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Servicers Over-Reimbursed for Property Inspections

Refunds might be required

Jan. 15, 2014

By Mortgage Daily staff

Mortgage servicers that were reimbursed for more than allowed on pre-foreclosure property inspections might be returning the excess funds.

At issue are property inspections on delinquent mortgages that were ordered by servicers in order to avoid additional credit losses.

Fannie Mae requires that servicers perform monthly inspections on all properties that are delinquent, according to its Single Family 2012 Servicing Guide.

But Fannie also limits the total amount that can be reimbursed for such inspections.

An audit performed by the Federal Housing Finance Agency's Office of General found that Fannie's process for reimbursing servicers has significant control deficiencies.

"Further, Fannie Mae does not have system controls to automatically approve, curtail, or reject claims based on Fannie Mae's established reimbursement limits," a report from the FHFA OIG stated. "As a result, Fannie Mae approved inspection claims incorrectly by using processing procedures for other types of reimbursements."

In all, the OIG identified around $5 million in overpayments during 2011 and 2012.

The OIG is recommending that the government-controlled enterprise obtain refunds from servicers for the overpayments.

Fannie also should implement system controls that ensure property inspection claims are rejected when they exceed established tolerance limits.

In addition, the OIG is calling for Fannie to issue guidance to all servicers about inspection reimbursement limits and requirements.

"OIG also recommends that FHFA assess the need for additional examination coverage of Fannie Mae's pre-foreclosure property inspection reimbursement process," the report said. "FHFA is taking action that is generally responsive to the recommendations except for obtaining refunds for overpayments of property inspection claims."

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