Fannie Mae and Freddie Mac lack consistent policies on charging late fees on outstanding loan repurchase requests, creating an uneven playing field in the mortgage market, according to an inspector general report released Wednesday.
Despite mounting repurchase requests after 2007, Freddie did not start charging late fees until late 2010 and even then, only applied them to Bank of America, which had approximately $1.5 billion in outstanding repurchase requests at the time.
The audit by the Federal Housing Finance Agency Office of the Inspector General found the Freddie did not begin to enforce its contractual right to assess late fees on other major seller/servicers until mid-2011.
“OIG determined that Freddie Mac potentially could have assessed $264 million more in late fees from 2009 to early 2011,” the watchdog report says.
Meanwhile, Fannie did not have a contractual ability to charge late fees, which gave it a competitive advantage in the marketplace. In early 2012, the GSE regulator urged Fannie to establish a late fee policy. The government-sponsored enterprise told FHFA the costs of changing its systems and tracking late fees would exceed the benefits. The FHFA did not require Fannie to establish a late fee policy like Freddie’s.
As a consequence, Fannie still does not charge late fees. As of July 2013, the GSE had $2.5 billion in repurchase demands that were outstanding after 120 days.
“None of these are currently subject to any monetary penalty to encourage their timely resolution,” the OIG report says.
The auditors found that Freddie resolved its repurchase demands faster than Fannie because of late fees.
At yearend 2012, more than 65% of Fannie’s repurchase demands were unresolved after 120 days while 40% of Freddie’s repurchase demands were unresolved.
The inspector general is recommending that the FHFA re-evaluate whether Fannie should implement a late fee program by “determining the potential benefits of the program and then assessing whether the benefits are likely to exceed the cost.”
In response to the findings, the FHFA said that it “agrees to document the rationale for not pursuing implementation of a late fee program at Fannie Mae.”
The FHFA also said it would consider changes to the GSEs’ representation and warranty contracts to “further minimize the likelihood of future aged outstanding repurchases.”