The systems that Fannie Mae and Freddie Mac use to package mortgage-backed securities are outmoded and in need of being upgraded and maintained, according to the Federal Housing Finance Agency Office of the Inspector General.
The FHFA-OIG released an updated report on the development of the GSE's common securitization platform, which the FHFA directed the enterprises to build to replace some parts of the back office systems.
However, building the CSP has created some difficult barriers to overcome.
“The 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,” the report stated.
So far, Fannie and Freddie have spent approximately $65 million on the CSP’s development and roughly half of the necessary software development has been completed.
But now that the project is underway, two considerable challenges could undermine its prospects for success.
1. Challenges in creating a large-scale information technology system:
The difficulties are comprised of several factors, including the number of parties involved in the development of the CSP and lack of experience in developing and implementing a large-scale IT project.
2. Risks associated with preparing Fannie and Freddie to integrate with the CSP:
In order to integrate the CSP, the enterprises must modify their internal financial and information systems to enable the enterprises to communicate with the CSP. Currently, the technical challenges associated with integration are viewed as significant and potentially costly.
“We recognize the challenges that FHFA faces; but we also note that it is now better-positioned to develop timelines and cost estimates for the CSP than it was at the outset. Specifically, the agency can predicate timelines and cost estimates on the work that has already been completed, such as the software that has been developed,” the report stated.
From the concluded results, the FHFA-OIG recommended that the FHFA create a thorough schedule of key deadlines and establish cost estimates for varying stages.