A trio of reports from the watchdog for the Federal Housing Finance Agency are critical of the regulator’s oversight of various initiatives.
One of the three reports focuses on FHFA’s oversight of Fannie Mae’s and Freddie Mac’s compliance with conservatorship directives.
As of October 2015, FHFA has issued 231 conservatorship directives since Fannie and Freddie were forced into conservatorship in 2008.
FHFA is being evaluated in the report for oversight of the government-sponsored enterprises’ compliance of the directives from Jan. 1, 2013, through June 30, 2014.
The report, FHFA’s Oversight of the Enterprises’ Implementation of and Compliance with Conservatorship Directives during an 18-Month Period, along with the other two reports, was published on Monday by the Federal Housing Finance Agency Office of Inspector General.
The OIG noted that in 2011 and again in 2013, the then-FHFA inspector general testified before the Senate that
FHFA had not proactively overseen GSE compliance with the directives to ensure that their purposes were achieved. The latest review found that little had changed.
FHFA has
exercised very limited oversight of the GSEs’ implementation of and compliance with its directives, the report said. FHFA didn’t actively oversee GSE efforts to implement or comply with directives. It also failed to test compliance after a directive had been issued.
“We determined that, in large measure, FHFA, as conservator, exercised little oversight of the enterprises’ compliance with conservatorship directives and relied on the enterprises to self-report concerns, questions, and operational issues with implementation and compliance,” the OIG stated. “During the review period, we found that one enterprise shared compliance reports for each quarter with FHFA on the status of directives, but those reports were of very limited value because of their inaccuracies and incomplete information. The other enterprise provided no written directive compliance reports to FHFA.”
The second report from the OIG,
Review of FHFA’s Tracking and Rating of the 2013 Scorecard Objective for the New Representation and Warranty Framework Reveals Opportunities to Strengthen the Process, reviewed FHFA’s effectiveness in its efforts to track, rate and assess GSE performance on developing a plan to conduct up-front quality-control reviews on the revised representation and warranty framework. It also reviewed FHFA’s assessing the GSEs’ execution of the new model and use of tools to identify defective loans.
“We found that FHFA’s records of the tracking and rating process were imprecise and unclear,” the report stated. “The records contained internal inconsistencies and did not clearly reflect when targets were modified or deferred, or what actions were required to meet the target. We found that these records can create the mis-impression that work had been completed when, in fact, it had been modified or delayed. We also found that the agency did not consistently communicate guidance to the enterprises in writing.”
The OIG made several recommendations, which FHFA accepted and reportedly took steps to address.
The third report, FHFA Should Map Its Supervisory Standards for Cyber Risk Management to Appropriate Elements of the NIST Framework, was critical of the regulator’s guidance on how the GSEs, including the Federal Home Loan Banks, should address cyber threats.
Although FHFA is not among the five financial regulators that make up the Federal Financial Institutions Examination Council, FHFA’s director is a voting member of the
Financial Stability Oversight Council — as are the FFIEC bank regulators.
In 2015, the FSOC
recommended that financial institutions utilize the National Institute of Standards and Technology Framework for Improving Critical Infrastructure Cybersecurity.
It also recommended that the regulators map their existing regulatory guidance to appropriate elements of the NIST framework and encourage consistent cyber security standards — which FHFA has not done.
“We found that FHFA’s guidance is far less prescriptive and far more flexible than the guidance adopted by FFIEC and its federal regulatory members,” the OIG wrote.
The OIG noted that FHFA
maintains that its flexible guidance is more appropriate for the GSEs — something that is contrary to the conclusions reached by FFIEC regulators.
The OIG is recommending that FHFA implement
FSOC recommendations — which FHFA accepted.
