Since its March launch, the government’s $50 billion program to prevent foreclosures has been marked by confusion, delays and doubts. A little-noticed conclusion in a government report released on Wednesday reveals that the program’s auditor is no different: Freddie Mac—yes, that Freddie Mac—has been given responsibility for auditing the program. And it turns out, Freddie is stuck at square one.
As ProPublica and others have reported, homeowners have frequently been rejected for loan mods even though they appear to qualify. The Treasury Department tapped Freddie to police just that kind of thing.
But Freddie’s job so far hasn’t inspired confidence, according to a section of a report(PDF) released by the special inspector general for the TARP. The report says (on p. 102) that in late August, Treasury took a look at Freddie’s first reviews of loan servicers and found them seriously lacking. Among the “several specific areas of concern” identified: “unqualified staff to perform audits” and “inconsistent and incomplete audit workpapers.”
Consumer advocates say they, too, have been puzzled about the lack of action.
“We’ve been asking and asking for some evidence that Freddie is providing any oversight,” said Diane Thompson of the National Consumer Law Center.
The government has a complicated relationship with Freddie and its larger sibling Fannie Mae, both of which were originally chartered by the government to buy or guarantee mortgages in order to help Americans buy homes. In September 2008, the two companies nearly went belly-up, done in by risky mortgages, and were essentially nationalized. In the past year, Treasury has pumped in $95.6 billion to keep the companies afloat. Although their ultimate fate remains unclear, they have effectively served as arms of the government over the past year, taking losses in order to help stabilize the mortgage market.
Both government wards have been tapped for roles in running the big mortgage modification program. Among other things, Treasury assigned Freddie to perform unannounced audits of servicers and to review denied loan modification applications. Fannie serves as the program’s record keeper. Despite the companies’ troubles, there’s a logic to selecting them for such roles,