A joint effort by Fannie Mae and Freddie Mac to develop new technology for issuing mortgage-backed securities needs cost controls and a schedule, the auditor of the Federal Housing Finance Agency said.

The two companies have already spent $65 million on the FHFA-mandated project, known as the common securitization platform, and are currently spending an additional $5 million to $7 million each month, the FHFA Inspector General said in a report released today.

Starting the project "without any clear idea of what it would cost or, indeed, what it could cost, seems an inauspicious beginning," the report said.

The FHFA, the regulator and conservator of Fannie Mae and Freddie Mac, ordered the joint project in 2012 as a way to save money because both companies needed to replace their outdated systems of collecting data to issue mortgage-backed securities.

The FHFA agreed with the auditor’s recommendations is already working on establishing cost estimates and timelines for completing the project, FHFA Deputy Director Wanda DeLeo said in a response memo accompanying the audit.

Mel Watt, director of the FHFA, said last week that he would scale back the securitization platform effort so it would focus on developing a common security issued by both Fannie Mae and Freddie Mac. The two companies currently each issue their own mortgage bonds.

Fannie Mae and Freddie Mac buy home loans and package them into bonds on which they guarantee payments of principal and interest.

Auditors said the two companies have had trouble executing large-scale technology projects in the past.

"Congress, financial-markets participants, and taxpayers have been left without certainty that the project should proceed, or that, if it does, it will achieve its stated objectives in an efficient and effective manner," the report said.

Bloomberg News