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Updated Inspection Standards Provide Greater Clarity, Flexibility

January 7, 2015

In December, we introduced changes to our inspection standards for portfolio and securitized loans in the Freddie Mac Multifamily Seller/Servicer Guide (Guide), Chapter 40, based on feedback from our servicing partners. These changes establish one inspection standard for our portfolio loans and securitized loans. They are intended to give Servicers greater clarity and flexibility around inspection requirements while continuing to ensure a high level of quality for the inspections.

What’s Changed

We’ve made minor changes throughout Chapter 40 of our Guide to ensure greater clarity with regards to reporting requirements for our entire portfolio, including retained portfolio loans and securitized loans. We’ve also made extensive changes to Sections 40.6, 40.12 and 40.13. Below is a brief summary of some of the more extensive changes:

  • Third-party inspectors allowed for all Freddie Mac loans, regardless of UPB, unless the loan has a risk rating greater than 6. Previously, we did not allow third-party inspectors for loans with risk ratings greater than 6, loans with a UPB of greater than $30 million, or for loans that had significant renovations underway. Servicers told us they wanted greater flexibility in using third-party inspectors for portfolio loans and this change provides that. See Guide Section 40.13.

  • Stronger, simpler inspector experience requirements. Previously, we had five different thresholds of inspector requirements and four different inspector levels. The CMBS market has no set industry-wide minimum qualifications for inspectors. Since we are now allowing greater flexibility with third-party inspectors, and in order to streamline our requirements, we have simplified our inspector requirements to just three tiers and strengthened minimum inspector credentials. For more information, see Guide Section 40.12.

  • More specific requirements for deferred maintenance issues and a $1,000 threshold for follow-up requirements. Previously, there was some confusion with our Servicers and investors about required follow-up for deferred maintenance items noted during the inspection. We have clarified the requirement and placed quantifiable thresholds around our follow-up requirements. For more information, see Guide Section 40.6.

  • Elimination of broader requirements regarding market analysis, competitor analysis, and property management performance; clearer requirements for immediate property neighborhood and property management performance. In light of the adoption of the MBA Property Inspection Form and our desire for the inspector to focus on the physical condition of the property during the inspection, we have removed many of the broader requirements regarding market analysis, competitive positioning of the property, and property management performance evaluation. For more information, see Guide Section 40.6.

We encourage you to read the complete December Bulletin, found on our Guide Bulletins page, for full details on what requirements have changed.

Training

To learn more, register for the Inspection & Hazard Loss Training on January 28, 2015 from 2:30 to 3:30 pm EST.

Questions

For questions, please send an email to the Multifamily Surveillance team at mf_surveillance@freddiemac.com.


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