Understanding the Freddie Mac Servicing Standard veryone works to a different standard — or so it is said. This is surely the case when it comes to the level of customer service that borrowers receive on performing loan post funding requests in securitizations. And it’s an industry-wide issue that Freddie Mac Multifamily has been working to address. Our belief is that for borrowers to continue to choose securitization, they need a single Servicing Standard, or certainly a set of very few, with proactive management of post funding requests throughout the life of the loan. Good credit decisions do not have to necessitate long turnaround times. All post funding credit decisions on loans should be timely, adhere to current underwriting and servicing standards and be transparent to all in the process. But it became evident to Freddie Mac Multifamily that significant process improvements were necessary in order to meet the timeliness standard that our borrowers have come to expect. This article details the process improvements and timing metrics that Freddie Mac Multifamily has implemented, both on its retained portfolio and within the securitization program in 2014. And we think our approach might solve for a problem that otherwise will limit the use of securitization in the multifamily mortgage market and, as a result, the amount of liquidity available to support the nationwide growth in rental housing. As background, the Freddie Mac K-Deal securitization program commenced in 2009 during the financial crisis when borrowers were finding it difficult to finance multifamily properties due to limited liquidity in the marketplace. As volume steadily grew in recent years, Freddie Mac borrowers quickly began to appeal to Freddie Mac regarding inconsistent post-securitization service levels and credit standards across servicing platforms. It became apparent that it was not only necessary to have a shared set of servicing standards for loans purchased by Freddie Mac, but also to know as much about the status of post-securitization matters as Freddie Mac knows about its balance sheet portfolio. While it is relatively easy to track retained portfolio post funding activity, it was virtually impossible to know the status of every post funding matter on Freddie Mac securitized loans without making swift, fundamental changes to the process. Monitoring the securitized portfolio has become as critical to Freddie Mac as excellent service is integral to our brand. Freddie Mac’s securitized volume now exceeds its retained portfolio. As of August 2014 the securitized portfolio, including those loans held for sale and designated for securitization, amounted to approximately $76.0 billion compared to the held for investment portfolio of approximately $70.0 billion. Through August 2014, 65 CRE Finance World Winter 2015 40 K-Deal transactions have closed amounting to an original principal balance of approximately $81.6 billion in combined issuance (4,490 loans). Performance is strong. As of the August 2014 reporting date, 99.98% of the K-Deal loans are current and there is only one 90+ day delinquent loan, representing 1 basis point of outstanding principal. There have been minimal losses of $5.4 million with no credit losses on K-Deal guarantees since inception of the program. Freddie Mac borrowers expect that “service after the sale” be excellent and that there should be no discernable difference in service between a portfolio execution and securitization execution. Because about 90% of Freddie Mac’s new purchase volume is securitized, with essentially only specialized structure loans remaining on the balance sheet, vast process improvements were implemented to ensure that our borrowers are provided the same level of service that they have come to expect and deserve. To facilitate this process transformation, Freddie Mac has developed and continued to refine its Servicing Standard, which we detail in the Seller/Servicer Guide and incorporate into each K-Deal Pooling & Serving Agreement (“PSA”). The Servicing Standard ensures transparency and on-going communication among all post-securitization transaction parties. By fostering partnership among all of the servicing parties, the Freddie Mac brand is protected and the borrower experience more closely matches that of the balance sheet experience. While Freddie Mac is not a credit decision maker for its securitized loans, we are closely monitoring all consent request activity to verify that decisions made are in accordance with the Freddie Mac Servicing Standard. Post-securitization parties use the Freddie Mac loan documents and Seller/Servicer Guide as their reference point for reviewing and approving transactions. With servicing parties collaborating and communicating more effectively with each other and with Freddie Mac, we are successfully facilitating customer satisfaction and working together to ensure the ongoing strength of the Freddie Mac brand. For assumptions and ownership transfers, the turnaround time goal Freddie Mac has established is 30 days, measured from the Primary Servicer’s receipt of a complete package from the Borrower to the issuance of a decision letter from the Primary Servicer. Because multiple parties must approve any given matter, the use of best practices, coordination and standardization are key. Given the aggressive goal of a 30-day turnaround for assumptions, it was necessary to make wholesale changes to the process and to obtain input and buy-in from all of the servicing parties. E Pamela Dent, CFA, CPA Senior Director of Multifamily Special Servicing Freddie Mac
CREFW-Winter Edition
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