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Key Asset Management Process and Due Date Changes Planned for 2012

December 16, 2011

We want to make you aware of a number of key process and reporting date changes we will be making in 2012. We're highlighting these changes today to provide you with additional lead-time to prepare for them. You'll be hearing more detail about these changes in January and early 2012.

Reporting Requirement Changes

Year-End Operating Statements for Non Watchlist Loans

  • In 2012, we will change the due date for submitting year-end operating statements for all non-Watchlist loans to June 1, 2012.
  • We are emphasizing the change to the June 1 due date now because it is earlier than in prior years, and we will not be able to offer exceptions for later submissions.
  • We will no longer routinely require the specific coding of actual line items on a copy of the Borrower's operating statements.

Quarterly Collection and Analysis of Operating Statements and Rent Rolls for Non-Watchlist Loans

  • For non-Watchlist loans, we will begin requiring collection and analysis of Quarter End operating statements and current rent rolls.
  • This requirement will apply to loans originated during or after 2003.
  • Your analysis will consist of the following 5 data fields:
    • Income
    • Expense
    • Net Operating Income
    • Debt Coverage Ratio
    • Occupancy
  • You will be able to derive the data for these 5 fields directly from the Borrower's Quarter End statements, without adjustment.
  • In instances where there is a large variance from prior analysis, Freddie Mac reserves the right to request a full analysis. We will notify you of any loans that require this additional analysis.
  • We anticipate that you will deliver the analysis to us through a tool that we are currently developing. We will communicate to you when we will begin using the tool, however we anticipate beginning collection of this information through the tool for the second and third quarters of 2012.

Quarterly Collection of Operating Statements, Rent Rolls and Analysis for Watchlist Loans

  • We will no longer require collection and analysis for the first quarter
  • The quarterly due dates will remain the same as in 2011 (3/31 for YE; 8/31 for 2Q; 11/30 for 3Q) except we will no longer require collection and analysis for the first quarter.
  • In 2012, we will no longer require you to complete the QRA template with the quarterly operating statement analysis. This change applies to the 2011 year-end statements as well.
  • We'll no longer routinely require the specific coding of actual line items on a copy of the Borrower's operating statements.
  • In instances where there is a large variance from prior analysis, Freddie Mac reserves the right to request a full analysis. We will notify you of any loans that require this additional analysis.

Annual Loan Inspections (ALI)

  • In 2012, we will discontinue use of the Annual Loan Inspection (ALI) form and adopt the MBA Inspection Form as our standard.
  • Inspection due dates will change from monthly to quarterly, with due dates set at the quarter end.
  • For now, you will continue to download your list of inspections due per quarter from MultiSuite; the inspections due for the first quarter of 2012 are available for you at this time.
  • We will provide you with training and further information regarding the new delivery tool for inspections prior to your first submission. If you are planning to perform your inspections throughout the first quarter of 2012, we ask that you wait to submit the inspection results until the tool is available and you have completed the related training.
  • Prior to the rollout of this change, we'll provide you with additional guidance on the number of units that must be inspected, as well as the number of photographs required. Until then, you should use the current requirements detailed in the Guide.
  • You will no longer be responsible for inspecting properties on Freddie Mac's High and Critical Watchlist (or its subsequent equivalent), as Freddie Mac will inspect these properties after providing notice to you.
  • We will discontinue the biennial waivers that have been previously provided for some inspections. You must now inspect all Non-Watchlist properties annually.

Insurance Changes

  • Early in the first quarter of 2012, we'll roll out the Multifamily Insurance Compliance Tool (ICT), which will offer you an electronic tool to use for the submission of insurance waiver requests and the annual certification of replacement costs.

Expectations of Seller Servicers:

Effective immediately and as discussed at the Asset Management meeting during our September Conference, please remember that Freddie Mac requires you to provide thorough analysis of each borrower request that you submit.

  • Please ensure that you provide a thorough explanation of the actual request on the appropriate form with all portions of the form completed.
  • You must include a recommendation with well-supported justification and documentation explaining why Freddie Mac's risk position is not unnecessarily compromised.
  • Each justification should delineate increased risks created by the request and any mitigants for the increased risk. If there are legal issues presented by the request, you must include an analysis of those issues prepared by your counsel.
  • Because of the importance of this information, incomplete forms or insufficient support for requests will be returned to the Seller Servicer for completion.

Timely submission of all operating statements and rent rolls is key on all loans, including CME loans both pre and post securitization.

Freddie Mac has implemented more robust monitoring and reporting tools for these items and will be reporting to you quarterly on your company's performance.

If you have any questions about these upcoming changes, please contact Christine Halberstadt or Michael Lipson.

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