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The Federal Housing Finance Agency's Office of the Inspector General (FHFA OIG) has issued a report that claims the regulator is doing an inadequate job in ensuring that Fannie Mae and Freddie Mac adhere to consumer protection laws.

"The FHFA has not actively overseen - through its examination program - how the enterprises monitor counterparty contractual compliance with federal and state laws that govern originating and servicing mortgage loans, including consumer protection laws," says the report. "Similarly, the enterprises do not have formal programs in place to review their counterparties' compliance with these laws, except where the enterprises face legal liability from a counterparty's failure to comply (e.g., predatory lending).

"In spite of their counterparties' commitments, the enterprises do not review the loans they buy at the time of purchase to assess whether consumers are being treated properly according to applicable law," the report adds. "Instead, both enterprises have noted that they generally rely on the counterparties' representations and warranties of compliance with consumer protection laws ... Further, the enterprises have indicated that it is not their duty to monitor and enforce compliance with federal consumer protection laws because there are federal regulatory agencies with these responsibilities."

The report notes that although the FHFA's new representations and warranty framework directs Fannie Mae and Freddie Mac to conduct reviews of compliance with their respective seller/servicer guides and evaluate loan files on a more comprehensive basis, more specific instruction to "identify loans with legal compliance issues" is not included in this process. The report warns that the FHFA is "vulnerable to questions about why it does not have a strategy to monitor the enterprises' activities to assess whether they are aligned with the public interest as reflected in federal and state laws and regulations."

The report says that FHFA officials indicated they were "considering how to coordinate with other regulators in light of its responsibility to make sure the enterprises' work is consistent with the public interest." The FHFA did not publicly comment on the new report's finding.


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