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) -- The Federal Housing Finance Agency's Office of Inspector General on Tuesday said that

Freddie Mac


-- and U.S. taxpayers -- could be looking at billions of dollars in losses from a sloppy mortgage putback settlement with

Bank of America

(BAC) - Get Bank of America Corporation Report


The Inspector General found that the FHFA's "senior management did not timely address significant concerns raised about the loan review process used by Freddie Mac and its ramifications on underlying the settlement," and didn't even "reach any final conclusion" about Freddie's loan review inadequacies, which could lead to major losses for Freddie in the years ahead.

The Inspector General also said that "in mid-2010, prior to the Bank of America settlement, an FHFA senior examiner raised significant concerns about limitations in Freddie Mac's existing loan review process for mortgage repurchase claims," and that the FHFA "did not timely act on or test the ramifications of the senior examiner's concerns prior to the Bank of America settlement.

Despite additional loan review concerns raised by FHFA senior managers in September 2009, the FHFA acting director approved Freddie Mac's Bank of America settlement in December.

Among the various recommendations made in the report were that the FHFA "promptly initiate management reforms to ensure more generally that senior management is apprised of and timely acts on significant concerns brought to its attention," and that the agency's acting director "establish appropriate goals, principles, and procedures at the top of the FHFA organization to guarantee that significant concerns are properly and timely addressed and acted upon."

In its response to the Inspector General's report, the FHFA said it had "not changed its view that the settlement reached

by Freddie Mac with Bank of America in late December was appropriate and reasonable."

Government-sponsored mortgage giants

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Fannie Mae


Freddie Mac and were taken under government conservatorship in September 2008. As of June 9, according to the FHFA, the U.S. Treasury had "invested over $162 billion of public funds in

Fannie and Freddie to offset their losses and prevent their insolvency."

In December of last year, both mortgage giants both settled their mortgage putback claims with Bank of America, with Fannie settling for $1.52 billion and Freddie for $1.35 billion, which in hindsight appear to be a very small amounts, compared to the billions in subsequent mortgage repurchase losses for which the bank has set aside reserves.

According to the Inspector General, Freddie's settlement "resolved most past, present, and (with limited exceptions) future repurchase issues associated with 787,000 loans sold to the Enterprise by Countrywide Financial,"

which Bank of America acquired in July 2008


The FHFA Office of Inspector General began its review of Freddie Mac's settlement with Bank of America "after Members of Congress and others questioned the adequacy of the settlements."


Written by Philip van Doorn in Jupiter, Fla.

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Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.