Fannie Mae and Freddie Mac Audited for REO

By Liz Clinger Updated on 6/15/2012

According to a while paper by the Inspector General released June 14, 2012 potential risks in the processes at each GSE were found by the Federal Housing Finance Agency’s recent study of Fannie and Freddie, which finalized in March 2012. Errors ranging from failing to perform comprehensive background checks of contractors to failing to inspect vendors maintenance and repairs of the foreclosed properties held by the GSE’s were among the mentioning’s in the Inspector’s report. Also mentioned was that the FHFA placed required changes to fix the risks and reporting duties to the progress throughout 2012.

The Inspector General plans a separate general audit to evaluate the FHFA’s oversight of the contractors and will calculate error rates with test properties, while also overseeing the REO-to-rental program. In a statement from the Inspector General in the white paper, the audit is intended to determine whether the FHFA, Fannie and Freddie are managing REO to minimize the negative aftermath of foreclosures on communities and maximize the financial recoveries. The Inspector stated “A failure in Enterprise efforts to secure and maintain foreclosed properties could drive up Enterprise losses and cause damage in affected communities, e.g., foreclosed properties can lower the value of surrounding properties and increase blight and crime."

Although there have been snags in the REO processes run by Fannie and Freddie, and with legislative actions causing delays and servicing issues which lengthened timelines and increased costs for their REO departments, they are down 20% in foreclosure inventory as of March 31st this year from the same time in 2011, holding over 173,000 REO’s under last year’s 218,000. 2011 was the first year Fannie and Freddie actually sold more REO inventory than they obtained, releasing 353,851 properties and acquiring 298,000 over the course of the year.