The Federal Housing Finance Agency must improve its risk assessments of Fannie Mae and Freddie Mac’s real estate-owned properties to provide more comprehensive coverage of GSE risk areas, according to an audit by the agency’s official watchdog. In risk assessments of Fannie and Freddie conducted between 2008 and 2011, the FHFA noted that the GSEs’ large REO inventories were a “critical concern” – the agency’s most severe rating. However, the OIG noted that the agency didn’t perform any targeted examinations of Fannie and Freddie’s management and marketing of REO until 2011. Earlier this year, the FHFA completed four targeted examinations focused on GSE REO risks. The first two examinations focused on risks arising from Fannie and Freddie’s use of vendors to manage REO and the other two examinations looked at their efforts to mitigate losses from “problematic properties,” noted the OIG.

Fannie Mae will no longer purchase or securitize mortgages on properties encumbered by certain transfer fee covenants that were created on or after Feb. 8, 2011, under a new policy that goes live next week. The policy, which takes effect July 16, follows a rule finalized by the Federal Housing Finance Agency in March that prohibits Fannie, Freddie Mac and the Federal Home Loan Banks from taking on mortgages “encumbered by certain types of transfer fee covenants and related securities.” In light of the new policy, mortgages on affected properties must be purchased by Fannie as whole loans no later than July 13, 2012, or must be delivered by July 13 into MBS pools with issue dates before July 1, 2012.

The Federal Housing Finance Agency is extending the comment period for its proposed rule that would exclude Fannie Mae and Freddie Mac from purchasing loans subject to a Property Assessed Clean Energy lien. On June 15, the FHFA’s notice of proposed rulemaking was published for public comment in compliance with a federal court order. The proposed rule would direct the GSEs to cease purchasing any mortgage that is subject to first-lien PACE obligation and refuse to consent to the imposition of a first-lien PACE obligation on any mortgage.

The Federal Housing Finance Agency should seriously reassess its regulations which permit the 12 Federal Home Loan Banks to build large unsecured, credit portfolios “that may produce unreasonable risk,” according to an audit by the agency’s official watchdog. The FHFA’s Office of Inspector General report issued last week noted that the FHLBanks substantially increased their unsecured lending to foreign financial institutions, particularly in Europe, during 2010 and 2011. Unsecured credit extensions to European institutions swelled from $66 billion at the end of 2008 to more than $120 billion by early 2011

The Department of Housing and Urban Development said it has received $1.2 billion in recent settlements with large mortgage lenders and servicers but HUD’s internal watchdog, which did much of the legwork in the investigations, reveals a much smaller amount. According to recent audit reports published by HUD’s Office of the Inspector General, only Bank of America and Flagstar Bank have made payments under settlement agreements with HUD and the Department of Justice to resolve government claims. In separate memos to HUD’s Office of General Counsel last month, Kim Randall, director of the HUD OIG Civil Fraud Division, sought clearance to ...

Despite indications of heightened risk that the Federal Housing Finance Agency initially missed, the Federal Home Loan Banks substantially increased their unsecured lending to foreign financial institutions in 2010 and 2011, particularly in Europe, according to a report issued this week by the FHFA’s official watchdog. The FHFA’s Office of Inspector General noted that unsecured lending by the FHLBanks swelled from $66 billion at the end of 2008 to more than $120 billion by early 2011, but declined sharply by year-end 2011, as the European sovereign debt crisis continued to worsen.

The Federal Housing Finance Agency should “expeditiously finalize” its long-awaited analysis as to whether Fannie Mae and Freddie Mac will be allowed to offer principal forgiveness modifications under the Treasury Department’s Home Affordable Modification Program, according to the Government Accountability Office. In a report issued late this week, the GAO reminded the FHFA that the Obama administration’s loan modification program, which would be used to implement any principal reductions, expires at the end of December 2013.

Fannie Mae’s and Freddie Mac’s conservator is pushing back in court against local government efforts to squeeze the GSEs for payments of real estate transfer taxes – taxes that are contrary to the companies’ Congressional charter and to federal law, according to the Federal Housing Finance Agency. Last week, the FHFA filed suit in the U.S. District Court for the Northern District of Illinois against the Illinois Department of Revenue and six counties led by DeKalb County that are trying to collect transfer taxes from Fannie and Freddie. The counties initiated litigation earlier in the week by filing a class-action lawsuit to compel the GSEs to pay hundreds of thousands of dollars in uncollected real estate transfer taxes from the past five years.

The Federal Housing Finance Agency would employ a new, more comprehensive examination rating system which would be used to inspect Fannie Mae, Freddie Mac and the Federal Home Loan Banks and the Banks’ Office of Finance under a proposed rule issued last week. The proposed new system, published in the June 19 Federal Register, seeks to implement a single risk-focused examination system for all three entities that would be similar to the “CAMELS” rating system used by federal prudential regulators for depository institutions.

Military homeowners holding Fannie Mae or Freddie Mac loans with Permanent Change of Station Orders will be eligible to sell their homes in short sale even if they are current on their mortgage under a new policy announced by the GSEs’ regulator late last week. The Federal Housing Finance Agency’s short-sale policy change is intended to make it easier for military homeowners with GSE loans to honor their financial commitments when they are required to move…