freddie mac issuer session presentation...in response to the significant increase in reo inventory...

Freddie Mac Issuer Session

STACR and Other Credit Risk Transfer Updates: Servicing and REO Disposition Practices

September 17, 2015

STACR and Other Credit Risk Transfer

Updates: Servicing and REO

Disposition Practices

Speakers:

Yvette Gilmore, Vice President, Servicer Performance Management

Jennifer Meagher, Ops Change Management Director

Eric Will, REO Sales & Closing Senior Director

Moderator: Mike Reynolds, Vice President, Credit Risk Transfer

© Freddie Mac 2015 ABS East Freddie Mac Issuer Presentation 3 3

Achievements

Launched the STACR Market

Leading the way in Disclosures

Industry Awards Including:

» 2015 RMBS Deal of the Year Award by Global Capital

» 2014 Global Structure Deal of the Year Award by Euromoney

» 2014 Deal of the Year for Americas Award by The Banker

Freddie Mac continues to evolve this asset class, introducing new

products and features to make the program even more effective

© Freddie Mac 2015 ABS East Freddie Mac Issuer Presentation 4 4

Freddie Mac’s Role in US Housing Finance

Yvette Gilmore, Vice President

Servicing Performance Management

Single-Family Servicing &

Loss Mitigation

© Freddie Mac 2015 ABS East Freddie Mac Issuer Presentation

Servicing

Policy

Servicing Leadership Team – Who We Are

Fu

nc

tio

na

l A

rea

s

Servicing

Relationship

Management

Portfolio

Data

Analytics

Responsible for

managing the servicing

performance of the

company’s 1,400

national, regional and

community servicers.

Establishes

relationships with

servicers that enable

improvement of

operational performance

and execution to reduce

credit losses, preserve

homeownership and

facilitate positive

servicing industry

change.

Responsible

for

Servicing data

and reporting,

and the

analytics

support for

Loss

Mitigation

solutions, as

well as the

Servicer

Success

Scorecard,

integral to

Servicer

Relationship

Management.

Responsible for

developing

mortgage

servicing

policies, and

changes to our

Single-Family

Seller/ Servicer

Guide. Works

with FHFA,

industry

participants,

and internal

partners to

develop

solutions to

Servicing

issues.

Servicing Performance Management

Servicing

QA

Responsible for

loan file reviews

to evaluate

Servicers'

compliance with

FRE

requirements for

managing

delinquent loans

and workout

alternatives.

Also identifies

remedies for

non-compliance

and collects on

all requests.

Customer

Performance

Management

Responsible for

providing and

maintaining a

consistent

framework for

business

protocols,

approval

authority, and

account mgmt,

including

management of

negotiated

terms of

business, risk

evaluation, and

customer

support..

Structured

Transactions

Responsible for

delivering

financing

support related

to negotiated

servicing

transfers and

for managing

the

performance of

the T-Deal

servicers,

including

monthly

recoveries on

loss-producing

loans

Single Family Servicing

6


Key Monitoring Mechanisms Scheduled Monitoring: baseline activities as prescribed by policies/procedures

Ongoing Monitoring: triggered based on surveillance, for example:

financial analysis results, market risk indicators, and changes in the business, industry or regulation

Freddie Mac executes a coordinated and integrated approach to monitoring

and evaluating servicer risks

Servicer Monitoring

Compliance

& Eligibility

Financial

Analysis

Fraud

Investigations

Credit

Monitoring

Servicer

Performance

Monitoring

On-site

Operational

Reviews

(CORE)

Scheduled Monitoring Both Scheduled and Ongoing Monitoring

Results of any of the above functions can lead to actions taken against the

counterparties.

Ongoing Monitoring

Performance is discussed at various forums with cross-divisional representation (e.g., integrated account plan

meetings, Credit Integration Team (CIT) meetings, Single Family Risk Committee)

1. Failure to repurchase

2. Fraud findings

3. Inadequate capital / net worth

4. Non-compliance with Guide

5. Failure to file annual certification

or financials timely

Common reasons for actions

1. Collateral agreements/parental guarantees

2. Suspend negotiated servicing transfers

3. Partial transfers of servicing

4. Terminate eligibility through adverse actions

Examples of actions taken

Onsite

Operational

Review

QA

Remedies

7


Freddie Mac’s Servicing Success Program focuses on all

aspects of mortgage servicing to improve Servicer

performance. The program includes three components:

The Servicer Performance Profiles website is a tool to help

measure results of all Servicers for the Program, and is

available to all Servicers.

Tools to monitor performance include:

• Servicer Success Scorecard Tools

− Servicer-specific targets and performance metrics

− Large & Specialty Servicer performance grid

− Bottom 25% NPL performance grid

• Servicer Account Plans

− Executive Summary Reports

− Negotiated Terms of Business

• Integrated Account Plans

− Holistic view of relationship

Portfolio Data Analytics sets annual targets for

Servicers and ranks them each month based on

performance against the Scorecard criteria.

Monitoring Servicer Performance

8

© Freddie Mac 2015 ABS East Freddie Mac Issuer Presentation 9

Days Delinquent30 DPD 60 DPD 90 DPD 120 DPD 360 Days 720 DaysCurrent FCL Sale

Payment

Relief Options

Forbearance

Repayment Plan

Loan

Modification

Options

Disaster Relief Modification

Standard ModificationStandard

Mod with Imminent Default

Liquidation

Options

Standard Short Sale

Deed-in-Lieu

1

2

3

4

7

8

Streamlined Modification6

HAMP ModificationHAMP

Mod with Imminent Default5

Disaster Relief Modification – A capitalization and extension modification that is offered only to those Borrowers that were impacted by an Eligible Disaster.

HAMP Modification - Modification that reduces delinquent and at-risk borrowers' monthly mortgage payments by achieving a post-modified 31% PITIAS Payment-to-Income ratio (“Target Payment”)

Standard Deed-in-Lieu - Borrowers that wish to gracefully exit the home by voluntarily conveying clear and marketable title to the property to Freddie Mac in exchange for a discharge of debt.

Standard Short Sale - Borrowers that wish to gracefully exit the home by selling the property for less than the total amount necessary to satisfy the mortgage. Cash or note contribution may be required in some instances.

Repayment Plan - Borrowers that have had a short term hardship, and now have the ability to begin making payments again, but either do not want or do not require a loan modification.

Forbearance - Relief option that provides a temporary reduction or suspension of payments to give Borrowers a period of time to improve their financial situation 1

2

3

4

5

6

7

8

Standard Modification - Modification for Borrowers who are ineligible for HAMP. Standard Mod achieves an affordable payment through the capitalization of arrearages, interest rate adjustment, term extension, and partial principal forbearance, as necessary

Streamlined Modification - A proactive modification solution with the same terms as the Standard Modification, the Streamlined Modification is offered to Borrowers who are at least 90 days delinquent, but not more than 720 days delinquent. A complete Borrower Response Package is not required.

Loss Mitigation Solutions


Borrower Contact Focus on Quality Right Party Contact and standards

Delinquency Management Emphasis on earlier, more frequent contact and response

Loan Modifications, Workouts, and

Foreclosure Alternatives

Promote long-term, sustainable solutions based on best

practices

Foreclosure Timelines Focus on consistent application of timeline measurements

from referral through date of sale

Servicer Incentives and

Compensatory Fees

Compensate for meeting quality benchmarks

Assess fees/remedies for failing to meet quality

benchmarks

• Servicers have done a better job of engaging with homeowners,

resolving their cases more quickly and consistently

• There is greater transparency and a quicker decision-making

process for distressed homeowners

Reduced

Credit

Losses Modifications and Foreclosure Alternative programs have been

greatly expanded, resulting in more positive Borrower outcomes

Areas of Alignment

10

Eric Will, REO Sales & Closing Senior Director

Jennifer Meagher, Operations Change Management Senior Director

HomeSteps REO Overview


Mission

To effectively manage Freddie Mac’s credit losses in a way that provides affordable housing

opportunities and benefits communities.

HomeSteps Mission

Improve Collateral Values Refinement of our valuation methodology;

Repair strategy focus to improve sales prices

and return on investment; Frequent market area

reviews and analytics to adjust sales and pricing

strategies.

Manage Expenses Monitoring of asset expenditures at the account

group level; Business model review for savings

and efficiencies; Negotiating volume discounts

with vendor for service fees.

Maximize Remedies Effective management and collection of hazard

insurance, primary MI, pool MI, repurchase

claims and any other remedies available.

Preserve, Maintain, & Repair Homes Adherence to the highest quality of preservation,

maintenance and repair standards; Homes look

as good or better than others in the market.

Price Homes at Fair Market Value Homes priced and sold in-line with other retail

sales in the community, ensuring we do not

establish negative comparable sales that lead to

home value declines.

Target Owner Occupant Buyers Sales and marketing strategies employed to

attract owner occupant buyers, resulting in

stronger recoveries than investor sales.

12


REO Business Process

Outsourcer

Oversight

Vendor

Services

Operational

Accounting

Valuation

Management

Servicer

Relations &

Recoveries

Regional

Area

Managers

REO Core Process

Closing

& Title

Listing

& Sales

Pre List

Available

Pre List

Not Available

Redemption

Eviction

Complex Title

Litigation

Valuation

Strategy

Repair

Rental

Listing

Strategy Updates

Offer Negotiation

Contract Execution

Sale Pending

Title Resolution

Settlement

Bulk Sales

Quality

Assurance

Special Sales

Programs -

Auction, Bulk

Marketing &

Customer

Service

Reporting &

Process

Automation

Repurchase Primary MI

REO Support &

Financial Functions

13


Portfolio Overview

14


Portfolio Overview

15

Inventory Statistics


Portfolio Overview

16

Top 10 States

Inventory Volume & % of Total Inventory

3.0%3.9%4.0%4.7%5.5%6.2%6.2%7.0%

8.4%

11.9%

0

1K

2K

3K

4K

5K

FL IL OH MD MI NJ NY MN PA OR

Current Inventory YTD Authorizations YTD Dispositions

As of August 31, 2015


Portfolio Overview

17

As of August 31, 2015

1

10 7 5

4

8

6 3 2 9

Top 10 States

1. FL

2. IL

3. OH

4. MD

5. MI

6. NJ

7. NY

8. MN

9. PA

10. OR

The Top 10 States

Comprise 61% Of

Our Total Portfolio


Best Practices

Vendor

Management

Good Neighbor

Policy

Community

Stabilization

Marketing Programs

& Incentives

Valuation

Practices

Establishing the most accurate market value is critical

to maximizing financial recovery, reducing timelines,

and protecting home values.

To maximize financial recovery and reduce liability risks,

HomeSteps utilizes an extensive vendor network of licensed, experienced,

and well-trained service providers.

To reduce the negative impact of foreclosures and enhance marketability,

HomeSteps adheres to stringent

preservation and maintenance standards.

HomeSteps actively partners with non-profits,

local governments and HUD to use our homes in support of

community stabilization efforts.

Marketing promotions and programs

encourage owner-occupant sales, mitigating the perception

that REOs sell below market value to investors.

18


Best Practices

Vendor

Management

Good Neighbor

Policy

Community

Stabilization

Marketing Programs

& Incentives

Recognized “Best In Class” REO

Management Practices & Systems

Strong Reputation, Liability &

Operational Risk Management

Support for community

stabilization and housing recovery

Maximized Financial Recovery for

Freddie Mac, Taxpayers, & Credit

Investors

Valuation

Practices

19


Improved Capabilities

Valuation precision.

Preservation & Maintenance standards / monitoring

Repair decisioning and maximization of ROI

Stronger, more flexible, diverse vendor networks and management

Capabilities to quickly adapt to changes in laws, ordinances, and

processes governing management and oversight of REO homes

Improved data analytics to help maximize financial recovery

In response to the significant increase in REO inventory resulting from the housing

crisis, HomeSteps heavily invested in enhancements to our business model,

processes, vendor networks, and production/end-user systems.

20

Improved Capabilities


Results & Accomplishments

21

Results & Accomplishments

Acquired and Sold 500,000 REO

Sold nearly two-thirds of homes to owner-occupant buyers

Achieved better than 95% sales price to market value

Reduced standing inventory over 73% since it’s peak of 75,000

Paid more than 10M invoices; $4.3B in property expenses

Delivered 3.6M Broker’s Price Opinions (BPO’s)

In response to the significant increase in REO inventory resulting from the housing

crisis, HomeSteps heavily invested in enhancements to our business model,

processes, vendor networks, and production/end-user systems.


Focus Areas

Enhanced Collateral Recoveries

Localization of valuation and pricing

Refinement of repair program

Remedy optimization

Aggressive Portfolio Management

“Not Listed” inventory reduction

“Listed” and “Aged” inventory

acceleration

Broader use of alternative marketing

channels (i.e. auction, bulk)

Focus on Community Stabilization

FHFA’s portfolio contraction and

community stabilization goals

Promote Freddie Mac’s Home

Possible Advantage program for

REO

22

Optimize Vendor Relationships

Increasing P&M Vendor Coverage

Effectively managing size of vendor

network to optimize vendor

performance and fees


Q & A

freddie mac issuer session presentation...in response to the significant increase in reo inventory...

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