The Federal Housing Finance Agency (FHFA) should develop a formal review process for compensatory fee settlements and mortgage servicing rights transfers, according to a report from the Office of the Inspector General (OIG).
The recommendation stems from the $11.6 billion settlement between Fannie Mae and Bank of America, approved by the FHFA in January, which resolved a majority of Fannie Mae's outstanding representation and warranty claims against the bank. After both sides hashed out an agreement in 2011, Fannie Mae transferred most of the mortgages it had obtained through Bank of America to specialty servicers, with the FHFA's approval.
The OIG, in reviewing the settlement, found that the FHFA ‘followed the settlement review policy and procedures it had established with regard to mortgage repurchase, mortgage insurance and private-label mortgage-backed securities claims. However, that policy did not apply to resolution of compensatory fee claims or to agreements regarding the transfer of mortgage servicing.’
As a result, the OIG has asked the FHFA to develop a standardized process for reviewing these aspects of the settlement and any others that may come in the future.
More specifically, the OIG has asked the FHFA to develop procedures for settlements of compensatory fee claims and significant mortgage-servicing rights transactions and possibly other matters that exceed the monetary threshold of $50 million established under the settlement. In addition, the FHFA should engage policy and supervision staff earlier in the approval process and link checklists to documentation showing that applicable requirements were satisfied.
The FHFA has agreed to enact the OIG's recommendations by Jan. 31, 2014.
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