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the latest Or ig i nat ion SECONDARY MARKET Consumers Not So Confident Their Voices Are Being Heard se r v ic i ng More than 30,000 consumers' complaints escalated over a 14-month period. s e c on da r y m a r k e t a na ly t ic s After tracking the escalated cases, FHFA-OIG found a failure to implement the Servicing Alignment Initiative (SAI) and Servicing Guide requirements for escalated consumer complaints among Freddie Mac servicers. A new report from a government watchdog accused Freddie Mac, its servicers, and the Federal Housing Finance Agency (FHFA) of not meeting requirements when handling and resolving escalated consumer complaints. According to a report from the FHFA Office of Inspector General (OIG), Freddie Mac and eight of its largest servicers, which handle 70 percent of the GSE's mortgages, received more than 34,000 complaints that became escalated cases during a 14-month period ending November 30, 2012. Escalated cases include foreclosure actions in violation of 74 | The M Report the GSEs' guidelines; allegations of fraudulent servicing practices; complaints that the borrower did not receive proper evaluation or was inappropriately denied a foreclosure alternative; threats of litigation; and violations of the GSEs' policy time frames for borrower outreach, evaluation, or time permitted for a response, according to the report. After tracking the escalated cases, FHFA-OIG found a failure to implement the Servicing Alignment Initiative (SAI) and Servicing Guide requirements for escalated consumer complaints among Freddie Mac servicers. For example, seven out of the eight Freddie Mac servicers did not resolve all escalated cases within the 30-day requirement, and some servicers did not correctly categorize the nature of the escalated cases. Four servicers—Bank of America, CitiMortgage, Provident, and Wells Fargo— failed to report any escalated cases during the 14-month period to Freddie Mac even though they handled more than 20,000 cases. When the banks were contacted, the servicers "indicated that they would begin reporting to Freddie Mac," the FHFA-OIG report stated. Furthermore, Freddie's data showed that 98 percent of its servicers, or 1,179 out of 1,207, did not report any escalated cases as of December 2012. "This strongly suggests that many other servicers handled escalated cases but did not comply with the reporting requirements," the report stated. Of the four large servicers that did not report escalated cases, one servicer said it was unaware of the requirement and another said the GSE had not requested the information during an onsite examination. Among the eight largest servicers, 26,196 escalated cases were handled during the 14-month period, of which 25,528 were resolved. About 21 percent of those cases, or 5,371, exceeded the 30-day time frame. Branch Banking & Trust Corporation (BB&T), however, managed to resolve all of its escalated cases within 30 days. FHFA-OIG also found issues with how escalated cases were categorized when resolved. When categorizing escalated cases, servicers are required to use 13 resolution categories. However, one servicer used 61 different categories when identifying resolutions. Overall, about 8 percent of the 25,528 resolved cases lacked a required resolution category. The report also determined Freddie Mac did not adequately address servicer compliance in handling escalated cases. The GSE did not implement procedures for testing servicer compliance and has not established penalties, such as fines, for servicers that fail to report escalated cases, according to the report. When examining Freddie Mac's implementation of the SAI, FHFA failed to identify noncompliance with consumer complaint requirements, FHFA-OIG stated. The FHFA examination team also did not conduct its own testing of servicer compliance, instead relying solely on the GSE's onsite operation review reports, which did not mention problems with servicer reporting, the report stated. In response to its findings, FHFA-OIG provided several recommendations for Freddie Mac and FHFA to enhance their oversight.