FHFA outlines challenges for the year ahead

Fifteen years under conservatorship and counting

Exacerbating the challenges is the unknown time period for which the GSEs will remain under conservatorship, according to the report: “Given the taxpayers’ sizeable investment in the enterprises, the conservatorships’ unknown duration, the enterprises’ critical role in the secondary mortgage market, and the necessity to sustain their own future profitability, OIG determined that FHFA’s administration of the conservatorships remains a critical challenge.”

Fannie Mae and Freddie Mac both were put under conservatorship on Sept. 6, 2008, while in the throes of the Great Recession. The government-sponsored entities were placed under conservatorship to preserve and conserve their assets and property toward restoring them to a sound and solvent condition, according to the FHFA. As conservators, the FHFA has the powers of the management, boards and shareholders of Fannie Mae and Freddie Mac.

Appraisal bias persists, modernization urged

A key challenge centers on modernization: “To further this conservatorship goal, FHFA has directed the enterprises to continue work related to the appraisal policy and process modernization initiative,” officials wrote. “That work includes engaging with industry stakeholders, such as appraisers, software providers, insurance companies, appraisal management companies, inspection companies, mortgage insurers, and industry trade groups.”

In securing such input, the FHFA will be able to meet goals related to improving data quality, reducing potential appraisal bias and supporting effective risk management and process efficiency, officials wrote in the report. And, yet, the report found, accounting for the various viewpoints and information can also present challenges.

In terms of appraisals, the report calls for bolstered oversight of the GSEs’ use of appraisals “…to ensure those appraisals do not improperly consider bases that are prohibited by federal fair lending law.”