Professional Documents
Culture Documents
9191/303
~ FannieMae.
Internal Audit Report
Portfolio Pooling
I
Internal Audit R49 2007
#1
Confidential - Restricted
+7
EF 10 B, 9 192/303
Objectives
To assess the adequacy and effectiveness of controls over portfolio pooling
Scope
Conclusion
The legacy pooling system was replaced in April 2008 by the Collateral Management and Hedging (CMH)
application. CMH resolved several prior limitations and provided greater flexibility to manage the whole loan
portfolio. While CMH provided functionality to designate new loans for pooling in a future period, there is still $137
billion of loans that were in inventory prior to implementation that cannot be pooled. In addition, CMH does not
currently have the functionality needed to pool approximately $171 billion of multifamily, adjustable rate, and
reverse mortgages. The aforementioned system limitations prevent Fannie Mae from fully leveraging whole loan
assets for liquidity, revenue, or to manage the size and composition of the portfolio.
System weaknesses were also noted with the three primary pooling applications including inadequate segregation
of duties, excessive user access, and a lack of monitoring.
Deficiencies with reconciliations and documentation were also identified. The following pages summarize control
weaknesses noted during our review.
Confidential - Restricted
EF 10 B. 9 193/303
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SF Poolable. 5137,471,
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$5.0
$4.5
$4.0
$3.5
$3.0
$2.5
$2.0
$1.5
$1.0
$0.5
$-
37%
Source: Capilal Markets Business Initiatives
180
160
140
I!B:v"~+ 120
100
80
60
40
20
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Confidential - Restricted
EF ID B. 9 194/303
Issue
1.
Observation
Responsibility
Implementation
Timing
CMH only provides functionality to poolli.x~d-rote slngle-fqmlly loans, limiting management's abBity to pool other loan
products for liquidity or tor management at th~ size and composition of the whole loan portfolio.
2.
Ramon
Decastro
Ramon
Decastro
April 1, 2009
Excesslye functlongllty
HIGH
System controls are no! adequote to ensure se~regatlon of duties and appropriate user access.
Priority
Confidential - Restricted
Don Palumbo
MEDIUM
January 9. 2009
EF 10 B. 9 195/303
Issue / Observation
2,
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Responsibility
Implementation
TIming
MEDIUM
Don Palumbo
Monte Shapiro
Monte Shapiro
Don Palumbo
Monte Shapiro
Confidential - Restricted
Priority
SOX
ILOW)
January 31,2009
SOX
(LOW)
SOX
(LOW)
EF 10 B. 9 196/303
Issue / Observation
3.
Responsibility
Implementation
Timing
Pooling reconciliations are not executed timely or documented consistently, Increasing the risk that Intended actions are not
qccurately capt!JJeq III dqwnstream systems.
Inconsistent documentation
The reconciliation between the pooling
application and the trader's record of
pooled loans is not executed and
documented consistently. There were
multiple versions of one reconciliation
and uninvestigated discrepancies. If
discrepancies are not resolved prior to
the intended pooling date, the pool
may not be formed resulting in lost
revenue. Loans will however, remain
eligible for pooling at a sUbsequent
date. Reconciliations were also saved
on local hard drives increasing the risk
of data loss if files are not backed up.
UntimelY reconciliation
The reconciliation between the trader's
intended designation enlered in CMH
and the finallrode designation in the
FAS65 system occurs 22 days after
monlh-end. While the accounting
treatment will accurately reflect lhe
designalion in lhe system of record
(FAS65), it may not refleel the trader's
intent to retain loans based on a review
of lhe underlying economics.
Laura Simmons
April 1, 2009
Don Palumbo
Confidential - Restricted
Priority
lOW
EFIDB.9197/303
Issue / Observation
4.
Prlc:ln~
5.
Responsibility
Implementation
Timing
LOW
PQoHn'! decisions.
Steve Shen
January 12,2009
Laura Simmons
April 1, 2009
Steve Shen
April 1, 2009
Terri Messina
April 1, 2009
Don Palumbo
April 1,2009
Trode repositions,
Confidential - Restricted
Priority
LOW
EF 10 B. 9 198/303
Addressees
Ramon Decastro, Senior Vice President, Capital Markets Mortgage Trading
Audit Director
Leah Malcolm Skrine
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Distribution
Herb Allison
David Benson
Gary Friend
David M. Johnson
Linda Knight
Curtis Lu
Theresa Messina
Don Palumbo
Bill Senhauser
Monte Shapiro
Michael Shaw
Steve Shen
Laura Simmons
Jacquie Wagner
Mike Williams
Deloitte & Touche
FHFA
Confidential - Restricted