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BUILD. Build a new single-family securitization infrastructure for use by the Enterprises and adaptable for use by other participants in the secondary market in the future. FHFA’s 2014 Conservatorship Strategic Plan and 2015 Scorecard continued to make building a new infrastructure for the securitization functions of the Enterprises a priority. That effort includes ongoing work to: 1) develop the Common Securitization Platform (CSP); 2) develop a single Enterprise mortgage-backed security (Single Security); and 3) allow for the integration of additional market participants in a future system through the use of industrystandard software, systems, and data requirements. The 2015 Scorecard also required work to build more consistent and uniform data standards for use by the Enterprises and other market participants. Common Securitization Platform and Common Securitization Solutions FHFA’s 2014 Conservatorship Strategic Plan includes the strategic goal of developing a new securitization infrastructure for the Enterprises for mortgage loans backed by single-family properties. To achieve this goal, Common Securitization Solutions (CSS), a joint venture owned by Fannie Mae and Freddie Mac, has been developing the CSP, under FHFA’s direction and guidance. CSS acts as each Enterprise’s agent to facilitate issuance of singlefamily mortgage securities, release related at-issuance and ongoing disclosures, and administer the securities post-issuance. In addition, CSS is creating the operational capabilities necessary to run the CSP. In September, FHFA issued An Update on the Common Securitization Platform which announced a two-part release process for the CSP and the Single Security. In Release 1, FHFA expects the Enterprises and CSS to implement the CSP for Freddie Mac’s existing single-class securities in 2016. In Release 2, FHFA expects them to implement the Single Security on the CSP for both Enterprises in 2018. CSP Testing – The CSP is being developed in accordance with software design principles that will leverage industry data standards wherever possible. CSS is using a software development process in which cross-functional teams produce work on an incremental, iterative basis which mitigates the risk of missed deadlines or project failure. CSS and the Enterprises are also carefully testing the evolving software and related operational capabilities in distinct steps. Testing of this software continues to progress, with both Enterprises and CSS undertaking system-to-system testing. Such testing involves automated data exchanges in which an Enterprise sends data on pools of fixed-rate mortgage loans and related single-class securities to CSS and ensures that it has received valid responses from CSS. In addition, CSS has undertaken significant performance testing to assess the CSP’s ability to handle large volumes of data and transactions in an efficient manner. CSS Operations – CSS has also continued to develop its securitization operations and production readiness. Notable accomplishments include creation of key operational policies, procedures, and controls, including those related to business continuity and disaster recovery; and the substantial development of service-level agreements which provide for agreed-upon standards of work activities (including scope of responsibilities, timelines for activities, and quality metrics) between CSS and the Enterprises. In support of diversity and inclusion, CSS implemented a vendor management program to promote the use of diverse suppliers in contracting and procurement activities. CSS also evaluated its workforce to identify areas for improvement with respect to diversity and inclusion across the organization. Updating Enterprise Systems for CSP Integration – Fannie Mae and Freddie Mac are progressively completing the technology and operational changes that each Enterprise needs to make to enable it to use the CSP. Single Security In May, FHFA released An Update on the Structure of the Single Security, which detailed information about the Single Security’s features and disclosures. During the remainder of 2015 FHFA worked with the Enterprises on finalizing the remaining aspects of these features and 8 FEDERAL HOUSING FINANCE AGENCY
C O N S E R V A T O R S H I P S O F T H E E N T E R P R I S E S disclosures. This work is continuing in 2016. For example, in developing the loan-level disclosures for Single Securities, the Enterprises and FHFA are working to determine the best way to meet the needs of investors while also protecting borrower privacy. Balancing those objectives includes making choices about how best to disclose loan-level geographic information about each property and mask certain loan-level data attributes. Data masking may involve, for example, rounding loan amounts or omitting the day or month on which the borrower is obligated to make his or her first mortgage payment. Once the attributes of this data set are determined, the Enterprises will publish the final Single Security features and disclosures. Input from the Public and Industry – Developing the CSP and the Single Security are multiyear projects that continue to be refined as FHFA, the Enterprises, and CSS receive public and industry input. To facilitate input from industry stakeholders, in 2015 Fannie Mae, Freddie Mac, and CSS established the Single Security/CSP Industry Advisory Group. The Industry Advisory Group met twice in 2015 and provided feedback and shared information with CSS and the Enterprises related to the Single Security and the development of the CSP. Fannie Mae and Freddie Mac have also created Single Security and CSP web pages that provide regular progress updates, frequently asked questions and answers, and a schedule of upcoming speaking engagements and conferences. 8 These web pages also allow visitors to register to receive regular updates and to submit questions. Posted on the web pages are the materials that CSS shares with the Industry Advisory Group and the minutes of the Group’s meetings. FHFA has also maintained an ongoing dialogue with key industry participants such as the Federal Reserve Bank of New York, the Treasury Market Practices Group, representatives from the mortgage and securities industries, consumer groups, and firms that provide information technology services to mortgage investors. These contacts provide opportunities for FHFA to share information and receive feedback. In addition, FHFA has provided regular briefings to other federal agencies and congressional staff. FHFA, the Enterprises, and CSS will continue to seek input from and to work with stakeholders as the CSP and Single Security initiatives proceed with the objective of improving overall secondary mortgage market liquidity while mitigating any risk of market disruption. Mortgage Data Standardization Fannie Mae and Freddie Mac continue to collaborate with the industry, through the Uniform Mortgage Data Program, to develop and implement uniform data standards for single-family mortgage loans. The Mortgage Industry Standards Maintenance Organization Reference Model facilitates such efforts, which result in consistent data definitions, enumerations, and mapping. Uniform Closing Disclosure Dataset – The 2015 Scorecard included a priority for the Enterprises to develop a plan for collecting the Uniform Closing Disclosure Dataset (UCD). The Enterprises have been developing the UCD since 2012, when the Consumer Financial Protection Bureau published a proposed rule providing for Integrated Mortgage Disclosures under the Real Estate Settlement Procedures Act and the Truth in Lending Act. Once the UCD is implemented, a lender will send the UCD data for a mortgage loan to the acquiring Enterprise before delivering the loan. The Enterprise will be able to send a loan-level message to the lender to communicate any concerns, which will allow the lender to resolve them before delivering the loan and reduce future loan quality issues. The Enterprises expect to implement the data collection system in late 2016 with mandatory delivery of closing data by lenders in 2017. Uniform Loan Application Dataset – The 2015 Scorecard also called for the Enterprises to develop the Uniform Loan Application Dataset (ULAD), which involves consultation with lenders to build a new mortgage loan application and an associated dataset that electronically captures the information on the application. The effort provides an opportunity to remove unused questions on the application, add new data fields, leverage technology advances, and improve the usability of the form. The Enterprises are currently conducting tests 8 Link to Fannie Mae’s Single Security and CSP page: http://www.fanniemae.com/portal/funding-the-market/single-security/index.html?cmpid=marqss; Link to Freddie Mac’s Single Security and CSP page: http://www.freddiemac.com/mbs/html/single_security_csp.html. REPORT TO <strong>CONGRESS</strong> • 2015 9
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