Fannie Mae’s Funding Liquidity Execution Engine (FLEX) was developed to offer straight through processing for the funding lifecycle. The effort also earned the government-sponsored enterprise (GSE) an award for Best Middle-to-Back-Office Integration solution.
(The Federal National Mortgage Association (Fannie Mae), describes itself as “a leading source of financing for mortgage lenders.” But the financing stemming from the government-sponsored enterprise (GSE) is varied and crucial to financial markets. For instance, Fannie Mae buys mortgages via the secondary market to then pool them to create mortgage-backed securities (MBS), as Investopedia explains. The mortgage-backed securities of Fannie Mae are then purchased by institutions, including pension funds and investment banks. “We listen to our customers and partners to understand their needs, putting them at the center of everything we do. We apply our experience and expertise to deliver innovative, smart solutions to help our customers succeed,” according to the Fannie Mae website. In keeping with its credo to develop solutions, Fannie Mae created the Funding Liquidity Execution Engine (FLEX) to offer straight through processing (STP) for the funding lifecycle, which subsequently won the Best Middle-to-Back-Office Integration solution honor via the FTF News Technology Innovation Awards for 2018. Compiling the answers for this Q&A was a group effort involving the following Fannie Mae staff officials: Rob Heckman, director product management digital products; Syed Hussain, product owner, III digital products; Vinay Vangala, director of technology, capital markets; and Siddharth Gulhati, software engineer manager, capital markets.)
Q: What has been the most challenging aspect of your work for this segment of the market?
A: At Fannie Mae, we are tailoring innovation for the mortgage industry’s needs and seek to serve as the premier liquidity provider for early funding in the secondary mortgage market.
As part of that, we have goals to expedite the early funding process for lenders by simplifying the front-end process and automating the back-end process. It has been challenging to identify what changes will have the most impact for our customers, all of our customers, who are different sizes and have different paces of technology adoption and speed to market.
Our model is designed to partner with customers from the beginning, bringing them into our design process. This process of co-creating, which pairs developers with the end user, ensures we deliver products to our customers that add the most value for them.
Q: What has been the most satisfying aspect of your work?
A: The most satisfying aspect of our work has been the positive response from our customers, big and small.
When Fannie Mae deployed a new straight through processing solution last year, Funding Liquidity Execution Engine (FLEX), we reduced the acquisition time-frame from days to hours.
Customers told us, “This type of liquidity is insane!” and “This has the potential to transform the way we do business.”
With the new streamlined process, one of our customers has indicated that they can potentially save more than $1 million annually in middle-office operations costs. It is rewarding to provide real business value.
Q: How do IT innovations help ease liquidity functions and burdens?
A: We have already made changes to reduce the entire early funding lifecycle to hours instead of days through our FLEX tool.
We leverage technology innovations to ease the pain points our customers face, reduce costly manual errors and save time. These innovations enable us to get to the market much faster with less risk and more certainty.
Q: Why is it important to have early funding completed as quickly as possible?
A: Early funding allows approved lenders to sell both whole loans and pools of whole loans to Fannie Mae on an accelerated basis, thereby replenishing their funds and allowing them to make additional loans to borrowers.
By selling loans to Fannie Mae early, lenders’ needs for short-term borrowing in the market are decreased.
Fannie Mae’s goal is to acquire loans in a way that delivers value to our lender customers. We want to provide our lender customers with greater flexibility to pay off their warehouse lines by receiving funding proceeds either the same business day, the next business day, or when the funds are needed.
Q: What IT trends and disruptions give you hope and why?
A: Advancements in the machine learning and artificial intelligence spaces, and the potential of Distributed Ledger technology (block-chain), are some of the key disruptors in the industry in our view.
With the correct application of machine learning and artificial intelligence advancements, there are opportunities to reduce processing costs and turnaround time, while allowing for smarter, real-time decision-making abilities for complex and data-intensive transactions.
Similarly, distributed ledger technology [DLT], while it’s in the early stages of maturity, has the potential to further transform the mortgage process from being paper-based to digital — a great area of focus for Fannie Mae and one in which we have already helped make great strides.
Q: What IT trends may not interest you as much and why?
A: While we are always looking to evaluate and adopt advancements in technology, there will be some technologies and trends that will be at a lower priority or not targeted for broader adoption until we know they will add value.
For example, while our platform is based on an event-driven architecture, we are not looking to immediately implement a true “micro services” pattern, which we think does not provide enough value currently for our customers or our business.to warrant significant investment.
Q: What have you learned about project management from the FLEX effort?
A: Fannie Mae is on a larger journey to introduce digital functionality to the marketplace and make it easier for customers to do business with us. The FLEX project is one piece of that.
We work within squads, or agile teams, and focus on innovation, and testing and learning, instead of being tied to specific deadlines for delivery.
There has been a fundamental shift in moving our project teams from traditional waterfall software development to agile practices. We are focused on continuous improvement.
Q: Where will the industry be by 2020 as far as technology to facilitate liquidity?
A: We expect further advancements in technologies such as artificial intelligence and machine learning will improve decision making and customer support functions for the liquidity industry, bringing more advanced straight through processing and less manually intensive functions.
For technologies like blockchain, it would depend on regulatory factors and broader adoption in the financial industry before liquidity can adopt digital contracts and blockchain concepts become mainstream.
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