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FHFA and HUD IGs Examine REO Handling

May 31, 2013

The Inspectors General (IGs) of the Federal Housing Finance Agency (FHFA) and Department of Housing and Urban Development (HUD) have issued a joint report on the handling of Real Estate Owned (REO) properties in the inventories of HUD, Fannie Mae and Freddie Mac. The Report puts all agencies on notice that REO disposition is being carefully scrutinized and will continue to be as efforts continue to shrink existing inventories and reduce taxpayer exposure.

Both IGs cited concern about the volume of “shadow inventory” properties in all inventories, but especially FHA’s, and the importance of insuring adequate securing, maintaining, pricing, marketing and selling of the properties to minimize further taxpayer losses. The HUD Inspector General cited lack of contractor oversight as a concern with one sampled contractor failing to perform adequately in 40% of its assigned properties, exposing FHA to a loss of as much as $1 million a year paid for inadequate services from that contractor alone. The HUD IG cited the FHA Note Sales and Distressed Assets Stabilization Program as efforts to reduce the “overhang” of the FHA shadow inventory.

The FHFA Inspector General has taken a different tack by laying out its plans for future examination of Fannie and Freddie handling of REO’s and FHFA’s oversight of same. The FHFA IG specifically laid out a plan for closely examining the bulk sales of Fannie and Freddie REO’s if the current Pilot program involving up to 2,500 properties is expanded.

View Copy of the Joint IG Report