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Replacing Watchlist Risk-Rating with New Methodology

February 10, 2012

In 2012, Multifamily Asset Management will implement a series of business process changes and new systems that will improve our service delivery and strengthen the tools that support our approach to sound asset management.

In January, Freddie Mac launched a new internal system for Asset Management staff to use to identify risk of all loans in the retained portfolio. As part of the launch of this internal system, we’re introducing a new risk-rating methodology that replaces our watchlist criteria. As a Servicer, you will not have access to this system, but as a result of its launch, you will see changes in the watchlist levels of your Freddie Mac portfolio.

Changing Risk Levels Beginning February 15

Beginning February 15, you’ll start seeing changes in the risk levels of your loans as a direct result of our new risk-rating criteria. You should expect to see a modest increase in the number of loans rated at higher watchlist levels and a shifting of loans between levels due to our new risk standards and scoring methodology. Over the course of the year, we expect this increase to normalize and return to the prior level of loans categorized on the Moderate, High, and Critical Watchlists. Rating changes will now be regularly made available once a quarter around the middle of the second month of each quarter.

Eliminating Pre-Watchlist Status and Watchlist Recommendation

You will also notice that the Pre-Watchlist status is being eliminated. Also, you are no longer required to provide a watchlist recommendation for loans when completing your assessments. Instead, you are required to provide information as to whether the overall risk of the loan has increased or decreased as a result of physical and financial conditions.

Rechecking Watchlist Levels After February 15

You will need to check the watchlist levels of your loans following implementation of the new risk-rating system. To generate a pipeline report of all loans in your portfolio that are now on the Moderate, High, and Critical Watchlist, please use the search screen in MultiSuite for Assessments. The revised watchlist levels will be available after February 15. Please continue to refer to the Freddie Mac Multifamily Seller/Servicer Guide for details on servicing requirements for loans on the Moderate, High, and Critical Watchlist.

We believe this new risk-rating methodology will help in early identification of emerging risk, management of high-risk loans, and disposition of troubled loans and REOs. If you have any questions about your watchlist loans, please contact Lori Paetz.

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