Audit faults Freddie Mac’s oversight of mortgage servicers

At least eight big providers of mortgage customer service have failed to properly track and resolve serious complaints about servicing fraud, according to an audit of Freddie Mac, the home finance giant that has been propped up by the government since the financial crisis.

Freddie Mac needs to enhance its oversight of the servicers by testing their performance and establishing fines for noncompliance, the audit says.

The Los Angeles Times was provided with an embargoed copy of the audit report, to be released Thursday. Its findings are the latest black eye for the servicing industry, whose major players — mostly big banks — already have agreed to pay tens of billions of dollars to settle claims that they abused troubled borrowers.


The audit was conducted by the inspector general for the Federal Housing Finance Agency, the regulator that oversees Freddie and its larger sibling, Fannie Mae, which also received a taxpayer bailout.

The audit report sheds a harsh light not only on the servicers but on Freddie Mac and the Federal Housing Finance Agency itself, which it faulted for failing to identify the problems in its own examination of Freddie Mac.

“Mortgage servicers, Freddie Mac, and FHFA have not adequately fulfilled their respective responsibilities,” the inspector general’s office said in a statement.

Freddie Mac pays servicers to interact with borrowers, including handling serious complaints, known as escalated cases, which may allege servicing fraud or regulatory violations. Freddie Mac and its eight largest servicers together received more than 34,000 escalated cases between October 2011 and November 2012, the audit said.

Freddie Mac rules require servicers to resolve the escalated cases within 30 days and to report monthly on the escalated cases they receive. But the audit said evidence suggests that most of Freddie Mac’s servicers are not complying with reporting requirements for escalated cases.

The inspector general said the Federal Housing Finance Agency should ensure that Freddie Mac requires servicers “to report, timely resolve, and accurately categorize escalated cases.”