The Federal Housing Finance Agency failed to review certain concerns over problematic mortgage buyback requests Freddie Mac made against Bank of America (BAC), according to the agency's inspector general report released Tuesday. At the end of 2010, the FHFA approved a $1.35 billion settlement of repurchase claims Freddie made against BofA. Fannie Mae made a similar settlement worth $1.52 billion. Both companies are attempting to salvage as much cash as they can as they work to payback more than $151 billion in bailouts owed to the Treasury Department. The IG office took a closer look at the settlement and found the FHFA gave "undue deference" to the government-sponsored enterprises on this and other business decisions. According to the report, the agency did not test any concerns raised by a senior examiner, who found the loan review process Freddie used didn't account for foreclosure patterns on loans originated during the housing boom. Freddie's own internal team raised concerns as well, but the FHFA did not address them before approving the settlement, according to the report. "According to the senior examiner, this could potentially cost the enterprise a considerable amount of money," according to the report. The GSEs will, in most cases, only send a repurchase request to the originator once the loan goes through foreclosure. The examiner found that the Freddie loan review process was based on old and dated foreclosure patterns shown in the first graph: Most of the foreclosures were usually completed within the first two to three years of its origination. But the examiner found on the loans originated during the housing boom, foreclosures weren't completed until four and five years out because that's when the teaser rate for these loans usually ballooned, unlike traditional mortgages. The examiner raised concerns that the settlement was struck for many loans that hadn't foreclosed yet but were inevitably doomed to. And because Freddie only sent repurchase claims back on loans that completed the foreclosure process in the first two to three years, the settlement with BofA would have left the bank off the hook for the majority of the problem mortgages. The IG office did say that the FHFA suspended future GSE repurchase settlements based on Freddie Mac loan reviews after the inspector general began its evaluation. Other problems have since arisen about Freddie's loan review process. An internal audit within the GSE completed in June concluded that the process was still "unsatisfactory," according to the IG report. A Freddie senior manager advised the board that it could recover more in claims if it used a more robust loan review process, according to the IG office. The report makes broader claims that the FHFA continually grants "undue deference" to the GSEs on business decisions, including the rep and warranty settlement, its participation in the Home Affordable Modification Program, and executive compensation — which came under congressional examination this month. As for the BofA settlement findings, the FHFA agreed to the inspector general recommendations: that it should act promptly to address concerns and ensure senior managers are told about any that arise. But the agency said it "has not changed its view that the (BofA) settlement was … appropriate and reasonable." Write to Jon Prior. Follow him on Twitter @JonAPrior.