The Asset Management Surveillance Process Drives Better Decision Making
July 1, 2013
Over the last two years, we’ve redefined our approach to our risk-rating methodology and our asset management surveillance processes. We use the data provided through property inspections, financial assessments, escrow reports and Loan Management Forms (LMFs) to enable our aggregation and analysis of performance data. Ultimately, the success in our risk-rating process helps to create more lending opportunities.
Instituted a Comprehensive Surveillance Process
The surveillance process is a key component of our credit and risk management. The Surveillance team monitors credit quality and performance across all Multifamily loan portfolios, as well as the guarantees on our bond and securitization programs. As the Surveillance team reviews assessments, they use the information provided by you to determine the risks within each loan, risks across different markets, and risks of different property types. Surveillance operates as one of five different groups in the Asset Management and Operations Department.
We implemented a new risk-rating methodology more than a year ago. The new risk- ratings of 1 to 10 have provided a common terminology for regulators and auditors, improving the auditability and controls of all loans. The process is based on a proprietary econometric credit loss model with immediate risk updates that allows us to continue to provide liquidity to the secondary mortgage market.
To give you a sense of the scale of this activity, just over the last year, our Surveillance Analysts manually reviewed many of the 30,000 assessments submitted. These manual reviews were done in addition to the automated screenings and reviews performed by our surveillance system, Streamlined Analytical & Reporting Tool (SMART).
- 2,400 Annual Income & Expense (AIE) assessments – There are 29 individual exception criteria that trigger a manual review. Nine out of 29 criteria have a direct impact on a loan’s risk-rating.
- 4,500 Annual Inspection Forms (AIF) and Loan Management Forms (LMF) – Eleven individual exception criteria trigger a risk review.
Surveillance Activities Pre-Securitization
As a Capital Markets ExecutionSM Mortgage is nearing designation for a specific pool of loans for securitization, we complete a host of activities for the rating agencies and B piece buyers of
our K Certificates.
- Financial Statements and Rent Roll Collection – Servicers must submit the trailing 12-month financial statements each month following every quarter-end. Rent rolls are also required submissions five days prior to quarter-end.
- Loan Compliance – Servicers have to track and certify work completed and listed in Repair Agreements.
- Site Inspection Contact Information – Properties are inspected by the B piece buyers and rating agencies and the contact information is confirmed for these purposes.
- Loan-Level Questions – As B piece buyers and rating agencies ask questions about the properties, Servicers must work with the borrower to obtain the answers in a timely manner.
Surveillance Activities Post Securitization
Because Freddie Mac guarantees classes that underlie a K-deal, ongoing surveillance is necessary even after securitization. We use CRE Financial Council (CREFC) reporting requirements to monitor securitized loans. As we continue implementing our servicing standard, it will become even more aligned with the surveillance process we use for Portfolio loans.
We review all Watchlist loans that are identified by you through the CREFC standards monthly. This process includes examining all financial and property inspections. On select loans, we will complete our due diligence by performing our own site inspection.
Many Seller/Servicers took part in a special educational briefing last week hosted by Roy Chun, Freddie Mac Multifamily Asset Management Senior Director. Roy and some of the Surveillance team he manages provided insight on how our risk-rating process works. The briefing materials, which provide even greater detail on our surveillance processes, have been posted online in the Asset Management Resource Center for your review.
If you have any questions about our surveillance processes, please contact us through our email box at MF_Surveillance@freddiemac.com. Specifically, we are glad to answer any questions related to:
- Post-completion of assessments (AIE/QIE, AIF, LMF)
- Paid off loan notifications
- Freddie Mac in-house inspection inquiries (if unavailable in the Property Reporting System (PRS) and the Document Management System(DMS)
- In-house inspector requirements waivers
- Hazard loss notifications
We have a new email address, MF_Securitization_Notices@freddiemac.com, where all notices about K-deal loans post securitization should be sent.