The Federal National Mortgage Association and the Federal Home Loan Mortgage Corp. need to more closely monitor servicer compliance with their requirements, according to a new government report.
Fannie Mae and Freddie Mac servicers did a poor job responding to the surge in delinquencies brought on during the financial crisis.
Servicers often failed to assist distressed borrowers in obtaining loan modifications through government-sponsored enterprise programs.
The poor handling of distressed borrowers led to the unnecessary loss of homes.
The deficiencies were covered in FHFA’s Oversight of the Servicing Alignment Initiative from the regulator’s Office of Inspector General.
“Moreover, the enterprises themselves likely incurred additional losses due to their servicers’ failure to execute consistently their contractual responsibilities with respect to delinquent borrowers,” the report said.
FHFA established a Servicing Alignment Initiative in April 2011 to improve servicer performance and reduce GSE losses.
But the OIG said it found that monitoring of compliance with the initiative has been limited.
The FHFA unit assigned with the primary responsibility of overseeing the initiative and servicer compliance, FHFA’s Division of Housing Mission and Goals, has not reviewed or evaluated overall servicer compliance since the program was established in 2011.
In addition, the GSEs are not required to routinely submit critical reports on servicer compliance. So the FHFA division hasn’t determined if servicers are complying with the initiative.
The OIG recommends that an ongoing process is established to evaluate servicer compliance and the effectiveness of remediation efforts by the GSEs.
The inspector general is also calling on FHFA to direct Fannie and Freddie to routinely provide internal reports and reviews for assessment.
In addition, the OIG wants the FHFA to regularly review initiative guidelines for enhancements or revisions based on servicers’ actual versus expected performance.
