyers.
of each company is delegated by FHFA to the               Government-Sponsored Enterprises: Business
Enterprises’ existing management.                         organizations chartered and sponsored by the federal
                                                          government.

56      Federal Housing Finance Agency Office of Inspector General
Guarantee: A pledge to investors that the guarantor      three categories: (1) operations—effectiveness and
will bear the default risk on a pool of loans or other   efficiency of operations; (2) reporting—reliability
collateral.                                              of reporting for internal and external use; and
                                                         (3) compliance—compliance with applicable laws
Housing and Economic Recovery Act of 2008:
                                                         and regulations. Internal control comprises the plans,
Legislation that established FHFA, which oversees the
                                                         methods, policies, and procedures used to fulfill
GSEs’ operations, and OIG. HERA also expanded
                                                         the mission, strategic plan, goals, and objectives of
Treasury’s authority to provide financial support to
                                                         the entity. Internal control serves as the first line
the GSEs.
                                                         of defense in safeguarding assets. In short, internal
Inspector General Act of 1978: Legislation that          control helps managers achieve desired results
authorizes establishment of offices of inspectors        through effective stewardship of resources.
general, “independent and objective units” within
                                                         Mortgage-Backed Securities: Debt securities that
federal agencies, that: (1) conduct and supervise
                                                         represent interests in the cash flows—anticipated
audits and investigations relating to the programs and
                                                         principal and interest payments—from pools of
operations of their agencies; (2) provide leadership
                                                         mortgage loans, most commonly on residential
and coordination and recommend policies for
                                                         property.
activities designed to promote economy, efficiency,
and effectiveness in the administration of agency        OIG Fiscal Year 2017: OIG’s FY17 covers October
programs and to prevent and detect fraud, waste,         1, 2016, through September 30, 2017.
or abuse in such programs and operations; and
                                                         Real Estate Owned: Foreclosed homes owned by
(3) provide a means for keeping the head of the
                                                         government agencies or financial institutions, such as
agency and Congress fully and currently informed
                                                         the Enterprises or real estate investors. REO homes
about problems and deficiencies relating to the
                                                         represent collateral seized to satisfy unpaid mortgage
administration of such programs and operations and
                                                         loans. The investor or its representative then must sell
the necessity for and progress of corrective action.
                                                         the property on its own.
Inspector General Reform Act of 2008:
                                                         Securitization: A process whereby a financial
Legislation that amends the Inspector General Act to
                                                         institution assembles pools of income-producing
enhance the independence of inspectors general and
                                                         assets (such as loans) and then sells securities
to create the Council of the Inspectors General on
                                                         representing an interest in the assets’ cash flows to
Integrity and Efficiency.
                                                         investors.
Internal Controls: Internal control is a process
                                                         Senior Preferred Stock Purchase Agreements:
effected by an entity’s oversight body, management,
                                                         Entered into at the time the conservatorships were
and other personnel that provides reasonable
                                                         created, the PSPAs authorize the Enterprises to
assurance that the objectives of an entity will be
                                                         request and obtain funds from Treasury, among other
achieved. These objectives and related risks can be
                                                         matters. Under the PSPAs, the Enterprises agreed
broadly classified into one or more of the following
                                                         to consult with Treasury concerning a variety of
                                                         significant business activities, capital stock issuance,
                                   Semiannual Report to the Congress • October 1, 2016–March 31, 2017            57
dividend payments, ending the conservatorships,              be declined to be approved. Straw buyers are often
transferring assets, and awarding executive                  paid a fee for their involvement in purchasing a
compensation.                                                property and usually never intend to own or occupy
                                                             the property.
Servicers: Servicers act as intermediaries between
mortgage borrowers and owners of the loans, such             Underwater: Term used to describe situations in
as the Enterprises or mortgage-backed securities             which the homeowner’s equity is below zero (i.e., the
investors. They collect the borrowers’ mortgage              home is worth less than the balance of the loan(s) it
payments, remit them to the owners of the                    secures).
loans, maintain appropriate records, and address
                                                             Underwriting: The process of analyzing a loan
delinquencies or defaults on behalf of the owners
                                                             application to determine the amount of risk
of the loans. For their services, they typically
                                                             involved in making the loan; it includes a review of
receive a percentage of the unpaid principal balance
                                                             the potential borrower’s credit worthiness and an
of the mortgage loans they service. The recent
                                                             assessment of the property value.
financial crisis has put more emphasis on servicers’
handling of defaults, modifications, short sales, and        Upfront Fees: One-time payments made by lenders
foreclosures, in addition to their more traditional          when a loan is acquired by an Enterprise. Fannie
duty of collecting and distributing monthly mortgage         Mae refers to upfront fees as “loan level pricing
payments.                                                    adjustments” and Freddie Mac refers to them as
                                                             “delivery fees.”
Short Sale: The sale of a mortgaged property for less
than what is owed on the mortgage.

Straw Buyer: A straw buyer is a person whose credit
profile is used to serve as a cover in a loan transaction.
Straw buyers are chosen for their ability to qualify for
a mortgage loan, causing loans that would ordinarily




58      Federal Housing Finance Agency Office of Inspector General
Acronyms and Abbreviations                            FinCEN	         Financial Crimes Enforcement
                                                                      Network
AB 2015-01	    Advisory Bulletin 2015-01,
               FHLBank Fraud Reporting                FHLBank	        Federal Home Loan Bank

Agency	        Federal Housing Finance Agency         FISMA	          Federal Information Security
                                                                      Modernization Act of 2014
Blue Book	     Quality Standards for Inspection and
               Evaluation                             FSOC	           Financial Stability Oversight Council

CEO	           Chief Executive Officer                FY17	           Fiscal Year 2017

CFO	           Chief Financial Officer                GAO	            Government Accountability Office

CIGFO	         Council of Inspectors General on       GAGAS	          Generally Accepted Government
               Financial Oversight                                    Auditing Standards

CIGIE	         Council of the Inspectors General on   GPRA	           Government Performance and
               Integrity and Efficiency                               Results Act of 1993, as amended

CSP	           Common Securitization Platform         GSE	            Government-Sponsored Enterprise

CSS	           Common Securitization Solutions,       HERA	           Housing and Economic Recovery
               LLC                                                    Act of 2008

DBR	           Division of Federal Home Loan          HFE	            Housing Finance Examiner
               Bank Regulation
                                                      HUD-OIG	        Department of Housing and Urban
DER	           Division of Enterprise Regulation                      Development Office of Inspector
                                                                      General
DOC	           Division of Conservatorship
                                                      IG	             Inspector General
DOJ	           Department of Justice
                                                      IRS-CI	         Internal Revenue Service-Criminal
DSI	           Discovery Sales, Inc.                                  Investigation
EIC	Examiner-in-Charge                                IT	             Information Technology
Enterprises	   Fannie Mae and Freddie Mac             JTR	            JTR Real Estate, Inc.
FBI	           Federal Bureau of Investigation        MBS	            Mortgage-Backed Securities
FDIC	          Federal Deposit Insurance              MJLAG	          MJ Loan Auditor Group, LLC
               Corporation
                                                      MPG	            Metro Property Group
Federal 	      Board of Governors of the
Reserve	       Federal Reserve System                 MRA	            Matter Requiring Attention

FHFA	          Federal Housing Finance Agency         NIST	           National Institute of Standards and
                                                                      Technology


                                Semiannual Report to the Congress • October 1, 2016–March 31, 2017      59
OA	             Office of Audits                          PCBank	     Pierce Commercial Bank

OCC	            Office of the Comptroller of the          PCBHL	      PC Bank Home Loans
                Currency
                                                          PII	        Personally Identifiable Information
OCom	           Office of Compliance and Special
                                                          PSPA	       Senior Preferred Stock Purchase
                Projects
                                                                      Agreement
OE	             Office of Evaluations
                                                          REO	        Real Estate Owned
OFHEO	          Office of Federal Housing Enterprise
                                                          RMBS	       Residential Mortgage-Backed
                Oversight
                                                                      Securities
OI	             Office of Investigations
                                                          ROE	        Report of Examination
OIG	            Federal Housing Finance Agency
                                                          SA	         Special Agent
                Office of Inspector General
                                                          SAR	        Suspicious Activity Report
OMB	            Office of Management and Budget
                                                          SocGen	     Société Générale S.A.
ORA	            Office of Risk Analysis
                                                          TCRs	       Tips, Complaints, or Referrals
PAR	            Performance and Accountability
                Report                                    Treasury	   Department of the Treasury
PBGC-OIG	       Pension Benefit Guaranty
                Corporation Office of Inspector
                General




60      Federal Housing Finance Agency Office of Inspector General
Appendix B:                                            A report with any recommendations still pending will
                                                       remain in Figure 5 until all recommendations have
OIG Recommendations                                    been closed. Figure 6 (see page 97) lists OIG’s audit,
                                                       evaluation, compliance review, and other reports
In accordance with the provisions of the Inspector     for which all of the recommendations contained
General Act, one of the key duties of OIG is to        within have been closed. Figure 7 (see page 102)
provide to FHFA recommendations that promote           summarizes OIG’s outstanding unimplemented
transparency, efficiency, and effectiveness in the     recommendations, and Figure 8 (see page 103)
Agency’s operations and aid in the prevention and      summarizes OIG’s outstanding unimplemented
detection of fraud, waste, or abuse. Since OIG began   recommendations by risk area. OIG publishes its
operations in October 2010, we have made more          Compendium of Open Recommendations on its
than 350 recommendations. Figure 5 (see page 62)       website.
summarizes OIG’s recommendations that were made,
pending, or closed during the reporting period.




                                Semiannual Report to the Congress • October 1, 2016–March 31, 2017       61
Figure 5. Summary of OIG Recommendations

       No.                       Recommendation                       Report Name               Status
                                                                        and Date

  AUD-2017-002-1      Because information in the report could      Performance Audit      Recommendation
                      be abused to circumvent OIG’s internal       of the Federal         agreed to by OIG
                      controls, the recommendations have           Housing Finance        management;
                      not been released publicly.                  Agency Office of       implementation of
                                                                   Inspector General’s    recommendation
                                                                   Information Security   pending.
                                                                   Program Fiscal Year
                                                                   2016 (AUD-2017-
                                                                   002, October 26,
                                                                   2016)

  AUD-2017-002-2      Because information in the report could      Performance Audit      Recommendation
                      be abused to circumvent OIG’s internal       of the Federal         agreed to by OIG
                      controls, the recommendations have           Housing Finance        management;
                      not been released publicly.                  Agency Office of       implementation of
                                                                   Inspector General’s    recommendation
                                                                   Information Security   pending.
                                                                   Program Fiscal Year
                                                                   2016 (AUD-2017-
                                                                   002, October 26,
                                                                   2016)

  AUD-2017-002-3      Because information in the report could      Performance Audit      Recommendation
                      be abused to circumvent OIG’s internal       of the Federal         agreed to by OIG
                      controls, the recommendations have           Housing Finance        management;
                      not been released publicly.                  Agency Office of       implementation of
                                                                   Inspector General’s    recommendation
                                                                   Information Security   pending.
                                                                   Program Fiscal Year
                                                                   2016 (AUD-2017-
                                                                   002, October 26,
                                                                   2016)




62    Federal Housing Finance Agency Office of Inspector General
     No.                    Recommendation                     Report Name              Status
                                                                 and Date

AUD-2016-007-1   FHFA should revise existing guidance to    FHFA’s Targeted        Closed—
AUD-2016-006-1   require examiners to prepare complete      Examinations           Recommendation
                 documentation of supervisory activities    of Freddie Mac:        rejected.
AUD-2016-005-5   and maintain such documentation in         Just Over Half
                 the official system of record, and train   of the Targeted
                 DER examiners on this guidance.            Examinations
                                                            Planned for 2012
                                                            through 2015
                                                            Were Completed
                                                            (AUD-2016-
                                                            007, September
                                                            30, 2016);
                                                            FHFA’s Targeted
                                                            Examinations
                                                            of Fannie Mae:
                                                            Less than Half
                                                            of the Targeted
                                                            Examinations
                                                            Planned for 2012
                                                            through 2015 Were
                                                            Completed and
                                                            No Examinations
                                                            Planned for 2015
                                                            Were Completed
                                                            Before the Report
                                                            of Examination
                                                            Issued (AUD-2016-
                                                            006, September
                                                            30, 2016); FHFA’s
                                                            Supervisory
                                                            Planning Process
                                                            for the Enterprises:
                                                            Roughly Half of
                                                            FHFA’s 2014 and
                                                            2015 High-Priority
                                                            Planned Targeted
                                                            Examinations Did
                                                            Not Trace to Risk
                                                            Assessments
                                                            and Most High-
                                                            Priority Planned
                                                            Examinations Were
                                                            Not Completed
                                                            (AUD-2016-005,
                                                            September 30,
                                                            2016)




                         Semiannual Report to the Congress • October 1, 2016–March 31, 2017         63
      No.                       Recommendation                       Report Name               Status
                                                                       and Date

 AUD-2016-007-2      FHFA should assess whether DER has           FHFA’s Targeted        Recommendation
 AUD-2016-006-2      a sufficient complement of qualified         Examinations           partially agreed
                     examiners to conduct and complete            of Freddie Mac:        to by FHFA;
                     those examinations rated by DER to be        Just Over Half         implementation of
                     of high-priority within each supervisory     of the Targeted        recommendation
                     cycle and address the resource               Examinations           pending.
                     constraints that have adversely              Planned for 2012
                     affected DER’s ability to carry out its      through 2015
                     risk-based supervisory plans.                Were Completed
                                                                  (AUD-2016-
                                                                  007, September
                                                                  30, 2016);
                                                                  FHFA’s Targeted
                                                                  Examinations
                                                                  of Fannie Mae:
                                                                  Less than Half
                                                                  of the Targeted
                                                                  Examinations
                                                                  Planned for 2012
                                                                  through 2015 Were
                                                                  Completed and
                                                                  No Examinations
                                                                  Planned for 2015
                                                                  Were Completed
                                                                  Before the Report of
                                                                  Examination Issued
                                                                  (AUD-2016-006,
                                                                  September 30,
                                                                  2016)




64   Federal Housing Finance Agency Office of Inspector General
     No.                   Recommendation                  Report Name              Status
                                                             and Date

AUD-2016-007-3   FHFA should develop and implement       FHFA’s Targeted      FHFA issued
AUD-2016-006-3   guidance that clearly requires          Examinations         internal guidance
                 supervisory plans to identify and       of Freddie Mac:      in May 2016 that
                 prioritize the planned targeted         Just Over Half       FHFA believes
                 examinations that are to be completed   of the Targeted      confirms its general
                 for each supervisory cycle, in order    Examinations         agreement with the
                 to fully inform the ROE and CAMELSO     Planned for 2012     recommendation.
                 ratings for that cycle.                 through 2015         FHFA plans to
                                                         Were Completed       assess the
                                                         (AUD-2016-           effectiveness of
                                                         007, September       that guidance
                                                         30, 2016);           in the first
                                                         FHFA’s Targeted      quarter of 2017.
                                                         Examinations         Recommendation
                                                         of Fannie Mae:       remains open and
                                                         Less than Half       will be monitored.
                                                         of the Targeted
                                                         Examinations
                                                         Planned for 2012
                                                         through 2015 Were
                                                         Completed and
                                                         No Examinations
                                                         Planned for 2015
                                                         Were Completed
                                                         Before the Report
                                                         of Examination
                                                         Issued (AUD-2016-
                                                         006, September
                                                         30, 2016)




                         Semiannual Report to the Congress • October 1, 2016–March 31, 2017     65
      No.                       Recommendation                      Report Name             Status
                                                                      and Date

 AUD-2016-007-4      FHFA should develop and implement a          FHFA’s Targeted     Recommendation
 AUD-2016-006-4      control that provides for the tracking       Examinations        agreed to by FHFA;
                     and documentation of planned targeted        of Freddie Mac:     implementation of
                     examinations, through disposition, in        Just Over Half      recommendation
                     DER’s official system of record.             of the Targeted     pending.
                                                                  Examinations
                                                                  Planned for 2012
                                                                  through 2015
                                                                  Were Completed
                                                                  (AUD-2016-
                                                                  007, September
                                                                  30, 2016);
                                                                  FHFA’s Targeted
                                                                  Examinations
                                                                  of Fannie Mae:
                                                                  Less than Half
                                                                  of the Targeted
                                                                  Examinations
                                                                  Planned for 2012
                                                                  through 2015 Were
                                                                  Completed and
                                                                  No Examinations
                                                                  Planned for 2015
                                                                  Were Completed
                                                                  Before the Report
                                                                  of Examination
                                                                  Issued (AUD-2016-
                                                                  006, September
                                                                  30, 2016)




66   Federal Housing Finance Agency Office of Inspector General
     No.                    Recommendation                    Report Name             Status
                                                                and Date

AUD-2016-007-5   FHFA should reinforce and hold             FHFA’s Targeted     FHFA issued
AUD-2016-006-5   EICs accountable to follow DER’s           Examinations        internal guidance
                 requirement to fully document the          of Freddie Mac:     in May 2016 that
                 risk-based justifications for changes to   Just Over Half      FHFA believes
                 the supervisory plan, and that changes     of the Targeted     confirms its general
                 to supervisory plans are documented        Examinations        agreement with the
                 and approved by the EIC. Ensure            Planned for 2012    recommendation.
                 that examiners follow DER Operating        through 2015        FHFA plans to
                 Procedures Bulletin 2013-DER-              Were Completed      assess the
                 OPB-03.1 to fully document the risk-       (AUD-2016-          effectiveness of
                 based justifications for changes to the    007, September      that guidance
                 supervisory plan, and that changes to      30, 2016);          in the first
                 supervisory plans are documented and       FHFA’s Targeted     quarter of 2017.
                 approved by the EIC.                       Examinations        Recommendation
                                                            of Fannie Mae:      remains open and
                                                            Less than Half      will be monitored.
                                                            of the Targeted
                                                            Examinations
                                                            Planned for 2012
                                                            through 2015 Were
                                                            Completed and
                                                            No Examinations
                                                            Planned for 2015
                                                            Were Completed
                                                            Before the Report
                                                            of Examination
                                                            Issued (AUD-2016-
                                                            006, September
                                                            30, 2016)




                          Semiannual Report to the Congress • October 1, 2016–March 31, 2017      67
      No.                       Recommendation                       Report Name               Status
                                                                       and Date

 AUD-2016-005-1      FHFA should ensure that risk                 FHFA’s Supervisory     FHFA issued
                     assessments support the                      Planning Process       internal guidance
                     supervisory plans in terms of the            for the Enterprises:   in May 2016 that
                     targeted examinations included in            Roughly Half of        FHFA believes
                     those supervisory plans and the              FHFA’s 2014 and        confirms its general
                     priority assigned to those targeted          2015 High-Priority     agreement with the
                     examinations.                                Planned Targeted       recommendation.
                                                                  Examinations           FHFA plans to
                                                                  Did Not Trace to       assess the
                                                                  Risk Assessments       effectiveness of
                                                                  and Most High-         that guidance
                                                                  Priority Planned       in the first
                                                                  Examinations Were      quarter of 2017.
                                                                  Not Completed          Recommendation
                                                                  (AUD-2016-005,         remains open and
                                                                  September 30,          will be monitored.
                                                                  2016)

 AUD-2016-005-2      FHFA should reinforce and hold the           FHFA’s Supervisory     FHFA issued
                     EICs accountable to meet FHFA’s              Planning Process       internal guidance
                     requirement for risk assessments             for the Enterprises:   in May 2016
                     to be updated semiannually, and as           Roughly Half of        that FHFA
                     additional information is learned that       FHFA’s 2014 and        believes confirms
                     causes significant changes to the risk       2015 High-Priority     its general
                     profile, such information, from whatever     Planned Targeted       agreement with the
                     sources, should be factored into             Examinations           recommendation.
                     the risk assessment during the next          Did Not Trace to       FHFA plans to
                     update.                                      Risk Assessments       assess the
                                                                  and Most High-         effectiveness of
                                                                  Priority Planned       that guidance
                                                                  Examinations Were      in the first
                                                                  Not Completed          quarter of 2017.
                                                                  (AUD-2016-005,         Recommendation
                                                                  September 30,          remains open and
                                                                  2016)                  will be monitored.




68   Federal Housing Finance Agency Office of Inspector General
     No.                    Recommendation                       Report Name               Status
                                                                   and Date

AUD-2016-005-3   FHFA should direct DER to develop            FHFA’s Supervisory     FHFA issued
                 and implement controls to ensure             Planning Process       internal guidance
                 that high-priority planned targeted          for the Enterprises:   in May 2016 that
                 examinations are completed before            Roughly Half of        FHFA believes
                 lower priority targeted examinations,        FHFA’s 2014 and        confirms its general
                 unless the reason(s) for performing a        2015 High-Priority     agreement with the
                 lower priority targeted examination in       Planned Targeted       recommendation.
                 lieu of a higher priority planned targeted   Examinations           FHFA plans to
                 examination is documented and risk           Did Not Trace to       assess the
                 based (e.g., change in process, delay in     Risk Assessments       effectiveness of
                 implementation).                             and Most High-         that guidance
                                                              Priority Planned       in the first
                                                              Examinations Were      quarter of 2017.
                                                              Not Completed          Recommendation
                                                              (AUD-2016-005,         remains open and
                                                              September 30,          will be monitored.
                                                              2016)

AUD-2016-005-4   FHFA should enhance DER guidance             FHFA’s Supervisory     FHFA issued
                 to provide a common definition for           Planning Process       internal guidance
                 the priority assigned to targeted            for the Enterprises:   in May 2016
                 examinations and require examiners           Roughly Half of        that FHFA
                 to document the basis of the priority        FHFA’s 2014 and        believes confirms
                 assigned to targeted examinations.           2015 High-Priority     its general
                                                              Planned Targeted       agreement with the
                                                              Examinations           recommendation.
                                                              Did Not Trace to       FHFA plans to
                                                              Risk Assessments       assess the
                                                              and Most High-         effectiveness of
                                                              Priority Planned       that guidance
                                                              Examinations Were      in the first
                                                              Not Completed          quarter of 2017.
                                                              (AUD-2016-005,         Recommendation
                                                              September 30,          remains open and
                                                              2016)                  will be monitored.

AUD-2014-021-1   Because information in the report could      Kearney &              Closed—Final
                 be abused to circumvent OIG’s internal       Company, P.C.’s        action taken by
                 controls, the recommendations have           Independent            OIG.
                 not been released publicly.                  Evaluation of
                                                              the Federal
                                                              Housing Finance
                                                              Agency Office of
                                                              Inspector General’s
                                                              Information Security
                                                              Program—2014
                                                              (AUD-2014-021,
                                                              September 30,
                                                              2014)




                          Semiannual Report to the Congress • October 1, 2016–March 31, 2017           69
      No.                       Recommendation                       Report Name               Status
                                                                       and Date

 AUD-2014-021-2      Because information in the report could      Kearney &              Closed—Final
                     be abused to circumvent OIG’s internal       Company, P.C.’s        action taken by
                     controls, the recommendations have           Independent            OIG.
                     not been released publicly.                  Evaluation of
                                                                  the Federal
                                                                  Housing Finance
                                                                  Agency Office of
                                                                  Inspector General’s
                                                                  Information Security
                                                                  Program—2014
                                                                  (AUD-2014-021,
                                                                  September 30,
                                                                  2014)


 AUD-2014-021-3      Because information in the report could      Kearney &              Recommendation
                     be abused to circumvent OIG’s internal       Company, P.C.’s        partially agreed
                     controls, the recommendations have           Independent            to by OIG
                     not been released publicly.                  Evaluation of          management;
                                                                  the Federal            implementation of
                                                                  Housing Finance        recommendation
                                                                  Agency Office of       pending.
                                                                  Inspector General’s
                                                                  Information Security
                                                                  Program—2014
                                                                  (AUD-2014-021,
                                                                  September 30,
                                                                  2014)


 AUD-2014-021-4      Because information in the report could      Kearney &              Closed—Final
                     be abused to circumvent OIG’s internal       Company, P.C.’s        action taken by
                     controls, the recommendations have           Independent            OIG.
                     not been released publicly.                  Evaluation of
                                                                  the Federal
                                                                  Housing Finance
                                                                  Agency Office of
                                                                  Inspector General’s
                                                                  Information Security
                                                                  Program—2014
                                                                  (AUD-2014-021,
                                                                  September 30,
                                                                  2014)




70   Federal Housing Finance Agency Office of Inspector General
     No.                   Recommendation                     Report Name               Status
                                                                and Date

AUD-2014-021-5   Because information in the report could   Kearney &              Closed—Final
                 be abused to circumvent OIG’s internal    Company, P.C.’s        action taken by
                 controls, the recommendations have        Independent            OIG.
                 not been released publicly.               Evaluation of
                                                           the Federal
                                                           Housing Finance
                                                           Agency Office of
                                                           Inspector General’s
                                                           Information Security
                                                           Program—2014
                                                           (AUD-2014-021,
                                                           September 30,
                                                           2014)


AUD-2014-021-6   Because information in the report could   Kearney &              Closed—Final
                 be abused to circumvent OIG’s internal    Company, P.C.’s        action taken by
                 controls, the recommendations have        Independent            OIG.
                 not been released publicly.               Evaluation of
                                                           the Federal
                                                           Housing Finance
                                                           Agency Office of
                                                           Inspector General’s
                                                           Information Security
                                                           Program—2014
                                                           (AUD-2014-021,
                                                           September 30,
                                                           2014)


AUD-2014-019-1   Because information in the report could   Kearney &              Closed—Final
                 be abused to circumvent FHFA’s internal   Company, P.C.’s        action taken by
                 controls, the recommendations have        Independent            FHFA.
                 not been released publicly.               Evaluation of the
                                                           Federal Housing
                                                           Finance Agency’s
                                                           Information Security
                                                           Program—2014
                                                           (AUD-2014-019,
                                                           September 26,
                                                           2014)




                         Semiannual Report to the Congress • October 1, 2016–March 31, 2017         71
      No.                       Recommendation                       Report Name               Status
                                                                       and Date

 AUD-2014-019-2      Because information in the report could      Kearney &              Closed—Final
                     be abused to circumvent FHFA’s internal      Company, P.C.’s        action taken by
                     controls, the recommendations have           Independent            FHFA.
                     not been released publicly.                  Evaluation of the
                                                                  Federal Housing
                                                                  Finance Agency’s
                                                                  Information Security
                                                                  Program—2014
                                                                  (AUD-2014-019,
                                                                  September 26,
                                                                  2014)

 AUD-2014-019-3      Because information in the report could      Kearney &              Closed—Final
                     be abused to circumvent FHFA’s internal      Company, P.C.’s        action taken by
                     controls, the recommendations have           Independent            FHFA.
                     not been released publicly.                  Evaluation of the
                                                                  Federal Housing
                                                                  Finance Agency’s
                                                                  Information Security
                                                                  Program—2014
                                                                  (AUD-2014-019,
                                                                  September 26,
                                                                  2014)

 AUD-2014-019-4      Because information in the report could      Kearney &              Recommendation
                     be abused to circumvent FHFA’s internal      Company, P.C.’s        agreed to by FHFA;
                     controls, the recommendations have           Independent            implementation of
                     not been released publicly.                  Evaluation of the      recommendation
                                                                  Federal Housing        pending.
                                                                  Finance Agency’s
                                                                  Information Security
                                                                  Program—2014
                                                                  (AUD-2014-019,
                                                                  September 26,
                                                                  2014)

 AUD-2014-019-5      Because information in the report could      Kearney &              Recommendation
                     be abused to circumvent FHFA’s internal      Company, P.C.’s        agreed to by FHFA;
                     controls, the recommendations have           Independent            implementation of
                     not been released publicly.                  Evaluation of the      recommendation
                                                                  Federal Housing        pending.
                                                                  Finance Agency’s
                                                                  Information Security
                                                                  Program—2014
                                                                  (AUD-2014-019,
                                                                  September 26,
                                                                  2014)




72   Federal Housing Finance Agency Office of Inspector General
     No.                   Recommendation                     Report Name               Status
                                                                and Date

AUD-2014-019-6   Because information in the report could   Kearney &              Closed—Final
                 be abused to circumvent FHFA’s internal   Company, P.C.’s        action taken by
                 controls, the recommendations have        Independent            FHFA.
                 not been released publicly.               Evaluation of the
                                                           Federal Housing
                                                           Finance Agency’s
                                                           Information Security
                                                           Program—2014
                                                           (AUD-2014-019,
                                                           September 26,
                                                           2014)

AUD-2014-019-7   Because information in the report could   Kearney &              Closed—Final
                 be abused to circumvent FHFA’s internal   Company, P.C.’s        action taken by
                 controls, the recommendations have        Independent            FHFA.
                 not been released publicly.               Evaluation of the
                                                           Federal Housing
                                                           Finance Agency’s
                                                           Information Security
                                                           Program—2014
                                                           (AUD-2014-019,
                                                           September 26,
                                                           2014)

AUD-2014-019-8   Because information in the report could   Kearney &              Closed—Final
                 be abused to circumvent FHFA’s internal   Company, P.C.’s        action taken by
                 controls, the recommendations have        Independent            FHFA.
                 not been released publicly.               Evaluation of the
                                                           Federal Housing
                                                           Finance Agency’s
                                                           Information Security
                                                           Program—2014
                                                           (AUD-2014-019,
                                                           September 26,
                                                           2014)




                         Semiannual Report to the Congress • October 1, 2016–March 31, 2017         73
          No.                          Recommendation                         Report Name                   Status
                                                                                and Date

    AUD-2014-008-1         FHFA should perform supervisory                 FHFA’s Oversight          Closed—Final
                           review and follow-up to ensure that             of the Enterprises’       action taken by
                           Fannie Mae takes action to change the           Use of Appraisal          FHFA.a
                           portal message type from automatic              Data Before
                           override to manual override or fatal            They Buy Single-
                           for the 25 proprietary messages                 Family Mortgages
                           related to underwriting requirements,           (AUD-2014-008,
                           which will require lenders to take              February 6, 2014)
                           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
                           messages related to its property                They Buy Single-
                           underwriting requirements.                      Family Mortgages
                                                                           (AUD-2014-008,
                                                                           February 6, 2014)


    AUD-2014-008-3         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 establish the               Use of Appraisal          FHFA.b
                           additional proprietary messages related         Data Before
                           to property underwriting requirements           They Buy Single-
                           as manual override or fatal, which              Family Mortgages
                           will require the lenders to take action         (AUD-2014-008,
                           to address the messages prior to                February 6, 2014)
                           delivering the loans.


    AUD-2014-008-4         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 the type of          Use of Appraisal          FHFA.
                           message related to the existing nine            Data Before
                           proprietary messages for consideration          They Buy Single-
                           of converting the type of message from          Family Mortgages
                           automatic override to manual override           (AUD-2014-008,
                           or fatal, which will require the lenders        February 6, 2014)
                           to take action to address the messages
                           prior to delivering the loans.




a
 FHFA indicated that it had substantially complied with the recommendation by changing most of the portal messages, and
indicated reasons for not changing the remaining proprietary messages related to underwriting requirements. OIG considered
the actions taken and the Agency’s explanation, and determined to close the recommendation as final action taken.
b
 FHFA indicated that it substantially implemented the recommendation and provided additional explanation for maintaining
specific messages as automatic override. OIG considered the actions taken and the updated information provided by the
Agency, and determined to close the recommendation as final action taken.


74      Federal Housing Finance Agency Office of Inspector General
     No.                    Recommendation                      Report Name              Status
                                                                  and Date

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           recommendation
                 appraisers, as of the date the appraisal    They Buy Single-      pending.
                 is performed.                               Family Mortgages
                                                             (AUD-2014-008,
                                                             February 6, 2014)


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           recommendation
                 appraisal is performed.                     They Buy Single-      pending.
                                                             Family Mortgages
                                                             (AUD-2014-008,
                                                             February 6, 2014)

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           recommendation
                 automatic override to manual override       They Buy Single-      pending.
                 or fatal, which will require lenders to     Family Mortgages
                 take action to address the message          (AUD-2014-008,
                 prior to delivering the loan. This action   February 6, 2014)
                 can be taken once the system logic
                 is fixed and the historical records are
                 available to determine the status of
                 an appraiser’s license at the time the
                 appraisal work is performed, and the
                 states are updating in real time.

AUD-2014-008-8   FHFA should perform supervisory 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
                 suspended appraisers in violation of        They Buy Single-
                 underwriting requirements.                  Family Mortgages
                                                             (AUD-2014-008,
                                                             February 6, 2014)




                          Semiannual Report to the Congress • October 1, 2016–March 31, 2017         75
       No.                      Recommendation                       Report Name              Status
                                                                       and Date

 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
                     procedures to follow up on appraisal         They Buy Single-
                     license status messages generated by         Family Mortgages
                     the portal.                                  (AUD-2014-008,
                                                                  February 6, 2014)

 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
                     that generated messages related to the       They Buy Single-
                     appraiser’s license status.                  Family Mortgages
                                                                  (AUD-2014-008,
                                                                  February 6, 2014)

 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
                     that contained appraisals that were          They Buy Single-
                     performed by unlicensed appraisers, as       Family Mortgages
                     appropriate.                                 (AUD-2014-008,
                                                                  February 6, 2014)

 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
                     determine the status of appraisers’          They Buy Single-
                     licenses at the time the appraisal work      Family Mortgages
                     is performed.                                (AUD-2014-008,
                                                                  February 6, 2014)


 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 (AUD-
                                                                  2014-008, February
                                                                  6, 2014)




76   Federal Housing Finance Agency Office of Inspector General
      No.                    Recommendation                      Report Name               Status
                                                                   and Date

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 (AUD-
                                                              2014-008, February
                                                              6, 2014)


AUD-2012-003-1    FHFA’s Division of Housing Mission and      FHFA’s Oversight of    Based on COM-
                  Goals should formally establish a policy    Fannie Mae’s Single-   2016-001, this
                  for its review process of underwriting      Family Underwriting    recommendation
                  standards and variances including           Standards (AUD-        was reopened.
                  escalation of unresolved issues             2012-003, March        Recommendation
                  reflecting potential lack of agreement.     22, 2012)              agreed to by FHFA;
                                                                                     implementation of
                                                                                     recommendation
                                                                                     pending.


AUD-2012-003-2    FHFA’s Division of Examination Program      FHFA’s Oversight of    Closed—Final
                  and Support should enhance existing         Fannie Mae’s Single-   action taken by
                  examination guidance for assessing          Family Underwriting    FHFA.
                  adherence to underwriting standards         Standards (AUD-
                  and variances from them.                    2012-003, March
                                                              22, 2012)


EVL-2017-004-1    FHFA should develop, communicate to         FHFA’s Practice        Recommendation
                  DER examination staff, and implement        for Rotation of        agreed to by FHFA;
                  an examiner rotation practice or policy     its Examiners          implementation of
                  that explains the timeframe for examiner    Is Inconsistent        recommendation
                  rotation, whether examiners would be        between its Two        pending.
                  rotated across or within Enterprises, and   Supervisory
                  which types of examiners, in addition       Divisions (EVL-
                  to the EICs, would be subject to the        2017-004, March
                  rotation practice or policy.                28, 2017)


EVL-2017-004-2    FHFA should direct DER to implement         FHFA’s Practice        Recommendation
                  a mechanism to track and document           for Rotation of        agreed to by FHFA;
                  over time DER examiner assignments          its Examiners          implementation of
                  by Enterprise and risk area to facilitate   Is Inconsistent        recommendation
                  implementation of the examiner              between its Two        pending.
                  rotation practice or policy.                Supervisory
                                                              Divisions (EVL-2017-
                                                              004, March 28,
                                                              2017)




                           Semiannual Report to the Congress • October 1, 2016–March 31, 2017          77
      No.                       Recommendation                       Report Name               Status
                                                                       and Date

 EVL-2017-002-1      In 2017, or as expeditiously as              FHFA’s                 Recommendation
                     possible, FHFA should complete the           Examinations Have      agreed to by FHFA;
                     examination activities necessary to          Not Confirmed          implementation of
                     determine whether [the Enterprise’s]         Compliance by One      recommendation
                     risk management of nonbank seller/           Enterprise with its    pending.
                     servicers meets FHFA’s supervisory           Advisory Bulletins
                     expectations as set forth in its             Regarding Risk
                     supervisory guidance. These activities       Management of
                     should include an independent                Nonbank Sellers
                     assessment of the [related matters].         and Servicers
                                                                  (EVL-2017-002,
                                                                  December 21,
                                                                  2016)


 EVL-2016-009-1      FHFA should revise its Examination           FHFA Failed to         Recommendation
                     Manual to:                                   Consistently Deliver   partially agreed
                     •	Require that each final ROE be             Timely Reports of      to by FHFA;
                       addressed and delivered to the board       Examination to the     implementation of
                       of directors of an Enterprise by DER       Enterprise Boards      recommendation
                       examiners to eliminate any confusion       and Obtain Written     pending.
                       over the meaning of the term “issue;”      Responses from the
                                                                  Boards Regarding
                     •	Establish a timetable for submission
                                                                  Remediation
                       of the final ROE to each Enterprise’s
                                                                  of Supervisory
                       board of directors and for DER’s
                                                                  Concerns Identified
                       presentation of the ROE results,
                                                                  in those Reports
                       conclusions, and supervisory
                                                                  (EVL-2016-009,
                       concerns to each Enterprise board;
                                                                  July 14, 2016)
                     •	Require each Enterprise board to
                       reflect its review of each annual ROE
                       in meeting minutes; and
                     •	Require each Enterprise board to
                       reflect its review and approval of its
                       written response to the ROE in its
                       meeting minutes.




78   Federal Housing Finance Agency Office of Inspector General
     No.                    Recommendation                    Report Name               Status
                                                                and Date

EVL-2016-009-2   FHFA should direct DER to develop         FHFA Failed to         Recommendation
                 detailed guidance and promulgate that     Consistently Deliver   partially agreed
                 guidance to each Enterprise’s board of    Timely Reports of      to by FHFA;
                 directors that explains:                  Examination to the     implementation of
                 •	The purpose for DER’s annual            Enterprise Boards      recommendation
                   presentation to each Enterprise         and Obtain Written     pending.
                   board of directors on the ROE           Responses from the
                   results, conclusions, and supervisory   Boards Regarding
                   concerns and the opportunity for        Remediation
                   directors to ask questions and          of Supervisory
                   discuss ROE examination conclusions     Concerns Identified
                   and supervisory concerns at that        in those Reports
                   presentation; and                       (EVL-2016-009,
                                                           July 14, 2016)
                 •	The requirement that each Enterprise
                   board of directors submit a written
                   response to the annual ROE to DER
                   and the expected level of detail
                   regarding ongoing and contemplated
                   remediation in that written response.

EVL-2016-009-3   FHFA should direct the Enterprises’       FHFA Failed to         Closed—
                 boards to amend their charters to         Consistently Deliver   Recommendation
                 require review by each director of each   Timely Reports of      rejected.
                 annual ROE and review and approval        Examination to the
                 of the written response to DER in         Enterprise Boards
                 response to each annual ROE.              and Obtain Written
                                                           Responses from the
                                                           Boards Regarding
                                                           Remediation
                                                           of Supervisory
                                                           Concerns Identified
                                                           in those Reports
                                                           (EVL-2016-009,
                                                           July 14, 2016)




                         Semiannual Report to the Congress • October 1, 2016–March 31, 2017        79
      No.                       Recommendation                       Report Name              Status
                                                                       and Date

 EVL-2016-008-1      FHFA should direct DER to develop            FHFA’s Failure        Recommendation
                     and adopt a standard template for            to Consistently       partially agreed
                     Enterprise ROEs, issue instructions          Identify Specific     to by FHFA;
                     for completing that template, and            Deficiencies and      implementation of
                     promulgate guidance that establishes         Their Root Causes     recommendation
                     baseline elements that must be               in Its Reports        pending.
                     included in each ROE, such as: clear         of Examination
                     communication of deficient, unsafe,          Constrains the
                     or unsound practices; explanation            Ability of the
                     of how those practices gave rise to          Enterprise Boards
                     supervisory concerns and deficiencies;       to Exercise
                     and prioritization of remediation of         Effective Oversight
                     supervisory concerns and deficiencies.       of Management’s
                                                                  Remediation
                                                                  of Supervisory
                                                                  Concerns (EVL-
                                                                  2016-008, July 14,
                                                                  2016)


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




80   Federal Housing Finance Agency Office of Inspector General
     No.                    Recommendation                     Report Name               Status
                                                                 and Date

EVL-2016-008-3   FHFA should develop written procedures     FHFA’s Failure         Recommendation
                 for the “fatal flaw” review of the         to Consistently        agreed to by FHFA;
                 ROE by Enterprise management that          Identify Specific      implementation of
                 establish the purpose of the review, its   Deficiencies and       recommendation
                 duration, and a standard message for       Their Root Causes      pending.
                 conveying this information to Enterprise   in Its Reports
                 management.                                of Examination
                                                            Constrains the
                                                            Ability of the
                                                            Enterprise Boards
                                                            to Exercise
                                                            Effective Oversight
                                                            of Management’s
                                                            Remediation
                                                            of Supervisory
                                                            Concerns (EVL-
                                                            2016-008, July 14,
                                                            2016)


EVL-2016-007-1   FHFA should require the Enterprises        FHFA’s Inconsistent    Recommendation
                 to provide, in their remediation plans,    Practices in           partially agreed
                 the target date in which their internal    Assessing              to by FHFA;
                 audit departments expect to validate       Enterprise             implementation of
                 management’s remediation of MRAs,          Remediation of         recommendation
                 and require examiners to enter that        Serious Deficiencies   pending.
                 date into a dedicated field in the MRA     and Weaknesses
                 tracking system.                           in its Tracking
                                                            Systems Limit the
                                                            Effectiveness of
                                                            FHFA’s Supervision
                                                            of the Enterprises
                                                            (EVL-2016-007,
                                                            July 14, 2016)

EVL-2016-007-2   FHFA should require DER, upon              FHFA’s Inconsistent    Recommendation
                 acceptance of an Enterprise’s              Practices in           partially agreed
                 remediation plan, to estimate the date     Assessing              to by FHFA;
                 by which it expects to confirm internal    Enterprise             implementation of
                 audit’s validation, and to enter that      Remediation of         recommendation
                 date into a dedicated field in the MRA     Serious Deficiencies   pending.
                 tracking system.                           and Weaknesses
                                                            in its Tracking
                                                            Systems Limit the
                                                            Effectiveness of
                                                            FHFA’s Supervision
                                                            of the Enterprises
                                                            (EVL-2016-007,
                                                            July 14, 2016)




                          Semiannual Report to the Congress • October 1, 2016–March 31, 2017        81
      No.                       Recommendation                       Report Name               Status
                                                                       and Date

 EVL-2016-007-3      FHFA should ensure that the underlying       FHFA’s Inconsistent    Closed—
                     remediation documents, including the         Practices in           Recommendation
                     Procedures Document, are readily             Assessing              rejected.
                     available by direct link or other means,     Enterprise
                     through DER’s MRA tracking system(s).        Remediation of
                                                                  Serious Deficiencies
                                                                  and Weaknesses
                                                                  in its Tracking
                                                                  Systems Limit the
                                                                  Effectiveness of
                                                                  FHFA’s Supervision
                                                                  of the Enterprises
                                                                  (EVL-2016-007,
                                                                  July 14, 2016)


 EVL-2016-007-4      FHFA should require DER to conduct           FHFA’s Inconsistent    Recommendation
                     and document, in an Analysis                 Practices in           agreed to by FHFA;
                     Memorandum or other work paper,              Assessing              implementation of
                     an independent assessment of the             Enterprise             recommendation
                     adequacy of each Enterprise MRA              Remediation of         pending.
                     remediation plan and the basis upon          Serious Deficiencies
                     which such plan is either accepted           and Weaknesses
                     or rejected, and to maintain that            in its Tracking
                     document in DER’s supervisory record-        Systems Limit the
                     keeping system.                              Effectiveness of
                                                                  FHFA’s Supervision
                                                                  of the Enterprises
                                                                  (EVL-2016-007,
                                                                  July 14, 2016)


 EVL-2016-007-5      FHFA should require DER to                   FHFA’s Inconsistent    Closed—
                     track interim milestones and to              Practices in           Recommendation
                     independently assess and document            Assessing              rejected.
                     the timeliness and adequacy of               Enterprise
                     Enterprise remediation of MRAs on a          Remediation of
                     regular basis.                               Serious Deficiencies
                                                                  and Weaknesses
                                                                  in its Tracking
                                                                  Systems Limit the
                                                                  Effectiveness of
                                                                  FHFA’s Supervision
                                                                  of the Enterprises
                                                                  (EVL-2016-007,
                                                                  July 14, 2016)




82   Federal Housing Finance Agency Office of Inspector General
     No.                    Recommendation                    Report Name               Status
                                                                and Date

EVL-2016-007-6   FHFA should require DER, when             FHFA’s Inconsistent    Recommendation
                 evaluating whether to close an MRA,       Practices in           agreed to by FHFA;
                 to conduct and document (in an            Assessing              implementation of
                 Analysis Memorandum or other work         Enterprise             recommendation
                 paper) an independent analysis of the     Remediation of         pending.
                 adequacy and sustainability of the        Serious Deficiencies
                 Enterprise’s remediation activity, or     and Weaknesses
                 where appropriate, the adequacy of the    in its Tracking
                 Enterprise’s internal audit validation    Systems Limit the
                 work, and maintain that document          Effectiveness of
                 in DER’s supervisory record-keeping       FHFA’s Supervision
                 system.                                   of the Enterprises
                                                           (EVL-2016-007,
                                                           July 14, 2016)


EVL-2016-006-1   FHFA should direct the Fannie Mae         Corporate              Recommendation
                 Board to enhance Fannie Mae’s existing    Governance: Cyber      agreed to by FHFA;
                 cyber risk management policies to:        Risk Oversight by      implementation of
                 a.	Require a baseline Enterprise-         the Fannie Mae         recommendation
                      wide cyber risk assessment with      Board of Directors     pending.
                      subsequent periodic updates;         Highlights the
                                                           Need for FHFA’s
                 b.	Describe information to be reported
                                                           Closer Attention to
                      to the Board and committees;
                                                           Governance Issues
                 c.	 Include a cyber risk framework and    (EVL-2016-006,
                      cyber risk appetite.                 March 31, 2016)

EVL-2016-006-2   FHFA should instruct the Fannie Mae       Corporate              Recommendation
                 Board to establish and communicate        Governance: Cyber      agreed to by FHFA;
                 a desired target state of cyber risk      Risk Oversight by      implementation of
                 management for Fannie Mae that            the Fannie Mae         recommendation
                 identifies and prioritizes which risks    Board of Directors     pending.
                 to avoid, accept, mitigate, or transfer   Highlights the
                 through insurance.                        Need for FHFA’s
                                                           Closer Attention to
                                                           Governance Issues
                                                           (EVL-2016-006,
                                                           March 31, 2016)




                          Semiannual Report to the Congress • October 1, 2016–March 31, 2017       83
      No.                       Recommendation                       Report Name               Status
                                                                       and Date

 EVL-2016-006-3      FHFA should direct the Fannie Mae            Corporate              Recommendation
                     Board to oversee management’s efforts        Governance: Cyber      agreed to by FHFA;
                     to leverage industry standards to:           Risk Oversight by      implementation of
                     a.	Protect against and detect existing       the Fannie Mae         recommendation
                         threats;                                 Board of Directors     pending.
                                                                  Highlights the
                     b.	Remain informed on emerging risks;
                                                                  Need for FHFA’s
                     c.	 Enable timely response and recovery      Closer Attention to
                         in the event of a breach; and            Governance Issues
                     d.	Achieve the desired target state of       (EVL-2016-006,
                         cyber risk management identified         March 31, 2016)
                         in recommendation 2 above within
                         a time period agreed upon by the
                         Board.

 EVL-2016-005-1      FHFA should revise its supervision           FHFA’s Supervisory     Closed—Final
                     guidance to require DER to provide the       Standards for          action taken by
                     Chair of the Audit Committee of an           Communication of       FHFA.
                     Enterprise Board with each conclusion        Serious Deficiencies
                     letter setting forth an MRA.                 to Enterprise
                                                                  Boards and for
                                                                  Board Oversight
                                                                  of Management’s
                                                                  Remediation Efforts
                                                                  are Inadequate
                                                                  (EVL-2016-005,
                                                                  March 31, 2016)


 EVL-2016-005-2      FHFA should revise its supervision           FHFA’s Supervisory     Recommendation
                     guidance to require DER to provide           Standards for          partially agreed
                     the Chair of the Audit Committee of          Communication of       to by FHFA;
                     an Enterprise Board with each plan           Serious Deficiencies   implementation of
                     submitted by Enterprise management           to Enterprise          recommendation
                     to remediate an MRA with associated          Boards and for         pending.
                     timetables and the response by DER.          Board Oversight
                                                                  of Management’s
                                                                  Remediation Efforts
                                                                  are Inadequate
                                                                  (EVL-2016-005,
                                                                  March 31, 2016)




84   Federal Housing Finance Agency Office of Inspector General
     No.                   Recommendation                     Report Name               Status
                                                                and Date

EVL-2016-005-3   FHFA should revise its supervision        FHFA’s Supervisory     Closed—Final
                 guidance to require DER to identify all   Standards for          action taken by
                 open MRAs in the annual, written ROE      Communication of       FHFA.
                 and the expected timetable to complete    Serious Deficiencies
                 outstanding remediation activities.       to Enterprise
                                                           Boards and for
                                                           Board Oversight
                                                           of Management’s
                                                           Remediation Efforts
                                                           are Inadequate
                                                           (EVL-2016-005,
                                                           March 31, 2016)


EVL-2016-005-4   FHFA should include in the year’s ROE,    FHFA’s Supervisory     Closed—Final
                 to be issued to each Enterprise for       Standards for          action taken by
                 2015 supervisory activities, all open     Communication of       FHFA.
                 MRAs and the expected timetable to        Serious Deficiencies
                 complete outstanding remediation          to Enterprise
                 activities for each open MRA.             Boards and for
                                                           Board Oversight
                                                           of Management’s
                                                           Remediation Efforts
                                                           are Inadequate
                                                           (EVL-2016-005,
                                                           March 31, 2016)


EVL-2016-004-1   FHFA should review FHFA’s existing        FHFA’s Examiners       Closed—
                 requirements, guidance, and               Did Not Meet           Recommendation
                 processes regarding MRAs against          Requirements           rejected.
                 the requirements, guidance, and           and Guidance
                 processes adopted by the OCC, Federal     for Oversight of
                 Reserve, and other federal financial      an Enterprise’s
                 regulators including, but not limited     Remediation of
                 to, content of an MRA; standards for      Serious Deficiencies
                 proposed remediation plans; approval      (EVL-2016-004,
                 authority for proposed remediation        March 29, 2016)
                 plans; real-time assessments at
                 regular intervals of the effectiveness
                 and timeliness of an Enterprise’s MRA
                 remediation efforts; final assessment
                 of the effectiveness and timeliness
                 of an Enterprise’s MRA remediation
                 efforts; and required documentation for
                 examiner oversight of MRA remediation.




                         Semiannual Report to the Congress • October 1, 2016–March 31, 2017         85
      No.                       Recommendation                       Report Name               Status
                                                                       and Date

 EVL-2016-004-2      Based on the results of the review           FHFA’s Examiners       Closed—
                     in recommendation 1, FHFA should             Did Not Meet           Recommendation
                     assess whether any of the existing           Requirements           rejected.
                     requirements, guidance, and processes        and Guidance
                     adopted by FHFA should be enhanced,          for Oversight of
                     and make such enhancements.                  an Enterprise’s
                                                                  Remediation of
                                                                  Serious Deficiencies
                                                                  (EVL-2016-004,
                                                                  March 29, 2016)


 EVL-2016-004-3      Because DER and DBR examiners are            FHFA’s Examiners       Closed—Final
                     bound to follow FHFA’s requirements          Did Not Meet           action taken by
                     and guidance, FHFA should compare            Requirements           FHFA.
                     the processes followed by DBR for the        and Guidance
                     form, content, and issuance of an MRA,       for Oversight of
                     standards for a proposed remediation         an Enterprise’s
                     plan, approval authority for a proposed      Remediation of
                     remediation plan, and real-time              Serious Deficiencies
                     assessments at regular intervals of the      (EVL-2016-004,
                     effectiveness and timeliness of MRA          March 29, 2016)
                     remediation efforts to the processes
                     followed by DER.


 EVL-2016-004-4      Based on the results of the review           FHFA’s Examiners       Recommendation
                     in recommendation 3, FHFA should             Did Not Meet           agreed to by FHFA;
                     assess whether guidance issued and           Requirements           implementation of
                     processes followed by either DER or          and Guidance           recommendation
                     DBR should be enhanced, and make             for Oversight of       pending.
                     such enhancements.                           an Enterprise’s
                                                                  Remediation of
                                                                  Serious Deficiencies
                                                                  (EVL-2016-004,
                                                                  March 29, 2016)


 EVL-2016-004-5      FHFA should provide mandatory                FHFA’s Examiners       Recommendation
                     training for all FHFA examiners on           Did Not Meet           agreed to by FHFA;
                     FHFA requirements, guidance, and             Requirements           implementation of
                     processes and DER and DBR guidance           and Guidance           recommendation
                     for MRA issuance, review and approval        for Oversight of       pending.
                     of proposed remediation plans, and           an Enterprise’s
                     oversight of MRA remediation.                Remediation of
                                                                  Serious Deficiencies
                                                                  (EVL-2016-004,
                                                                  March 29, 2016)




86   Federal Housing Finance Agency Office of Inspector General
     No.                    Recommendation                       Report Name               Status
                                                                   and Date

EVL-2016-004-6   FHFA should evaluate the results of          FHFA’s Examiners       Recommendation
                 quality control reviews conducted by         Did Not Meet           agreed to by FHFA;
                 DER and DBR to identify and address          Requirements           implementation of
                 gaps and weaknesses involving MRA            and Guidance           recommendation
                 issuance, review and approval of             for Oversight of       pending.
                 proposed remediation plans, and              an Enterprise’s
                 oversight of MRA remediation.                Remediation of
                                                              Serious Deficiencies
                                                              (EVL-2016-004,
                                                              March 29, 2016)


EVL-2016-003-1   FHFA should comply with FSOC                 FHFA Should Map        Closed—Final
                 recommendations to take formal and           Its Supervisory        action taken by
                 timely action to compare existing            Standards for Cyber    FHFA.
                 regulatory guidance to appropriate           Risk Management
                 elements of the NIST Framework and           to Appropriate
                 identify the gaps between existing           Elements of the
                 regulatory guidance and appropriate          NIST Framework
                 elements of the NIST Framework.              (EVL-2016-003,
                                                              March 28, 2016)


EVL-2016-003-2   FHFA should comply with FSOC                 FHFA Should Map        Closed—Final
                 recommendations to determine the             Its Supervisory        action taken by
                 priority in which to address the gaps.       Standards for Cyber    FHFA.
                                                              Risk Management
                                                              to Appropriate
                                                              Elements of the
                                                              NIST Framework
                                                              (EVL-2016-003,
                                                              March 28, 2016)


EVL-2016-003-3   FHFA should comply with FSOC                 FHFA Should Map        Recommendation
                 recommendations to address the gaps,         Its Supervisory        agreed to by FHFA;
                 as prioritized, to reflect and incorporate   Standards for Cyber    implementation of
                 appropriate elements of the NIST             Risk Management        recommendation
                 Framework.                                   to Appropriate         pending.
                                                              Elements of the
                                                              NIST Framework
                                                              (EVL-2016-003,
                                                              March 28, 2016)




                          Semiannual Report to the Congress • October 1, 2016–March 31, 2017           87
      No.                       Recommendation                       Report Name              Status
                                                                       and Date

 EVL-2016-003-4      FHFA should comply with FSOC                 FHFA Should Map       Recommendation
                     recommendations to revise existing           Its Supervisory       agreed to by FHFA;
                     regulatory guidance to reflect and           Standards for Cyber   implementation of
                     incorporate appropriate elements of          Risk Management       recommendation
                     the NIST Framework in a manner that          to Appropriate        pending.
                     achieves consistency with other federal      Elements of the
                     financial regulators.                        NIST Framework
                                                                  (EVL-2016-003,
                                                                  March 28, 2016)


 EVL-2016-001-1      FHFA should implement detailed risk          Utility of FHFA’s     Recommendation
                     assessment guidance that provides            Semi-Annual Risk      agreed to by FHFA;
                     minimum requirements for risk                Assessments Would     implementation of
                     assessments that facilitate comparable       Be Enhanced           recommendation
                     analyses for each Enterprise’s risk          Through Adoption      pending.
                     positions, including common criteria         of Clear Standards
                     for determining whether risk levels are      and Defined
                     high, medium, or low, year over year.        Measures of Risk
                                                                  Levels (EVL-2016-
                                                                  001, January 4,
                                                                  2016)


 EVL-2016-001-2      FHFA should implement detailed risk          Utility of FHFA’s     Recommendation
                     assessment guidance that provides            Semi-Annual Risk      agreed to by FHFA;
                     standard requirements for format             Assessments Would     implementation of
                     and the documentation necessary              Be Enhanced           recommendation
                     to support conclusions in order              Through Adoption      pending.
                     to facilitate comparisons between            of Clear Standards
                     Enterprises and reduce variability           and Defined
                     among DER’s risk assessments for             Measures of Risk
                     each Enterprise and between the              Levels (EVL-2016-
                     Enterprises.                                 001, January 4,
                                                                  2016)

 EVL-2016-001-3      FHFA should direct DER to train              Utility of FHFA’s     Recommendation
                     its examiners-in-charge and exam             Semi-Annual Risk      agreed to by FHFA;
                     managers in the preparation of semi-         Assessments Would     implementation of
                     annual risk assessments, using               Be Enhanced           recommendation
                     enhanced risk assessment guidance            Through Adoption      pending.
                     consistent with recommendations EVL-         of Clear Standards
                     2016-001-1 and EVL-2016-001-2.               and Defined
                                                                  Measures of Risk
                                                                  Levels (EVL-2016-
                                                                  001, January 4,
                                                                  2016)




88   Federal Housing Finance Agency Office of Inspector General
     No.                    Recommendation                     Report Name                Status
                                                                 and Date

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,
                                                            September 30,
                                                            2015)


EVL-2015-007-2   FHFA should evaluate the effectiveness     Intermittent Efforts    Closed—Final
                 of the new quality control procedures,     Over Almost Four        action taken by
                 as implemented, one year after             Years to Develop        FHFA.
                 adoption.                                  a Quality Control
                                                            Review Process
                                                            Deprived FHFA of
                                                            Assurance of the
                                                            Adequacy and
                                                            Quality of Enterprise
                                                            Examinations
                                                            (EVL-2015-007,
                                                            September 30,
                                                            2015)


EVL-2015-003-1   FHFA should test the new human             Women and               Closed—Final
                 resource system to ensure that it will     Minorities in FHFA’s    action taken by
                 provide data sufficient to enable the      Workforce (EVL-         FHFA.
                 Agency to perform comprehensive            2015-003, January
                 analyses of workforce issues.              13, 2015)


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 (EVL-         implementation of
                                                            2015-003, January       recommendation
                                                            13, 2015)               pending.


EVL-2015-003-3   FHFA should adopt a diversity and          Women and               Closed—Final
                 inclusion strategic plan.                  Minorities in FHFA’s    action taken by
                                                            Workforce (EVL-         FHFA.
                                                            2015-003, January
                                                            13, 2015)




                          Semiannual Report to the Congress • October 1, 2016–March 31, 2017          89
      No.                       Recommendation                       Report Name               Status
                                                                       and Date

 EVL-2015-003-4      FHFA should research opportunities to        Women and              Closed—Final
                     partner with inner-city and other high       Minorities in FHFA’s   action taken by
                     schools, where feasible, to ensure           Workforce (EVL-        FHFA.
                     compliance with HERA.                        2015-003, January
                                                                  13, 2015)

 EVL-2014-002-1      FHFA should review its implementation        Update on              Closed—Final
                     of the 2013 Enterprise examination           FHFA’s Efforts to      action taken by
                     plans and document the extent to             Strengthen its         FHFA.
                     which resource limitations, among other      Capacity to Examine
                     things, may have impeded their timely        the Enterprises
                     and thorough execution.                      (EVL-2014-002,
                                                                  December 19,
                                                                  2013)

 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,
                                                                  December 19,
                                                                  2013)

 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-2014-002,
                                                                  December 19,
                                                                  2013)

 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,
                                                                  September 18,
                                                                  2013)




90   Federal Housing Finance Agency Office of Inspector General
     No.                    Recommendation                     Report Name               Status
                                                                 and Date

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 (EVL-
                   targets, and (3) holding managers
                                                            2013-012,
                   accountable; and
                                                            September 18,
                 •	report its findings and progress to      2013)
                   FHFA periodically.


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-
                                                            2013-012,
                                                            September 18,
                                                            2013)


EVL-2013-010-1   Because information in the report          Reducing Risk          Recommendation
                 could be used to exploit vulnerabilities   and Preventing         agreed to by FHFA;
                 and circumvent countermeasures,            Fraud in the New       implementation of
                 the recommendations have not been          Securitization         recommendation
                 released publicly.                         Infrastructure (EVL-   pending.
                                                            2013-010, August
                                                            22, 2013)

EVL-2013-010-2   Because information in the report          Reducing Risk          Closed—Final
                 could be used to exploit vulnerabilities   and Preventing         action taken by
                 and circumvent countermeasures,            Fraud in the New       FHFA.
                 the recommendations have not been          Securitization
                 released publicly.                         Infrastructure (EVL-
                                                            2013-010, August
                                                            22, 2013)


EVL-2013-010-3   Because information in the report          Reducing Risk          Recommendation
                 could be used to exploit vulnerabilities   and Preventing         agreed to by FHFA;
                 and circumvent countermeasures,            Fraud in the New       implementation of
                 the recommendations have not been          Securitization         recommendation
                 released publicly.                         Infrastructure (EVL-   pending.
                                                            2013-010, August
                                                            22, 2013)




                          Semiannual Report to the Congress • October 1, 2016–March 31, 2017         91
      No.                       Recommendation                       Report Name               Status
                                                                       and Date

 EVL-2013-010-4      Because information in the report            Reducing Risk          Recommendation
                     could be used to exploit vulnerabilities     and Preventing         agreed to by FHFA;
                     and circumvent countermeasures,              Fraud in the New       implementation of
                     the recommendations have not been            Securitization         recommendation
                     released publicly.                           Infrastructure (EVL-   pending.
                                                                  2013-010, August
                                                                  22, 2013)


 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 evidence     Unsecured Credit
                       of violations of the existing regulatory   Risk Management
                       limits and taking supervisory and          Practices (EVL-
                       enforcement actions as warranted;          2012-005, June
                       and                                        28, 2012)
                     •	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      To strengthen the regulatory framework       FHFA’s Oversight       Recommendation
                     around the extension of unsecured            of the Federal         agreed to by FHFA;
                     credit by the FHLBanks, as a                 Home Loan Banks’       implementation of
                     component of future rulemakings, FHFA        Unsecured Credit       recommendation
                     should consider the utility of:              Risk Management        pending.
                     •	establishing maximum overall               Practices (EVL-
                       exposure limits;                           2012-005, June
                                                                  28, 2012)
                     •	lowering the existing individual
                       counterparty limits; and
                     •	ensuring that the unsecured
                       exposure limits are consistent with
                       the FHLBank System’s housing
                       mission.




92   Federal Housing Finance Agency Office of Inspector General
     No.                    Recommendation                     Report Name                Status
                                                                 and Date

COM-2016-004-1   FHFA should ensure that it has             Management Alert:       Recommendation
                 adequate internal staff, outside           Need for Increased      agreed to by FHFA;
                 contractors, or both, who have the         Oversight by FHFA,      implementation of
                 professional expertise and experience      as Conservator          recommendation
                 in commercial construction to oversee      of Fannie Mae,          pending.
                 the build-out plans and associated         of the Projected
                 budget(s), as Fannie Mae continues to      Costs Associated
                 revise and refine them.                    with Fannie Mae’s
                                                            Headquarters
                                                            Consolidation and
                                                            Relocation Project
                                                            (COM-2016-004,
                                                            June 16, 2016)


COM-2016-004-2   FHFA should direct Fannie Mae to           Management Alert:       Recommendation
                 provide regular updates and formal         Need for Increased      agreed to by FHFA;
                 budgetary reports to DOC for its review    Oversight by FHFA,      implementation of
                 and for FHFA approval through the          as Conservator          recommendation
                 design and construction of Fannie          of Fannie Mae,          pending.
                 Mae’s leased space in Midtown Center.      of the Projected
                                                            Costs Associated
                                                            with Fannie Mae’s
                                                            Headquarters
                                                            Consolidation and
                                                            Relocation Project
                                                            (COM-2016-004,
                                                            June 16, 2016)


COM-2015-001-1   FHFA should determine the causes of        OIG’s Compliance        Recommendation
                 the shortfalls in the Housing Finance      Review of FHFA’s        agreed to by FHFA;
                 Examiner Commission Program that           Implementation          implementation of
                 we have identified, and implement a        of Its Housing          recommendation
                 strategy to ensure the program fulfills    Finance Examiner        pending.
                 its central objective of producing         Commission
                 commissioned examiners who are             Program (COM-
                 qualified to lead major risk sections of   2015-001, July 29,
                 GSE examinations.                          2015)


OIG-2017-004-1   Public release by OIG of the               Administrative          Awaiting
                 Management Alert and accompanying          Investigation of        management
                 expert report is prohibited by the         Hotline Complaints:     response.
                 Privacy Act of 1974 (Pub.L. 93–579,        Conflicts of Interest
                 88 Stat. 1896, enacted December 31,        Issue (OIG-2017-
                 1974, 5 U.S.C. § 552a).                    004, March 23,
                                                            2017)




                          Semiannual Report to the Congress • October 1, 2016–March 31, 2017         93
      No.                       Recommendation                       Report Name                Status
                                                                       and Date

 OIG-2017-004-2      Public release by OIG of the                 Administrative          Awaiting
                     Management Alert and accompanying            Investigation of        management
                     expert report is prohibited by the           Hotline Complaints:     response.
                     Privacy Act of 1974 (Pub.L. 93–579,          Conflicts of Interest
                     88 Stat. 1896, enacted December 31,          Issue (OIG-2017-
                     1974, 5 U.S.C. § 552a).                      004, March 23,
                                                                  2017)


 OIG-2017-001-1      FHFA should cease using FHFA                 Administrative          Recommendation
                     vehicles and employees to provide            Investigation of        agreed to by FHFA;
                     transportation to Agency employees           an Anonymous            implementation of
                     in a manner that is inconsistent with        Hotline Complaint       recommendation
                     federal law and regulations.                 Alleging Use of         pending.
                                                                  FHFA Vehicles and
                                                                  FHFA Employees
                                                                  in a Manner
                                                                  Inconsistent with
                                                                  Law and Regulation
                                                                  (OIG-2017-001,
                                                                  December 6, 2016)


 OIG-2017-001-2      FHFA should cease using FHFA                 Administrative          Recommendation
                     employees to research or book                Investigation of        agreed to by FHFA;
                     personal travel for [the subject] or the     an Anonymous            implementation of
                     subject’s family in contravention of 5       Hotline Complaint       recommendation
                     C.F.R. § 2635.705(b).                        Alleging Use of         pending.
                                                                  FHFA Vehicles and
                                                                  FHFA Employees
                                                                  in a Manner
                                                                  Inconsistent with
                                                                  Law and Regulation
                                                                  (OIG-2017-001,
                                                                  December 6, 2016)


 OIG-2017-001-3      FHFA should revise its Vehicle Use           Administrative          Recommendation
                     Policy to track the requirements of          Investigation of        agreed to by FHFA;
                     Section 1344 and implementing                an Anonymous            implementation of
                     regulations.                                 Hotline Complaint       recommendation
                                                                  Alleging Use of         pending.
                                                                  FHFA Vehicles and
                                                                  FHFA Employees
                                                                  in a Manner
                                                                  Inconsistent with
                                                                  Law and Regulation
                                                                  (OIG-2017-001,
                                                                  December 6, 2016)




94   Federal Housing Finance Agency Office of Inspector General
     No.                    Recommendation                    Report Name              Status
                                                                and Date

OIG-2017-001-4   FHFA should maintain detailed usage        Administrative       Recommendation
                 logs for all leased vehicles.              Investigation of     agreed to by FHFA;
                                                            an Anonymous         implementation of
                                                            Hotline Complaint    recommendation
                                                            Alleging Use of      pending.
                                                            FHFA Vehicles and
                                                            FHFA Employees
                                                            in a Manner
                                                            Inconsistent with
                                                            Law and Regulation
                                                            (OIG-2017-001,
                                                            December 6, 2016)


OIG-2017-001-5   FHFA should train employees tasked         Administrative       Recommendation
                 with providing FHFA transportation to      Investigation of     agreed to by FHFA;
                 [the subject] and other FHFA employees     an Anonymous         implementation of
                 with applicable statutory and regulatory   Hotline Complaint    recommendation
                 requirements.                              Alleging Use of      pending.
                                                            FHFA Vehicles and
                                                            FHFA Employees
                                                            in a Manner
                                                            Inconsistent with
                                                            Law and Regulation
                                                            (OIG-2017-001,
                                                            December 6, 2016)


OIG-2017-001-6   FHFA should adopt appropriate internal     Administrative       Recommendation
                 controls to ensure that the findings       Investigation of     agreed to by FHFA;
                 required by Section 1344 are made          an Anonymous         implementation of
                 by the appropriate Agency employee,        Hotline Complaint    recommendation
                 are documented in writing, and that        Alleging Use of      pending.
                 requisite notices are provided.            FHFA Vehicles and
                                                            FHFA Employees
                                                            in a Manner
                                                            Inconsistent with
                                                            Law and Regulation
                                                            (OIG-2017-001,
                                                            December 6, 2016)




                         Semiannual Report to the Congress • October 1, 2016–March 31, 2017       95
      No.                       Recommendation                      Report Name              Status
                                                                      and Date

 OIG-2017-001-7      FHFA should retain all documentation         Administrative       Recommendation
                     relating to provision of transportation      Investigation of     agreed to by FHFA;
                     under Section 1344.                          an Anonymous         implementation of
                                                                  Hotline Complaint    recommendation
                                                                  Alleging Use of      pending.
                                                                  FHFA Vehicles and
                                                                  FHFA Employees
                                                                  in a Manner
                                                                  Inconsistent with
                                                                  Law and Regulation
                                                                  (OIG-2017-001,
                                                                  December 6, 2016)




96   Federal Housing Finance Agency Office of Inspector General
Figure 6. Summary of OIG Reports Where All Recommendations Are Closed

                                     Report                                      No. of Recommendations
 Review of FHFA’s Tracking and Rating of the 2013 Scorecard Objective for                  3
 the New Representation and Warranty Framework Reveals Opportunities to
 Strengthen the Process (AUD-2016-002)

 FHFA Should Improve its Examinations of the Effectiveness of the Federal                  2
 Home Loan Banks’ Cyber Risk Management Programs by Including an
 Assessment of the Design of Critical Internal Controls (AUD-2016-001)

 Kearney & Company, P.C.’s Independent Evaluation of the Federal Housing                   5
 Finance Agency Office of Inspector General’s Information Security Program -
 2015 (AUD-2015-003)

 Kearney & Company, P.C.’s Independent Evaluation of the Federal Housing                   3
 Finance Agency’s Information Security Program - 2015 (AUD-2015-002)

 CliftonLarsenAllen, LLP’s Independent Audit of the Federal Housing Finance                6
 Agency’s Privacy Program - 2014 (AUD-2014-020)

 FHFA’s Oversight of Risks Associated with the Enterprises Relying on                      1
 Counterparties to Comply with Selling and Servicing Guidelines
 (AUD-2014-018)

 FHFA Oversight of Freddie Mac’s Information Technology Investments                        3
 (AUD-2014-017)

 FHFA’s Representation and Warranty Framework (AUD-2014-016)                               2

 FHFA Oversight of Fannie Mae’s Collection of Funds from Servicers that Closed             3
 Short Sales Below the Authorized Prices (AUD-2014-015)

 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 Oversight of Enterprise Controls Over Pre-Foreclosure Property                       2
 Inspections (AUD-2014-012)

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

 FHFA Oversight of Enterprise Handling of Aged Repurchase Demands                          3
 (AUD-2014-009)

 FHFA’s Implementation of Active Directory (AUD-2014-007)                                  4

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




                                  Semiannual Report to the Congress • October 1, 2016–March 31, 2017      97
                                     Report                                       No. of Recommendations
 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)

 Kearney & Company, P.C.’s Independent Evaluation of the Federal Housing                    4
 Finance Agency’s Office of Inspector General’s Information Security Program -
 2013 (AUD-2014-002)

 Kearney & Company, P.C.’s Independent Evaluation of the Federal Housing                   15
 Finance Agency’s Information Security Program - 2013 (AUD-2014-001)

 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)

 FHFA’s Oversight of the Asset Quality of Multifamily Housing Loans Financed by             2
 Fannie Mae and Freddie Mac (AUD-2013-004)

 CliftonLarsonAllen LLP’s Evaluation of the Federal Housing Finance Agency’s               10
 Information Security Program - 2012 (AUD-2013-003)

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




98     Federal Housing Finance Agency Office of Inspector General
                                    Report                                        No. of Recommendations
FHFA’s Oversight of the Enterprises’ Efforts to Recover Losses from Foreclosure             3
Sales (AUD-2013-001)

CliftonLarsonAllen LLP’s Audit of FHFA’s Controls and Protocols over Sensitive              6
and Proprietary Information Collected and Exchanged with the Financial
Stability Oversight Council (AUD-2012-009)

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 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)

FHFA’s Exercise of Its Conservatorship Powers to Review and Approve the                     4
Enterprises’ Annual Operating Budgets Has Not Achieved FHFA’s Stated
Purpose (EVL-2015-006)

FHFA’s Oversight of Governance Risks Associated with Fannie Mae’s Selection                 5
and Appointment of a New Chief Audit Executive (EVL-2015-004)

Evaluation of the Division of Enterprise Regulation’s 2013 Examination                      1
Records: Successes and Opportunities (EVL-2015-001)

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

FHFA’s Oversight of the Enterprises’ Lender-Placed Insurance Costs                          1
(EVL-2014-009)




                                 Semiannual Report to the Congress • October 1, 2016–March 31, 2017        99
                                     Report                                      No. of Recommendations
 Status of the Development of the Common Securitization Platform                           2
 (EVL-2014-008)

 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)

 FHFA’s Oversight of the Servicing Alignment Initiative (EVL-2014-003)                     3

 FHFA’s Oversight of Derivative Counterparty Risk (ESR-2014-001)                           1

 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 (EVL-2012-007)                         1

 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 (ESR-2012-003)                 2

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

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




100    Federal Housing Finance Agency Office of Inspector General
                                   Report                                       No. of Recommendations
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)

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)

Compliance Review of FHFA’s Oversight of Enterprise Executive Compensation                2
Based on Corporate Scorecard Performance (COM-2016-002)




                                Semiannual Report to the Congress • October 1, 2016–March 31, 2017   101
Figure 7 (see below) summarizes OIG’s outstanding         Increased Oversight by FHFA, as Conservator of Fannie
unimplemented recommendations, comprised                  Mae, of the Projected Costs Associated with Fannie Mae’s
of open recommendations and closed, rejected              Headquarters Consolidation and Relocation Project
recommendations, which were closed in light               (COM 2016-004, June 16, 2016), online at www.
of the Agency’s permanent rejection or failure            fhfaoig.gov/Reports/ManagementAlerts.) During the
to follow through on corrective action. At the            current reporting period, in OIG-2017-002, OIG
end of the semiannual period, OIG had 62                  questioned costs of $24,200,000. Taken together, the
open recommendations, including 47 issued                 questioned and unsupported costs and funds put to
before October 1, 2016, and 19 closed, rejected           better use identified by OIG in the unimplemented
recommendations, all of which were issued                 recommendation and reports could result in
before October 1, 2016. These unimplemented               $77,444,875 in aggregate savings.
recommendations come from 35 different reports.
                                                          Figure 8 (see page 103) lists OIG’s outstanding
Questioned and unsupported costs and funds put            unimplemented recommendations, including
to better use identified by OIG have the potential        both open recommendations and closed, rejected
to produce savings. Recommendation AUD-2014-              recommendations, organized by risk area. Summaries
005-1, which was rejected by FHFA, had $5,015,505         for all reports are available at www.fhfaoig.gov or
in funds put to better use. OIG also identified           through the links provided in the accompanying
questioned costs during a prior reporting period of       table.
$48,229,370. (See OIG, Management Alert: Need for


Figure 7. Summary of OIG Outstanding Unimplemented Recommendations

                                                                       Total Number            Dollar Value
                               Number of Unimplemented                of Reports with          of Aggregate
      Fiscal Year
                                  Recommendations                     Unimplemented           Potential Cost
                                                                     Recommendations              Savings
        2011            0 open recommendations
                                                                             0
                        0 closed, rejected recommendations                                                     $-
        2012            2 open recommendations
                                                                             2
                        0 closed, rejected recommendations                                                     $-
        2013            4 open recommendations
                                                                             2
                        1 closed, rejected recommendations                                                     $-
        2014            8 open recommendations
                                                                            10
                        8 closed, rejected recommendations                                         $5,015,505
        2015            3 open recommendations
                                                                             4
                        1 closed, rejected recommendations                                                     $-
        2016            30 open recommendations
                                                                            12
                        9 closed, rejected recommendations                                                     $-
        2017            15 open recommendations
                                                                             5
                        0 closed, rejected recommendations                                                     $-
         Total          62 open recommendations
                                                                            35
                        19 closed, rejected recommendations                                        $5,015,505


102     Federal Housing Finance Agency Office of Inspector General
Figure 8. Summary of OIG Open Recommendations and Closed, Unimplemented Recommendations

    Specific Risk                                                                       Report Name
                                 Recommendation                   Expected Impact
   to be Mitigated                                                                        and Date
                                          Open Recommendations
                             Conservatorship: Non-Delegated Responsibilities
    Oversight of      FHFA should ensure that it has             Improved oversight   Management Alert:
     Fannie Mae       adequate internal staff, outside                                Need for Increased
    Headquarters      contractors, or both, who have the                              Oversight by FHFA,
  Consolidation and   professional expertise and experience                           as Conservator
     Relocation       in commercial construction to oversee                           of Fannie Mae,
                      the build-out plans and associated                              of the Projected
                      budget(s), as Fannie Mae continues to                           Costs Associated
                      revise and refine them.                                         with Fannie Mae’s
                                                                                      Headquarters
                                                                                      Consolidation and
                                                                                      Relocation Project
                                                                                      (COM-2016-004,
                                                                                      June 16, 2016)

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

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




                               Semiannual Report to the Congress • October 1, 2016–March 31, 2017    103
   Specific Risk                                                                             Report Name
                                   Recommendation                     Expected Impact
  to be Mitigated                                                                              and Date
    Review and          FHFA’s Division of Housing Mission and       Improved oversight   FHFA’s Oversight
   Enhancement          Goals should formally establish a policy                          of Fannie Mae’s
  of Underwriting       for its review process of underwriting                            Single-Family
     Standards          standards and variances, including                                Underwriting
                        escalation of unresolved issues                                   Standards
                        reflecting potential lack of agreement.                           (AUD-2012-
                                                                                          003, March
                                                                                          22, 2012); see
                                                                                          also Compliance
                                                                                          Review of FHFA’s
                                                                                          Implementation
                                                                                          of Its Procedures
                                                                                          for Overseeing the
                                                                                          Enterprises’ Single-
                                                                                          Family Mortgage
                                                                                          Underwriting
                                                                                          Standards and
                                                                                          Variances (COM-
                                                                                          2016-001,
                                                                                          December 17,
                                                                                          2015)

      Conflicts of      Public release by OIG of the                 Improved oversight   Administrative
       Interest         Management Alert and accompanying                                 Investigation of
                        expert report is prohibited by the                                Hotline Complaints:
                        Privacy Act of 1974 (Pub.L. 93–579,                               Conflicts of Interest
                        88 Stat. 1896, enacted December 31,                               Issue (OIG-2017-
                        1974, 5 U.S.C. § 552a).                                           004, March 23,
                                                                                          2017)

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

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



104     Federal Housing Finance Agency Office of Inspector General
  Specific Risk                                                                       Report Name
                               Recommendation                    Expected Impact
 to be Mitigated                                                                        and Date
 Accreditation of   FHFA should determine the causes of         Improved quality   OIG’s Compliance
   Examiners        the shortfalls in the Housing Finance                          Review of FHFA’s
                    Examiner Commission Program that                               Implementation
                    we have identified, and implement a                            of Its Housing
                    strategy to ensure the program fulfills                        Finance Examiner
                    its central objective of producing                             Commission
                    commissioned examiners who are                                 Program (COM-
                    qualified to lead major risk sections of                       2015-001, July 29,
                    GSE examinations.                                              2015)

Examiner Rotation   FHFA should develop, communicate to         Improved           FHFA’s Practice
                    DER examination staff, and implement        supervision        for Rotation of
                    an examiner rotation practice or                               its Examiners
                    policy that explains the timeframe for                         Is Inconsistent
                    examiner rotation, whether examiners                           between its Two
                    would be rotated across or within                              Supervisory
                    Enterprises, and which types of                                Divisions (EVL-
                    examiners, in addition to the EICs,                            2017-004, March
                    would be subject to the rotation                               28, 2017)
                    practice or policy.

                    FHFA should direct DER to implement         Improved           FHFA’s Practice
                    a mechanism to track and document           supervision        for Rotation of
                    over time DER examiner assignments                             its Examiners
                    by Enterprise and risk area to facilitate                      Is Inconsistent
                    implementation of the examiner                                 between its Two
                    rotation practice or policy.                                   Supervisory
                                                                                   Divisions (EVL-
                                                                                   2017-004, March
                                                                                   28, 2017)

 Quality Control    FHFA should ensure that DER’s recently      Improved quality   Intermittent Efforts
                    adopted procedures for quality control                         Over Almost Four
                    reviews meet the requirements of                               Years to Develop
                    Supervision Directive 2013-01 and                              a Quality Control
                    require DER to document in detail                              Review Process
                    the results and findings of each                               Deprived FHFA
                    quality control review in examination                          of Assurance of
                    workpapers, including any shortcomings                         the Adequacy
                    found during the quality control review.                       and Quality
                                                                                   of Enterprise
                                                                                   Examinations
                                                                                   (EVL-2015-007,
                                                                                   September 30,
                                                                                   2015)




                             Semiannual Report to the Congress • October 1, 2016–March 31, 2017     105
   Specific Risk                                                                        Report Name
                                 Recommendation                     Expected Impact
  to be Mitigated                                                                         and Date
 Risk Assessments     FHFA should implement detailed risk          Improved           Utility of FHFA’s
  for Supervisory     assessment guidance that provides            understanding of   Semi-Annual Risk
      Planning        minimum requirements for risk                risk               Assessments Would
                      assessments that facilitate comparable                          Be Enhanced
                      analyses for each Enterprise’s risk                             Through Adoption
                      positions, including common criteria                            of Clear Standards
                      for determining whether risk levels are                         and Defined
                      high, medium, or low, year over year.                           Measures of Risk
                                                                                      Levels (EVL-2016-
                                                                                      001, January 4,
                                                                                      2016)

                      FHFA should implement detailed risk          Improved           Utility of FHFA’s
                      assessment guidance that provides            understanding of   Semi-Annual Risk
                      standard requirements for format             risk               Assessments Would
                      and the documentation necessary                                 Be Enhanced
                      to support conclusions in order                                 Through Adoption
                      to facilitate comparisons between                               of Clear Standards
                      Enterprises and reduce variability                              and Defined
                      among DER’s risk assessments for                                Measures of Risk
                      each Enterprise and between the                                 Levels (EVL-2016-
                      Enterprises.                                                    001, January 4,
                                                                                      2016)

                      FHFA should direct DER to train              Improved           Utility of FHFA’s
                      its examiners-in-charge and exam             understanding of   Semi-Annual Risk
                      managers in the preparation of semi-         risk               Assessments Would
                      annual risk assessments, using                                  Be Enhanced
                      enhanced risk assessment guidance                               Through Adoption
                      consistent with recommendations EVL-                            of Clear Standards
                      2016-001-1 and EVL-2016-001-2.                                  and Defined
                                                                                      Measures of Risk
                                                                                      Levels (EVL-2016-
                                                                                      001, January 4,
                                                                                      2016)




106   Federal Housing Finance Agency Office of Inspector General
 Specific Risk                                                                     Report Name
                             Recommendation                   Expected Impact
to be Mitigated                                                                      and Date
  Targeted        FHFA should ensure that risk               Improved           FHFA’s Supervisory
Examinations      assessments support the                    supervision        Planning Process
 Completed        supervisory plan in terms of the                              for the Enterprises:
                  targeted examinations included in                             Roughly Half of
                  those supervisory plans and the                               FHFA’s 2014 and
                  priority assigned to those targeted                           2015 High-Priority
                  examinations.                                                 Planned Targeted
                                                                                Examinations
                                                                                Did Not Trace to
                                                                                Risk Assessments
                                                                                and Most High-
                                                                                Priority Planned
                                                                                Examinations Were
                                                                                Not Completed
                                                                                (AUD-2016-005,
                                                                                September 30,
                                                                                2016)

                  FHFA should reinforce and hold the         Improved           FHFA’s Supervisory
                  EICs accountable to meet FHFA’s            supervision        Planning Process
                  requirement for risk assessments                              for the Enterprises:
                  to be updated semiannually, and as                            Roughly Half of
                  additional information is learned that                        FHFA’s 2014 and
                  causes significant changes to the risk                        2015 High-Priority
                  profile, such information, from whatever                      Planned Targeted
                  sources, should be factored into                              Examinations
                  the risk assessment during the next                           Did Not Trace to
                  update.                                                       Risk Assessments
                                                                                and Most High-
                                                                                Priority Planned
                                                                                Examinations Were
                                                                                Not Completed
                                                                                (AUD-2016-005,
                                                                                September 30,
                                                                                2016)




                          Semiannual Report to the Congress • October 1, 2016–March 31, 2017     107
   Specific Risk                                                                         Report Name
                                 Recommendation                     Expected Impact
  to be Mitigated                                                                          and Date

                      FHFA should direct DER to develop            Improved           FHFA’s Supervisory
                      and implement controls to ensure             supervision        Planning Process
                      that high-priority planned targeted                             for the Enterprises:
                      examinations are completed before                               Roughly Half of
                      lower priority targeted examinations,                           FHFA’s 2014 and
                      unless the reason(s) for performing a                           2015 High-Priority
                      lower priority targeted examination in                          Planned Targeted
                      lieu of a higher priority planned targeted                      Examinations
                      examination is documented and risk                              Did Not Trace to
                      based (e.g., change in process, delay in                        Risk Assessments
                      implementation).                                                and Most High-
                                                                                      Priority Planned
                                                                                      Examinations Were
                                                                                      Not Completed
                                                                                      (AUD-2016-005,
                                                                                      September 30,
                                                                                      2016)

                      FHFA should enhance DER guidance             Improved           FHFA’s Supervisory
                      to provide a common definition for           supervision        Planning Process
                      the priority assigned to targeted                               for the Enterprises:
                      examinations and require examiners                              Roughly Half of
                      to document the basis of the priority                           FHFA’s 2014 and
                      assigned to targeted examinations.                              2015 High-Priority
                                                                                      Planned Targeted
                                                                                      Examinations
                                                                                      Did Not Trace to
                                                                                      Risk Assessments
                                                                                      and Most High-
                                                                                      Priority Planned
                                                                                      Examinations Were
                                                                                      Not Completed
                                                                                      (AUD-2016-005,
                                                                                      September 30,
                                                                                      2016)




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

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




                           Semiannual Report to the Congress • October 1, 2016–March 31, 2017   109
   Specific Risk                                                                        Report Name
                                 Recommendation                     Expected Impact
  to be Mitigated                                                                         and Date

                      FHFA should develop and implement            Improved           FHFA’s Targeted
                      guidance that clearly requires               supervision        Examinations
                      supervisory plans to identify and                               of Freddie Mac:
                      prioritize the planned targeted                                 Just Over Half
                      examinations that are to be completed                           of the Targeted
                      for each supervisory cycle, in order                            Examinations
                      to fully inform the ROE and CAMELSO                             Planned for 2012
                      ratings for that cycle.                                         through 2015
                                                                                      Were Completed
                                                                                      (AUD-2016-
                                                                                      007, September
                                                                                      30, 2016);
                                                                                      FHFA’s Targeted
                                                                                      Examinations
                                                                                      of Fannie Mae:
                                                                                      Less than Half
                                                                                      of the Targeted
                                                                                      Examinations
                                                                                      Planned for 2012
                                                                                      through 2015 Were
                                                                                      Completed and
                                                                                      No Examinations
                                                                                      Planned for 2015
                                                                                      Were Completed
                                                                                      Before the Report
                                                                                      of Examination
                                                                                      Issued (AUD-2016-
                                                                                      006, September
                                                                                      30, 2016)




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

                  FHFA should develop and implement a      Improved            FHFA’s Targeted
                  control that provides for the tracking   supervision         Examinations
                  and documentation of planned targeted                        of Freddie Mac:
                  examinations, through disposition, in                        Just Over Half
                  DER’s official system of record.                             of the Targeted
                                                                               Examinations
                                                                               Planned for 2012
                                                                               through 2015
                                                                               Were Completed
                                                                               (AUD-2016-
                                                                               007, September
                                                                               30, 2016);
                                                                               FHFA’s Targeted
                                                                               Examinations
                                                                               of Fannie Mae:
                                                                               Less than Half
                                                                               of the Targeted
                                                                               Examinations
                                                                               Planned for 2012
                                                                               through 2015 Were
                                                                               Completed and
                                                                               No Examinations
                                                                               Planned for 2015
                                                                               Were Completed
                                                                               Before the Report
                                                                               of Examination
                                                                               Issued (AUD-2016-
                                                                               006, September
                                                                               30, 2016)




                          Semiannual Report to the Congress • October 1, 2016–March 31, 2017   111
   Specific Risk                                                                         Report Name
                                 Recommendation                     Expected Impact
  to be Mitigated                                                                          and Date

                      FHFA should reinforce and hold               Improved           FHFA’s Targeted
                      EICs accountable to follow DER’s             supervision        Examinations
                      requirement to fully document the                               of Freddie Mac:
                      risk-based justifications for changes to                        Just Over Half
                      the supervisory plan, and that changes                          of the Targeted
                      to supervisory plans are documented                             Examinations
                      and approved by the EIC. Ensure                                 Planned for 2012
                      that examiners follow DER Operating                             through 2015
                      Procedures Bulletin 2013-DER-                                   Were Completed
                      OPB-03.1 to fully document the risk-                            (AUD-2016-
                      based justifications for changes to the                         007, September
                      supervisory plan, and that changes to                           30, 2016);
                      supervisory plans are documented and                            FHFA’s Targeted
                      approved by the EIC.                                            Examinations
                                                                                      of Fannie Mae:
                                                                                      Less than Half
                                                                                      of the Targeted
                                                                                      Examinations
                                                                                      Planned for 2012
                                                                                      through 2015 Were
                                                                                      Completed and
                                                                                      No Examinations
                                                                                      Planned for 2015
                                                                                      Were Completed
                                                                                      Before the Report
                                                                                      of Examination
                                                                                      Issued (AUD-2016-
                                                                                      006, September
                                                                                      30, 2016)

   Oversight of       Based on the results of the review           Improved           FHFA’s Examiners
    Enterprise        in recommendation 3, FHFA should             remediation of     Did Not Meet
  Remediation of      assess whether guidance issued and           deficiencies       Requirements
   Deficiencies       processes followed by either DER or                             and Guidance
                      DBR should be enhanced, and make                                for Oversight of
                      such enhancements.                                              an Enterprise’s
                                                                                      Remediation of
                                                                                      Serious Deficiencies
                                                                                      (EVL-2016-004,
                                                                                      March 29, 2016)

                      FHFA should provide mandatory                Improved           FHFA’s Examiners
                      training for all FHFA examiners on           remediation of     Did Not Meet
                      FHFA requirements, guidance, and             deficiencies       Requirements
                      processes and DER and DBR guidance                              and Guidance
                      for MRA issuance, review and approval                           for Oversight of
                      of proposed remediation plans, and                              an Enterprise’s
                      oversight of MRA remediation.                                   Remediation of
                                                                                      Serious Deficiencies
                                                                                      (EVL-2016-004,
                                                                                      March 29, 2016)



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

                     FHFA should evaluate the results of        Improved           FHFA’s Examiners
                     quality control reviews conducted by       remediation of     Did Not Meet
                     DER and DBR to identify and address        deficiencies       Requirements
                     gaps and weaknesses involving MRA                             and Guidance
                     issuance, review and approval of                              for Oversight of
                     proposed remediation plans, and                               an Enterprise’s
                     oversight of MRA remediation.                                 Remediation of
                                                                                   Serious Deficiencies
                                                                                   (EVL-2016-004,
                                                                                   March 29, 2016)

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

                     FHFA should revise its Examination         Improved Board     FHFA Failed to
                     Manual to:                                 oversight          Consistently Deliver
                     •	Require that each final ROE be                              Timely Reports of
                       addressed and delivered to the board                        Examination to the
                       of directors of an Enterprise by DER                        Enterprise Boards
                       examiners to eliminate any confusion                        and Obtain Written
                       over the meaning of the term “issue;”                       Responses from the
                                                                                   Boards Regarding
                     •	Establish a timetable for submission
                                                                                   Remediation
                       of the final ROE to each Enterprise’s
                                                                                   of Supervisory
                       board of directors and for DER’s
                                                                                   Concerns Identified
                       presentation of the ROE results,
                                                                                   in those Reports
                       conclusions, and supervisory
                                                                                   (EVL-2016-009,
                       concerns to each Enterprise board;
                                                                                   July 14, 2016)
                     •	Require each Enterprise board to
                       reflect its review of each annual ROE
                       in meeting minutes; and
                     •	Require each Enterprise board to
                       reflect its review and approval of its
                       written response to the ROE in its
                       meeting minutes.




                             Semiannual Report to the Congress • October 1, 2016–March 31, 2017    113
   Specific Risk                                                                         Report Name
                                 Recommendation                     Expected Impact
  to be Mitigated                                                                          and Date

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

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

                      FHFA should require DER, upon                Improved           FHFA’s Inconsistent
                      acceptance of an Enterprise’s                remediation of     Practices in
                      remediation plan, to estimate the date       deficiencies       Assessing
                      by which it expects to confirm internal                         Enterprise
                      audit’s validation, and to enter that                           Remediation of
                      date into a dedicated field in the MRA                          Serious Deficiencies
                      tracking system.                                                and Weaknesses
                                                                                      in its Tracking
                                                                                      Systems Limit the
                                                                                      Effectiveness of
                                                                                      FHFA’s Supervision
                                                                                      of the Enterprises
                                                                                      (EVL-2016-007,
                                                                                      July 14, 2016)




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

                     FHFA should require DER to conduct       Improved            FHFA’s Inconsistent
                     and document, in an Analysis             remediation of      Practices in
                     Memorandum or other work paper,          deficiencies        Assessing
                     an independent assessment of the                             Enterprise
                     adequacy of each Enterprise MRA                              Remediation of
                     remediation plan and the basis upon                          Serious Deficiencies
                     which such plan is either accepted                           and Weaknesses
                     or rejected, and to maintain that                            in its Tracking
                     document in DER’s supervisory record-                        Systems Limit the
                     keeping system.                                              Effectiveness of
                                                                                  FHFA’s Supervision
                                                                                  of the Enterprises
                                                                                  (EVL-2016-007,
                                                                                  July 14, 2016)

                     FHFA should require DER, when            Improved            FHFA’s Inconsistent
                     evaluating whether to close an MRA,      remediation of      Practices in
                     to conduct and document (in an           deficiencies        Assessing
                     Analysis Memorandum or other work                            Enterprise
                     paper) an independent analysis of the                        Remediation of
                     adequacy and sustainability of the                           Serious Deficiencies
                     Enterprise’s remediation activity, or                        and Weaknesses
                     where appropriate, the adequacy of the                       in its Tracking
                     Enterprise’s internal audit validation                       Systems Limit the
                     work, and maintain that document                             Effectiveness of
                     in DER’s supervisory record-keeping                          FHFA’s Supervision
                     system.                                                      of the Enterprises
                                                                                  (EVL-2016-007,
                                                                                  July 14, 2016)

 Identification of   FHFA should direct DER to develop        Improved Board      FHFA’s Failure
 Deficiencies and    and adopt a standard template for        oversight           to Consistently
Their Root Causes    Enterprise ROEs, issue instructions                          Identify Specific
                     for completing that template, and                            Deficiencies and
                     promulgate guidance that establishes                         Their Root Causes
                     baseline elements that must be                               in Its Reports
                     included in each ROE, such as: clear                         of Examination
                     communication of deficient, unsafe,                          Constrains the
                     or unsound practices; explanation                            Ability of the
                     of how those practices gave rise to                          Enterprise Boards
                     supervisory concerns or deficiencies;                        to Exercise
                     and prioritization of remediation of                         Effective Oversight
                     supervisory concerns and deficiencies.                       of Management’s
                                                                                  Remediation
                                                                                  of Supervisory
                                                                                  Concerns (EVL-
                                                                                  2016-008, July 14,
                                                                                  2016)




                             Semiannual Report to the Congress • October 1, 2016–March 31, 2017   115
   Specific Risk                                                                         Report Name
                                 Recommendation                     Expected Impact
  to be Mitigated                                                                          and Date

                      FHFA should develop written procedures       Improved Board     FHFA’s Failure
                      for the “fatal flaw” review of the           oversight          to Consistently
                      ROE by Enterprise management that                               Identify Specific
                      establish the purpose of the review, its                        Deficiencies and
                      duration, and a standard message for                            Their Root Causes
                      conveying this information to Enterprise                        in Its Reports
                      management.                                                     of Examination
                                                                                      Constrains the
                                                                                      Ability of the
                                                                                      Enterprise Boards
                                                                                      to Exercise
                                                                                      Effective Oversight
                                                                                      of Management’s
                                                                                      Remediation
                                                                                      of Supervisory
                                                                                      Concerns (EVL-
                                                                                      2016-008, July 14,
                                                                                      2016)

   Extension of       To strengthen the regulatory framework       Improved           FHFA’s Oversight
 Unsecured Credit     around the extension of unsecured            compliance         of the Federal
 by Federal Home      credit by the FHLBanks, as a                                    Home Loan Banks’
   Loan Banks         component of future rulemakings, FHFA                           Unsecured Credit
                      should consider the utility of:                                 Risk Management
                      •	establishing maximum overall                                  Practices (EVL-
                        exposure limits;                                              2012-005, June
                                                                                      28, 2012)
                      •	lowering the existing individual
                        counterparty limits; and
                      •	ensuring that the unsecured exposure
                        limits are consistent with the Federal
                        Home Loan Bank System’s housing
                        mission.

                                              Counterparties
   Reliability of     FHFA should perform supervisory review       Improved           FHFA’s Oversight
  Appraisal Data      of both Enterprises to ensure the portal     compliance         of the Enterprises’
                      warning messages distinguish between                            Use of Appraisal
                      inactive appraisers and unverified                              Data Before
                      appraisers, as of the date the appraisal                        They Buy Single-
                      is performed.                                                   Family Mortgages
                                                                                      (AUD-2014-008,
                                                                                      February 6, 2014)




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

                     FHFA should perform supervisory review      Improved             FHFA’s Oversight
                     of both Enterprises to ensure that the      compliance           of the Enterprises’
                     portal tests whether appraisers are                              Use of Appraisal
                     licensed and active at the time the                              Data Before
                     appraisal is performed.                                          They Buy Single-
                                                                                      Family Mortgages
                                                                                      (AUD-2014-008,
                                                                                      February 6, 2014)

                     FHFA should perform supervisory review      Improved             FHFA’s Oversight
                     of both Enterprises to change the           compliance           of the Enterprises’
                     message type, for messages relating                              Use of Appraisal
                     to appraiser license status, from                                Data Before
                     automatic override to manual override                            They Buy Single-
                     or fatal, which will require lenders to                          Family Mortgages
                     take action to address the message                               (AUD-2014-008,
                     prior to delivering the loan. This action                        February 6, 2014)
                     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.

  Collection of      FHFA should require Fannie Mae to:          Improved financial   Evaluation of
   Funds from                                                    management           Fannie Mae’s
                     •	quantify and aggregate its
    Servicers                                                                         Servicer
                       overpayments to servicers regularly;
                                                                                      Reimbursement
                     •	implement a plan to reduce these
                                                                                      Operations for
                       overpayments by (1) identifying their
                                                                                      Delinquency
                       root causes, (2) creating reduction
                                                                                      Expenses (EVL-
                       targets, and (3) holding managers
                                                                                      2013-012,
                       accountable; and
                                                                                      September 18,
                     •	report its findings and progress to                            2013)
                       FHFA periodically.

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




                              Semiannual Report to the Congress • October 1, 2016–March 31, 2017       117
   Specific Risk                                                                              Report Name
                                 Recommendation                      Expected Impact
  to be Mitigated                                                                               and Date
                                           Information Technology
 OIG Information      Because information in the report could       Improved               Kearney &
   Technology         be abused to circumvent OIG’s internal        information security   Company, P.C.’s
    Security          controls, the recommendations have                                   Independent
                      not been released publicly.                                          Evaluation of
                                                                                           the Federal
                                                                                           Housing Finance
                                                                                           Agency Office of
                                                                                           Inspector General’s
                                                                                           Information
                                                                                           Security
                                                                                           Program—2014
                                                                                           (AUD-2014-021,
                                                                                           September 30,
                                                                                           2014)

                      Because information in the report could       Improved               Performance Audit
                      be abused to circumvent OIG’s internal        information security   of the Federal
                      controls, the recommendations have                                   Housing Finance
                      not been released publicly.                                          Agency Office of
                                                                                           Inspector General’s
                                                                                           Information
                                                                                           Security Program
                                                                                           Fiscal Year 2016
                                                                                           (AUD-2017-002,
                                                                                           October 26, 2016)

 FHFA Information     Because information in the report could       Improved               Kearney &
   Technology         be abused to circumvent FHFA’s internal       information security   Company, P.C.’s
     Security         controls, the recommendations have                                   Independent
                      not been released publicly.                                          Evaluation of the
                                                                                           Federal Housing
                                                                                           Finance Agency’s
                                                                                           Information
                                                                                           Security
                                                                                           Program—2014
                                                                                           (AUD-2014-019,
                                                                                           September 26,
                                                                                           2014)

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




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

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

  Cyber Risk      FHFA should direct the Fannie Mae         Improved risk       Corporate
  Oversight       Board to enhance Fannie Mae’s existing    management          Governance: Cyber
                  cyber risk management policies to:                            Risk Oversight by
                  a.	Require a baseline Enterprise-                             the Fannie Mae
                       wide cyber risk assessment with                          Board of Directors
                       subsequent periodic updates;                             Highlights the
                                                                                Need for FHFA’s
                  b.	Describe information to be reported
                                                                                Closer Attention to
                       to the Board and committees;
                                                                                Governance Issues
                  c.	 Include a cyber risk framework and                        (EVL-2016-006,
                       cyber risk appetite.                                     March 31, 2016)

                  FHFA should instruct the Fannie Mae       Improved risk       Corporate
                  Board to establish and communicate        management          Governance: Cyber
                  a desired target state of cyber risk                          Risk Oversight by
                  management for Fannie Mae that                                the Fannie Mae
                  identifies and prioritizes which risks                        Board of Directors
                  to avoid, accept, mitigate, or transfer                       Highlights the
                  through insurance.                                            Need for FHFA’s
                                                                                Closer Attention to
                                                                                Governance Issues
                                                                                (EVL-2016-006,
                                                                                March 31, 2016)

                  FHFA should direct the Fannie Mae         Improved risk       Corporate
                  Board to oversee management’s efforts     management          Governance: Cyber
                  to leverage industry standards to:                            Risk Oversight by
                  a.	Protect against and detect existing                        the Fannie Mae
                      threats;                                                  Board of Directors
                                                                                Highlights the
                  b.	Remain informed on emerging risks;
                                                                                Need for FHFA’s
                  c.	 Enable timely response and recovery                       Closer Attention to
                      in the event of a breach; and                             Governance Issues
                  d.	Achieve the desired target state of                        (EVL-2016-006,
                      cyber risk management identified                          March 31, 2016)
                      in Recommendation 2 within a time
                      period agreed upon by the Board.




                           Semiannual Report to the Congress • October 1, 2016–March 31, 2017   119
   Specific Risk                                                                           Report Name
                                 Recommendation                     Expected Impact
  to be Mitigated                                                                            and Date
                                             Agency Operations
 Oversight of FHFA    FHFA should regularly analyze Agency         Improved             Women and
 Workforce Matters    workforce data and assess trends in          opportunities and    Minorities in FHFA’s
                      hiring, awards, and promotions.              oversight            Workforce (EVL-
                                                                                        2015-003, January
                                                                                        13, 2015)

   Compliance         FHFA should cease using FHFA                 Improved             Administrative
   with Law and       vehicles and employees to provide            compliance with      Investigation of
    Regulation        transportation to Agency employees           law and regulation   an Anonymous
                      in a manner that is inconsistent with                             Hotline Complaint
                      federal law and regulations.                                      Alleging Use of
                                                                                        FHFA Vehicles and
                                                                                        FHFA Employees
                                                                                        in a Manner
                                                                                        Inconsistent with
                                                                                        Law and Regulation
                                                                                        (OIG-2017-001,
                                                                                        December 6,
                                                                                        2016)

                      FHFA should cease using FHFA                 Improved             Administrative
                      employees to research or book                compliance with      Investigation of
                      personal travel for [the subject] or his     law and regulation   an Anonymous
                      family in contravention of 5 C.F.R. §                             Hotline Complaint
                      2635.705(b).                                                      Alleging Use of
                                                                                        FHFA Vehicles and
                                                                                        FHFA Employees
                                                                                        in a Manner
                                                                                        Inconsistent with
                                                                                        Law and Regulation
                                                                                        (OIG-2017-001,
                                                                                        December 6,
                                                                                        2016)

                      FHFA should revise its Vehicle Use           Improved             Administrative
                      Policy to track the requirements of          compliance with      Investigation of
                      Section 1344 and implementing                law and regulation   an Anonymous
                      regulations.                                                      Hotline Complaint
                                                                                        Alleging Use of
                                                                                        FHFA Vehicles and
                                                                                        FHFA Employees
                                                                                        in a Manner
                                                                                        Inconsistent with
                                                                                        Law and Regulation
                                                                                        (OIG-2017-001,
                                                                                        December 6,
                                                                                        2016)




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

                  FHFA should maintain detailed usage      Improved             Administrative
                  logs for all leased vehicles.            compliance with      Investigation of
                                                           law and regulation   an Anonymous
                                                                                Hotline Complaint
                                                                                Alleging Use of
                                                                                FHFA Vehicles and
                                                                                FHFA Employees
                                                                                in a Manner
                                                                                Inconsistent with
                                                                                Law and Regulation
                                                                                (OIG-2017-001,
                                                                                December 6,
                                                                                2016)

                  FHFA should train employees tasked       Improved             Administrative
                  with providing FHFA transportation to    compliance with      Investigation of
                  [the subject] and other FHFA employees   law and regulation   an Anonymous
                  with the statutory and regulatory                             Hotline Complaint
                  requirements.                                                 Alleging Use of
                                                                                FHFA Vehicles and
                                                                                FHFA Employees
                                                                                in a Manner
                                                                                Inconsistent with
                                                                                Law and Regulation
                                                                                (OIG-2017-001,
                                                                                December 6,
                                                                                2016)

                  FHFA should adopt appropriate internal   Improved             Administrative
                  controls to ensure that the findings     compliance with      Investigation of
                  required by Section 1344 are made        law and regulation   an Anonymous
                  by the appropriate Agency employee,                           Hotline Complaint
                  are documented in writing, and that                           Alleging Use of
                  requisite notices are provided.                               FHFA Vehicles and
                                                                                FHFA Employees
                                                                                in a Manner
                                                                                Inconsistent with
                                                                                Law and Regulation
                                                                                (OIG-2017-001,
                                                                                December 6,
                                                                                2016)




                          Semiannual Report to the Congress • October 1, 2016–March 31, 2017   121
   Specific Risk                                                                          Report Name
                                 Recommendation                     Expected Impact
  to be Mitigated                                                                           and Date

                      FHFA should retain all documentation         Improved             Administrative
                      relating to provision of transportation      compliance with      Investigation of
                      under Section 1344.                          law and regulation   an Anonymous
                                                                                        Hotline Complaint
                                                                                        Alleging Use of
                                                                                        FHFA Vehicles and
                                                                                        FHFA Employees
                                                                                        in a Manner
                                                                                        Inconsistent with
                                                                                        Law and Regulation
                                                                                        (OIG-2017-001,
                                                                                        December 6,
                                                                                        2016)

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

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

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




122   Federal Housing Finance Agency Office of Inspector General
  Specific Risk                                                                         Report Name
                               Recommendation                   Expected Impact
 to be Mitigated                                                                          and Date
   Oversight of     FHFA should perform a comprehensive        Improved              FHFA’s
    Enterprise      analysis to assess whether financial       framework             Representation
 Implementation     risks associated with the new              management            and Warranty
of Representation   representation and warranty framework,                           Framework
   and Warranty     including with regard to sunset periods,                         (AUD-2014-016,
    Framework       are appropriately balanced between                               September 17,
                    the Enterprises and sellers. This                                2014)
                    analysis should be based on consistent
                    transactional data across both
                    Enterprises, identify potential costs
                    and benefits to the Enterprises, and
                    document consideration of the Agency’s
                    objectives.

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

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

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




                            Semiannual Report to the Congress • October 1, 2016–March 31, 2017        123
   Specific Risk                                                                             Report Name
                                   Recommendation                     Expected Impact
  to be Mitigated                                                                              and Date
   Oversight of         FHFA should develop a strategy to            Improved oversight   Compliance Review
    Enterprise          enhance the Executive Compensation                                of FHFA’s Oversight
    Executive           Branch’s capacity to review the                                   of Enterprise
  Compensation          reasonableness and justification of                               Executive
                        the Enterprises’ annual proposals to                              Compensation
                        compensate their executives based                                 Based on Corporate
                        on Corporate Scorecard performance.                               Scorecard
                        To this end, FHFA should ensure that:                             Performance (COM-
                        the Enterprises submit proposals                                  2016-002, March
                        containing information sufficient to                              17, 2016)
                        facilitate a comprehensive review by
                        the Executive Compensation Branch;
                        the Executive Compensation Branch
                        tests and verifies the information in the
                        Enterprises’ proposals, perhaps on a
                        randomized basis; and the Executive
                        Compensation Branch follows up
                        with the Enterprises to resolve any
                        proposals that do not appear to be
                        reasonable and justified.

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

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




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

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

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




                          Semiannual Report to the Congress • October 1, 2016–March 31, 2017     125
   Specific Risk                                                                         Report Name
                                 Recommendation                     Expected Impact
  to be Mitigated                                                                          and Date
    Targeted          FHFA should revise existing guidance to      Improved           FHFA’s Targeted
  Examinations        require examiners to prepare complete        supervision        Examinations
   Completed          documentation of supervisory activities                         of Freddie Mac:
                      and maintain such documentation in                              Just Over Half
                      the official system of record, and train                        of the Targeted
                      DER examiners on this guidance.                                 Examinations
                                                                                      Planned for 2012
                                                                                      through 2015
                                                                                      Were Completed
                                                                                      (AUD-2016-
                                                                                      007, September
                                                                                      30, 2016);
                                                                                      FHFA’s Targeted
                                                                                      Examinations
                                                                                      of Fannie Mae:
                                                                                      Less than Half
                                                                                      of the Targeted
                                                                                      Examinations
                                                                                      Planned for 2012
                                                                                      through 2015 Were
                                                                                      Completed and
                                                                                      No Examinations
                                                                                      Planned for 2015
                                                                                      Were Completed
                                                                                      Before the Report
                                                                                      of Examination
                                                                                      Issued (AUD-2016-
                                                                                      006, September
                                                                                      30, 2016); FHFA’s
                                                                                      Supervisory
                                                                                      Planning Process
                                                                                      for the Enterprises:
                                                                                      Roughly Half of
                                                                                      FHFA’s 2014 and
                                                                                      2015 High-Priority
                                                                                      Planned Targeted
                                                                                      Examinations
                                                                                      Did Not Trace to
                                                                                      Risk Assessments
                                                                                      and Most High-
                                                                                      Priority Planned
                                                                                      Examinations Were
                                                                                      Not Completed
                                                                                      (AUD-2016-005,
                                                                                      September 30,
                                                                                      2016)




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

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

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




                             Semiannual Report to the Congress • October 1, 2016–March 31, 2017   127
   Specific Risk                                                                         Report Name
                                 Recommendation                     Expected Impact
  to be Mitigated                                                                          and Date
    Assessing         FHFA should ensure that the underlying       Improved           FHFA’s Inconsistent
  Remediation of      remediation documents, including the         remediation of     Practices in
   Deficiencies       Procedures Document, are readily             deficiencies       Assessing
                      available by direct link or other means,                        Enterprise
                      through DER’s MRA tracking system(s).                           Remediation of
                                                                                      Serious Deficiencies
                                                                                      and Weaknesses
                                                                                      in its Tracking
                                                                                      Systems Limit the
                                                                                      Effectiveness of
                                                                                      FHFA’s Supervision
                                                                                      of the Enterprises
                                                                                      (EVL-2016-007,
                                                                                      July 14, 2016)

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

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




128   Federal Housing Finance Agency Office of Inspector General
Semiannual Report to the Congress • October 1, 2016–March 31, 2017   129
Appendix C:                                                 Section 5(a) of the Inspector General Act, as
                                                            amended, provides that OIG shall, not later than
Information Required                                        April 30 and October 31 of each year, prepare
by the Inspector                                            semiannual reports summarizing our activities during
                                                            the immediately preceding six-month periods ending
General Act                                                 March 31 and September 30.

                                                            Below, OIG presents a table that directs the reader to
                                                            the pages of this report on which various information
                                                            required by the Inspector General Act, as amended,
                                                            may be found.




                                           Source/Requirement                                             Pages
Section 5(a)(1)- A description of significant problems, abuses, and deficiencies relating to the          15-34
administration of programs and operations of FHFA.
Section 5(a)(2)- A description of the recommendations for corrective action made by OIG with respect       15-34
to significant problems, abuses, or deficiencies.                                                         61-128
Section 5(a)(3)- An identification of each significant recommendation described in previous semiannual 61-96
reports on which corrective action has not been completed.                                             102-128
Section 5(a)(4)- A summary of matters referred to prosecutive authorities and the prosecutions and         35-52
convictions that have resulted.                                                                           137-164
Section 5(a)(5)- A summary of each report made to the Director of FHFA about information or                135
assistance requested and unreasonably refused or not provided.
Section 5(a)(6)- A listing, subdivided according to subject matter, of each audit and evaluation report    15-34
issued by OIG during the reporting period and for each report, where applicable, the total dollar value     102
of questioned costs (including a separate category for the dollar value of unsupported costs) and the     131-132
dollar value of recommendations that funds be put to better use.
Section 5(a)(7)- A summary of each particularly significant report.                                        15-34
Section 5(a)(8)- Statistical tables showing the total number of audit and evaluation reports and the      4,33-34
total dollar value of questioned and unsupported costs.                                                   131-132
Section 5(a)(9)- Statistical tables showing the total number of audit and evaluation reports and the      4,33-34
dollar value of recommendations that funds be put to better use by management.                            131-132
Section 5(a)(10)(A)- A summary of each audit and evaluation report issued before the commencement           132
of the reporting period for which no management decision has been made by the end of the reporting
period.
Section 5(a)(10)(B)- A summary of each audit and evaluation report issued before the commencement          132
of the reporting period for which no FHFA comment was returned within 60 days of providing the report
to the Agency.
Section 5(a)(10)(C)- A summary of each audit and evaluation report issued before the commencement         102-128
of the reporting period for which there are any outstanding unimplemented recommendations,
including the aggregate potential cost savings of those recommendations.
Section 5(a)(11)- A description and explanation of the reasons for any significant revised management      132
decision made during the reporting period.


130    Federal Housing Finance Agency Office of Inspector General
                                           Source/Requirement                                          Pages
Section 5(a)(12)- Information concerning any significant management decision with which the Inspector   132
General is in disagreement.
Section 5(a)(13)- The information described under section [804](b) of the Federal Financial           132-133
Management Improvement Act of 1996.
Section 5(a)(14)- An appendix containing the results of any peer review conducted by another IG; or     133
the date of the last peer review, if no peer review was conducted during the reporting period.
Section 5(a)(15)- A list of any outstanding recommendations from any peer review conducted by           133
another IG that have not been fully implemented.
Section 5(a)(16)- A list of any peer reviews of another IG during the reporting period.                 133
Section 5(a)(17)- Statistical tables showing, for the reporting period, the total number of: investigative     36
reports issued; persons referred to DOJ for criminal prosecution; persons referred to State and local
prosecuting authorities for criminal prosecution; and indictments and criminal informations that
resulted from any prior referral to prosecuting authorities.
Section 5(a)(18)- A description of the metrics used for developing the data for the statistical tables    36
under paragraph (17).
Section 5(a)(19)- A report on each investigation conducted by OIG involving a senior Government         133-134
employee where allegations of misconduct were substantiated, including a detailed description of the
facts and circumstances of the investigation, and the status and disposition of the matter.
Section 5(a)(20)- A detailed description of any instance of whistleblower retaliation, including        133-134
information about the official found to have engaged in retaliation and what, if any, consequences FHFA
imposed to hold that official accountable.
Section 5(a)(21)- A detailed description of any attempt by FHFA to interfere with the independence of         135
OIG, including with budget constraints designed to limit OIG’s capabilities, and incidents where FHFA
has resisted or objected to OIG oversight activities or restricted or significantly delayed access to
information.
Section 5(a)(22)(A)- Detailed descriptions of the particular circumstances of each evaluation and audit       135
conducted by OIG that is closed and was not disclosed to the public.
Section 5(a)(22)(B)- Detailed descriptions of the particular circumstances of each investigation             133-135
conducted by OIG involving a senior Government employee that is closed and was not disclosed to the
public.




Reports Identifying Questioned                               costs, unsupported costs, and funds to be put to
                                                             better use. Section 5(a)(8) and section 5(a)(9),
Costs, Unsupported Costs, and                                respectively, require OIG to publish statistical tables
Funds to Be Put to Better Use by                             showing the total number of audit reports, inspection
Management Issued During the                                 reports, and evaluation reports and the dollar
Semiannual Period                                            value of questioned and unsupported costs, and of
                                                             recommendations that funds be put to better use by
Section 5(a)(6) of the Inspector General Act, as             management. Oversight conducted by OIG is not
amended, requires that OIG list its audit reports,           limited to reports issuing from inspections, audits,
inspection reports, and evaluation reports issued            and evaluations. As this semiannual report explains,
during the semiannual period that include questioned         OIG also issues management alerts, special reports,
                                                             status reports, and roll-up reports in furtherance

                                  Semiannual Report to the Congress • October 1, 2016–March 31, 2017            131
Figure 9. Funds to Be Put to Better Use by Management, Questioned Costs, and Unsupported Costs
for the Period October 1, 2016, Through March 31, 2017

                                                                         Potential Monetary Benefits
   Report Issued       Recommendation No.           Date         Questioned      Unsupported    Funds Put to
                                                                   Costs            Costs        Better Use
OIG-2017-002                                    Dec 15, 2016     $24,200,000                $-              $-
Total                                                            $24,200,000                $-              $-




of its mission. Figure 9 (see above) summarizes the        Significant Revised Management
questioned and unsupported costs identified in an          Decisions
OIG report issued during this semiannual period and
any recommendations that funds be put to better use.
                                                           Section 5(a)(11) of the Inspector General Act, as
                                                           amended, requires that OIG report information
Audit and Evaluation Reports                               concerning the reasons for any significant revised
with No Management Decision                                management decision made during the reporting
                                                           period. During the six-month reporting period ended
Section 5(a)(10)(A) of the Inspector General Act, as       March 31, 2017, there were no significant revised
amended, requires that OIG report on each audit,           management decisions.
inspection, and evaluation report issued before the
commencement of the reporting period for which             Significant Management
no management decision has been made by the                Decisions with Which the
end of the reporting period. There were no audit,
inspection, or evaluation reports issued before
                                                           Inspector General Disagrees
October 1, 2016, that await a management decision.
                                                           Section 5(a)(12) of the Inspector General Act, as
                                                           amended, requires that OIG report information
No Agency Response Within                                  concerning any significant management decision
60 Days                                                    with which the Inspector General is in disagreement.
                                                           During the six-month reporting period ended
Section 5(a)(10)(B) of the Inspector General Act, as       March 31, 2017, there were no significant
amended, requires that OIG report on each audit,           management decisions with which the Inspector
inspection, and evaluation report issued before the        General disagreed.
commencement of the reporting period for which
no FHFA comment was returned within 60 days of             Federal Financial Management
providing the report to the Agency. There were no
audit, inspection, or evaluation reports issued before
                                                           Improvement Act of 1996
October 1, 2016, for which OIG did not receive a
response within 60 days of providing the report to         Section 5(a)(13) of the Inspector General Act, as
the Agency for comment.                                    amended, requires that OIG report information
                                                           concerning instances of and reasons for failures to


132     Federal Housing Finance Agency Office of Inspector General
meet any intermediate target dates from remediation       issued a Letter of Comment raising two issues and
plans designed to remedy findings that the Agency’s       making related recommendations that were not
financial management systems do not comply with           considered to be of sufficient significance to affect
federal financial management system requirements,         the reviewer’s opinion that the “system of quality
applicable federal accounting standards, and the          control for the audit organization of FHFA OIG
United States Government Standard General Ledger          in effect for the 18-month period ended March 31,
at the transaction level. This reporting provision did    2016, has been suitably designed and complied with
not apply to the Agency or OIG for the reporting          to provide FHFA OIG with reasonable assurance
period.                                                   of performing and reporting in conformity with
                                                          applicable professional standards in all material
In its Financial Audit: Federal Housing Finance
                                                          respects.” OIG agreed with the recommendations
Agency’s Fiscal Years 2016 and 2015 Financial
                                                          and is undertaking actions to implement them.
Statements report, GAO did not identify any
deficiencies in FHFA’s internal controls over financial   During this semiannual reporting period, OIG did
reporting that it considered to be a material weakness    not conduct any peer reviews of another IG office.
or significant deficiency. HERA requires GAO to
conduct this audit.                                       Investigations into Allegations
                                                          of Employee Misconduct and
Peer Reviews                                              Whistleblower Retaliation
Sections 5(a)(14), (15), and (16) of the Inspector
                                                          In accordance with the Inspector General Act, as
General Act, as amended, require that OIG provide
                                                          amended, Sections 5(a)(19), (20), (22)(B), and
information relevant to the semiannual period
                                                          5(e), OIG is reporting the following information
on any peer reviews of OIG, unimplemented
                                                          regarding (1) investigations involving senior
recommendations from any peer reviews of OIG,
                                                          government employees or (2) government officials
and any peer reviews conducted by OIG. The most
                                                          found to have engaged in whistleblower retaliation.
recent completed peer review of OIG’s investigative
                                                          We also report in this section any investigation
function was reported on August 25, 2014.
                                                          conducted in periods prior to this reporting period
During the reporting period, the Pension Benefit
                                                          if the matter was not previously publicly disclosed
Guaranty Corporation Office of Inspector General
                                                          and was closed with a report of investigation in this
(PBGC-OIG) completed a peer review of our audit
                                                          period.
organization and issued a final System Review
Report with a rating of pass on February 28, 2017.        Sections 5(a)(19) and 5(e)(1) of the Inspector
A pass rating issued from an external peer review         General Act, as amended, require that OIG
is the highest rating that can be issued to an audit      report—to the extent that public disclosure of
organization. (Copies of both peer review reports         the information is not prohibited by law (e.g.,
are on OIG’s website; see www.fhfaoig.gov/Reports/        the Privacy Act of 1974)—on each investigation
PeerReview.)                                              conducted by it involving a senior government
                                                          employee when allegations of misconduct were
Neither of these peer review reports contains
                                                          substantiated. An investigation was conducted into
deficiencies or recommendations. In connection
                                                          the conduct of a senior government employee. The
with its final System Review Report, PBGC-OIG
                                                          matter was referred to DOJ on July 9, 2015, and

                                  Semiannual Report to the Congress • October 1, 2016–March 31, 2017      133
declined on July 14, 2015. The senior government         found to have engaged in retaliation. During
employee was found to have failed to properly            a prior reporting period, OIG investigated a
perform assigned duties, and an administrative           senior government employee after complaints
disciplinary action was taken against the employee.      alleging that this employee retaliated against
A report of investigation was prepared, and the          a subordinate employee and interfered in the
investigation was closed during this reporting           Equal Employment Opportunity process. In the
period.                                                  course of its investigation, other allegations of
                                                         misconduct involving this same employee were
With regard to another senior government
                                                         raised, which OI investigated. OIG provided
employee, OIG conducted an investigation of a
                                                         the results of this investigation to the Agency for
complaint alleging improper use of government
                                                         review and determination. The Agency pursued
resources by a senior government employee and
                                                         an administrative disciplinary action against the
his spouse. The matter was referred to DOJ on
                                                         employee. In a prior reporting period, OIG referred
January 5, 2016, and declined on that date. OIG’s
                                                         investigative summaries detailing the allegations
investigation did not substantiate the allegation
                                                         and our subsequent investigations to the Equal
in the complaint regarding use by the senior
                                                         Employment Opportunity Commission and the
government employee’s spouse. However, OIG
                                                         Office of Special Counsel. During this reporting
found that the senior government employee used
                                                         period, OIG completed a report of this investigation
a government vehicle multiple times inconsistent
                                                         and closed the investigation.
with applicable law. Our investigation also found
that FHFA officials responsible for providing            Sections 5(a)(22)(B) and 5(e)(1) of the Inspector
transportation lacked knowledge about the                General Act, as amended, require that OIG
governing statutory and regulatory requirements.         report—to the extent that public disclosure of
OIG found that the senior government employee            the information is not prohibited by law (e.g.,
used government support staff multiple times to          the Privacy Act of 1974)—on each investigation
book personal travel. We forwarded the issue to          involving a senior government employee that
the Agency’s Designated Agency Ethics Official,          is closed and was not disclosed to the public.
who found that the use of government employees           OIG initiated an investigation upon receipt of
to book personal travel was not required in the          an allegation that a senior government employee
performance of official duties or authorized in          was burdened by a conflict of interest with a
accordance with law or regulation. OIG issued a          counterparty of an entity regulated by FHFA. OIG’s
report on this matter to our oversight committees        investigation did not substantiate the allegation.
and published a Privacy Act compliant report on          OIG prepared a report of investigation and closed
our website. We made seven recommendations,              the investigation during this reporting period.
which the Agency accepted.
                                                         OIG received a referral from the U.S. Office of
Sections 5(a)(20) and 5(e)(1) of the Inspector           Government Ethics regarding potential violations
General Act, as amended, require that OIG                of post-employment restrictions by certain
report—to the extent that public disclosure of           former employees of other government agencies,
the information is not prohibited by law (e.g.,          including meeting with a now-former FHFA
the Privacy Act of 1974)—on any instance                 employee. OIG’s investigation did not substantiate
of whistleblower retaliation by an official


134    Federal Housing Finance Agency Office of Inspector General
wrongdoing by any current or former FHFA                 Interference with Independence
employee. OIG referred the matters outside its
jurisdiction to the respective OIGs of other agencies    Section 5(a)(21) of the Inspector General Act, as
that had previously employed the relevant former         amended, requires that OIG report any attempt
government employees. OIG prepared a report of           by FHFA to interfere with the independence of
investigation and closed the investigation during        the office, including through budget constraints
this reporting period.                                   designed to limit OIG’s capabilities and resistance or
OIG received a complaint alleging that an employee       objection to OIG’s oversight activities or restricting
may have lied on the employee’s employment               or significantly delaying access to information. OIG
applications with FHFA and another government            does not have any reportable information during the
agency, as well as related security forms. OIG           applicable time frame.
investigated the matter and did not substantiate the
allegations. OIG prepared a report of investigation
and closed the investigation during this reporting
period.


Audits or Evaluations That Were
Closed and Not Disclosed

Sections 5(a)(22)(A) and 5(e)(1) of the Inspector
General Act, as amended, require that OIG
report—to the extent that public disclosure of
the information is not prohibited by law (e.g.,
the Privacy Act of 1974, confidential supervisory
information, or trade secrets)—the particular
circumstances of each inspection, evaluation, and
audit conducted by OIG that is closed and was
not disclosed to the public. During this reporting
period, OIG did not close any inspection,
evaluation, or audit without disclosing the existence
of the report to the public. OIG issued reports
during this reporting period, the public disclosure of
some or all of the contents would be prohibited by
law, e.g., the Privacy Act of 1974, and, accordingly,
OIG has not publicly disclosed such contents.




                                 Semiannual Report to the Congress • October 1, 2016–March 31, 2017      135
Appendix D:                                                   Below are the 14 audits, evaluations, compliance
                                                              reports, management alerts, special reports, and
OIG Reports                                                   risk assessments published during the period.
                                                              See www.fhfaoig.gov for OIG’s reports.


                                      Report                                                    Date
 Performance Audit of the Federal Housing Finance Agency’s Information                    October 26, 2016
 Security Program Fiscal Year 2016 (AUD-2017-001)

 Performance Audit of the Federal Housing Finance Agency Office of Inspector              October 26, 2016
 General’s Information Security Program Fiscal Year 2016 (AUD-2017-002)

 FHFA’s Use of Inconsistent Criteria Materially Affected its Reporting                    November 9, 2016
 of Remediation of Serious Deficiencies in its 2015 Performance and
 Accountability Report (EVL-2017-001)

 Administrative Investigation of an Anonymous Hotline Complaint Alleging Use              December 6, 2016
 of FHFA Vehicles and FHFA Employees in a Manner Inconsistent with Law and
 Regulation (OIG-2017-001)

 Update on the Status of the Development of the Common Securitization                     December 9, 2016
 Platform (COM-2017-001)

 Fannie Mae Dallas Regional Headquarters Project (OIG-2017-002)                          December 15, 2016

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

 FHFA’s Examinations Have Not Confirmed Compliance by One Enterprise with                December 21, 2016
 its Advisory Bulletins Regarding Risk Management of Nonbank Sellers and
 Servicers (EVL-2017-002)

 Compliance Review of Federal Home Loan Bank Fraud Reporting to FHFA                      January 24, 2017
 (COM-2017-002)

 Directives from the Audit Committee of the Freddie Mac Board of Directors                 March 22, 2017
 Caused Management to Improve its Reporting about Remediation of Serious
 Deficiencies from October 2015 through September 2016 (ESR-2017-003)

 Update on FHFA’s Implementation of its Housing Finance Examiner Commission                March 22, 2017
 Program (COM-2017-003)

 Administrative Investigation of Hotline Complaints: Conflicts of Interest Issue           March 23, 2017
 (OIG-2017-004)

 Risk Assessment of FHFA’s Fiscal Years 2016 and 2015 Government Purchase                  March 27, 2017
 Card and Travel Card Programs (OIG-RA-2017-001)

 FHFA’s Practice for Rotation of its Examiners Is Inconsistent between its Two             March 28, 2017
 Supervisory Divisions (EVL-2017-004)



136    Federal Housing Finance Agency Office of Inspector General
Appendix E:                                               In these types of schemes, the sellers or developers
                                                          wrongfully conceal from prospective lenders the
OI Publicly Reportable                                    incentives they’ve offered to investors and the true
Investigative Outcomes                                    value of the properties. The lenders, acting on this
                                                          misinformation, make loans that are far riskier than
Involving Condo                                           they have been led to believe. Such loans often
Conversion and Builder                                    default and go into foreclosure, causing the lenders
                                                          to suffer large losses.
Bailout Schemes




   DEFENDANT                    ROLE                  MOST RECENT ACTION                          DATE
Multiple Indictments, Guilty Pleas, and Sentencings in Condominium Bank Fraud
Scheme, Florida
Co-conspirators enriched themselves by using straw buyers and unqualified buyers to purchase and finance
residential properties. To do this, the co-conspirators submitted loan applications and other documents to
lenders containing materially false statements. The Enterprises purchased several loans involved in this fraud
scheme. Current loss estimates are in excess of $1.5 million.
                                                    Pled guilty to conspiracy to commit
                          Marketing Company
Herberto Gamboa                                     bank fraud and wire fraud affecting a       March 23, 2017
                          Operator
                                                    financial institution.
                                                    Pled guilty to conspiracy to commit
Michael Gonzalez          Straw Buyer               bank fraud and wire fraud affecting a       March 22, 2017
                                                    financial institution.
                                                    Pled guilty to conspiracy to commit
Carlos Mesa, Jr.          Straw Buyer               bank fraud and wire fraud affecting a       March 22, 2017
                                                    financial institution.
                                                    Pled guilty to conspiracy to commit
                          Marketing Company
Jorge Sola                                          bank fraud and wire fraud affecting a       March 6, 2017
                          Operator
                                                    financial institution.
                                                    Sentenced to 12 months and 1 day in
                          Director/Vice
                                                    prison, 5 years of supervised release,
Rafael Amador             President/Secretary of                                               January 19, 2017
                                                    and ordered to pay $2,146,242 in
                          Title Company
                                                    restitution.
                                                    Sentenced to 7 months in prison,
                                                    5 years of supervised release, and
Jeffrey Canfield          Straw Buyer                                                          January 19, 2017
                                                    ordered to pay $701,575 in restitution,
                                                    joint and several.




                                 Semiannual Report to the Congress • October 1, 2016–March 31, 2017         137
   DEFENDANT                   ROLE                 MOST RECENT ACTION                         DATE
                                                Sentenced to 4 months in prison,
Orlando Ortiz          Straw Buyer              5 years of supervised release, and        January 19, 2017
                                                ordered to pay $399,652 in restitution.
                                                Sentenced to 12 months and 1 day in
                       Director/President/
                                                prison, 5 years of supervised release,
Osvaldo Sanchez        Treasurer of Title                                                 January 19, 2017
                                                and ordered to pay $1,749,014 in
                       Company
                                                restitution.
                                                Sentenced to 7 months in prison,
                                                5 years of supervised release, and
Luis Tur               Straw Buyer                                                        January 19, 2017
                                                ordered to pay $701,575 in restitution,
                                                joint and several.
                                                Indicted on charges of conspiracy to
Jaime Sola Avila       Recruiter                commit bank and wire fraud and bank       January 17, 2017
                                                fraud.
                                                Indicted on charges of conspiracy to
Yipsy Clavelo          Straw Buyer              commit bank and wire fraud and bank       January 17, 2017
                                                fraud.
                       President of Mortgage    Indicted on charges of conspiracy to
Maria Diaz             Brokerage Business/      commit bank and wire fraud and bank       January 17, 2017
                       Recruiter                fraud.
                                                Indicted on charges of conspiracy to
                       Real Estate Broker/
Emily Echavarria                                commit bank and wire fraud and bank       January 17, 2017
                       Recruiter
                                                fraud.
                                                Indicted on charges of conspiracy to
                       Marketing Company
Miguel Faraldo                                  commit bank and wire fraud and bank       January 17, 2017
                       Operator/Recruiter
                                                fraud.
                                                Indicted on charges of conspiracy to
Yanet Huet             Straw Buyer              commit bank and wire fraud and bank       January 17, 2017
                                                fraud.
                                                Indicted on charges of conspiracy to
                       Marketing Company
Jenny Nillo                                     commit bank and wire fraud and bank       January 17, 2017
                       Operator/Recruiter
                                                fraud.
                                                Indicted on charges of conspiracy to
Jose Salazar           Straw Buyer              commit bank and wire fraud and bank       January 17, 2017
                                                fraud.
                                                Indicted on charges of conspiracy to
                       Director of Sales/
Hector Santana                                  commit bank and wire fraud and bank       January 17, 2017
                       Recruiter
                                                fraud.
                                                Indicted on charges of conspiracy to
                       Acting Manager/
Miguel Soto, Jr.                                commit bank and wire fraud and bank       January 17, 2017
                       Recruiter
                                                fraud.
                                                Indicted on charges of conspiracy to
                       Real Estate Sales
Eduardo Toledo                                  commit bank and wire fraud and bank       January 17, 2017
                       Associate/Recruiter
                                                fraud.
                                                Indicted on charges of conspiracy to
Cynthia Velasquez      Straw Buyer              commit bank and wire fraud and bank       January 17, 2017
                                                fraud.




138    Federal Housing Finance Agency Office of Inspector General
   DEFENDANT                    ROLE                  MOST RECENT ACTION                         DATE
                                                  Indicted on charges of conspiracy to
Barbara Zas             Recruiter                 commit bank and wire fraud and bank       January 17, 2017
                                                  fraud.
                                                  Pled guilty to conspiracy to commit
                        Vice President of Title
Pedro Allende                                     bank fraud and wire fraud affecting a   November 16, 2016
                        Company
                                                  financial institution.
                                                  Pled guilty to conspiracy to commit
                        Director/President of
Mirna Pena                                        bank fraud and wire fraud affecting a   November 16, 2016
                        Title Company
                                                  financial institution.
Sentencing of Former President and Corporation in Builder Bailout Scheme: $3 Million
in Restitution Ordered Paid to the Enterprises, California
Discovery Sales, Inc. (DSI) was established to sell new homes in the East Bay area of Northern California. Ayman
Shahid, the former president, directed and managed all of the day-to-day operations of DSI. Shahid and others
conspired to induce buyers to purchase homes at inflated prices by providing undisclosed financial incentives
to the buyers to keep the sales prices of the new homes high, thereby protecting the financial interest of the
builders.
                                                  Sentenced to 46 months in prison,
Ayman Shahid             Former President         3 years of supervised release, and           March 16, 2017
                                                  ordered to pay a fine of $50,000.
                                                  Pled guilty to bank fraud and
                                                  sentenced to 5 years of probation and
Discovery Sales, Inc.    Corporation              ordered to pay restitution of $3 million   December 8, 2016
                                                  (all to the Enterprises) and a fine of
                                                  $8 million.

Indictment, Sentencings, and Guilty Pleas in $39 Million Builder Bailout Fraud, Florida
A scheme allegedly involving numerous mortgage brokers, real estate agents, and settlement agents across
southern and central Florida involved the sale of multiple condominium conversion properties. The investigation
has documented 165 transactions involving Juan Carlos Sanchez and his co-conspirators and over $39 million in
mortgage loans.
                                                  Indicted for conspiracy to commit bank
Dagoberto Rodriguez      Real Estate Agent                                                   March 16, 2017
                                                  fraud.
                                                  Sentenced to 12 months and 1 day in
Alexander Gonzalez-                               prison, 3 years of supervised release,
                         Straw Buyer                                                          March 6, 2017
Perez                                             and ordered to pay $383,788 in
                                                  restitution, joint and several.
Maria del Carmen                                  Sentenced to 21 months in prison and
                         Straw Buyer                                                        February 3, 2017
Rodriguez                                         3 years of supervised release.
                         Real Estate Broker/
                         President of Real        Pled guilty to conspiracy to commit
Ivan Peralta                                                                                January 31, 2017
                         Estate Brokerage         bank fraud.
                         Business
                         President of Mortgage Pled guilty to conspiracy to commit
Rosario Zanelli Peralta                                                                     January 31, 2017
                         Brokerage Business       bank fraud.




                                 Semiannual Report to the Congress • October 1, 2016–March 31, 2017        139
   DEFENDANT                     ROLE                  MOST RECENT ACTION                           DATE
Trial Conviction of Former CFO of Resort and Indictment of Former JP Morgan Chase
Bank Officer in Connection with Multimillion-Dollar Fraud, Florida
Cay Clubs Resorts, which operated resort-style hotels/condominiums throughout the United States, operated as
a massive Ponzi and securities fraud scheme. The scheme 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.
                                                 Found guilty via jury trial on charges
                                                 of conspiracy to commit bank fraud,
                        Former Cay Clubs
David Schwarz                                    bank fraud, and interference with the     March 3, 2017
                        Owner/CFO
                                                 administration of Internal Revenue
                                                 laws.
                        Former Senior Loan       Indicted on charges of conspiracy and
Ross Pickard                                                                              December 6, 2016
                        Officer                  loan and credit application fraud.

Three Charged for Bank Fraud and Conspiracy in Condo Scheme, Florida
Eric Granitur and others allegedly conspired in a scheme to sell condominium units with undisclosed incentives.
These incentives were not disclosed in sale and purchase contracts, loan applications, HUD-1 forms, and other
documents and caused lenders to fund loans based on materially false information. The fraud scheme caused
financial institutions to fund mortgage loans of over $20 million.
                                                   Charged via superseding indictment
Deborah Dentry
                           Accountant              with conspiracy to commit bank fraud     February 28, 2017
Baggett
                                                   and bank fraud.
                                                   Charged via superseding indictment
Eric Granitur              Attorney/Escrow Agent with conspiracy to commit bank fraud       February 28, 2017
                                                   and bank fraud.
                                                   Charged via superseding indictment
George Heaton              Real Estate Developer with conspiracy to commit bank fraud       February 28, 2017
                                                   and bank fraud.

Guilty Pleas of Mortgage Broker and Sales Associate in Condo Scheme, Florida
Co-conspirators facilitated the sale of condominiums to straw buyers at inflated prices, then paid undisclosed
incentives and caused false documentation to be submitted to financial institutions in order to qualify buyers for
loans they otherwise would not have qualified. A co-conspirator wired the closing proceeds to a shell company
that disbursed the undisclosed incentives to the participants of the transaction in an attempt to further conceal
the payments from lenders and regulators.
                                                  Pled guilty to conspiracy to commit
David Cevallos            Mortgage Broker                                                     February 10, 2017
                                                  wire fraud.

Osbel Sanchez            Sales Associate          Pled guilty to wire fraud.                  January 31, 2017




140    Federal Housing Finance Agency Office of Inspector General
   DEFENDANT                    ROLE                 MOST RECENT ACTION                          DATE

Guilty Plea of Title Company Owner, Florida
Patricia Lynn Smith, owner of the now defunct Northwest Florida Title Services, raised funds from a complicit
investor to close numerous home purchases by straw buyers using fraudulent loan applications. The investor
funds were used primarily to fund the borrowers’ cash to close for the loans. Smith also used the investor’s
money to pay the recruiters of straw buyers, then repaid the investor with proceeds from the fraudulently
obtained loans. The investor received a commission for his role and in turn paid Smith a kickback fee for
facilitating the transaction.
                                                  Pled guilty to conspiracy to commit
Patricia Lynn Smith        Title Company Owner    bank fraud and/or mail fraud affecting      January 13, 2017
                                                  a financial institution and bank fraud.

Sentencing in Multimillion-Dollar Bank Fraud Scheme, Florida
Individuals were found to have been involved in an unlawful scheme to market and sell condominiums at a
development in the Tampa, Florida, area by offering 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.
Eventually, the buyers were unable to make mortgage payments, causing many of the condominium units to go
into foreclosure and exposing the lenders and the Enterprises to losses of $18.3 million.
                                                  Sentenced to 5 years of supervised
Gary Hughes              Loan Officer             release and ordered to pay $272,300        November 21, 2016
                                                  in restitution, joint and several.

Two Indicted in Condo Conversion Fraud Scheme, Florida
Co-conspirators allegedly unlawfully marketed and sold condominium units at The Preserves, a condominium
conversion project, by offering potential buyers incentives that were not disclosed to lenders and prepared and
submitted loan applications containing material misrepresentations.
                                                   Indicted on charges of conspiracy
                          Real Estate Sales        to commit bank fraud, bank fraud,
Carlos Escarria                                                                               November 17, 2016
                          Associate                and wire fraud affecting a financial
                                                   institution.
                                                   Indicted on charges of conspiracy
                                                   to commit bank fraud, bank fraud,
Alejandro Tobon           Branch Manager                                                      November 17, 2016
                                                   and wire fraud affecting a financial
                                                   institution.

Real Estate Agent Charged in Property Flipping Scheme, Tennessee
Co-conspirators allegedly engaged in a property flipping scheme wherein straw buyers were paid undisclosed
incentives to purchase houses. At one time, the Enterprises owned 3 of the 10 properties involved in this
scheme.
                                                  Charged via superseding indictment
                                                  with bank fraud, mail fraud, and
Thomas Boyd              Real Estate Agent                                                 November 8, 2016
                                                  engaging in monetary transactions in
                                                  criminally derived property.




                                 Semiannual Report to the Congress • October 1, 2016–March 31, 2017        141
   DEFENDANT                    ROLE                 MOST RECENT ACTION                          DATE

Sentencing of Developer, Florida
Clifford Davis, a developer, provided unlawful incentives, such as a “no cash down leaseback agreement” and
down payment assistance, to condominium buyers that were not revealed to the lenders who financed the loans.
                                                   Sentenced to 5 years of probation, a
Clifford Davis           Real Estate Developer fine of $15,000, and ordered to pay           October 28, 2016
                                                   $400,000 in forfeiture.

Guilty Plea in Builder Bailout Scheme, Illinois
The CEO of 13th & State, an LLC created to facilitate the development and sale of units at a high-rise
condominium building known as Vision on State, and others pled guilty to an unlawful builder bailout scheme that
used inflated sales prices to pay undisclosed incentives to recruiters and straw buyers. The scheme resulted in
approximately $22.8 million in fraudulent mortgages and $13 million in losses to financial institutions.

Asif Aslam              Recruiter               Pled guilty to bank fraud.                 October 14, 2016




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




   DEFENDANT                    ROLE                  MOST RECENT ACTION                           DATE

Sentencing in Loan Origination Scheme, Texas
The individual below engaged in wire fraud by laundering the proceeds of a loan origination scheme that provided
home buyers with closing costs that were not disclosed to the lenders. The scheme exposed the Enterprises to
losses of approximately $866,000.
                                                 Sentenced to 46 months in prison,
                                                 5 years of supervised release, and
Euneisha Hearns         Loan Officer                                                          March 28, 2017
                                                 ordered to pay $180,235 in restitution,
                                                 joint and several.

24-Year Prison Sentence in Mortgage Fraud Scheme, Colorado
Family members were found to have used their status in the real estate industry to perpetrate a fraudulent
mortgage scheme by manipulating straw buyers to buy and sell properties going into foreclosure. Twelve
properties were named in the indictment in relation to $4.6 million in fraudulently obtained loans.
                                                  Ordered to pay $951,571 in
Jose Ricardo Sarabia- Owner of Realty             restitution, joint and several. Previously March 21, 2017, and
Martinez               Business                   sentenced to 288 months in prison            October 28, 2016
                                                  and 5 years of parole.

Three Sentenced in Scheme Involving Fraudulent Loan Applications, California
Co-conspirators working at JTR Real Estate, Inc. were found to have devised a scheme to defraud lenders by
using straw buyers to purchase properties from JTR’s inventory. Co-conspirators completed or assisted in the
completion of the straw borrowers’ loan applications containing materially false information regarding the buyers’
employment, income, assets, and intent to reside in the properties. As a result of this scheme, lenders approved
over $2.4 million in loans and suffered losses, along with the Enterprises.
                                                  Sentenced to 12 months and 1 day in
                                                  prison, 3 years of supervised release,
                         Licensed Real Estate
Elek Andrade                                      3,120 hours of community service,           February 27, 2017
                         Salesperson
                                                  and ordered to pay $2,573,092 in
                                                  restitution, joint and several.


                                 Semiannual Report to the Congress • October 1, 2016–March 31, 2017          143
   DEFENDANT                    ROLE                  MOST RECENT ACTION                           DATE
                                                 Sentenced to 24 months in prison,
                        Licensed Real Estate     3 years of supervised release,
John Martynec                                                                                February 27, 2017
                        Broker/Co-Owner          and ordered to pay $2,573,092 in
                                                 restitution, joint and several.
                                                 Sentenced to 12 months and 1 day in
                                                 prison, 3 years of supervised release,
Mireya Espinoza         Licensed Tax Preparer                                                February 13, 2017
                                                 and ordered to pay $1,476,966 in
                                                 restitution, joint and several.
Guilty Trial Verdict and Guilty Pleas in Multimillion-Dollar Origination Fraud Scheme,
New York
One co-conspirator was found to have utilized straw buyers and submitted loan applications to lenders containing
false information, including inflated purchase prices and fictitious asset and income information about the
purchasers, and provided down payment funds to the straw buyers, which was not disclosed to the lenders.
Two other co-conspirators pled guilty to specific crimes set forth below. The co-conspirators collectively caused
the financial lending institutions to loan over $5.5 million, of which over $2.7 million was their profit from the
scheme.
                                                    Found guilty at trial of conspiracy to
                          Foreclosure/Straw
James Bayfield                                      commit bank fraud and wire fraud and         January 19, 2017
                          Buyer Recruiter
                                                    bank fraud.
                                                    Pled guilty to conspiracy to commit
Michelle Baker            Title Agent                                                          December 16, 2016
                                                    bank fraud and wire fraud.
                          Lead Defendant/Real Pled guilty to conspiracy to commit
Dirk Ameen Hall                                                                                 December 2, 2016
                          Estate Buyer/Flipper      bank fraud and wire fraud.

Sentencing in Multi-defendant Origination Scheme, Illinois
The defendant, along with others, participated in a scheme to defraud lenders of mortgage loans, federal student
loans, and small business loans. The participants in the scheme used their own identities and the personal
information of identity theft victims to commit the fraud, which involved submitting false documents to lenders
and using straw buyers to obtain loans. The loss exposure to the Enterprises was nearly $1 million.
                                                   Sentenced to 30 months in prison,
                                                   1 year of supervised release,
Warren Taylor             Participant              community service not to exceed 100         January 4, 2017
                                                   hours, and ordered to pay $129,862 in
                                                   restitution, joint and several.

Sentencing of Loan Processor in Origination Fraud Scheme, Florida
The defendant and others 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.
                                                Sentenced to 2 years of supervised
                                                release and ordered to pay $139,591
Mayory Calvo            Loan Processor                                                      December 7, 2016
                                                in restitution, joint and several, and
                                                $139,591 in forfeiture.




144    Federal Housing Finance Agency Office of Inspector General
   DEFENDANT                     ROLE                  MOST RECENT ACTION                            DATE

Sentencing in Loan Origination Fraud Scheme, Maryland
A builder, along with co-defendants, participated in preparing a false HUD-1 form that falsely represented that the
borrower provided over $1 million on the date of closing as “cash to close” when in fact he brought no monies to
the closing.
                                                   Sentenced to 2 months in prison,
                                                   3 years of supervised release,
David Steeley             Employee                                                            November 29, 2016
                                                   3 months of home confinement, and
                                                   ordered to pay $435,990 in restitution.

Guilty Plea in Fraudulent Real Estate Scheme, Texas
The defendant engaged in a series of fraudulent real estate transactions in Texas. There are at least nine
mortgages involved in the scheme, two of which were secured by Fannie Mae. Losses to financial institutions and
Fannie Mae are in excess of $1.2 million.
                                                 Pled guilty to conspiracy to commit
James Mitchell          Buyer                                                               November 8, 2016
                                                 bank fraud.

Sentencing of Seller in $3.5 Million Origination Fraud Scheme, Maryland
Multiple defendants conspired to fraudulently secure residential mortgage loans and to obtain federally
subsidized rent by causing materially false statements to be made during the loan application and approval
process. The defendants used stolen identity and false documents, including W-2 forms, earnings statements,
and bank statements for the purpose of inducing lenders to provide mortgage loans. The defendants diverted
$1.3 million from over $8.2 million in fraudulently obtained loans, which resulted in losses of over $1.2 million to
the Enterprises and $3.5 million to FHA and conventional lenders.
                                                   Sentenced in absentia to 54 months in
                                                   prison, 5 years of supervised release,
Mrisho Mzese             Seller                                                               November 2, 2016
                                                   and ordered to pay $125,000 in
                                                   restitution, joint and several.




                                  Semiannual Report to the Congress • October 1, 2016–March 31, 2017           145
Appendix G:                                                  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 who
Involving Short Sale                                         intentionally misrepresents or fails to disclose
Schemes                                                      material facts to induce a lender to agree to a
                                                             short sale.




   DEFENDANT                      ROLE                  MOST RECENT ACTION                             DATE

Two Charged in Short Sale Fraud Scheme, Michigan
Ariel Trebilcock and David Hill allegedly violated an arm’s length affidavit when Hill short-sold his property to a
family member and continued to reside on the property. Freddie Mac, as the investor, suffered losses.
                                                    Charged with false pretenses and
Ariel Trebilcock         Participant                                                                March 1, 2017
                                                    conspiracy to commit false pretenses.
                                                    Charged with false pretenses and
David Hill               Participant                                                                March 1, 2017
                                                    conspiracy to commit false pretenses.
Prison Sentences and Restitution Ordered in Short Sale and Bank Fraud Schemes,
Texas
The defendants and others forged quit claim deeds of distressed properties, re-titling the deeds in the name of
a co-conspirator or another person in an effort to cloud the titles. The co-conspirators then filed lawsuits against
the lending institutions to stop the pending foreclosure. The co-conspirators then demanded the banks provide
them a settlement or authorize short sales for the properties prior to clearing the property titles.
                                                   Sentenced to 51 months in prison,
                                                   5 years of supervised release, and
Melvin Layman             Participant                                                            January 11, 2017
                                                   ordered to pay $111,744 in restitution,
                                                   joint and several.
                                                   Sentenced to 41 months in prison,
                                                   3 years of supervised release, and
                                                   ordered to pay $111,744 in restitution,
Daylon Esaw               Participant                                                          November 15, 2016
                                                   joint and several. Esaw received this
                                                   sentence for three separate criminal
                                                   cases; the sentences run concurrently.




146    Federal Housing Finance Agency Office of Inspector General
   DEFENDANT                     ROLE                  MOST RECENT ACTION                           DATE

Sentencing in Flipping Scheme, Texas
The defendant and co-conspirators colluded to make false statements during grand jury proceedings regarding
documents used to fraudulently obtain mortgage loans.
                                               Sentenced to 16 months in prison and
Melvin Layman           Participant                                                       January 11, 2017
                                               5 years of supervised release.

Sentencings in Mortgage Fraud Scheme Involving More than 100 Loans, New Jersey
Co-defendants 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 5 months in prison,
                                                   3 years of supervised release,
Jose Luis Salguero
                         Real Estate Investor      5 months of home confinement,             December 21, 2016
Bedoya
                                                   and ordered to pay $4,493,463 in
                                                   restitution, joint and several.
                                                   Sentenced to 18 months in prison,
                                                   3 years of supervised release,
Jose Martins             Bank Employee                                                         October 19, 2016
                                                   and ordered to pay $1,266,060 in
                                                   restitution, joint and several.

Two Real Estate Professionals Charged in Short Sale Fraud Scheme, California
Co-conspirators allegedly engaged in a short sale fraud scheme by personally selecting investors to purchase
short sale properties and failing to properly market the properties to other potential buyers, in violation of the
arm’s length affidavit. In some instances, short sellers remained in their homes and rented the properties
from the investors or, alternatively, the short sellers repurchased their properties for drastically less than what
was owed to the lenders, effectively receiving a principal reduction. The co-conspirators received significant
commissions, and the Enterprises, which owned seven of the properties involved in this scheme, sustained more
than $500,000 in losses.
                                                     Charged with grand theft by false
Steve Gonzales             Real Estate Broker        pretenses and conspiracy to commit          December 2, 2016
                                                     grand theft.
                                                     Charged with grand theft by false
                           Real Estate
Angelo Naemi                                         pretenses and conspiracy to commit          December 2, 2016
                           Salesperson
                                                     grand theft.




                                  Semiannual Report to the Congress • October 1, 2016–March 31, 2017          147
   DEFENDANT                    ROLE                  MOST RECENT ACTION                          DATE

Two Real Estate Professionals Sentenced in Short Sale Fraud Scheme, California
Co-defendants and others facilitated short sale transactions of properties to family members, concealing the
relationships and violating the terms of the short sale agreement. At least two of the 16 loans associated with
this scheme were owned by the Enterprises.
                                                   Pled no contest to grand theft, agreed
                                                   to surrender her broker license, and
Shaima Hadayat            Real Estate Broker                                                 November 1, 2016
                                                   was sentenced to 180 days in prison
                                                   and 3 years of informal probation.
                                                   Pled no contest to forgery, agreed to
                                                   surrender his real estate license, and
Harpreet Singh            Real Estate Agent                                                  November 1, 2016
                                                   was sentenced to 180 days in prison
                                                   and 5 years of formal probation.




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




   DEFENDANT                    ROLE                  MOST RECENT ACTION                          DATE

Guilty Plea in $30 Million Mortgage Relief Fraud Scheme, California
The Matsuba family operated a number of companies that claimed to help struggling homeowners burdened
with large mortgages. They falsely promised victims they would short sell their homes and relieve them of their
mortgage debt. According to the indictment, victim homeowners deeded their properties to entities controlled by
the Matsubas, who promised they would continue to make the victims’ mortgage payments while they negotiated
with lenders to short sell their properties. In reality, the Matsubas failed to make mortgage payments and rented
out the properties to third parties, often submitting fraudulent short sale purchase offers to lenders and filing
false bankruptcy petitions in an attempt to delay foreclosure and maximize the time they could collect rental
payments.
                                                     Pled guilty to conspiracy to commit
                                                     wire fraud, false statements relating
Jane Matsuba-Garcia        Participant                                                           March 6, 2017
                                                     to loan applications, identity theft, and
                                                     subscribing to a false tax return.

Guilty Plea in Nationwide Loan Modification Scheme with Over 10,000 Victims, Utah
The defendant conspired with others to defraud distressed homeowners and the Enterprises with a loan
modification scheme that affected more than 10,000 victims nationwide.

Jeremiah Barrett         Recruiter               Pled guilty to conspiracy.                 February 13, 2017




                                 Semiannual Report to the Congress • October 1, 2016–March 31, 2017         149
   DEFENDANT                     ROLE                  MOST RECENT ACTION                           DATE
Indictments and Guilty Pleas in Loan Modification and Foreclosure-Delay Scheme,
Maryland
Rene de Jesus de Leon and co-conspirators allegedly committed loan modification fraud by convincing struggling
homeowners to stop making mortgage payments and communicating with their lenders. Instead, de Leon and
his co-conspirators instructed homeowners to make mortgage payments to companies controlled by de Leon,
with assurances that de Leon and others would negotiate with the victims’ lenders on their behalf to obtain
modifications. At least 60 homeowners were defrauded by this scheme, with 20 properties identified as having
Enterprise-backed loans.
                                                Indicted on charges of conspiracy to
                         Owner/Manager of
Carrol Jackson                                  commit mail and wire fraud, mail fraud,     February 6, 2017
                         Company
                                                and wire fraud.
                                                Indicted on charges of conspiracy to
                         CEO/Director of
Michelle Jordan                                 commit mail and wire fraud, mail fraud,     February 6, 2017
                         Company
                                                and wire fraud.
                         President/Vice         Indicted on charges of conspiracy to
Michael Welsh            President and Director commit mail and wire fraud, mail fraud,     February 6, 2017
                         of Company             and wire fraud.
Pedrina Rodriguez
                                                Pled guilty to conspiracy to commit
Bonilla (also known as Participant                                                         December 21, 2016
                                                mail and wire fraud.
Pedrina Rodriguez)
Rene de Jesus de                                Pled guilty to conspiracy to commit
                         Participant                                                       November 29, 2016
Leon                                            mail and wire fraud.

Guilty Pleas in Loan Modification Scheme, Virginia
The defendants, along with others, devised a scheme to obtain upfront payments from victims who were trying to
obtain loan modifications by leading them to believe they were receiving federally funded home loan modifications
under the government’s Home Affordable Modification Program. The co-conspirators falsely held themselves out
as a nonprofit organization designed to help homeowners at risk of foreclosure. In reality, they did nothing to help
modify mortgages and instead used the victims’ payments for their own personal benefit and to further the fraud
scheme.
                         Customer Service         Pled guilty to conspiracy to commit
Sabrina Rafo                                                                                   January 19, 2017
                         Representative           mail and wire fraud.
                                                  Pled guilty to conspiracy to commit
Nicholas Estilow         Closer                                                                January 18, 2017
                                                  mail and wire fraud.

Guilty Plea in Loan Modification Scheme, California
The defendant took part in a loan modification scheme. The scheme included making false promises and
guarantees to financially distressed homeowners about their company’s ability to negotiate loan modifications at
specific rates of interest and certain payment terms from the homeowners’ mortgage lenders.
                                                  Pled guilty to aiding and assisting in
                           Bookkeeper and
Ruby Encina                                       the preparation of a false income tax      January 9, 2017
                           Managed Clerical Staff
                                                  return.




150    Federal Housing Finance Agency Office of Inspector General
   DEFENDANT                    ROLE                 MOST RECENT ACTION                          DATE

Fictitious Loan Officer Indicted, Maryland
Se Chang Moon allegedly posed as a loan officer and obtained over $350,000 in funds from one victim who
believed Moon was using the money to refinance the victim’s mortgage. Moon, however, stole the money and
used it for his personal benefit. Moon also allegedly victimized other potential customers by stealing their
identities and opening bank accounts and obtaining loans in their names without their knowledge.
Se Chang Moon (also
                                                  Indicted on charges of wire fraud, bank
known as Warren           Fictitious Loan Officer                                             December 7, 2016
                                                  fraud, and aggravated identity theft.
Moon)
Three Indicted in Multi-state Loan Modification Scheme with Over 550 Victims,
Kansas
Tyler Korn and Amjad Daoud operated Reliant Home Financial Group (RHFG), and Ruby Price operated the Arize
Group, Incorporated (AGI). Together, they allegedly devised a scheme to defraud homeowners with false promises
of protecting them from foreclosure. In some instances, the victims would stop making their monthly mortgage
payments to their lenders and instead make payments to RHFG or AGI. The co-conspirators allegedly used the
victims’ monies for personal gain.
                                                   Indicted on charges of conspiracy to
Amjad Daoud              Business Owner            commit mail and wire fraud and mail     November 30, 2016
                                                   fraud.
                                                   Indicted on charges of conspiracy to
Tyler Korn               Business Owner            commit mail and wire fraud, mail fraud, November 30, 2016
                                                   and wire fraud.
                                                   Indicted on charges of conspiracy to
Ruby Price               Business Owner            commit mail and wire fraud, mail fraud, November 30, 2016
                                                   and wire fraud.

Three Sentenced in Loan Modification Scheme, Connecticut
Using various company names, co-defendants claimed to negotiate with lenders to lower mortgage payments on
behalf of victims and made numerous false statements to induce payment of advance fees. Once the fees were
paid, however, the victims were unable to contact anyone within the various business entities.
                                                  Ordered to pay $712,470 in forfeiture,
Multiple Defendants      Participants                                                       November 14, 2016
                                                  joint and several.
                                                  Sentenced to 12 months and 1 day in
                         Processing Team          prison, 1 year of supervised release,
Michelle Lefaoseu                                                                            October 31, 2016
                         Leader                   and ordered to pay $2,390,496 in
                                                  restitution, joint and several.
                                                  Sentenced to 18 months in prison,
                                                  1 year of supervised release, and
Kowit Yuktanon           Closer                                                              October 25, 2016
                                                  ordered to pay $2,390,496 in
                                                  restitution, joint and several.
                                                  Sentenced to 18 months in prison,
                                                  1 year of supervised release, and
Cuong King               Closer                                                              October 24, 2016
                                                  ordered to pay $2,390,496 in
                                                  restitution, joint and several.




                                 Semiannual Report to the Congress • October 1, 2016–March 31, 2017        151
   DEFENDANT                    ROLE                 MOST RECENT ACTION                         DATE

Director/VP of Nonprofit Indicted in Foreclosure Prevention Fraud Scheme, Texas
Francisco Javier Gonzalez was a director and the vice president of a nonprofit designed to provide housing
counseling to combat poverty. According to the indictment, Gonzalez allegedly defrauded numerous homeowners
by promising to help them obtain mortgage assistance to save their homes from foreclosure, but in reality, he
made no efforts to obtain mortgage assistance for his victims.
                                                 Indicted on charges of mail fraud, wire
Francisco Javier        Director/Vice
                                                 fraud, bank fraud, and aggravated            October 19, 2016
Gonzalez                President
                                                 identity theft.




152    Federal Housing Finance Agency Office of Inspector General
Appendix I:                                                Numerous foreclosures left the Enterprises with an
                                                           inventory of REO properties. The REO inventory
OI Publicly Reportable                                     has sparked a number of different schemes to either
Investigative Outcomes                                     defraud the Enterprises, which use contractors to
                                                           secure, maintain and repair, price, and ultimately sell
Involving Property                                         their properties, or defraud individuals seeking to
Management and                                             purchase REO properties from the Enterprises.

REO Schemes




   DEFENDANT                     ROLE                 MOST RECENT ACTION                           DATE

CEO Pleads Guilty and Notaries Charged in Property Investment Scheme, Michigan
The founder and CEO of a real estate and property management company allegedly conspired with others to
purchase and resell REO properties, some of which were owned by Fannie Mae, to foreign investors at inflated
prices. On many occasions, these properties were allegedly marketed as tenanted and fully refurbished when in
reality they were vacant and in a state of extreme disrepair.
                                                  Charged with notary public – violations
Phillip Hayes             Notary                  involving real property, and notary       March 29, 2017
                                                  public – general violations.
                                                  Charged with notary public – violations
Sandra Hayes              Notary                  involving real property, and notary       March 29, 2017
                                                  public – general violations.
                          Founder and CEO of      Pled guilty to conspiracy to commit
Sameer Beydoun                                                                              March 21, 2017
                          Company                 wire fraud.

Guilty Plea in False REO Sales Scheme, Illinois
Scott Goldstein cheated would-be investors by, among other fake investment pitches, claiming he could
purchase discounted REO properties through a fictitious Enterprise program purportedly named the “Block 10
Program.” To support his claims, Goldstein provided some victims with fake documents that used Freddie Mac’s
letterhead, and victims, relying on Goldstein’s lies, “invested” in the venture. Goldstein never made the promised
investments but used the victims’ money for his own benefit to buy luxury cars and pay his mortgage, among
other things. Goldstein’s scheme caused approximately $245,000 in losses.
                          Purported CEO of
Scott Goldstein                                     Pled guilty to wire fraud.                   March 15, 2017
                          Company




                                 Semiannual Report to the Congress • October 1, 2016–March 31, 2017          153
   DEFENDANT                    ROLE                 MOST RECENT ACTION                          DATE

Guilty Plea of Former Vice President of Inspection Company, Florida
John Franklin Coleman, III, the former vice president of operations, along with other managers of American
Mortgage Field Services, a property inspection company, directed employees to submit thousands of fraudulent
inspection reports to Bank of America and other loan servicers that paid the company for services that did not
occur. The Enterprises contracted with American Mortgage Field Services to oversee periodic inspections on
properties in various stages of the foreclosure process. Losses to the Enterprises and Bank of America are in
excess of $12 million.
John Franklin            Former Vice President Pled guilty to making a false
                                                                                              February 9, 2017
Coleman, III             of Operations             bankruptcy declaration.

Recruiter in REO Property Flipping Scheme Sentenced, Tennessee
This scheme involved investor flipping of REO foreclosure properties by offering financial incentives to the
borrowers, which were not disclosed to the lenders. Loan officers facilitated the sales by falsifying loan
applications.
                                                  Sentenced to 24 months in prison,
                                                  3 years of supervised release, and
Thomas Munn, Jr.        Recruiter                 ordered to pay $605,801 in restitution      November 17, 2016
                                                  and $605,801 in forfeiture; both
                                                  ordered joint and several.




154    Federal Housing Finance Agency Office of Inspector General
Appendix J:                                               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.
                                                          In distressed property schemes, perpetrators
Involving Adverse                                         falsely purport to assist struggling homeowners
Possession and                                            seeking to delay or avoid foreclosure. They use
                                                          fraudulent tactics, such as filing false bankruptcy
Distressed Property                                       petitions, while collecting significant fees from the
Schemes                                                   homeowners.




   DEFENDANT                    ROLE                 MOST RECENT ACTION                          DATE
Jury Trial Convictions and Sentencings in Scheme to Steal Properties from Fannie Mae
and Others Using Fraudulent Deeds, Illinois
Two co-defendants were found to have participated in a scheme to fraudulently obtain residential properties from
lenders and Fannie Mae by creating and submitting false documents, including warranty deeds, to lenders, Fannie
Mae, and the county recorder’s office. At least one warranty deed was fraudulently signed by a co-defendant and
notarized by another co-defendant purporting to be an agent of Fannie Mae. One co-defendant pled guilty to mail
and wire fraud.
                                                  Sentenced to 3 months of probation
                                                  and ordered to pay $86,000 in
                         False Deed Producer/
Terry Teague                                      restitution, joint and several. Previously   March 3, 2017
                         Notary
                                                  found guilty of mail and wire fraud at
                                                  trial.
                                                  Sentenced to 12 months and 1 day in
                                                  prison, 2 years of supervised release,
                         False Deed Producer/ and ordered to pay $86,000 in
Arnetra Ferguson                                                                             February 15, 2017
                         Notary                   restitution, joint and several. Previously
                                                  found guilty of mail and wire fraud at
                                                  trial.
                                                  Sentenced to 24 months in prison,
                                                  3 years of supervised release, and
                         Property Locator/False
Marcus Lenton                                     ordered to pay $86,000 in restitution,      February 8, 2017
                         Deed Producer
                                                  joint and several. Previously pled guilty
                                                  to mail and wire fraud.




                                 Semiannual Report to the Congress • October 1, 2016–March 31, 2017        155
   DEFENDANT                    ROLE                  MOST RECENT ACTION                          DATE
Sentencings in Adverse Possession Scheme Involving Enterprise Properties,
Pennsylvania
This unlawful scheme involved theft of properties, including properties owned by the Enterprises, by creating
fraudulent deeds purporting to convey ownership of the properties. The co-conspirators occupied several of the
properties or attempted to rent or sell them.
                                                  Sentenced to 96 months in prison,
                                                  5 years of supervised release, and
Steven Hameed           Participant                                                          February 15, 2017
                                                  ordered to pay $190,818 in restitution,
                                                  joint and several.
                                                  Sentenced to 1 day in prison, 5 years
                                                  of supervised release, and ordered to
Damond Palmer           Participant                                                           October 19, 2016
                                                  pay $147,481 in restitution, joint and
                                                  several.
                                                  Sentenced to 40 months in prison,
                                                  5 years of supervised release, and
Darnell Young           Participant                                                           October 19, 2016
                                                  ordered to pay $190,818 in restitution,
                                                  joint and several.

Sentencings in Foreclosure Rescue Scheme, California
Co-defendants and others operated a foreclosure rescue scheme involving the filing of false bankruptcies, grant
deeds, and other lawsuits. The scheme involved over 80 properties, and the defendants received over $1 million
in payments from victims.
                                                Sentenced to 4 years in prison and
                        Purported Attorney/
David Boyd                                      ordered to pay $50,601 in restitution,       February 7, 2017
                        Document Preparer
                                                joint and several.
                                                Sentenced to 4 years in prison and
                        Salesman/Document
Marcus Robinson                                 ordered to pay $25,295 in restitution,       February 7, 2017
                        Preparer
                                                joint and several.
                                                Sentenced to 80 months in prison and
                        Salesman/Document
John Contreras                                  ordered to pay $102,943 in restitution,     November 4, 2016
                        Preparer
                                                joint and several.

Sentencing of Real Estate Salesperson, Florida
Rafael Sanchez ran a scheme in which he charged fees to file false bankruptcy petitions on behalf of struggling
homeowners in an attempt to delay the foreclosure process.
                                               Sentenced to 2 years of probation and
Rafael Sanchez         Real Estate Agent                                                    January 9, 2017
                                               ordered to pay $10,050 in restitution.

Sentencing in Bankruptcy Foreclosure Scheme, California
Matilda Verbera and others conspired to commit bankruptcy fraud by operating a business that falsely purported
to provide assistance to struggling homeowners seeking to delay or avoid foreclosure.
                                                Sentenced to 6 months in prison,
Matilde Verbera          Business Owner         6 months of home confinement, and          January 9, 2017
                                                3 years of supervised release.




156    Federal Housing Finance Agency Office of Inspector General
   DEFENDANT                    ROLE                  MOST RECENT ACTION                           DATE
Guilty Verdict and Sentencing of Sovereign Citizens; Falsely Asserted Ownership of
Foreclosed Properties Owned by Fannie Mae or Other Lenders, Illinois
The defendants, along with others, commandeered vacant or recently foreclosed homes owned by Fannie Mae
or other lenders, which they either moved into or rented to family members. The four belonged to the “Moors,”
a group that claims not to recognize most state or federal laws. In some cases, the renters were unaware of the
scheme.
                                                  Pled guilty to theft and sentenced to
Raymond Trimble          Sovereign Citizen        48 months in prison and 2 years of        December 21, 2016
                                                  supervised release.
                                                  Found guilty at trial to charges of
                                                  theft, financial institution fraud,
Torrez Moore             Sovereign Citizen                                                   October 21, 2016
                                                  and continuing a financial crimes
                                                  enterprise.

Sentencing of Business Operator in Bankruptcy Foreclosure Scheme, California
Karl Robinson operated “Stay in Your Home Today,” a business marketed to struggling homeowners as a way
to delay the foreclosure of their homes. To accomplish this, Robinson arranged for the filing of fraudulent
bankruptcy petitions, as well as fraudulent deeds of trust, for which he received approximately $2.98 million in
fees from the victims of his scheme.
                                                 Sentenced to 48 months in prison,
                         Pastor/Business
Karl Robinson                                    3 years of supervised release, and           November 28, 2016
                         Owner
                                                 ordered to pay a fine of $10,000.
Prison Sentences and Restitution Ordered in Scheme to Steal Properties from the
Enterprises and Others, California
Co-defendants operated a scheme to steal properties by filing forged grant deeds and then selling the stolen
properties to unwitting investors. At least 10 of the properties stolen were owned by the Enterprises, valued at
over $2.5 million.
                                                    Sentenced to 75 months in prison,
                                                    3 years of supervised release,
Mazen Alzoubi             Real Estate Investor      and ordered to pay $2,506,414 in         November 7, 2016
                                                    restitution, joint and several, and
                                                    $2,192,931 in forfeiture.
                          Interacted with Escrow Sentenced to 24 months in prison,
                          Companies During          3 years of supervised release,
Daniel Deaibes                                                                                October 24, 2016
                          Sales of Stolen           and ordered to pay $1,819,591 in
                          Properties                restitution, joint and several.




                                 Semiannual Report to the Congress • October 1, 2016–March 31, 2017          157
Appendix K:                                             In this type of scheme, traders fraudulently
                                                        manipulate the buying and selling prices of RMBS,
OI Publicly Reportable                                  causing customers to pay more to purchase the
Criminal Investigative                                  RMBS and to receive less when they sell RMBS.

Outcomes Involving
RMBS Schemes




   DEFENDANT                   ROLE                MOST RECENT ACTION                          DATE

Indictment of Former Cantor Fitzgerald & Co. RMBS Trader, Connecticut
Former Cantor Fitzgerald & Co. RMBS trader David Demos allegedly engaged in a scheme to defraud designed
to enrich his former employer and himself by using materially false and fraudulent misrepresentations and
omissions to take secret and unearned compensation from victims on RMBS trades.

David Demos            Former RMBS Trader      Indicted on charges of securities fraud.   December 7, 2016




158   Federal Housing Finance Agency Office of Inspector General
Appendix L:                                              Investigations in this category involve a variety of
                                                         fraud schemes that relate to loans purchased by
OI Publicly Reportable                                   the Enterprises to finance multifamily properties.
Investigative Outcomes                                   Multifamily properties have five or more units and
                                                         are primarily rental apartment communities.
Involving Multifamily
Schemes




   DEFENDANT                   ROLE                 MOST RECENT ACTION                          DATE

Multifamily Property Accountant Indicted, Arizona
Shana Johnson allegedly embezzled over $2.4 million from bank accounts associated with the multifamily
properties under management by her employer, including multifamily properties financed by Freddie Mac.
                                               Indicted on charges of wire fraud,
Shana Johnson          Property Accountant     money laundering, and aggravated             February 1, 2017
                                               identity theft.




                                Semiannual Report to the Congress • October 1, 2016–March 31, 2017        159
Appendix M:                                                Investigations in this category include a variety of
                                                           schemes involving Fannie Mae, Freddie Mac, the
OI Publicly Reportable                                     FHLBanks, or members of FHLBanks.
Investigative Outcomes
Involving Fraud Affecting
the Enterprises, the
FHLBanks, or FHLBank
Member Institutions




   DEFENDANT                    ROLE                   MOST RECENT ACTION                          DATE

Guilty Plea of Title Agency Company Owner, Ohio
Kimberli E. Himmel was the owner and operator of Netwide Title Agency, Inc. Himmel deceived lenders by
directing them to wire loan funds to her personal bank account instead of the company’s official escrow account
and then used the funds for her own personal use and business operating expenses. Freddie Mac suffered
losses as a result of this scheme.
                                                  Pled guilty to bank fraud and theft of
Kimberli E. Himmel        Title Agency Owner                                                  March 31, 2017
                                                  government funds.

Guilty Plea of Nonprofit Employee Who Defrauded FHLBank Member, Texas
The executive director of a nonprofit organization and a co-conspirator submitted fraudulent documentation to the
FHLBank of Dallas to obtain Affordable Housing Program funds.

Kayla Lindsey           Chief Financial Officer   Pled guilty to conspiracy.                  March 30, 2017

Superseding Indictment of Subject who Forged Fannie Mae Exec’s Signature in Deed
Fraud Scheme, Texas
Arnoldo Antonio Ortiz allegedly forged signatures on warranty deeds, including that of a Fannie Mae executive,
and filed the deeds with the county to obtain distressed or foreclosed properties. Ortiz then allegedly attempted
to rent or sell the fraudulently obtained properties to unwitting victims. Ortiz allegedly deeded two Fannie Mae
properties to himself, which caused an exposure of over $500,410 to Fannie Mae.
                                                    Superseding indictment filed charging
Arnoldo Antonio Ortiz      Participant                                                            March 28, 2017
                                                    theft of property.




160    Federal Housing Finance Agency Office of Inspector General
   DEFENDANT                    ROLE                  MOST RECENT ACTION                           DATE
Former Bank Employees Indicted and Pled Guilty in Bank Fraud Scheme; Fraudulent
Mortgage Applications Totaled at Least $19.4 Million, Washington
PC Bank Home Loans (PCBHL) offered mortgage loans to borrowers and assisted borrowers with their loan
applications. The mortgages originated by PCBHL were funded by its parent, Pierce Commercial Bank (PCBank),
which then sold the mortgages to financial institution investors. Co-conspirators working for PCBHL allegedly
participated in a scheme to defraud PCBank and its investors by facilitating the submission of fraudulent loan
applications to PCBank. Many of the loans went into default, which resulted in large losses and contributed to
the eventual failure of PCBank, a member bank of the FHLBank of Seattle. At the time of its failure, PCBank had
more than $17 million in outstanding advances with the FHLBank of Seattle. The Enterprises, as owners of some
loans involved in this scheme, suffered additional losses.

Ed Rounds               Former Loan Officer      Pled guilty to bank fraud.                   March 23, 2017

                        Former Vice
Sam Tuttle                                     Pled guilty to bank fraud.                     March 14, 2017
                        President/Loan Officer
                                               Indicted on charges of conspiracy
                        Former Senior Loan     to make false statements on loan
Angela Crozier                                                                               January 26, 2017
                        Processor              applications and to commit bank fraud
                                               and bank fraud.
                                               Indicted on charges of conspiracy
                                               to make false statements on loan
Benjamin Leske          Former Loan Officer                                                  January 26, 2017
                                               applications and to commit bank fraud
                                               and bank fraud.
                        Former Vice            Pled guilty to making false statements
Craig Meyer                                                                                  January 19, 2017
                        President/Loan Officer in a loan application.

Indictment Filed for Failed Member Bank, FHLBank of San Francisco, California
Co-conspirators allegedly engaged in a scheme to defraud federal regulators and Sonoma Valley Bank, a
member bank of the FHLBank of San Francisco, by using straw buyers to assist a bank customer in obtaining
approximately $28 million in loans, exceeding the FHLBank’s lending limits, thereby exposing it to excessive risk
and eventually causing it to fail. Sonoma Valley Bank had approximately $60 million in outstanding advances
from the FHLBank of San Francisco; losses attributable to this scheme are approximately $20 million.
                                                  Indictment filed on charges of
                                                  conspiracy to commit bank fraud and
                                                  falsify bank records, bank fraud, false
Sean Cutting             Former CEO               bank entries, conspiracy to make false      March 23, 2017
                                                  statements to the FDIC, misapplication
                                                  of bank funds, and false statements to
                                                  the FDIC.
                                                  Indictment filed on charges of
David Lonich             Attorney                 conspiracy to commit bank fraud and         March 23, 2017
                                                  falsify bank records and bank fraud.




                                 Semiannual Report to the Congress • October 1, 2016–March 31, 2017          161
   DEFENDANT                    ROLE                  MOST RECENT ACTION                          DATE
                                                 Indictment filed on charges of
                                                 conspiracy to commit bank fraud and
                                                 falsify bank records, bank fraud, false
                        Former Chief Loan        bank entries, conspiracy to make false
Brian Melland                                                                                March 23, 2017
                        Officer                  statements to the FDIC, misapplication
                                                 of bank funds, false statements to the
                                                 FDIC, and receipt of gifts for procuring
                                                 loans.

Guilty Plea of Settlement Agent, Maryland
Margie Franz, a title company employee, defrauded her employer, financial institutions, and homeowners by
misapplying escrow fees received for real estate transactions. Losses associated with this scheme are in excess
of $749,000.
                         Settlement Agent/
Margie Franz                                      Pled guilty to wire fraud.                   March 7, 2017
                         Office Manager

Trial Conviction in Identity Theft Scheme, Virginia
Allise Jones conspired with others to use PII associated with current and former employees of Freddie Mac and
the Department of Veterans Affairs. The Freddie Mac PII was obtained from a computer located at Freddie Mac’s
headquarters. The PII was used to defraud numerous financial institutions by withdrawing funds from the victims’
accounts at financial institutions and opening credit accounts using the stolen identities. There are over 2,600
potential victims in this scheme.
                                                  Convicted by jury trial on charges of
Allise Jones (also                                conspiracy to commit identity theft,
known as Ajani             Participant            conspiracy to commit access device           February 16, 2017
Ringgold)                                         fraud, access device fraud, and
                                                  aggravated identity theft.
Superseding Indictment Charging Bank Owner and Real Estate Investor with Bank
Fraud, Missouri
Shaun R. Hayes, prior owner of Excel Bank, along with Michael H. Litz, prior owner of Bellington Realty and
18 Investments, allegedly engaged in a scheme in which straw borrowers were used to disguise insider loans
totaling over $3 million. The loans were allegedly used to pay delinquent pool loans of two entities in which
Hayes and Litz had ownership. This activity was concealed from Excel Bank and the FDIC.
                                                   Superseding indictment filed
                                                   on charges of bank fraud; theft,
Shaun R. Hayes            Bank Owner               embezzlement, or misapplication of          January 31, 2017
                                                   funds by a bank officer; and conspiracy
                                                   to commit bank fraud.
                                                   Superseding indictment filed
                                                   on charges of bank fraud; theft,
Michael H. Litz           Real Estate Investor     embezzlement, or misapplication of          January 31, 2017
                                                   funds by a bank officer; and conspiracy
                                                   to commit bank fraud.




162    Federal Housing Finance Agency Office of Inspector General
   DEFENDANT                     ROLE                 MOST RECENT ACTION                           DATE

Sentencing in U.S. Senator Impersonation Case, Florida
Sidney Hines was contacted by a debt collection agency when he failed to make payments on the unsecured
loan he received through Fannie Mae’s HomeSaver Advance program. Hines impersonated a sitting United States
Senator on multiple occasions in telephone calls to the debt collection agency when he, acting as the Senator,
stated that Hines’ loan was paid in full and that the loan should be removed from his credit report.

Sidney Hines            Homeowner                Sentenced to 2 years of probation.           January 12, 2017

Business Owner Indicted in Bankruptcy Estate Embezzlement Scheme, Florida
Clark D. East obtained a loan from Sterns Bank, a member bank of the FHLBank of Minneapolis, to develop a
property in Florida. East personally guaranteed the over $4 million held by Sterns Bank for the development of
the property. East subsequently defaulted on the loan and filed for bankruptcy protection with the United States
Bankruptcy Court. During the bankruptcy proceedings, East was ordered by the Court to sell the property and pay
$1.2 million in sales proceeds to Sterns Bank. Rather than repaying Sterns Bank, East allegedly embezzled over
$800,000 of proceeds that were part of the bankruptcy estate and due to Sterns Bank.
                                                  Indicted for bankruptcy fraud –
Clark D. East             Business Owner                                                     November 17, 2016
                                                  embezzlement of a bankruptcy estate.

Guilty Plea in FHLBank Fraud Scheme, South Carolina
The owner and an employee of a nonprofit conspired to defraud the Affordable Housing Program through the
FHLBank of Atlanta and its member banks by submitting fraudulent invoices to banks with forged contractor
signatures, inflated costs, and for work never performed.

Augustina Cabral-Rice   Nonprofit Employee       Pled guilty to conspiracy.                 November 16, 2016

Sentencing of Loan Officer, Missouri
Brian Joe Cox, the president and a loan officer at Focus Bank, an FHLBank member, misapplied approximately
$170,000 in loan proceeds from Focus Bank with the intent to defraud the bank. Cox had been entrusted with
funds from multiple borrowers but converted the funds to his personal use and concealed his acts from his
employer.
                                                   Sentenced to 51 months in prison,
Brian Joe Cox            President/Loan Officer 5 years of supervised release, and         November 10, 2016
                                                   ordered to pay $443,948 in restitution.

Former Title Company President Charged, New Jersey
Mark Andreotti allegedly conspired with others to fraudulently obtain mortgage loans and use the loan proceeds
for personal gain. This scheme resulted in at least $1.2 million in losses to financial institutions and Fannie
Mae.
                                                  Charged via superseding indictment for
                                                  conspiracy to commit bank fraud; bank
                         Former Title Company
Mark Andreotti                                    fraud; attempt to evade or defeat tax;          October 4, 2016
                         President
                                                  and willful failure to file return, supply
                                                  information, or pay tax.




                                 Semiannual Report to the Congress • October 1, 2016–March 31, 2017          163
   DEFENDANT                   ROLE                  MOST RECENT ACTION                         DATE

Sentencing of Bank Officer Charged with Theft and Embezzlement, Florida
Michael Johnson, a former special assets officer at Synovus Bank and senior vice president of special assets
at American Momentum Bank, devised a scheme to defraud the banks during REO closing transactions. Both
institutions are member banks of the FHLBank system.
                                                 Sentenced to 18 months in prison,
                                                 5 years of supervised release, and
Michael Johnson         Bank Officer                                                        October 4, 2016
                                                 ordered to pay $152,783 in restitution
                                                 and $152,783 in forfeiture.




164    Federal Housing Finance Agency Office of Inspector General
Appendix N: Endnotes                                       5	    ederal Housing Finance Agency, Advisory
                                                                F
                                                                Bulletin 2016-05, Internal Audit Governance
                                                                and Function, at 15 (October 7, 2016).
1	   12 U.S.C. § 4617(b)(2)(A), (B), (D) (2011).
                                                                Accessed: April 18, 2017, at www.fhfa.gov/
      Accessed: April 18, 2017, at www.gpo.gov/fdsys/
                                                                SupervisionRegulation/AdvisoryBulletins/
      pkg/USCODE-2011-title12/pdf/USCODE-
                                                                AdvisoryBulletinDocuments/Final_AB_Internal_
      2011-title12-chap46-subchapII-sec4617.pdf.
                                                                Audit_2016-05.pdf.

2	   Department of the Treasury, Statement by Secretary
                                                           6	    n May 31, 2015, the FHLBanks of Seattle and
                                                                O
      Henry M. Paulson, Jr. on Treasury and Federal
                                                                Des Moines merged to form a single entity, the
      Housing Finance Agency Action to Protect Financial
                                                                FHLBank of Des Moines. See Federal Housing
      Markets and Taxpayers (September 7, 2008).
                                                                Finance Agency Office of Inspector General,
      Accessed: April 18, 2017, at www.treasury.gov/
                                                                Merger of the Federal Home Loan Banks of Des
      press-center/press-releases/Pages/hp1129.aspx.
                                                                Moines and Seattle: FHFA’s Role and Approach for
                                                                Overseeing the Continuing FHLBank (WPR-2016-
3	   For a detailed discussion of the uncertainty of           002, March 16, 2016). Accessed: April 18, 2017,
      the Enterprises’ future profitability, see Federal        at www.fhfaoig.gov/Content/Files/WPR-2016-
      Housing Finance Agency Office of Inspector                002.pdf.
      General, The Continued Profitability of Fannie
      Mae and Freddie Mac Is Not Assured (WPR-2015-
                                                           7	   S uspended Counterparty Program, 80 Fed. Reg.
      001, March 18, 2015). Accessed: April 18, 2017,
                                                                 79,675 (final rule December 23, 2015) (to be
      at www.fhfaoig.gov/Content/Files/WPR-2015-
                                                                 codified at 12 C.F.R. pt. 1227). Accessed: April
      001.pdf.
                                                                 18, 2017, at www.gpo.gov/fdsys/pkg/FR-2015-
                                                                 12-23/pdf/2015-32183.pdf.
4	   Federal Housing Finance Agency,
      Advisory Bulletin 2012-01, Categories for
      Examination Findings, at 2 (April 2, 2012).
      Accessed: April 18, 2017, at www.fhfa.gov/
      SupervisionRegulation/AdvisoryBulletins/
      AdvisoryBulletinDocuments/2012_AB_2012-
      01_Categories_for_Examination_Findings_508.
      pdf. On March 13, 2017, the Agency issued
      Advisory Bulletin 2017-01, Classifications of
      Adverse Examination Findings, which supersedes
      and rescinds Advisory Bulletin 2012-01.
      Accessed: April 18, 2017, at www.fhfa.gov/
      SupervisionRegulation/AdvisoryBulletins/
      AdvisoryBulletinDocuments/AB-2017-01-
      Classifications-of-Adverse-Examination-Findings.
      pdf.




                                   Semiannual Report to the Congress • October 1, 2016–March 31, 2017        165
Federal Housing Finance Agency
Office of Inspector General

Se m iann ual R e p ort
to t h e Cong r e ss
October 1, 2016, through March 31, 2017




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