FHFA Neglecting Its Responsibilities for Oversight: Inspector General

The FHFA has abdicated its responsibility to oversee the operations of Fannie Mae and Freddie Mac, placing huge mortgage markets at risk, the agency’s inspector general said in a report on management challenges facing the agency.

“FHFA must make a heightened and sustained effort to improve its supervision of the Enterprises,” Inspector General Laura Wertheimer wrote.

Throughout the report, Fannie Mae and Freddie Mac are referred to as “the Enterprises.”

The FHFA was created in 2008 to serve as regulator of the Enterprises and the Federal Home Loan Banks. Together, they controlled $1.1 trillion in assets at the end of 2017.

FHFA Director Mel Watt, whose term expires next year also has been under fire over allegations of sexual harassment. He has denied those allegations.

In the report, Wertheimer said that the FHFA has limited its oversight over the Enterprises to attendance at management and board meetings as an observer and to discussions with managers and directors. She points out that her office has raised the same issues in previous reports.

“Read together, our findings in these reports show that, for the most part, FHFA, as conservator, has not assessed the reasonableness of Enterprise actions pursuant to delegated authority, including actions taken by the Enterprises to implement conservatorship directives, or the adequacy of director oversight of management actions,” she wrote.

She said the FHFA also has not established an accountability standard it expects the Enterprises to meet.

“Likewise, we have identified a lack of rigor by some directors in seeking information from management about the matters for which they are responsible,” she wrote.

House Financial Services Chairman Jeb Hensarling (R-Texas) said the report shows the need for an overhaul of the government-run housing finance system.

“As was demonstrated at the Committee’s hearing on September 27 with FHFA Director Mel Watt and FHFA’s Inspector General, this country’s government-run housing finance system is broken,” he said. “The FHFA has failed as both the conservator and the regulator of the Government Sponsored Enterprises.”

Hensarling is retiring at the end of the year, but the housing finance system is certain to emerge as an issue when Congress returns next year.

The Trump Administration has called for removing the federal charters for Fannie Mae and Freddie Mac as part of its plan to reorganize the government.

And Sens. Bob Corker (R-Tenn.) and Mark Warner (D-Va.) have proposed legislation that would have preserved the operation of Freddie and Fannie while opening the market to additional competition. Corker is retiring at the end of the year, but Warner will remain in office.

And Senate Banking Chairman Mike Crapo (R-Id.) has made it clear that housing finance reform remains a high priority for him.

“The status quo is not a viable option,” he said at a May hearing. “The government plays too big a role in the mortgage market today.”