The Office of the Inspector General of the Federal Housing Financing Agency (FHFA) has issued a report finding that Fannie Mae overpaid mortgage servicers approximately $89 million in expenses related to default servicing in 2012. Fannie Mae outsources its reimbursement review process to management consulting firm Accenture.
The FHFA’s inspector general found that Accenture employees, who manually process the vast majority of claims, made errors because of “(1) inconsistent application of guidelines by different reviewers, (2) limited resources devoted to avoiding such inconsistencies, (3) complex subject matter, and (4) large volume of servicer claims.”
Examples of overpayment of claims included duplicate claims that are reviewed by different processors and fraudulent claims. Because underpayments are almost always noticed and reported by the servicers, there are far
fewer underpayments than overpayments. “Fannie Mae has no remedial measures to recover overpayments on 99 percent of claims because it only samples 1 percent of claims for accuracy,” the report said. “Alternatively, when a servicer is underpaid, it often contacts Fannie Mae to discuss the underpayment and resubmits the claim at no additional cost. Because of this asymmetry, netting overpayments and underpayments does not accurately represent the financial loss that Fannie Mae incurs because of Accenture errors.”
To mitigate losses, the FHFA suggested that Fannie Mae put in place a system that would aggregate data about claims and raise certain “red flags” that would bring potential errors to processors’ attention. Examples of these red flags would include “Duplicate payment – submission of more than one claim for the same service on the same loan, odd timing – submission outside expected service months or season (e.g., pool service in winter months in northern states), and unusual frequency – excessive claim submission or claim submission occurring more than expected (i.e., more than one submission for a service that is generally performed once per the life of the loan.”
The report said that Fannie Mae’s oversight of Accenture focuses on measuring Accenture’s contractual performance rather than minimizing overpayment to servicers. It recommends that Fannie Mae more effectively use its processing accuracy data and publish overpayment reduction targets and data annually.