MAR 21, 2013 2:45pm ET

Freddie Mac and Its Regulator Faulted on Servicer Complaints

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Freddie Mac and its regulator must do more to ensure loan servicers properly respond to complaints over handling of mortgages held or guaranteed by the U.S.-owned company, according to a government watchdog’s audit report.

Servicers who collect payments and deal with borrowers for Freddie Mac failed to implement Federal Housing Finance Agency guidelines for so-called escalated complaints, the FHFA’s Office of Inspector General said in the report released today. Freddie Mac failed to supervise the servicers and FHFA, which oversees the McLean, Va.-based company and Washington-based Fannie Mae, didn’t ensure the procedures were followed.

Servicers that work with Freddie Mac, including Bank of America Corp., Citigroup Inc. and Wells Fargo & Co., reported few or no escalated cases−those that may involve fraud or regulatory violations−despite having handled such cases, according to the report. Overall, Freddie Mac data on its servicers shows that about 98% didn’t report any escalated cases as of December 2012.

“FHFA must take immediate action to improve servicer reporting, which will in turn help the agency to ensure that escalated cases are resolved,” the inspector general’s office said in the report. “Strengthened oversight−through actions aimed specifically at improving servicer compliance with escalated case requirements−can benefit homeowners, Freddie Mac, and ultimately taxpayers.”

Freddie Mac, which has operated under U.S. conservatorship since it was seized along with Fannie Mae during the 2008 credit crisis, by the end of 2012 owned or guaranteed about 10.6 million residential mortgages with a combined unpaid principal balance of $1.6 trillion, according to the report.

“Today’s report reveals the latest in a sorry string of failures by FHFA leadership to protect American homeowners,” Representative Elijah Cummings, D-Md., said in a statement. “After so many reports documenting the abuses homeowners have suffered at the hands of mortgage servicers, it is unconscionable that FHFA has failed to require mortgage servicers to properly handle tens of thousands of homeowner complaints.”

Cummings, the top Democrat on the House Oversight and Government Reform Committee, has criticized FHFA acting director Edward DeMarco and called on President Barack Obama to nominate a new leader for the agency.

The lawmaker asked Representative Darrell Issa, R-Calif., who leads the oversight panel, to hold a hearing with testimony from DeMarco, FHFA Inspector General Steve A. Linick and officials from Bank of America, Citigroup and Wells Fargo, loan servicers singled out in the report as disregarding reporting requirements.

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