Audit of Common Securitization Platform Finds Organizational Problems

The Federal Housing Finance Agency Office of the Inspector General (FHFAOIG) released its latest update on the status of the development of the Common Securitization Platform (CSP). In a recent speech, FHFA director Mel Watt said the continued development of the Common Securitization Platform is one of the most important goals for Fannie Mae and Freddie Mac going forward.

In 2012, the FHFA found that the back office systems used by Fannie and Freddie to securitize mortgages were outmoded and required immediate upgrades and maintenance. The FHFA instructed the two companies to build the CSP to replace the outmoded equipment and processes.

“FHFA assumed, but did not verify, that developing the CSP would be more cost-effective than each Enterprise separately pursuing expensive upgrades to their back office systems. In addition, FHFA envisioned the CSP as a potential market utility and a way to maintain liquidity in the mortgage market that could outlive the Enterprises’ current structures,” the FHFAOIG said.

So far, the two companies have spent approximately $65 million on the new system’s development.

The FHFAOIG audit found that as of March 2014, roughly half of the necessary software development had been completed. However, other critical functions like disaster recovery have only recently been implemented.

Furthermore, the two companies are experiencing difficulties inherent with any large scale information technology projects. Particularly notable, the audit commented that current difficulties are compounded by the large number of parties involved in the projects development, as well as the Enterprises record of overseeing unsuccessful IT Projects.

The audit also noted that FHFA is a small regulator with many different responsibilities, none of which are developing and implementing large-scale IT projects.

Modifying the Enterprises current systems to integrate with the CSP was also cited as a problem.

"FHFA and Enterprise officials described the technical challenges associated with integration as significant and potentially costly. In 2013, FHFA required the Enterprises to submit integration plans. To date, however, FHFA has not approved either Enterprise's plan," the report found.

The report's conclusion was optimistic, commenting that although rife with challenges, the FHFA is now better able to develop timelines and cost estimates moving forward than at the outset of the project.

The OIG suggests utilizing stronger project management tools to help with schedules and timeframes for the completion of key components of the project, and establishing cost estimates for varying stages of the initiative as well as an overall cost estimate.

FHFA agreed with both recommendations.