Kimberly Johnson joined Fannie Mae in 2006. As such, she was with the company when it went through its most trying time in the wake of the 2008 economic crisis. She was part of the team that led the company back from the brink in roles of increasing responsibility from Vice President of Capital Markets to Senior Vice President of the company’s Multifamily business unit to Chief Credit Officer to Chief Risk Officer.
In March of this year, she ascended to the role of Chief Operating Officer of Fannie Mae in March of this year. In that role, she is responsible for leading technology, data, enterprise models, operations, the enterprise program management office, and resiliency. Her varied and diverse experiences have aided her rise, and now that she has such a broad set of responsibilities, she has a broad ability to impact innovation within the company. She describes her journey and the path to innovation in this interview.
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Peter High: Could you talk about your role as the Chief Operating Officer of Fannie Mae and the responsibilities the position entails?
Kimberly Johnson: The COO role that Tim Mayopoulos put together for me includes an interesting combination of responsibilities, such as overseeing Fannie Mae’s technology, operations, innovation, data, and strategic execution. This mix serves as a nice way to string together the full array of the functionality that we need to enable the business.
High: Was there a predecessor with this same job description, or were these a set of responsibilities that was brought together for the first time in the role created for you?
Johnson: While we have had COOs at Fannie Mae, this was a different configuration of responsibilities. The position given to me specifically was designed to spark innovation efforts. We have a great deal of activity going on in terms of modifying our digital strategy, and we wanted to make sure that we put together all the necessary pieces to accelerate those efforts.
High: Could you provide some examples of Fannie Mae’s innovation activities?
Johnson: Since the housing crisis, the company has been working towards acting in a different role in the housing finance industry. We now see ourselves as the centerpiece of the entire ecosystem around housing, which gives us a different sense of responsibility. With this opportunity, we have to be resilient, secure, and we must ensure that we help the industry advance so that costs and risk are reduced for everyone. Because of this responsibility, many of our innovation efforts target reducing risk and costs to ensure more resilient operations overall.
One of the best company innovations that I have seen in recent years was called the Collateral Underwriter, which taught us an amazing lesson coming out of the housing crisis. One of our largest issues was the low-quality data that we had around home appraisals. Since collateral is one of the more important parts of our lending strategy, it became vital for us to get great information on the topic. As we looked at our vast history of appraisals, we realized that we had nearly thirty million home appraisals in our database. This allowed us the opportunity to use some great analytics methods to determine what we believed were the correct valuations for homes. As a result, we can use this data, and we are not singularly dependent on a one-time point of view appraisal. We made the Collateral Underwriter available to all of our lenders, which allows them to see the values of these properties before they put their loans in. This marks a transition to moving all the risk management upstream to the beginning of the process, rather than the end. As a result, the ability to make great loans becomes significantly easier for everybody.
High: How does your organization get involved in the innovation within the company?
Johnson: I am a believer that good ideas come from everywhere, so you cannot have one central group that owns all the innovation. Instead, innovation must be a major part of the company’s fabric. We have a team that helps to foster those efforts by bringing in partnerships and helping people launch some pilot ideas. Fannie Mae also holds activities, such as innovation days and hackathons. The employees love these events, and they have changed the nature of our daily operations. These events are specifically designed to encourage people from across the company to brainstorm new ideas and bring innovative opportunities forward. As a result, we have gotten some terrific seed ideas that we are looking to bring into production.
High: How is your team organized? Do you have a leader over the disciplines that you mentioned, or do most people span a diverse array of topics the way you do?
Johnson: I was fortunate to step into a role which had many strong leaders in place, so I do have leaders for each of those teams. That said, we are looking to bring people together to collaborate in a different way. We recently launched a digital operating model with our partners in our single-family business, which represents a terrific way of doing software development. This model consists of the business owners, product managers, and technologists working together on teams in an agile methodology to deliver results in a more reliable and faster fashion. We found that what we deliver is far better received if there is cooperation in the creation, so this has become a great way to produce those improved results. To take this a step further, we are looking at ways to bring that collaboration across all areas of our tech staff.
High: Roughly six months into your role, could you talk about your strategy and some of what you and your team are working on?
Johnson: Our strategy is still in progress because I am still on an extensive listening tour, internally and externally, to better understand the right trends and how the industry is moving. Digitization is going to drive where the mortgage market goes, and because we are principally an insurance company, there is an extensive amount of data-dependent information that we can gather. Specifically, this information depends on the quality and the timeliness of the data. By getting the most out of the large amount of data we have, we can come up with new insights and manage our insurance business in an innovative and safer way. That said, if this digitization is not in service of a business outcome, it lessens the potential impact. Because of this, our top priority is ensuring that everything we do connects back to the business strategy.
High: You have been with Fannie Mae for roughly twelve years, and you had held a great variety of responsibilities throughout your tenure. You were the Senior Vice President of Multifamily Capital Markets and Pricing, the Chief Credit Officer [CCO], and the Chief Risk Officer [CRO]. Many people have the same role at multiple companies, yet you have held multiple positions at the same company. What advantages has this variety of roles provided you?
Johnson: Variety has been a major theme of my career as my path has seen many shifts. I began my career working at a hedge fund, and I later moved into an investment bank. In my twelve years at Fannie Mae, I have held seven different roles. In my beginning years with the firm, I was responsible for trading desks, generating revenue, and for our credit guarantee business. These responsibilities facilitated my jumps to CCO, CRO, and now COO. Coming out of the housing crisis we put an emphasis on managing our credit and market risk, all of which are consistently important. However, over the last decade, we have increased our focus on cyber and information security, and we have been looking extensively at our data and operational risk. Because of this, the CRO role gave me excellent exposure to what was emerging throughout that time. As we looked deeper into concepts such as cyber and data, we began spending time brainstorming whether we should create these tools and products with security in mind at the beginning, rather than at the end. Many people wonder how it is possible to make the leap from CRO to COO because of all the technology aspects that come with it. Personally, having the mindset that I described helped bridge the difference between risk and operations, which aided me with my transition.
High: In many ways, innovation is about risk-taking and determining what your risk tolerance is. How did your role as CRO lend to your new focus on innovation?
Johnson: Following five years at the head of the risk seat, I now spend more time thinking about how to articulate a risk tolerance. While most people have a risk tolerance, they do not spend substantial time thinking about what it is, how to communicate it, and how to get other people lined around it. That said, using examples and what-if scenarios help people to do so. Moreover, there are tools that can be built as a risk officer that help put the boundaries around exactly where you want to go.
High: You are currently one of the few female COOs, especially in large companies similar to yours. What is your thought process as to the growth of women in executive roles, and what progress have you seen?
Johnson: With the roles that are seen as non-traditionally female-oriented, it does not have to be male or female characteristics that define how we do our jobs. I learned this at multiple places, including the derivative space, hedge funds, investment banks, and even in risk. Ultimately, it all comes back to people as everything we do is done through people. If companies can figure out how to connect the people to the work, all sorts of avenues will open up. I had a terrific discussion at the RSA Conference earlier this year because there were many questions surrounding the lack of women in cybersecurity. People were arguing that if we start now and get the women out of college, that in twenty years we are going to have a fantastic array of women within the industry. However, I have been working for longer than twenty years, and I can confidently say that the twenty-year strategy does not seem to work. I do not believe you can start at the beginning of the pipeline and build it over time, but instead, you need to build the pipeline at every stage along the way.
You can find fantastic women at all stages in the non-traditional female roles in technology and risk. You can bring these people in laterally to learn new functions and roles because people have the ability to grow and expand their skill sets. Ultimately, it comes down to looking for individuals who are ambitious, courageous, and willing to take some risks, which are all learnable aspects. Because of this, I would love to see more effort around building the pipeline throughout career levels, rather than exclusively at the beginning.
High: Can you reflect on how the organization has changed across your tenure, and how you see the company expanding or growing?
Johnson: Over the past twelve years, I feel as if I have worked for three different companies. I would categorize these as our post-crisis, during crisis, and pre-crisis identities, all of which have generated extremely different atmospheres. Regarding our place in the housing industry, while most companies are trying to win, we realized we have a larger cause. Following the crisis, we are no longer trying to win exclusively for us, but we are trying to win for everyone. Generating more accessibility to homeownership, creating better living communities, and ensuring that the entire ecosystem is functioning better are superior games to win than just being successful and pumping out more mortgage-backed securities. This broader perspective has energized our workforce to act differently than we used to, which has been a great personal learning experience. While you can have fantastic ideas in place, what matters most is how others are going to interact with the products that you design. Furthermore, it is about involving all aspects of the industry, from the largest bank to the smallest independent, and you have to make sure that what you are doing is a strong fit for everyone.
High: As you look to the future, what are some trends that are making their way onto your personal or professional roadmap that particularly excite you?
Johnson: At Fannie Mae, everything we do is embedded with a customer perspective. This realization also brings in fresh ideas around where things are going. Regarding the technology trends, the main focus has been on the average ones, such as the cloud and big data. While all those technologies serve a purpose, I believe the application of them can be far more targeted to help launch the company to a different place. Fannie Mae has a tremendous amount of data, which provides us with all sorts of opportunities to analyze the dynamics that we are seeing in the day-to-day changes in the marketplace. If we can look past the present into a more predictive analysis, there are many aspects that can be done differently. We would not have gone through the housing crisis if we had this tremendous data and better predictive analytics. Because of this, our focus going forward will be on using those capabilities to further our future business model.
Another trend I am particularly keen on is the green financing space. Fannie Mae has recognized the importance of environmentally conscious products, and in 2015, we launched some of our green financing of multi-family bonds. These bonds embed incentives for apartment owners to be energy efficient within their buildings, which is a concept that has taken off. The demand for our green products has been incredible, and we have seen the growth over two years jump from $400 million to $31 billion in issuance. The green concept as a driver of business means that we can find affordability in housing in a wide variety of ways, which is inspiring. Taking energy efficiency and lowering the costs for borrowers means that their all-in housing costs are lower. As a result, these individuals become safer borrowers who are more likely to pay their mortgages. Being able to partner and drive energy as an affordability play to make better mortgages all around has been incredible for Fannie Mae.
Peter High is President of Metis Strategy, a business and IT advisory firm. His latest book is Implementing World Class IT Strategy. He is also the author of World Class IT: Why Businesses Succeed When IT Triumphs. Peter moderates the Forum on World Class IT podcast series. He speaks at conferences around the world. Follow him on Twitter @PeterAHigh.