WASHINGTON — The Federal Housing Finance Agency is still falling short when it comes to keeping a watchful eye on Fannie Mae and Freddie Mac.
In two reports released early Friday morning, the FHFA's Office of Inspector General criticized the agency for failing to force Fannie to create a robust oversight program despite years of stalling and for not making necessary hires of accredited examiners.
The IG's report made clear that with staffing shortfalls, an oversight program is even more critical in Fannie's and Freddie's ability to self-identify, report, and correct operational risk, especially given the $162 billion in taxpayer support it has received to help offset losses.
"The agency has too few examiners to ensure the efficiency and effectiveness of its GSE oversight program; due to examiner shortfall, FHFA has scaled back planned work during examinations, and examinations have often taken much longer than expected to complete," the IG's report stated.
While the FHFA has announced plans to hire about 26 examiners, upping its staff by 22%, and reorganize its examination program, the agency has acknowledged those efforts may not be enough.
"FHFA has expressed concern that its current hiring initiative will neither enable it to overcome its examination capacity shortfalls nor ensure the effectiveness of its 2011 reorganization," the IG's report stated.
Additionally, the IG stressed the need for FHFA to put an accreditation program in place similar to other agencies that require examiners to be accredited as a condition of employment. Only 34% of the FHFA's 120 non-executive examiners are accredited.
The FHFA's IG said the creation of an effective operational risk management program at Fannie is critical given FHFA's limited examination resources. The IG criticized FHFA for failing to use its authority to force Fannie to create an oversight program even though it's been an issue since 2006.
"FHFA's authority over the enterprises is broad and includes the ability to discipline or remove enterprise personnel to ensure compliance with agency mandates. But to date, FHFA has not exercised this or other authorities," one report said.
Rather, the agency has used "less forceful supervisory means," which have been ineffective over the last five years.
Without such a program, Fannie may have missed chances to strengthen oversight of firms that were under contract to process foreclosures. A May 2006 internal report found that Fannie's attorneys in Florida and elsewhere had falsified documents in foreclosure proceedings.
The IG also called on FHFA to ensure that Fannie had an oversight program in place no later than the first quarter of 2012.
"Given Fannie Mae's history of non-compliance, FHFA-OIG believes that the agency must exercise maximum diligence and take forceful action to ensure that Fannie Mae meets the agency's expectations in this regard," said the report.
