The report, posted on the IG’s website Wednesday, notes that Fannie “has articulated its intention to focus on strategic defaulters” while Freddie has yet to establish a policy “with regard to pursuing deficiency collections” from such mortgagors.
A strategic defaulter refers to a borrower who has the financial wherewithal to keep paying his mortgage but has decided not to because the property is so far underwater that he fears the value will never return. This class of borrowers can include real estate investors and vacation homeowners.
About two years ago Fannie Mae signaled its intention to take legal action against borrowers to recoup the outstanding mortgage debt from borrowers who strategically default.
At deadline a Freddie Mac spokesman had not returned a telephone call about the topic.
The IG report is not on strategic defaulters per se but focuses on the Federal Housing Finance Agency’s oversight of GSE efforts to recover losses from foreclosure sales. The study notes that losses suffered by Fannie and Freddie on deficiencies “may potentially be offset by, among other things, repurchases and mortgage insurance.”
In 2011, vendors working for the two pursued 35,231 deficiency accounts, with a combined value of about $2.1 billion. “Of this amount, vendors recouped approximately $4.7 million—about 0.22%,” inspectors concluded.
“In a future audit, FHFA-OIG plans to assess the enterprises’ different practices and their relative effectiveness in recovering deficiencies,” the IG notes.
The IG says the regulator can “better supervise” the GSE’s deficiency management by obtaining “data and providing guidance.” It adds, “The enterprises manage their foreclosure deficiencies in a challenging environment. For example, the enterprises must navigate diverse legal regimes to pursue deficiencies. Although borrowers make contractual commitments to repay their mortgage loans, individual state laws can diminish or effectively eliminate the enterprises’ ability to recover any shortfalls arising from such commitments, even when borrowers can repay the balance of their mortgage loans.”