Fraud, risk, and regulation: Key takeaways from the FHFA OIG report

Inspector general's report calls for stronger FHFA oversight

Fraud, risk, and regulation: Key takeaways from the FHFA OIG report

The Federal Housing Finance Agency’s (FHFA) Office of Inspector General (OIG) has released its semi-annual report to Congress, covering the period from Oct. 31, 2023, to March 31, 2024.

The report details significant achievements, ongoing challenges, and crucial recommendations aimed at improving the oversight and operations of the FHFA and its regulated entities (Fannie Mae, Freddie Mac, the Federal Home Loan Banks, and others).

A key area of concern was the tightening of lending standards by banks for real estate loans, both residential and commercial. This was attributed to a reduced tolerance for risk and weaker demand in the market. Notably, there was a significant decrease in demand for subprime and non-QM mortgages, indicating a more cautious approach by lenders.

The OIG also investigated several cases of fraud, including a $165 million mortgage fraud conspiracy, a multimillion-dollar COVID relief fraud scheme, and a civil settlement related to misconduct in residential mortgage-backed securities. These investigations resulted in numerous convictions, prison sentences, and financial penalties.

Read more: How to detect—and avoid—mortgage fraud

“One successful action this period involved a real estate investor who pleaded guilty to a $165 million mortgage fraud conspiracy in the District of New Jersey,” inspector general Brian Tomney wrote in the report. “During this multi-year scheme, the defendant conspired with others to deceive lenders into issuing multifamily and commercial mortgage loans by providing them with fictitious purchase and sale contracts with inflated purchase prices. The defendant also pleaded guilty to conspiracy to commit wire fraud affecting a financial institution.”

In addition to its investigative work, the OIG conducted audits and evaluations of FHFA’s programs and operations. These reviews identified areas where FHFA could improve its oversight of regulated entities, such as documenting reviews of desktop appraisal reports and developing policies and procedures for certain supervisory activities.

Read more: FHFA strengthens contractual protection for whistleblowers

The OIG also highlighted its efforts to combat fraud through public awareness campaigns and collaboration with other law enforcement agencies. The OIG’s hotline received over 1,400 contacts during the reporting period, including tips, complaints, and referrals related to potential fraud.

“OIG remains committed to our mission through excellence in oversight and enforcement activities,” Tomney said. “Our many accomplishments this semi-annual period would not be possible without the hard work of our dedicated team of talented professionals.”

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