"The thing the GSEs are trying to build, we have today" at Ginnie Mae, said its President Ted Tozer. "It's the Washington way — try to build what we already have."
Former Ginnie Mae President Ted Tozer helped modernize Ginnie's software. Many think the FHA needs to make a similar upgrade. Bloomberg News

The Federal Housing Administration needs additional funds to replace a 1960s-era computer operating system and make other necessary tech updates, according to Richard Green, a former senior adviser to the Department of Housing and Urban Development.

"Something bad is going to happen unless they address this," Green said in an interview. "If the system fails, FHA single-family and multifamily loans will be unavailable until a replacement system is up and running."

Green is the director and chair of the University of Southern California Lusk Center for Real Estate and was a HUD senior adviser for a year, until June 2016.

The FHA and Ginnie Mae still rely on a COBOL (common business-oriented language) computer operating system that was invented in 1959. It still works well, according to one source, but has limited functionality.

The FHA's COBOL system is mainframe based, not cloud based, Green said. The cloud allows one operating system to communicate with different computers seamlessly, something COBOL cannot do.

"In terms of managing the FHA program, being able to interface with all your lenders, regardless of the operating system they use, will bring about a lot of efficiencies to the program and allow FHA to monitor its lenders better," Green said. "Whereas this old mainframe COBOL system, you can't do that. It leaves you with little to no nimbleness at all.

The FHA has 2,430 approved lenders that originated 1.25 million in single-family loans totaling $245.4 billion in fiscal year 2016.

The Mortgage Bankers Association also is concerned about the FHA's infrastructure.

“FHA technology and risk management systems have been in need of an upgrade for years. MBA strongly supports funding through the appropriation's process to upgrade these systems," Pete Mills, senior vice president at the MBA, said in an emailed statement. "As HUD's flagship program, the FHA certainly warrants increased funding for these initiatives that will help better serve borrowers and protect taxpayers."

HUD has been seeking additional funding from Congress to replace its computer systems for years, but without success. In its fiscal year 2017 budget request it proposed charging a fee on FHA loan endorsements to raise $30 million, but that measure was not approved.

"The technology supporting FHA is a set of complex, aging IT systems with COBOL-based mainframe applications as the foundation," HUD said in its budget request. "These legacy systems were assembled as needs surfaced over the last 30 years without the benefit of an architectural plan in which these systems could be integrated and grow in an orderly fashion."

"Today FHA operations require data to move between numerous touch points through hundreds of interfaces, resulting in an environment that has become increasingly complex, costly, and difficult to maintain," HUD said. "The complex nature of the current IT environment constrains FHA’s ability to adapt its operations to changes in the housing industry, economic trends, and new legislation."

It's not clear if the FHA will request funds again for the next fiscal year. The Trump administration's full budget will not be released until May.

Until recently, Ginnie Mae also relied on a COBOL system. But that changed under the leadership of former Ginnie President Ted Tozer. Ginnie began moving off its COBOL mainframe operating system over the past five years. The secondary market agency expects to be in a 100% server-based environment in the next two years.

"All of our data is housed on Oracle servers," Tozer said in an interview. "We are in the process of moving to the cloud."

With the approval of Office of Management and Budget, Ginnie was able pay for hardware and software development. But Congress, which controls Ginnie's staffing levels, caps the agency's employees at 130 full-time workers. As a result, Ginnie was not able to hire staff to oversee the technology project, which slowed the process.

"That was so frustrating," Tozer said. "I wish Ginnie Mae could hire the people they need and pay them properly." 

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