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'Change' is the operative word at Freddie Mac these days.
Changes, Freddie Mac and Fannie Mae (GSEs) have outlined the areas which would affect the Uniform Closing Dataset (UCD) and the updates that will be required to support the changes in the UCD Delivery Specification. Freddie Mac's Loan Prospector is a powerful risk assessment tool that gives you ready access to Freddie Mac's credit and pricing terms, making it easier for you to do business because we want to do business with you.
Following an accounting scandal in which the McLean, Va.-based mortgage purchaser understated its earnings by almost $5 billion between 2000 and 2002, Freddie Mac, formally known as Federal Home Loan Mortgage Corp., is undergoing a series of wrenching structural changes that are fundamentally altering how the company operates. (On March 22, Martin F. Baumann, Freddie Mac's executive vice president and chief financial officer, resigned after the company had to delay plans for reporting its 2005 financial results until May.)
The accounting scandal is just one of the drivers behind these changes. Freddie Mac is also moving from being a so-called voluntary registrant on the New York Stock Exchange to a full-fledged Securities and Exchange Commission registrant beginning this spring. It must then comply with the Sarbanes-Oxley Act and other regulations.
Moreover, as a growing number of homeowners tap into their home equity, Freddie Mac, like other banks and mortgage providers, is expanding the types of products and services it's offering to customers. With increased competition in the market, Freddie Mac has also heightened its focus on operational efficiency.
Joseph A. Smialowski, executive vice president of operations and technology at Freddie Mac Image Credit: Rhoda Baer |
'What we're talking about here is a total overhaul' of how Freddie Mac operates, including its IT organization, says Joseph A. Smialowski, the company's executive vice president of operations and technology. To help support the company's need to add new capabilities more quickly and easily, the former Sears, Roebuck and Co. and FleetBoston Financial Corp. CIO is overseeing a major effort to shift IT from its historical approach of building its own software applications to a buy-and-integrate model.
Smialowski, who joined Freddie Mac in December 2004, declined to quantify how much Freddie Mac is investing in its buy-and-integrate program this year. He did say that the amount is in the nine-figure range and represents a portion of the $350 million that the company plans to invest in new IT initiatives in 2006.
A New Way
The transition requires a huge cultural shift within Freddie Mac's IT group, say Smialowski and his lieutenants. For instance, application developers within the company's 1,700-person IT division who had been focused on writing code are now more focused on integrating data between packaged software, and customizing and configuring commercial systems. Project managers who once oversaw in-house development projects are learning new skills such as vendor relationship management and contract management, says Kunkun Callaghan, a business technology partner director.
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Making the transition isn't easy. Building applications 'was a source of pride' for developers, says Kim Petty, a vice president of the single and multifamily sourcing and servicing business information services group, which supports the systems used to buy and service mortgages. https://supernalprofile432.weebly.com/best-family-history-program-for-mac.html. 'Now you're trying to show people that they're adding value with a different type of skill set,' says Petty, a 17-year company veteran.
The intent is to eventually have a formal training program for developers and other IT staffers who are being affected by the build-to-buy transition, says Petty. But meanwhile, IT staffers who are skilled in areas such as vendor and contract management are being 'seeded' into different business divisions in order to help train their colleagues. At this point, most of the retraining that developers are receiving in areas such as understanding software license agreements is being done on a one-on-one basis or through workshops with these mentors.
Although a small percentage of Freddie Mac's development team have opted out of the retraining and have left the company, Petty and other IT managers are working hard to convince the remaining developers that they are needed to handle other requirements 'and they aren't going away,' she says.
This type of transition 'is a tremendous shift' for developers, says Marc Cecere, an analyst at Forrester Research Inc. in Cambridge, Mass. As Freddie Mac moves to using packaged applications, he says, some modifications will be made to those systems, 'and that's a different type of development' for those who will remain in programming-oriented roles.
The 80/20 Rule
How much actual modification Freddie Mac makes to packaged applications it integrates is yet to be seen. That's because another key challenge that Petty and other IT managers face is to persuade business process owners to understand and accept the so-called 80/20 rule: recognizing the most important functionality provided by a packaged application (80%) and forgoing the less critical but nice-to-have features (20%). That's a big mind shift for business managers who are accustomed to having applications built to their specifications, says Cecere.
At Freddie Mac, accepting 80/20 will also require business owners to change some of their work processes to accommodate packaged applications rather than change the technology to fit existing practices, says Petty. She adds that the business owners she has worked with have been receptive to this concept so far, 'but it's still early on' in the transition.
Even so, the IT group can point to a number of concrete steps it has taken. IT managers have reversed the IT project team mix from 60% contractors/40% staffers by adding 200 full-time IT employees and reducing the number of contractors in order to better retain and transfer project and technical knowledge within the organization.
They are also evaluating the adoption of standards certifications such as Cobit, ISO 17799 and the Software Engineering Institute's Capability Maturity Model.
Meanwhile, IT project teams are identifying business requirements earlier in the project development cycle and giving more consideration to how an IT project for one business unit may affect the entire organization. They're also documenting their new work processes using software tools such as Microsoft Corp.'s Visio and conducting postmortem reviews within 30 days of production in order to capture lessons learned. Iphone recovery program for mac 6se.
Regional Expansion
Freddie Mac's organizational transformation is also leading the company to expand its IT workforce to other locations. Before the transition began, 95% of Freddie Mac's full-time IT workers were based in Northern Virginia. Now, Smialowski is determined to establish regional development centers in other major markets where Freddie Mac has offices, such as New York and Atlanta, to add people who have financial services and/or buy-and-integrate experience.
Edward Albrigo, vice president of Freddie Mac's enterprise programs office, was charged with establishing the first beachhead in Chicago. He found someone to manage the group in November and has since hired 20 technologists who will be involved in revamping Loan Prospector, the company's automated underwriting service, which processes about 60% of the mortgages it buys.
Albrigo says he has had few problems finding qualified people in Chicago, thanks in part to UAL Corp.'s Chapter 11 bankruptcy status in 2005 as well as fallout from the recent merger between Kmart Corp. and Sears. Metro Washington, in contrast, 'is an extremely tight [IT] labor market' as a result of widespread corporate growth and demand for IT workers by the federal government, he says.
Freddie Mac's IT organization has made progress, but it still faces challenges as it moves to a buy-to-integrate approach. These include adapting its project delivery methodology and attacking an ingrained bias against packaged applications, which have historically been viewed as too lightweight to handle Freddie Mac's enormous processing volumes, says Albrigo.
Freddie Mac's IT managers recognize that they won't overcome these obstacles overnight. But they're determined to get it right. Says Chief Technology Officer Milton Moore, 'I'm a proponent of whatever it takes to get Freddie Mac to market faster.'
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What is Freddie Mac (Federal Home Loan Mortgage Corp or FHLMC)?
Federal Home Loan Mortgage Corp (FHLMC) is a stockholder-owned, government-sponsored enterprise (GSE) chartered by Congress in 1970 to keep money flowing to mortgage lenders in support of homeownership and rental housing for middle-income Americans. The FHLMC, familiarly known as Freddie Mac, purchases, guarantees and securitizes mortgages to form mortgage-backed securities.
How Freddie Mac Works
Freddie Mac was created when Congress passed the Emergency Home Finance Act in 1970. This was done in an attempt to expand the secondary mortgage market while reducing interest rate risk for banks. In 1989, Freddie Mac underwent a reorganization and was turned into a shareholder-owned company, now under the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA).
As mentioned above, Freddie Mac is a GSE, which is a financial service corporation created by Congress in order to enhance the flow of credit to different parts of the economy. Nearly 80% of residential mortgages in America are backed by Freddie Mac and another, similar GSE known as Fannie Mae (see below). These GSEs do not originate or service mortgages, but instead buy loans from mortgage lenders. After purchasing a large number of these mortgages, they combine and sell them as mortgage-backed securities, which tend to be very liquid and carry a credit rating close to that of U.S. Treasuries. This process frees up the capital of mortgage lenders, which means they can lend that same money again.
Freddie Mac doesn't originate or service home mortgages, but rather buys loans from mortgage lenders, freeing up their capital for more lending.
Freddie Mac has come under criticism because its ties to the U.S. government allow it to borrow money at interest rates lower than those available to other financial institutions. With this funding advantage, it issues large amounts of debt (known in the marketplace as agency debt or agencies), and, in turn, purchases and holds a huge portfolio of mortgages known as its retained portfolio. Many people believe that the size of the retained portfolio – as well as the complexities of managing mortgage risk – pose a great deal of systematic risk to the U.S. economy. Some have argued that the unchecked growth of Freddie Mac and Fannie Mae led to the credit crisis of 2008 that turned into the Great Recession.
Freddie Mac vs. Fannie Mae
Fannie Mae (Federal National Mortgage Association or FNMA) was created in 1938 as part of an amendment to the National Housing Act. It was considered a federal government agency and its role was to act as a secondary mortgage market that could purchase, hold or sell loans that were insured by the Federal Housing Administration. Fannie Mae stopped being a federal government agency and became a private/public corporation in 1954 under the Charter Act of 1954.
Fannie Mae and Freddie Mac are very similar. Both are publicly traded companies that were chartered to serve a public mission. The main difference between the two comes down to the source of the mortgages they buy: Fannie Mae buys mortgage loans from major retail or commercial banks, while Freddie Mac obtains its loans from smaller banks, often called thrift banks or savings and loan associations, that are focused on providing banking services to communities.