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) -- Mortgage giant

Freddie Mac


and its regulator the Federal Housing Finance Agency (FHFA) have failed to ensure that servicers report serious borrower complaints and resolve them in a timely manner, according to the audit report of the government's watchdog.

The FHFA's Office of Inspector General said in its report that the agency's servicers, who collect payments and manage the loans on its behalf, failed to comply with escalated case reporting requirements. Escalated cases are serious complaints that include wrongful foreclosure actions and allegations of fraudulent servicing practices among other violations.

Four of the Freddie's eight largest servicers --

Bank of America

(BAC) - Get Free Report


Citi Mortgage

(C) - Get Free Report


Wells Fargo

(WFC) - Get Free Report



-- did not report any escalated cases to the agency despite having handled 20,000 such cases during the period between October 2011 and November 2012.

Freddie Mac officials told the OIG that 98% of its servicers did not report any escalated cases, which they apparently took as evidence that there were no escalated cases. The watchdog was skeptical of this claim. "It is highly unlikely that 98% of its servicers had no escalated cases to report given the 6.6 million loans that they manage. In fact, four of Freddie Mac's largest servicers which did not report any escalated cases (despite handling more than 20,000 of them)are included within the 98% of non- reporting servicers. This strongly suggests that many other servicers handled escalated cases but did not comply with the reporting requirements," the OIG concluded.

Freddie Mac owned or guaranteed over 10.6 million residential mortgages with a combined unpaid principal balance of $1.6 trillion at the end of 2012.

The audit found Freddie Mac's oversight of servicer compliance to be inadequate and also faulted its regulator the FHFA for not identifying the problem through its own examinations.

Reacting to the report, Representative Elijah Cummings , ranking member of the Committee on Oversight and Government Reform called for a hearing with Edward DeMarco, acting head of the FHFA and the representatives of the four servicers named in the report on the matter.

"Today's report reveals the latest in a sorry string of failures by FHFA leadership to protect American homeowners," said Cummings in a statement. "After so many reports documenting the abuses homeowners have suffered at the hands of mortgage servicers, it is unconscionable that FHFA has failed to require mortgage servicers to properly handle tens of thousands of homeowner complaints."

Cummings is among members of Congress who are urging the Obama Administration to

replace DeMarco

, who has been criticized by Democrats for his controversial position on principal reductions.

-- Written by Shanthi Bharatwaj in New York.

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