As conservator to government-sponsored entities Fannie Mae, Freddie Mac and the 12 Federal Home Loan Banks, the Federal Housing Finance Agency has been tasked with overseeing the recovery of these institutions. The GSEs were rocked in the financial downturn four years ago, and FHFA's conversatorship is designed not only to put each on better financial footing, but also establish a firmer foundation for overall market strength.
To that end, the FHFA released its Strategic Plan for 2012-2017 earlier this month, which outlines the steps the agency intends to take in its ongoing support of the GSEs. The agency's goals include establishing stability among each institution and within the housing market at large, and suggests that regular examinations of GSE operations should affirm recovery progress.
These examinations will occur annually and more frequently when required to review potential risks that threaten the stability of each GSE institution. FHFA officials also intend to seek additional risk-sharing opportunities with the private sector, something it has already started by increasing the fees private banks pay for loan guarantees from Fannie, Freddie or the FHLBanks.
Though the FHFA must develop and execute on a broad plan designed to build stability within a number of sprawling federal institutions, its challenges are not unlike those faced by individual private banks each day. In today's inconstant banking environment, financial institutions must develop strategies meant to identify and combat persistent risks.
That is why it is crucial for banks today to develop a sophisticated and flexible risk management framework. By using risk management software that includes a customizable business rules engine, financial institutions can build in comprehensive risk management tools that allow executives to analyze and react to new risks in an agile way.