Navigating New GSE Internal Control Requirements: What Financial Institutions Need to Know

Robert Brosh is director of compliance with Ncontracts, Brentwood, Tenn.

Fannie Mae and Freddie Mac have rolled out comprehensive updates to their internal control frameworks, creating new compliance challenges for mortgage lenders and servicers. These changes go beyond routine regulatory adjustments. They represent a fundamental shift in how the GSEs approach operational risk management.

The new requirements span cybersecurity, fraud detection, and quality control, with implementation deadlines already in effect or rapidly approaching. Financial institutions that fail to adapt risk falling behind in an increasingly complex regulatory environment.

What’s Changed: Key Requirements at a Glance

Fannie Mae’s Security Framework

Fannie Mae’s Information Security and Business Resiliency Supplement took effect August 12, 2025. The supplement establishes strict cybersecurity standards, including a 36-hour incident reporting requirement. Business partners must also demonstrate robust business continuity planning and enhanced data protection measures.

Freddie Mac’s Fraud Reporting

Last year, Freddie Mac launched its Tip Referral Tool for fraud reporting, replacing email-based systems. The GSE now requires monthly portfolio reconciliations for servicers and has implemented enhanced OFAC screening requirements. These changes took effect September 30, 2024, with additional requirements rolling out through 2025.

Enhanced Third-Party Oversight

Both GSEs have strengthened oversight requirements for third-party relationships. This includes more rigorous due diligence, ongoing monitoring, and enhanced documentation requirements for vendor partnerships.

Building a Compliance Strategy

Cybersecurity Infrastructure

The 36-hour reporting window for cyber incidents demands real-time threat detection capabilities. Financial institutions need monitoring systems that can quickly identify, contain, and report security breaches. More than basic compliance, it requires comprehensive incident response procedures and staff training.

Business continuity planning becomes equally critical. Institutions must demonstrate they can maintain operations during cyber attacks, natural disasters, and other disruptions. Regular stress testing of these plans is essential.

Quality Control Transformation

The enhanced QC requirements particularly impact third-party origination oversight. Institutions must implement stratified sampling methodologies that ensure adequate coverage while maintaining independence from production pressures.

This shift requires organizational changes, not just procedural updates. QC functions need clear independence from business units that might compromise their effectiveness. Some institutions may need to restructure their oversight frameworks entirely.

Operational Implementation

Policies and Training

New GSE requirements necessitate comprehensive policy revisions covering cybersecurity incident response, business continuity, fraud detection, and vendor oversight. These policies must serve as practical operational guides, not just compliance documents.

Staff training programs need to evolve alongside policy changes. Employees must understand both what to do and why these controls matter for institutional resilience.

Technology and Reporting

Monthly reconciliation requirements for servicers create significant operational demands. Systems must produce accurate, timely reconciliations that identify discrepancies before they become compliance issues.

Enhanced fraud reporting requires systems capable of capturing, analyzing, and reporting relevant data within mandated timeframes. Many institutions will need to upgrade their current capabilities.

Vendor Management

Third-party oversight now extends beyond traditional due diligence to ongoing monitoring and control validation. Institutions must ensure vendor partners maintain standards consistent with GSE requirements.

This creates particular challenges in mortgage origination and servicing, where efficiency often depends on third-party relationships. Balancing these relationships with enhanced oversight requirements may necessitate contract modifications and performance monitoring improvements.

Managing the Transition

Assessment and planning are critical. Start with gap assessments that identify where current practices fall short of new standards. Prioritize the most critical gaps while establishing realistic implementation timelines that meet GSE deadlines.

Resource allocation becomes crucial. These requirements demand investments in technology, personnel, and training. Evaluate whether internal capabilities are sufficient or if external support is needed.

Avoid piecemeal approaches. The interconnected nature of these requirements makes fragmented implementation ineffective. View these changes as opportunities to enhance overall operational resilience rather than isolated compliance tasks.

Building scalable systems now will better position institutions for future regulatory changes while creating value beyond basic compliance.

Strategic Implications

These GSE updates reflect broader industry trends toward comprehensive risk management frameworks. Institutions that treat these changes as opportunities rather than burdens will gain competitive advantages through stronger operational controls and enhanced resilience.

Success requires building adaptable organizational capabilities that can evolve with changing requirements. The mortgage market’s stability depends on institutions that can demonstrate both compliance excellence and operational reliability.

Financial institutions that embrace these enhanced internal control requirements not only meet regulatory expectations but also position themselves as reliable partners in an increasingly complex market environment.

(Views expressed in this article do not necessarily reflect policies of the Mortgage Bankers Association, nor do they connote an MBA endorsement of a specific company, product or service. MBA NewsLink welcomes submissions from member firms. Inquiries can be sent to Editor Michael Tucker or Editorial Manager Anneliese Mahoney.)