WASHINGTON, March 7 The regulator for
Fannie Mae and Freddie Mac needs to improve
supervision of companies that service their government backed
mortgages if the two firms are to reduce losses, a federal
watchdog said on Wednesday.
Mortgage servicing is "critically important to the financial
health" of Fannie Mae and Freddie Mac and the Federal Housing
Finance Agency has failed to implement tighter regulations
overseeing the process, the agency's inspector general said in a
The FHFA needs increased access to the records and contracts
of companies that provide mortgage servicing on the two
money-losing firms' nearly $4.5 trillion servicing portfolio,
the report said.
Government-run Fannie and Freddie own or guarantee about
half of all U.S. home loans and rely on third-party firms to
service mortgages and handle foreclosures. Problems have arisen
when servicers used faulty foreclosure practices.
"FHFA and Freddie Mac have taken positive steps to improve
oversight of mortgage servicing, however deficiencies continue
to exist and they need to be addressed to mitigate losses and
protect homeowners," Steve Linick, the inspector general of the
finance agency, said in a statement.
The five biggest mortgage servicers reached a $25 billion
settlement with the U.S. government after investigations
revealed the banks used faulty paperwork to improperly seize
homes in the foreclosure process.
FHFA learned about the practices of Freddie Mac's mortgage
servicers as early as 2008, but it wasn't closely monitoring
them until August 2010, the report concluded.
Freddie Mac and Fannie Mae have been propped up by over $150
billion in federal aid since they were rescued by the government
The FHFA mostly agreed with the recommendations of the
report and said it is taking steps to improve its monitoring of
servicing at Freddie Mac and Fannie Mae, Jon Greenlee, FHFA's
deputy director of enterprise regulation, said in a written
response to the report.
The FHFA relies on Fannie Mae and Freddie Mac to monitor the
potential risks that can arise from the relationship they have
with their mortgage servicers.
The watchdog's report cited banking regulators that have
set-up more "sufficient regulations" that provide a framework
for servicer oversight.
The report mainly focused on Freddie Mac's mortgage
servicers and oversight, and not the relationship Fannie Mae has
with various financial institutions servicing its loans.