Post Closing Transaction Training for Servicers
Asset Management-Special Servicing Group
March 9, 2011
(Updated 2/8/2012)
2
Agenda
I.
II.
III.
Multifamily AM Teams
Special Servicing Group’s Role
Servicer’s Role for Transaction Requests
1.
2.
3.
4.
5.
V.
Overview of Servicer’s Role for Transaction Requests
Keys to Transaction Management
Evaluating Borrower Requests
Important Reminders
Reminders for Specific Transaction Types
Key Takeaways
3
Special Servicing Group Overview
 Special Servicing includes three teams:
» Borrower Transactions (BT)
» Structured Transactions and REO (STR)
» Asset Resolution (AR)
4
BT and STR Roles
 BT manages borrower requests for conventional loans
 STR manages borrower requests for non-standard products (Bonds,
Credit Facilities, Structured Transactions)
 STR also manages all Multifamily REO
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BT’s and STR’s Roles, continued

Respond to Servicers in a timely manner
» 2 Business Day notice re: package completeness
» 15 days for approval/decline of servicing requests
– Escrow requests, property management changes, etc.
» 30 days for approval/decline of transaction requests
– Assumptions, partial releases, etc.

Follow through on credit decision
» Communicate decision to Servicer
» Coordinate with Legal
» Oversee documentation / closing
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Overview of Servicer’s Role for Transaction Requests
 Strive for excellent customer service and customer satisfaction
» Serve as point of contact for borrowers (post-purchase)
 Manage credit risk on Freddie Mac’s behalf
» Check the relevant sections of Seller Servicer Guide and
loan documents
» Provide detailed analysis of borrower requests and any
concerns to Freddie Mac in a timely manner
» Approve certain transactions per Seller Servicer Guide
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Keys to Transaction Management
 Manage borrower’s expectations re:
» Timeline for Servicer and Freddie Mac review
» Concerns about reasonableness of request
» Fees associated with request
 Make sure submission package is complete
» All necessary components are provided, including analysis of
risks/mitigants and relevant back-up material
 Make a well-supported recommendation or decision (where authority
allows)
» Analyze borrower request and identify impacts on risk
» Consult with Servicer’s counsel as appropriate
» Include clear justification for recommendation
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Important Reminders
 Forms
» Transaction and Servicing Request Forms available on Freddie
Mac.com.
» The request form and any other form required must be completed
in their entireties.
– Do not leave subsections blank.
– If Not Applicable please mark N/A
– Summarize the terms of any relevant conditions/documents
(avoid “see attached”)
• Repair Escrow Agreements
• Rental Achievement Agreements
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Important Reminders, continued
 Required Information
For requirements, please review the relevant
» Guide sections
» Checklist with the Transaction and Servicing Request Form
» Loan documents
 Borrower Certifications
Proper certifications must accompany those documents that require
certifications including:
» Financial statements
» Rent rolls
» Operating statements
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Important Reminders, continued
 Submission Process
» Submit all packages electronically via DMS.
– Hard copy of submissions will be returned and the package will not be
deemed received until submitted via DMS
» Please ensure documents are uploaded to the appropriate
Grouping filed under the correct document heading.
» Use File Submission link for email notification to appropriate
team after all documents uploaded
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Important Reminders, continued
 Preliminary Legal Issues Memorandum (“PLIM”)
» When required by the Guide, any PLIM due must:
– Be submitted with the request package
– Fully describe the transaction
– Discuss how transaction complies with or does not comply with
legal requirements.
– Identify any risks associated with the request
– Discuss any documentation issues
» If the PLIM does not address the specific issues, the request
will be deemed incomplete until a revised PLIM is provided
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Important Reminders, continued
 Recommendation
» Servicer’s brief must function as a stand-alone analysis.
» Any backup material must be uploaded in DMS and must be
analyzed in the brief.
» Fully address all relevant issues and risks and make a clear,
well-supported recommendation.
» Any conditions for approval should be listed in a clear and
concise manner.
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Important Reminders, continued

Counter-Signed Approval Letter
Make sure to sign and return the approval letter within specified timeframe

Monitoring Approval Conditions
Ensure all conditions in Freddie Mac’s approval letter are being met in a timely
manner. Examples include:
– Amendment to loan documents, as applicable
– Pre-Closing Items for Assumptions
– Executed plats
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Reminders for Specific Transactions

Assumptions and Transfers of Ownership

Rental Achievements

Repair Modifications

Property Management Changes

Late Charge Waivers
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Assumptions and Transfers of Ownership
Fees
 Review the appropriate section of the Guide and loan documents to
determine what fees apply to a request.
 Fees vary by transfer type; for example:
– Transfer of Ownership
– Pre-authorized Transfer of Ownership
 The Servicer must remit to Freddie Mac its portion of the following
fees:
» Review Fee
– Due at the time of package submission
» Counsel Fee
» Transfer Fee
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Assumptions and Transfers of Ownership, continued
 Organizational charts must
» Duplicate the same level of detail contained in the Freddie Mac
sample organizational chart.
» Use precise legal names of New Borrower, New Borrower
Principal and New Guarantor entities.
» Clearly show ownership percentage(s).
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Assumptions and Transfers of Ownership, continued

Use the Transaction Overview section for a high-level description of the
transfer and key players.

Provide the details in the sub-sections.

Comment upon any risks revealed in:
» Certificate of Financial Condition (Form 1115)
– i.e. explain past credit issues
» Real Estate Schedule (Form 1116)
– i.e. weak portfolio DCR or concerns about portfolio LTV).
» Other due diligence on the entities in the buyer’s organizational chart.
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Assumptions and Transfers of Ownership, continued
 Evaluate the proposed transferee’s ability to meet Freddie
Mac’s current credit criteria in assuming the loan.
 Review the loan documents with Servicer’s counsel to
understand transfer conditions and any appropriate document
modifications that may be needed.
 Address status of any existing escrow or other agreements and
address treatment of these in the recommendation.
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Assumptions and Transfers of Ownership, continued
 Address the issues and risks and make a well-supported
recommendation, including proposed mitigants to risks.
 Examples include:
» Repair Escrows for immediate repairs
» Partial paydown for high LTV
» Rental Achievements
» Minimum liquidity and net worth requirement
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Assumptions and Transfers of Ownership, continued
 For changes to a request after receipt by Freddie Mac:
» Provide a written analysis which includes
– An explanation and description of the proposed change
– An evaluation of all relevant issues and risks
– A clear, well-supported recommendation
 Legal documents requiring Freddie Mac’s approval must be submitted
to Freddie Mac’s legal counsel within the timeframe specified in the
Approval Letter.
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Rental Achievements

Evaluate if the property achieves the specified performance hurdles

Performance thresholds can include any of the following:

»
Performance Standard
»
NOI
»
Vacancy
»
Underwritten expenses
»
DCR
»
Net Rental Income or Net Collected Rents test
If the property does not achieve thresholds, Servicer must evaluate
likelihood of property meeting performance expectations in the
foreseeable future.
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Rental Achievements, continued

Based on Servicer’s conclusion, formulate a recommendation
that Freddie Mac either:
»
Use the cash escrow, letter of credit, or guaranty to pay
down (“right size”) the loan (borrower will pay Yield
Maintenance), or
»
Extend the “Earn Out Expiration Date” (typically not > 1 yr)
–
Should only be recommended if property performance is
expected to achieve thresholds based on analysis
–
Borrower will pay an extension fee that could be sizeable,
based on the performance gap
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Rental Achievements, continued

Fees
» Extension Fee
– Due for any extension of the Earn Out Expiration Date.
– 100% of this fee is due to Freddie Mac
– How is the extension fee calculated?
• The face amount of the collateral (LOC or cash)
• Gap between the actual DCR and the required DCR
» Transaction Review Fee
– Minimum of $10,000
– Split 50/50 between the Servicer and Freddie Mac
» Counsel Fee
– To be determined by Freddie Mac
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Repair Escrow Agreement Modifications (including
Extensions)
 Analysis should include:
» Explanation of why the Borrower has not completed the repairs
» Evaluation of the current property condition
» Original schedule of work and status of repairs
» Market and/or submarket conditions, if relevant
» Any risk associated with modifying/extending agreement
 If renovation of the units’ interiors was part of the repair agreement,
please include how many units have been completed to date.
 Guide Section 39.2(d): extension fee (split 50/50 if Freddie Mac
approval is required, Servicer gets full fee if approval is delegated).
 Recommendation should be specific re: scope of work and realistic in
terms of new completion due dates.
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Property Management Changes
 Reason the borrower wants to change property managers
 New property manager experienced in the same:
» Market
» Property Type (i.e.: student housing)
» Property Size
» Functional age of the property and its components
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Property Management Changes, continued
 History of the management changes
» Second or third request?
» If so, the property’s performance may be due to other factors
 If the property is borrower-managed, be alert for:
» Nonpayment or increase of the management fee
» Restricted spending on the property
» Cannibalization of units
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Property Management Changes, continued
 If underwriting required a specific property management
company at loan origination, please evaluate the new property
management company relative to the specified concerns that
were being addressed at underwriting.
» For example, for a Non-profit borrower, with no property
management experience, underwriting may have required a
seasoned property management company.
» Approving self management by a non-profit would not be
appropriate under these circumstances.
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Late Charge Waivers
 Provide Freddie Mac with detailed reason(s) for the late
payment.
 Eliminate generic comments such as “accounting/administrative
issues.”
 Check Guide Section 43.7(d).
» For fixed rate mortgages, Servicer can waive some late
charges.
» For ARM’s, Servicer cannot waive any late charges.
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Key Takeaways
 Servicers are expected to:
» Manage borrower’s expectations
» Submit request in timely manner and ensure package is complete
at submission
» Make a clear and well-supported recommendation or decision
(where authority allows)
» Identify and describe loan-related risk and any mitigants
» Communicate all concerns to Freddie Mac in a timely manner
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Key Takeaways, continued
 The impacts of submitting incomplete package and failure to
provide a complete and thorough analysis with a well-supported
recommendation include
» Delay in Freddie Mac’s review and approval process
» Customer dissatisfaction
» Adverse effect on Servicer’s Performance Review
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