26
AUDIT REVEALS LACK
OF QUALITY CONTROL
FOR PRE-FORECLOSURE
PROPERTY INSPECTIONS
e Federal Housing Finance Agency
(FHFA) Office of the Inspector General (OIG)
released a report detailing the results of an
audit performed on pre-foreclosure property
inspections. e audit was conducted after the
FHFAOIG learned of fraudulent property
inspections reports submitted to the FHFA,
Fannie Mae, and Freddie Mac by a contractor
resulted in $12.7 million in payouts.
e report notes that Fannie Mae and
Freddie Mac had more than 923,000 mortgages
that were more than 90 days past due, with
total credit losses over $25 billion in 2012 due to
foreclosures and other actions that addressed
delinquencies.
e report found, "ere is limited
assurance that the enterprises have effective
controls in place to ensure the quality of
inspections conducted and that inspectors
issue reports consistent with contractual
requirements."
Additionally, "Overall, several servicers
reviewed during the audit did not have
quality controls in place to ensure contractors
provided accurate, complete, and consistent
information in property inspection reports,"
the report said.
e FHFAOIG was particularly interested
in pre-foreclosure inspections—servicers were
reimbursed approximately $91.2 million in
2011–2012 for property inspections performed
by contractors related to delinquent loans.
A list of offenses compiled by the OIG
includes "inspection reports with inconsistent
and inaccurate information; missing or blurry
photographs; manipulated date and time
stamps on the photographs; and unnecessary
inspections that did not provide useful
information about the properties." In one
instance cited by the report, a contractor copied
and pasted the same comments relating to the
condition of the property's lawn, noting grass
had been eight inches for seven consecutive
months.
Another example listed in the report was
false time stamps applied to five pictures of the
same property that had the exact same time
and date, suggesting each picture had been
taken simultaneously in vastly different areas of
the property.
e FHFAOIG found that "servicers
reviewed by OIG inconsistently adopted
requirements for inspectors to complete and
pass criminal background checks."
Furthermore, "OIG found that servicers
dedicated most of their control efforts to
ensuring that inspections were ordered timely
and little effort was spent on actual inspection
performance and quality."
e OIG recommends that the FHFA
direct Fannie Mae and Freddie Mac to
establish uniform pre-foreclosure inspection
quality standards, as well as quality control
mechanisms for inspectors. e OIG report
optimistically notes that when done correctly,
pre-foreclosure property inspections are
beneficial.
