House Democrat expresses concern over housing regulator's oversight practices

A Maryland Democrat expressed concern Thursday over a report showing that a federal housing regulator did not provide enough oversight of major business decisions made by mortgage giants Freddie Mae and Freddie Mac. 

Rep. Elijah Cummings, ranking member of the House Oversight and Government Reform Committee, said the report issued by the Federal Housing Finance Administration's (FHFA) inspector general details areas where the agency failed "to exercise effective control over Fannie Mae and Freddie Mac."

"The bottom line is that FHFA must be a watchdog for taxpayers and homeowners — not a lapdog for Fannie and Freddie," he said. 

"If FHFA’s current leadership does not fulfill that role, they should step aside or be replaced."

FHFA Acting Director Edward DeMarco has come under fire by House Democrats for refusing to allow homeowners with government-backed loans to reduce their principal balance as a way of staving off foreclosures. 

In its report, the inspector general found that FHFA not only failed to assert its authority to review and approve Fannie's and Freddie’s major business decisions but that it has not established a framework to ensure there is a system for the government-controlled enterprises to seek approval.

In some cases, Fannie and Freddie haven't requested approval from the FHFA even when it was required, the report showed. 

Generally, the agency has primarily relied on Fannie and Freddie to decide when to seek approval for their actions.

Also, the report said that FHFA does not have a formal process for ensuring compliance with the decisions made by the agency and, at times, has relied too heavily on Fannie's and Freddie's assessments through such avenues as informal conversations, instead of conducting its own analyses.

"Strengthening control over the agency’s conservator approval process will help FHFA achieve its goals of preserving and conserving," the assets of Fannie and Freddie, the report said. 

One of those business decisions included reviewing and approving Fannie's single-family underwriting standards and its High Touch Servicing Program, which involved multiple transfers of mortgage servicing rights for more than 700,000 loans with an unpaid principal balance in excess of $130 billion. 

The report determined that Fannie executed seven insurance settlement discounts totaling more than $306 million that should have been approved by FHFA in advance. By contrast, Freddie sought and received FHFA’s approval for similar moves.

During a three-year period, Fannie took more than 4,500 actions to increase its risk limits without obtaining approval. 

The report recommends that the agency ensure that significant business decisions are approved, establish processes to ensure that actions requiring approval are submitted for consideration, properly analyze, document and support those decisions, confirm compliance and follow up.

FHFA agreed with most of recommendations, the report said. 

Fannie and Freddie have needed nearly $190 billion in taxpayer money to stay afloat since the government took them over during the financial crisis in 2008.