Freddie Mac didn’t bother going after homeowners who owed about $4.6bn on their loans, according to a report released yesterday by a federal oversight agency.
The company, which was put in government conservatorship after nearly collapsing in 2008, failed to refer nearly 58,000 foreclosures to its deficiency collection vendors, who could have evaluated the borrowers’ ability to repay and possibly collected on those deficiencies, according to a report released Tuesday by the Federal Housing Finance Agency’s Office of the Inspector General.
“Because the deficiencies were not referred for consideration of recovery, the portion of the $4.6 billion that may have been collectible is unknown,” the OIG report stated.“Further, Freddie Mac eliminated any possibility of recovery when it did not refer foreclosed mortgages for evaluation of collectability.”
Between January of 2010 and June of 2012, Freddie Mac saw 220,000 foreclosures on mortgages it backed, resulting in about $19.6bn in deficiencies, according to the report. Nearly half of those foreclosures couldn’t be pursued because of state laws. Of the remaining 117,000 foreclosures, Freddie failed to refer 58,000 for collections evaluation – all in states that allow collectors to pursue deficiency judgments.
“This occurred primarily because Freddie Mac employed inadequate policies” to ensure collections, according to the report.
“As a result, Freddie Mac’s vendors missed the opportunity to evaluate the collectability of $4.6 billion in estimated deficiencies,” the report stated. “Although only a fraction of these deficiencies may have been recoverable, pursuing deficiencies could have mitigated some credit losses and served as a deterrent to borrowers who may consider strategically defaulting.”
But failures like Freddie’s don’t only mean that the government loses out on some money. According to J. Scott Harris, vice president on business development and recruiting for Gold Financial Services, such oversights can also hurt the very borrowers Freddie failed to collect from.
“It’s somebody dropping the ball, and it keeps the whole country from moving forward. Real estate’s what’s driving the economy, and if we can’t make loans to people who could have and should have been able to move forward, we’re in trouble,” Harris said. “The sooner all of that is through the system and done with, the sooner people can rebuild their credit and move on.”