The Federal Housing Finance Agency (FHFA), Office of the Inspector General (OIG) has published a memo identifying major challenges the agency, namely Fannie Mae and Freddie Mac (GSEs), expects to face in 2023.
The memo is issued by OIG annually, per a 2000 law, and is addressed to FHFA Director, Sandra Thompson. It identified seven management and performance challenges facing the FHFA, including:
- Effective supervision of regulated entities.
- Stewardship of the GSE conservatorship.
- Oversight of information risk for the regulated entities.
- Oversight of counterparty risk, third-party risk, and fourth-party risk for the regulated entities.
- Oversight of model risk for the regulated entities.
- Oversight of people risk for the regulated entities.
- Oversight of resiliency risk for the regulated entities.
The first four challenges were challenges identified last year, but FHFA Inspector General Brian Tomney said of that, “It is important to note that continued inclusion of a challenge area does not necessarily indicate a lack of progress by FHFA. Rather, it indicates that a particular area remains a challenge. This year we also highlight FHFA’s oversight of key operational risks at the regulated entities, including model risk, people risk and resiliency risk.”
Tomney also notes that all seven identified challenges are interconnected in many ways due to the FHFA’s role as a supervisor, regulator and conservator of the GSEs which “encompasses its oversight of all the operational risk challenge areas.”
"For example, a regulated entity might contract with a third-party for cloud services, which may impact information, third-party, people and resiliency risks,” Tomney wrote. “In addition to overseeing the regulated entities, FHFA must also manage risks, such as information, people and resiliency risk, in its own operations.”
After providing brief summaries and conclusions for each of the challenges, Tomney concluded by saying, “Collectively, the risks posed by the areas described above are significant and, thus, merit continued attention by the agency. The challenge for FHFA is to identify the facets of highest risk, effectively supervise the regulated entities while they engage in these areas and remain nimble with their focus as matters continuously evolve.”