The Federal Housing Finance Agency (FHFA)’s Office of the Inspector General (OIG) has determined that the FHFA has followed guidance related to conservatorship of the government-sponsored enterprises (GSEs). However, staff turnover and pervasive record keeping issues have caused a loss of critical documentation, according to a new FHFA OIG report.
As a result, new document retention practices should be implemented, the OIG said.
To compile the new report, the OIG reviewed decisions related to 40 GSE conservatorship decisions that the agency carried out between July 1, 2020 and June 30, 2022. The vast majority of the decisions reviewed by the OIG included supporting materials, and the OIG was able to locate analysis, approvals and documents for 37 of the 40 decisions.
In three instances, however, the “FHFA could not provide documentation supporting the required FHFA Director approval or required analysis supporting the decision,” the OIG report states.
Because of this, the FHFA could not provide “full transparency regarding the suitability of these decisions or assign accountability for their approval,” according to the report.
FHFA officials told the OIG that records could not be found in these instances — and that the officials charged with analyzing and approving them were either no longer with the agency or had moved out of the role in that office — and the related responsibilities.
In addition, the OIG determined “several instances in which FHFA’s conservatorship decision policy and procedures did not align with FHFA’s current practices or lacked clarity,” the report states.
Shortly after the FHFA placed the GSEs into conservatorship, it issued letters of instruction (LOI) to their boards defining and outlining the scope of authorities. The 2008 LOI were revised in 2012, and in December 2017, FHFA issued another revision to the LOI that was effective in early 2018.
Related policies have not been revised since that time, however, even though “FHFA’s practices, especially those related to decision approval authorities and conservatorship monitoring and surveillance, have evolved,” the report states.
A lack of clear and comprehensive policies and procedures that are consistent with current practices could result in conservatorship decisions lacking analysis or approval, the report states, as well as “monitoring activities that are not performed and documented, in accordance with FHFA management’s intentions.”
The OIG makes two recommendations in the report’s conclusion: 1.) the FHFA’s Division of Conservatorship Oversight and Readiness (DCOR) should reiterate documentation requirements and evaluate document management practices to determine necessary improvements; and 2.) the conservatorship decision policy and procedures should be updated to align with current practice.
In a response to the findings and recommendations, FHFA said it will “consult with other stakeholders on document management practices and assess the feasibility of improvements” by January 31, 2024.
In addition, DCOR will conduct training for FHFA offices involved in GSE conservatorship by by February 29, 2024 in order to reiterate the importance of documenting “all analysis, supporting documentation, and evidence of the Director’s approval,” the agency said.
The FHFA will also update its conservatorship decision policy and procedures by January 31, 2024.
The updates will “provide greater clarity on the approval authorities for issuing conservatorship directives and CSS decisions and to document the established practice for issuing guidance decisions and de-escalating LOI decision requests,” the agency said.
The OIG stated that it considers the FHFA’s planned corrections as “responsive” to its recommendations.