company xyz – loan-level portfolio

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8(a) SDB CMMI Level 3 DSS Cleared Facility

Company XYZ – Loan-Level Portfolio

Management PresentationMarch 12, 2015 This document and any attachments to it contain

confidential business information intended solely for the recipients. Recipients are not authorized to forward or

distribute it to any other party.

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Agenda

I. Executive Summary

• Current State₋ Background, Engagement Summary, Project Objectives, Project Approach, Industry

Comparison, Summary Impact Assessment

• Future State₋ Future Vision, Future State Options, Loan-Pool-Securities Aggregation Process

• Conclusion• Recommended Next Steps

II. Appendix

• Supporting Documentation

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Current State: Background

• Company XYZ has embarked on a multi-year effort to transform their Mortgage Backed Securities (MBS) program and associated business process and technology to meet the demands of an increasingly complex environment.

• Company XYZ’s overriding goal is to protect and preserve the utility, relevance, and successful track record of the MBS program. The white paper, ABC, illustrates the major issues impacting the program (e.g); this paper also lays out areas in which Company XYZ will be aggressive about changing its program and infrastructure to meet the evolving needs of the market.

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Current State: Engagement Summary

• The Unissant/Actualize team was contracted to provide a current state analysis of the Company XYZ pool-centric model and what it would take to move towards a model that is based on loan level data.

• Assumptions:

₋ Company XYZ senior leadership has a firm understanding of the policies, procedures, and limitations of the current operating model and does not want a report that re-hashes existing documentation.

₋ Company XYZ senior leadership expects a foundational document that identifies key findings, major areas of impact, and plausible options to continue and enhance the success of the MBS program.

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Current State: Project Objectives

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• Understand the complexity of the changes involved of going from a pool structure to a loan-level structure business model including the identification of policy, business process, and systems gaps.

• Develop current state documentation to support the creation of roadmap that will ultimately include a current state, future state, gap analysis, identification of key data points, program changes and system changes that will be required to move down the path that allows for loan level processing rather than pool level for certain functions including transferring Mortgage Servicing Rights (MSRs).

• Establish the foundation for a future state roadmap.

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Current State: Project Approach

• Work with Company XYZ stakeholders to obtain input and capture concerns and challenges; and review of current process flows; participant roles and responsibilities; and MBS guide

• Consult with various stakeholders to obtain input from each respective program office and insuring agencies

• Consult with Pool Processing Agent and other vendor contract representatives to obtain current state capacity focusing on pool issuance, monthly investor reporting and pool transfers.

Phase 1: Discovery

• Create high level mapping of current state functions (process flow)• Identify systems and databases mapped to each process and signify which are impacted by

the business change to loan level• Identify and recommend the addition of the key data tables and or data elements to allow

for loan to security connection. • Identify all files or data feeds that will be impacted by the change both internal to Company

XYZ and with Issuers or other counterparties

Phase 2: Current

State

• Finalize presentation that includes: Current State Analysis, Gap Analysis, Options for Meeting future state.

Phase 3: Managemen

t Presentation

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Stakeholder meetings

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Date Stakeholders Subject 1/14 Names of stakeholders Modernization

1/22 Loan-level future state

1/28 Loan-level future state

1/28 Data

1/29 Reporting & Reconciliation

1/29 Current state processing

2/4 Reporting & Reconciliation

2/12 Working session

2/18 Feedback session

3/9 Management Presentation Review

Note: Weekly Status Report meetings were held with working group members

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Current State: Company XYZ vs Industry Comparison

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The table below illustrates the key differences between Company XYZ and the Mortgage Industry both in terms of role name and responsibilities.

Responsibilities Mortgage Industry Role

Company XYZ Role

Key Difference

Pre-Issuance/Issuance Functions Seller and Issuer Issuer(Servicer)

In the Mortgage Industry, once Security or Bonds have been issued, the Seller or Issuer may not have any servicing rights to loans it issued.

(excludes PIIT program)

Advancing Delinquent Payments

Servicer or Subservicer Issuer(Servicer) The Servicer (barring a Subservicing Agreement giving this authority to the

Subservicer) is responsible for advancing funds for delinquent payments

Collecting Payments Servicer or Subservicer Issuer(Servicer) The entity servicing the loan (Servicer or Subservicer) is responsible for

collecting periodic mortgage payments.

Reporting Servicer Issuer(Servicer)The Subservicer does send collection reports to support fund sent to the

Servicer by the Subservicer. But reporting to the Trustee is the responsibility of the Servicer.

Owner of MSRs (with ability to transfer) Servicer Issuer(Servicer)

The Servicer may elect to sell MSRs in an open market to the highest bidder while Company XYZ requires the entity which issued the Securities to

initially hold these rights (excluding PIIT program)

Subservicing Functions Subservicer Subservicer A Mortgage Industry Subservicer is typically a servicing shop. Company XYZ requires Subservicers to be Company XYZ Approved Issuers.

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Current State - Loan Level Impact Areas

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What are the impacts from moving from a Pool Level model to a Loan Level model?

Loan-LevelPolicy

Business Process

Data

Technology Systems

People

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Current State: Summary Impact Assessment

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No changes neededSignificant changes needed

As of Q2- 2014

Loan-level Capabilities Policy Process Systems Data People

Program guide

Transfer of MSRs

Monthly Reporting and Reconciliations

Compliance

Limited changes needed

The Unissant/Actualize team evaluated Company XYZ’s key current loan-level capabilities across policy, process, systems, data, and people. The summary of the assessment is provided below:

Current State Key Findings Risks/Impact

Roles and responsibilities in the MBS guide do not conform to current industry practices.

Inflexibility of the MBS program will continue; participants may pursue more ‘industry standard’ options

Company XYZ current policy of only one Issuer per pool is limiting.

Prohibits MSR transfers within a pool at the loan-level; barrier for program entry for many participants including non-bank entities

Company XYZ’s reporting system can not receive multiple files from multiple issuers within a pool without failing

Prohibits multiple Servicers per pool.

A basic reconciliation occurs from loans to pool to security for one Issuer.

The current reconciliation functionality will not accommodate multiple Issuers/Servicers.

Company XYZ’s operational performance measures on Issuers/Servicers are inadequate and do not provide meaningful feedback

Without measuring “how the participants are performing servicing functions” Company XYZ will lack the necessary information for accurate forecasting and decision making.

Detailed impact analysis can be viewed in the Appendix section

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Future State

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• Align the Loan-level initiative with Company XYZ’s vision for a future state as illustrated in the white paper, ABC.

• Discuss proposed new roles and responsibilities, and options for a future state.

• Identify automated technology solutions for high-intensive analytical functions such as loan-level balance roll ups, pool to security roll ups, and payment tracking from Originators to Servicers to the Transfer agent.

The following slides focus on achieving the target state capabilities of a Loan-level model.

*****Insert logo of Company XYZ here*****

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Future State: Company XYZ’s Future Vision

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The Unissant/Actualize Team proposed a target state to align with Company XYZ’s future vision for its program.

Target State Capabilities BenefitsIdentify, understand, and plan for changes to the market environment and market participants.

•Residential MBS remains an economically viable activity•MSRs remain an attractive asset class.

Embrace the increasing presences of non-depository firms and the accompanying trend toward networked (specialized) firms.

•Value in diversity and innovation from these specialized firms•Opportunity to broaden access to the MBS program through non-traditional structures

Establish new measures and standards to assess operational and financial performance.

•Greater accuracy for portfolio valuations•Greater understanding of the participants operational performance.

Increase market liquidity both for the program and the program’s participants

•Opportunity to transfer MSRs at the loan-level and also divorce MSRs from servicing operations.•Recognition of entities that finance mortgage servicing operations.

Preserve Company XYZ’s long-term program by strengthening oversight on Issuers for non-compliance

•More active monitoring of Servicer activity and MSR values may allow for proactive remediation activities prior to economic event.

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Future State: Current State and Future State (proposed)

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Issuer/Servicer(75 loans)

Issuance:

Post Issuance:

Issuer/Servicer(75 MSRs)

Current State Future State

Issuer(75 loans)

Servicer 1(10 MSRs)

Servicer 2(35 MSRs)

Servicer 3(30 MSRs)

Each Issuer/Servicer can have multiple subservicers

The Issuer/Servicer can have only 1 subservicer

Pool 1075

Pool 1075

Post issuance, role changes from Issuer to Servicer

New role introducedAuthorized Servicer(One Servicer or Company

XYZ)

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Future State: Roles and Responsibilities

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Issuer(75 loans)

Servicer(10 MSRs)

Servicer 2(35 MSRs)

Servicer 3(30 MSRs)


Pool 1075

* Post issuance, role changes from Issuer to Servicer

Future State Roles and Responsibilities

Issuer• Performs all current MBS Guide functions through Issuance

Authorized Servicer• Issuer or Company XYZ assumes this role at Issuance• RESPONSIBLE for authorizing drafts from central P&I custodial account (for all amounts

due to security holders and the guaranty fee due to Company XYZ)• Sign all accounting reports and certifications to Company XYZ and Remittance Advices to

Security Holders; also maintain registry for Security Holders.

Servicer • RESPONSIBLE to advance payments not made by borrowers and covers shortfalls in their

P&I accounts when drafted by the transfer agent for loans it holds MSRs to.• Responsible for being reimbursed for advances made prior to MSR sale.• PAYMENTS to security holders are drafted from Servicers P&I account by transfer agent

• ATTESTS to the UPB to all loans it holds MSRs for.• Provides oversight with any Subservicer(s) it enters into a Subservicing Agreement with.• REPORT into investor reporting system.

Subservicer• REPORT investor reporting system.• Perform all functions required in Subservicing Agreement entered into.• RESPONSIBLE for sending funds to Servicer for drafting by the transfer agent• Provide collection reports to Servicer so Servicer can validate cash received.

Issuance:

Post Issuance:

Authorized Servicer(One Servicer or Company

XYZ)

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Future State: Option 1 – Servicer as Authorized Servicer

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Issuance:

Post Issuance:

Issuer/Servicer 1(75 loans)

Authorized Servicer (10 MSRs)

Servicer 2(35 MSRs)

Servicer 3(30 MSRs)


Pool 1075

The Authorized Servicer role is performed either by:• Issuer at Issuance who assumes the role of Servicer• A Servicer who purchases MSRs• Another Company XYZ approved Servicer (only if the first two options are not feasible)

The Servicers and Subservicers will report into the investor reporting system separately for the loans they service in the pool. Each Servicer will be responsible for advancing funds and/or covering shortfalls on the loans they hold MSRs to.

Funds can be remitted to one central P&I account administered by the Authorized Servicer to be drafted by the transfer agent. Another option is to have the transfer agent draft out of each Servicer’s P&I account (Custodial or Central).Placing responsibilities of the Authorized Servicer on one of the Servicers may not be economically viable to that Servicer if there is no compensation. This function may require additional resources to ensure adequate coverage of the Authorized Servicer responsibilities.

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Future State: Option 2 – Company XYZ as Authorized Servicer

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Issuance:

Post Issuance:

Issuer/Servicer 1(75 loans)

Servicer 1(10 MSRs)

Servicer 2(35 MSRs)

Servicer 3(30 MSRs)


Pool 1075The Authorized Servicer role is performed by:

• Company XYZ or a Vendor it contracts with to perform this function.

The Servicers and Subservicers will report into the investor reporting separately for the loans they service in the pool. Each Servicer will be responsible for advancing funds and/or covering shortfalls on the loans they hold MSRs to.

The transfer agent will draft out of each Servicer’s P&I account (Custodial or Central). Company XYZ will have final authorization of each draft out of each Servicer’s P&I account.

Company XYZ

Company XYZ will need to ensure there are sufficient resources available for adequate coverage of the Authorized Servicer responsibilities.

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Future State: Interim-Only Solution

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Issuer(75 loans)

Servicer(75 MSRs)

Subservicer 1(35 loans)


Pool 1075

Issuance

Post-Issuance


Post-Issuance, the Issuer will now have the role of Servicer. The Servicer can only sell MSRs at the pool level per Company XYZ MBS Guidelines.

The Servicer may enter into as many Subservicing Agreements as it would like within a pool. Each Subservicer would continue to be an approved Company XYZ Issuer.

The Subservicers will report on their loans into the investor reporting system and will be required to send the Servicer a reconciliation of payments so the Servicer is aware of what payments are required to be advanced.

While each Subservicer can have its own Custodial P&I account, they will required to send payments to the Servicer and the Servicer will make available funds for the transfer agent to draft to pay the Security Holders.

This is an interim solution only and would not allow the Servicer to sell their MSRs at the loan-level.

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Future State: Automated Reconciliation Function

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Servicer 1(10 MSRs)

Servicer 2(35 MSRs)

Servicer 3(30 MSRs)

Pool 1075 “An Adaptive System”

Investor Reporting

System

New technology to be developed

Transfer Agent

Reports

Reconciled payments

Reconciled balances

Performs calculations• Loan-level roll up to pool• Pool roll up to security

Performs calculations• Reconciles cash from Servicers

Company XYZ should create a new technology system that allows Company XYZ, the Servicers, and the transfer agent to integrate reconciliations in a real-time processing environment.

Microsoft Office Excel Worksheet

Calculation Example

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ConclusionExecutive Summary

Scope: Company XYZ I pools are more problematic moving to a loan-level model. To lessen impacts, it should be considered to move only Company XYZ II pools to loan-level. Company XYZ I holders can convert to Company XYZ II to achieve new features

Policies: Policy changes will impact roles and responsibilities (i.e., Issuer, Servicer and Company XYZ), processes and procedures. We recommend a role of Servicer be established.

Processes: Internal and external business processes will be impacted with policy changes. It is expected that the Compliance and Monitoring, Eligibility, Investor Reporting and MSR process will have medium to high impacts while the Document Custodian Processes are minimally impacted.

Data: Loan-level data is currently collected at issuance and via monthly servicing files. The capture of additional loan level data would be minimal.

Systems: Low impact to issuance modules and high impact to post-issuance systems.

₋ ____ systems will potentially have significant business rules and reporting impacts.

₋ An automated function that reconciles loan-level to pool balances prior to funds being sent to the Pool Processing Agent needs to be created.

People: Company XYZ has limited resources to facilitate the large change. Reliance on vendors will be required in the short term; long-term Company XYZ should invest funds spent on consultants into creating the new automated reconciliation function. Also shift more analytical functions related to operations from vendor resources Company XYZ employees.

Approach Recommendation: Determine the role and responsibility Company XYZ wishes to perform in the future state model.

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Recommended Next Steps

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• Conduct deeper dives on roles and responsibilities, xyz system enhancements, which includes additional reconciliation calculations, and risk and control processes.

• Identify potential recommendations for current modernization projects that can further Loan Level objectives.

• Begin preliminary roadmap that includes high level scope and cost estimates.

Executive Summary

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Appendix

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Supporting Documentation • Loan Level to Modernization Initiatives• Current State Reporting and Reconciliation• Future State Reporting and Reconciliation• Future State Reconciliation example• Future State Roles and Responsibilities• Company XYZ Current State System Diagram• Company XYZ Future State System Diagram• Data Hierarchy View (Current and Future State)• Policy Impacts • Process & Data Impacts • System Impacts• People Impacts

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Loan Level to Modernization Initiatives

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A meeting is scheduled on March 27 to conduct walkthrough of Company XYZ’s vision and associated initiatives

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Future State Reconciliation example

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Microsoft Office Excel Worksheet

The attached Excel document simulates a Future State Security scenario. The scenario shows pools with multiple Servicers/Subservicers. The tabs are set up as follows.• Tab 1 – Show pool at a time where there have been loan-level MSRs sales with multiple

Subservicers. Each pool has an explanation of what happened within that pool.• Tab 2 – Illustrates what would be reported to the investor reporting system by each Servicer

and Subservicer.• Tab 3 – Shows what loans each Servicer is responsible for with regards to advancing/covering

shortfalls.• Tab 4 – Illustrates a sample report the Subservicers would sent to the Servicers so the

Servicer is aware of all subserviced loans they have to advance.

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Future-State Roles and Responsibilities

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Responsibility Option 1 Responsible Party Option 2 Responsible Party

Collect P&I and escrow amounts Servicer / Subservicer Servicer / SubservicerDeposit funds into P&I and escrow custodial accounts Servicer / Subservicer Servicer / SubservicerWithdraw funds from P&I custodial account Servicer / Subservicer Servicer / SubservicerWithdraw funds from escrow custodial accounts Servicer / Subservicer Servicer / SubservicerSupply funds for advances to security holders Servicer ServicerAbsorb losses on foreclosures not covered other settlements Servicer Servicer

Prepare and submit accounting reports to Company XYZ and UPB data to the UPB contractor Servicer / Subservicer Servicer / Subservicer

Sign all accounting reports and certifications to Company XYZ Servicer / Subservicer Servicer / SubservicerAccess documents at document custodian Servicer / Subservicer Servicer / SubservicerPrepare and send checks to security holders that are paid by check Servicer / Subservicer Servicer / SubservicerSign checks to security holders that are paid by check N/A N/AAuthorize withdrawal of funds from central P&I custodial account for payment of all book-entry securities and Company XYZ Guaranty Fee

Authorized Servicer Company XYZ

Prepare and send Remittance Advice to security holders Servicer / Subservicer Servicer / SubservicerSign Remittance Advice to security holders Servicer / Subservicer Servicer / SubservicerReport Monthly Guaranty Fees via xyz system Servicer / Subservicer Servicer / SubservicerFund the Guaranty Fee in the Central P&I Custodial Account for ACH Debit Servicer / Subservicer Servicer / SubservicerMaintain Register of Security Holders Authorized Servicer Company XYZ

Authorize withdrawal of funds from central P&I custodial account for payment to security holders and payment of Company XYZ Guaranty Fee

Authorized Servicer Company XYZ

Perform Accounting and Monitoring Functions of Participations related to HECM loans Servicer / Subservicer Servicer / SubservicerResponsibility not applicable to these options

Revised Responsibilities: Both Company XYZ programs

Revised Responsibilities: Additional Responsibilities for Ginnie Mae II MBS Programs

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Current and Future State – Data Diagram

Pool Tables (includes Issuer

info)

Pool – Loan Cross Reference

Table

Loan Tables

Pool Tables Pool-Servicer Tables

Pool – Loan Cross Reference Table

Loan Tables

Connected by Pool Unique ID

Connected by Loan Unique ID

Connected by Loan Unique ID

Connected by Pool Unique ID

Connected by Pool and Servicer ID

Issuer – Pool - Servicer Cross

Reference Table

Pool-Issuer Tables

Connected by Pool and Issuer ID

Data ManagementThe current state data structure is based on the assumption of one pool which contains many loans and each pool has only one Issuer associated. In the future state the assumption is that each pool will contain one or many loans and each pool can contain one or many Servicers. The diagram below illustrates these concepts.


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Policy Impacts

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Policy

A 'Servicer' entity does not exist in the MBS guide.

Roles and responsibilities

Investor Tax Reporting

Payment to security holders

Pool (loan) transfers

Standard policy for Issuer and Servicer application and eligibility

Report all pool level information including RPB and also submits loan level information

Comments

Transferring MSRs is industry wide performed between Servicers, not Issuers.

Current Post-Issuance roles and responsibilities of an Issuer resembles those of a Servicer.

Policy specifies Issuer

Transfer agent will continue to make payments to Security Holders.

MSR transfers do not exist within pools – a policy needs to be created.

Create policy for Servicer application and eligibility. Compliance changes

This will be one of the biggest changes to policy as the policy will need to rewritten to address aggregation methodology.

DK Don’t KnowSignificant changes needed


No changes needed

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Process & Data Impacts

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Process

Servicer Eligibility

Servicing reports and reconciliation

Issuer/Servicer Compliance reviews (6 months)

Servicer Scorecard

Data

Transfer of MSRs

Document Custodian

Investor Tax Reporting

Data Architecture Changes Required

Additional Loan Level Data Needed

Data Structure Changes Required

Data Calculations/Rules Needed

Doesn’t exist

Comments

New process for Servicer eligibility

New functionality and new process needed

Currently performing at loan-levelLeverage existing Company XYZ II process

Can get by with little or no new data

Depends if calculations are stored in databases or calculated from data

ETL and data flows

DK Don’t Know

Change all databases

Splitting MSRs will create many new processes

New operational process for Servicers

Develop a scorecard for for Servicers

Significant changes needed


No changes needed

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System Impacts

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DK Don’t Know


System name

Assemble and Submit Pool

Report UPB

System name

Perform Transfer of MSRs

Apply for Approval as Company XYZ Issuer

Apply for Commitment Authority

Assemble and Submit Pool and Loan Issuance Package

System name

Primary Data Repository for system name goes here

System name

Perform Pool, Loan Package and Loan Accounting Reporting

Aggregate UPB Balances and perform reconciliation

Collect Tax Report Information

Perform Agency Matching

Provide access to Disclosure of MBS Pools

System name goes here

System name goes here

Comments

Reconciliation enhancements neededxyz to continue performing this function

Additional reporting fields needed

Significant changes needed


No changes needed

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People Impacts

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Option #1 Future State

People

Resource required to perform data aggregation and reconciliation functions

Additional training (external)

Additional training (internal)

Review of existing vendor contracts

DK

Comments

Traning for Issuers/Servicers/Custodians

Training for Company XYZ and vendors

Policy change of splitting out MSRs and providing more authority to Servicers will impact vendor SLA’s.

Deeper analysis required depending on option selected

DK Don’t KnowSignificant changes needed


No changes needed

company xyz – loan-level portfolio

Documents