Roughly 40 seller/servicers have been shown the door by Fannie Mae and Freddie Mac since 2007, according to a new report from the inspector general (IG) of the Federal Housing Finance Agency (FHFA).
The report, however, only names one firm that has been terminated: Taylor Bean & Whitaker, which collapsed in 2009 amid a multi-billion MBS and warehouse lending-related scandal where it fabricated assets. Multiple criminal indictments and convictions ensued.
A company can be terminated as a client by a GSE because of its behavior but also because of its financial health. The IG report noted that as of late last year Fannie and Freddie “had placed more than 300 high-risk counterparties on watch lists and stopped doing business with more than 40 of them.”
Being terminated as a seller/servicer by a GSE can be a death knell for a company unless it can appeal the order or it finds another outlet for its loans in the secondary market.
The IG report notes that the GSEs, “have independently developed systems to identify high-risk counterparties and add them to watch lists to monitor their performance.”
The IG is recommending that FHFA help strengthen the GSE’s risk management systems by “establishing standards for developing contingency plans for dealing with high-risk and high-volume counterparties.”
The inspector general also had some critical words for the GSEs, saying the two have not developed “contingency plans for the more than 300 counterparties on their high-risk watch lists, nor have they developed contingency plans for their largest seller/servicers.”
Fannie and Freddie’s largest seller/servicers are also the nation’s largest originators: Wells Fargo, JPMorgan Chase, U.S. Bank, Bank of America, and Citigroup.