The Federal Housing Finance Agency lacks the staff to properly monitor the mortgage giants it has in conservatorship, according to a report by the Office of the Inspector General. The report said the agency also failed to provide adequate oversight over default services legal issues. The Office of the Inspector General for the federal regulator said the FHFA “has far too few examiners” to properly handle its examination system to monitor Fannie Mae, Freddie Mac and the Federal Home Loan Banks The inspector general report also “identified shortfalls in the agency’s examination coverage, particularly in the areas of real estate owned and default-related legal services,” which it blames on the staffing shortages. In another report, the inspector general said the FHFA over the past five years “repeatedly found Fannie Mae had not established an acceptable and effective operational risk management program despite outstanding requirements to do so.” The auditor said the regulator hasn’t exercised its power as conservator to force the company to do as much, and recommends the FHFA compel Fannie to establish stronger controls. “Fannie Mae’s lack of an acceptable and effective operational risk management program may have resulted in missed opportunities to strengthen the oversight of law firms it contracts with to process foreclosures,” according to the auditor’s report. “Given Fannie Mae’s history of noncompliance, (the Office of the Inspector General) believes that the agency must exercise maximum diligence and take forceful action to ensure that Fannie Mae meets the agency’s expectations in this regard. Otherwise, FHFA’s safety and soundness examination program, as well as its delegated approach to conservatorship management, may be adversely affected.” Fannie Mae declined comment. Edward DeMarco, acting director of the FHFA, has said the agency is having trouble hiring experienced examiners because many don’t want to move to Washington and there’s the perception the government-sponsored enterprises will ultimately go away. The FHFA has 120 examiners and plans to hire another 26, but “has expressed concern that its current hiring initiative will neither enable it to overcome its examination capacity shortfalls nor ensure the effectiveness of its 2011 reorganization,” according to the inspector general report. The agency wanted all the new examiners on board by the end of September, but now expects to have them all working by the end of the year. The agency wants to assign 20 to 25 examiners to each examination team, yet is only staffing them with 13. The FHFA indicated only 34% of the 120 nonexecutive examiners are accredited federal financial examiners, and there is no accreditation program currently in place. The federal auditor recommends the FHFA further study its staffing problems, implement an examiner accreditation program and use contractors to mitigate the shortage. “Moreover, FHFA has not reported upon its examination capacity shortfalls in a systematic manner,” according to the report. “Given FHFA’s critical responsibilities, it is essential that it keeps Congress, the executive branch and the public fully and currently informed about its examination capacity.” Write to Jason Philyaw. Follow him on Twitter: @jrphilyaw.