WASHINGTON (12/28/15)--The Federal Housing Finance Agency (FHFA) has yet to establish a formal process for reviewing Fannie Mae and Freddie Mac’s underwriting standards and variances to them, according to a report released this month by the agency’s Office of the Inspector General (OIG).
According to the FHFA, a formal process will be implemented by the end of 2016.
A March 22, 2012, audit report found that the FHFA lacked a formal process to review Fannie and Freddie’s single-family mortgage purchase underwriting standards, and concluded that the lack of a formal process limited the effectiveness of the FHFA’s oversight of Fannie and Freddie.
The OIG review covers verification testing of the FHFA’s Office of Housing and Regulatory Policy’s (OHRP) implementation of its single-family policy review and escalation process, which took place from January 2014 to March 2015.
According to the OIG, the OHRP has not provided documentation of the development of variance monitoring and analysis, nor has it provided required documentation related to bulk and negotiated transactions. Both were required under the single-family policy review and escalation process.
The process also required OHRP to review proposed revisions to Fannie and Freddie’s single-family credit policies. According to the report, one enterprise (which is unnamed) submitted only five policies, while the other submitted 52.
Since two of the three requirements have not been implemented, and implementation of the third has not been sufficient to provide OHRP with “full visibility” into the single-family credit policy, selling and underwriting standards of Fannie or Freddie, the recommendations will remain open until the FHFA fully establishes a formal review process for Fannie and Freddie underwriting standards.
The FHFA agreed with the recommendation, and reported that it plans to complete its review of the process by June 2016, and will implement it by the end of 2016.