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Freddie Mac Implementing “Triple A” Servicing Standards

October 11, 2012

Thank you very much to those of you who attended our 2012 Seller/Servicer Conference at National Harbor in Maryland last week. As one of the first in a series of conference follow-up articles, I would like to elaborate on what was presented during the Asset Management & Operations – Improving Today, Preparing for the Future breakout session.The discussion was focused on how we are merging our portfolio and CME processes for all our loans. 

Servicing Standards Evolution

Michael Lipson, Senior Vice President, Multifamily Asset Management and Operations

In the CMBS market, borrowers traditionally have been bounced around by widely varying servicing standards.  Freddie Mac is taking aim at this problem, and leading the move towards an industry solution.  Our goal: establish a more uniform set of servicing guidelines and benchmarks that can be applied to Freddie Mac loans whether they are securitized or portfolio-financed, and then leverage the benefits of these guidelines for securitized loans by sharing these guidelines and benchmarks with master servicers.

Our approach: develop “Triple A” servicing standards – aggregate, analyze, apply – and drive their implementation through ongoing transactions and securitizations.  We believe our approach will offer a distinct competitive advantage to lenders by providing borrowers a consistent experience throughout the life of their loans, which will improve borrower cost efficiency and capital management.

Our next big step you will shortly see: we will be incorporating language into our securitization pooling and servicing agreements, which will mandate that the applicable master servicer and special servicer consider Freddie Mac servicing standards and, in some cases, require the master servicer and special servicer to apply Freddie Mac Multifamily Guide provisions to the servicing of the loans.

How the Triple A Framework Comes to Life

Aggregate

Aggregation of data is critical for accurate analysis of loan performance. We’ve taken many steps toward better data aggregation, including:

  • Implemented the Property Reporting System (PRS). PRS is our mechanism for submission of timely and accurate financial statements and inspections. Data collected through PRS drives the risk rating process.
  • Made insurance changes to the Freddie Mac Multifamily Seller/Servicer Guide. These changes reduce the number of new waiver requests by making common exceptions standard, improving risk management practices.
  • Created the Consent Request Tracker (CRT), which launches on November 1, 2012. CRT provides all Servicers – Primary, Master and Special – with one shared platform to enter general transaction information, comments and date milestones relating to both Freddie Mac portfolio and securitized loans. We’re implementing CRT quickly and I hope you’ve registered for the October 24, 2012 training webinar.

We will have more changes to share in the coming months as we continue to improve how we collect data.

Analyze

The second A refers to our efforts to “Analyze”, which allows us to continue to mitigate risk and make informed credit decisions. In order to achieve this goal, we are:

  • Requiring servicers to submit complete packages with quality information to Freddie Mac and encouraging the same when packages are submitted to master servicers.
  • Improving timeliness and borrower contact efficiency for higher risk rated loans (8-10) by delegating property inspections back to the Seller/Servicers.
  • Implementing the Mortgage Accounting and Reporting System (MARS). This system provides a new technology platform to improve your reporting experience and enhance servicing capabilities in 2013.

Apply

We can then “Apply” what we receive through “Aggregation” and “Analysis” to ensure an excellent borrower experience through the life of the loan. One way we are applying what we get is through a comprehensive Guide update, which is currently underway.  We are reviewing the Asset Management and Operations Guide chapters to make them reflect the current way you do business with us.  We want to make it easier for you to find the information you’re looking for, ensure that our requirements are clear, and make our requirements for servicing CME and portfolio loans consistent wherever possible.   

Another way we are applying what we learn is through the Seller/Servicer Performance Reviews.  We want to use these reviews as a two-way feedback process – so that we can provide actionable recommendations for you, and you can tell us what you would like to see us do differently.  

I look forward to working with you on the continuing development of the Freddie Mac Servicing Standard and on leading the commercial residential mortgage market into the future.

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