The FHFA’s conservatorship of Fannie Mae and Freddie Mac, which is in its eighth year, remains a contentious one in the housing industry. The issue recently returned to the surface after FHFA director Mel Watt in February expressed concern over the GSEs’ lack of capital buffer and the risk it poses to taxpayers.
This week, the Office of the Inspector General for the FHFA (FHFA OIG [1]) issued a report saying [2] the FHFA had exercised “little oversight” of Fannie Mae’s and Freddie Mac’s compliance with conservatorship directives during an 18-month period from January 1, 2013, to June 30, 2014.
According to the report, then-FHFA Inspector General testified in December 2011 and in April 2013 that FHFA “had not proactively overseen Enterprise compliance with its conservatorship directives to ensure that their purposes were achieve.” The purpose of the evaluation was to examine whether the FHFA, as conservator of the Enterprises, had significantly enhanced that oversight. The OIG reported after the evaluation that “little had changed” during the 18-month period as far as the FHFA’s oversight of the Enterprises’ compliance with conservatorship directives.
The FHFA had issued 231 conservatorship directives of differing scope and value as of October 2015 that were evaluated in three separate categories for the purpose of the OIG’s evaluation:
- Directions to one or both of the Enterprises to take a specific action (includes 46 of the directives). An example would be a directive to Fannie Mae to appoint a specific person as chairman of its board.
- Directions to the Enterprises to collaborate with each other under the FHFA’s direction to develop a specific initiative (includes 59 of the directives). An example is directing the Enterprises to work together to resolve issues related to the Common Securitization Platform.
- Directions to the Enterprises to implement specific policies or programs that FHFA developed independently or in collaboration with the Enterprises or other regulators (includes 126 of the directives). An example would be the Enterprises’ direction to participate in Treasury’s Making Home Affordable Program, which includes foreclosure prevention programs such as the Home Affordable Refinance Program (HARP) and the Home Affordable Modification Program (HAMP)
The OIG found that one Enterprise shared compliance reports with each quarter on the status of the directives, but the reports were “of very limited value” due to “inaccuracies and incomplete information.” The OIG reported that the other Enterprise did not provide any written compliance reports to the FHFA and as of the end of the testing period, was “still building a formal directive compliance program and had yet to complete directive testing.”
Based on those findings and others, the OIG concluded that “in large measure, FHFA, as conservator, exercised little oversight of the Enterprises’ compliance with conservatorship directives and relied on the Enterprises to self-report concerns, questions, and operational issues with implementation and compliance.” The watchdog further noted that “We intend to monitor FHFA’s oversight of Enterprise implementation of and compliance with conservatorship directives and will subsequently test whether additional reporting from the Enterprises has enhanced FHFA’s oversight of Enterprise implementation of and compliance with conservatorship directives.”
Click here [2] to view the FHFA OIG’s full report.