Inspector general set to audit Fannie Mae and Freddie Mac

The FHFA Inspector General is set to audit the GSEs after a year of increased foreclosures to see if they tried to maximize recovery and minimize negative effects on communities.

The Federal Housing Finance Agency's (FHFA) Inspector General will conduct a wide-scale audit of Fannie Mae and Freddie Mac REO management practices.

As reported in Housingwire, Fannie and Freddie repossessed 173,000 homes as of March 31, which is a 20 percent reduction from 218,000 held at the same point last year, according to their first quarter financial statements. Last year alone, the two companies disposed of 353,851 properties and took on roughly 298,000.

The audit is intended to determine whether the FHFA and enterprises manage REO to maximize financial recoveries and minimize the negative effects of foreclosures on affected communities. Due to legislative actions, servicing problems and other delays, the foreclosure timelines lengthened across the country and thus drove up costs for each REO department. Fannie and Freddie spent more than $8.5 billion managing their REO inventories since 2007.

According to a white paper released last week by the Inspector General, a failure in Enterprise efforts to secure and maintain properties could drive up Enterprise losses and cause damage in affected communities. For example, foreclosed properties can lower the value of its surrounding buildings or increase crime.

The Inspector General report found that each firm had potential risks within the company, such as one firm not performing comprehensive background checks of its contractors. In addition, one GSE did not inspect how well vendors did their work and lacked oversight to prevent unnecessary maintenance and repairs.

As foreclosure rates are on the rise, along with mortgage applications, lenders would be well-advised to invest in loan management software along with an amortization calculator to ensure payment plans are designed in the best interests of the borrowers as well as the lenders. Hopefully this way, it will prevent future foreclosures or future audits.