April 2, 2014   CLOSE


Report: GSEs Conduct Faulty Pre-foreclosure Inspections

The Office of Inspector General for the Federal Housing Finance Agency released a report claiming that pre-foreclosure inspections for Fannie Mae and Freddie Mac showed major quality control issues, including potentially fraudulent or manipulated data, HousingWire reported March 25.

The OIG report stated that the two government-sponsored enterprises do not have quality controls in place to ensure “pre-foreclosure property inspection information is accurate, consistent, and complete,” HousingWire reported.

The GSEs spent more than $91.2 million for pre-foreclosure property inspections in 2011 and 2012.

Among the issues uncovered by the OIG were property inspection reports that conflicted with corresponding photographs; missing, blurry, and even manipulated photographs; failure of inspectors to gain access to properties in gated communities; and no names or signatures of those conducting the inspections.

Additionally, the OIG reported that servicers did not consistently conduct oversight of property inspection performance or validate the reports. Servicers also were inconsistent in following requirements that inspectors complete and pass criminal background checks.

The OIG chastised the FHFA for failing to provide proper guidance to the GSEs on maintaining quality control over property inspections. The report concluded, “The lack of quality controls diminishes the inspection report’s integrity and casts doubt on whether these inspections are working and necessary,” HousingWire reported.

To address the issues, the OIG advised the FHFA to direct the GSEs to jointly assess the effectiveness of pre-foreclosure property inspections, including inspection risks and objectives, cost effective alternatives and quality controls for content and frequency of inspections.

The FHFA indicated it will issue “supervisory direction” to the GSEs by Jan. 31, 2015, although the agency said the OIG’s report did not provide compelling data to support instituting uniform standards and processes for all inspections.

The OIG’s recommendation will remain open until Fannie and Freddie have completed their assessments, HousingWire reported.

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