View
220
Download
1
Category
Preview:
Citation preview
Securitization andCash Solutions
Mortgage Portfolio Analysis Service and
Sale Options
Table of Contents
Mortgage Portfolio Sale Options ..................................................................... 1
Portfolio Analysis Service ..................................................................................... 2
Securitization Opportunities ............................................................................... 3
Cash Sale ...................................................................................................................... 5
Portfolio Transaction Process ............................................................................ 6
Sample Reports and Analyses ......................................................................... 9
Data Elements ......................................................................................................... 11
Make your mortgage holdings work
more effectively and enhance your
portfolio in a changing market by using
Freddie Mac’s portfolio analysis service
and sale options.
Begin the process by reviewing the
resources in this manual, which include
information on our portfolio analysis
service, details on securities and cash
executions, and a step-by-step guide of
the portfolio transaction process.
Mortgage Portfolio Sale Options
We offer you a dependable, competitive source of liquidity for your mortgage
sales in all market conditions and geographic areas. Through our mortgage portfolio
services, you have the opportunity to sell your seasoned mortgages for cash or swap for
securities. Our team of experts is ready to work with you to discover the easiest and
most profitable solution for your holdings.
Whether your portfolio sale is imminent, or you simply want an assessment of your
assets, it’s time to talk to your Freddie Mac representative.
1
Options that fit your needs
Whether you’re a lender with a national or regional presence, a community bank or credit union holding $10 million or $10 billion in mortgages, we’ll help you position your mortgage holdings to reduce your risk exposure and enhance your profitability. Even if you’ve never done business with us or sold into the secondary market, we’ll work with you to find the best solution for your portfolio.
Under our negotiated bulk sales transactions, we purchase a wide range of mortgage types and we’ll provide you with a competitive bid for everything from fixed-rate mortgages and ARMs, to balloon/reset mortgages, and 1- and 2-unit mortgages. We’ll analyze your mortgage holdings and show you a variety of options to:
n Manage your risk-based capital requirements and increase liquidity by creating and holding Freddie Mac securities, which typically require less capital than holding whole loans. Or, consider a swap and sell or profitable cash execution to manage your liquidity.
n Fine-tune your balance sheet as you seek to adjust your loan-to-deposit or loan-to-share ratios, and restructure and manage your holdings, based on changing market conditions.
Comprehensive strategic planning
Whatever your needs — immediate returns or long-term planning — our portfolio experts are ready to help you meet any market condition. We’ll help you with:
n Portfolio analysis service. We’ll analyze the loans you’re holding to help you improve your return on assets.
n Due diligence. We’ll help you determine the appropriate level of due diligence that will be necessary to complete an efficient transaction.
n Bid presentation. We’ll provide you with a bid document with details including terms, conditions, and pooling execution, which we’ll thoroughly review with you.
Execution options that fit your individual needs
When you sell mortgages to Freddie Mac, you have a number of powerful execution options available — some that allow you to swap your loans for mortgage-backed securities and some that give you cash in exchange for your mortgages. Each option has its own set of benefits, and the most effective mortgage portfolio strategy may include a balanced combination of securitization and cash sales.
Stratification solutions
You’ll reap the benefits when you take advantage of our stratification service. Our experts will help you:
n Develop securities pooling strategies that take advantage of current market demand or that prepare you for a long-term position.
n Organize different types of loans and provide all of the information you need to package loans in a way that will give you the best execution.
n Get premium pricing for specified segments of your portfolio and get the most value for your loans.
n Streamline your process for selling loans with specific characteristics such as low loan balance or geographic attributes, enabling you to realize the best prices for your pools quickly and effectively.
To take advantage of this service, simply provide us with your loan data. We will recommend a pooling strategy that provides competitive pricing on your pools to enable you to obtain the best execution in the market.
2
Analyze your
mortgage holdings
Portfolio Analysis Service
We will help you analyze your mortgage holdings and provide the information you
need to package loans in a way that will give you the best execution and pricing for the
resulting securities or cash sale.
Using an electronic file of your mortgage data, we will analyze your data and create
pools that allocate the loans into Freddie Mac-eligible pools.
Securitization Opportunities
Freddie Mac portfolio solutions help you use the securitization process to enhance
your portfolio’s position in any market. Through securitization — the process of
converting a package of mortgages into an investment vehicle — you can adjust your
balance sheet based on market trends, and may improve your net margins and the
profitability of your mortgage holdings.
Holding securi ties created from your mortgages, rather than holding whole loans in your portfolio, reduces your credit risk. When you exchange your mortgages for Freddie Mac securi ties, Freddie Mac takes on the risk while you continue to earn the yield on your asset.
If the need arises, you can sell your securities faster than your whole loans. Turning your mortgages into securities allows you to turn assets into cash — and fast. In addition, when you securitize your mortgage production, you have a greater ability to earn higher market values for your assets.
With a securities execution you can also:
n Reduce risk-based capital. You can use the extra capital to support investments in additional earning assets, for acquisitions, expansion of your branch network, share repurchases — and almost any asset or activity that can generate more revenue, income, and growth.
n Reduce credit risk. Many lenders have built up con-siderable risk concentrations due to a lack of geographic or origination-year diversification. You can transfer that credit risk to Freddie Mac, continue to service your borrowers’ loans, and take back a highly liquid Freddie Mac mortgage-backed security.
n Enhance your balance sheet. Restructuring your portfolio can help you address the challenges of rising interest rates. While ARMs have less price volatility than fixed-rate mortgages, they still have plenty of interest rate risk from prepayments, especially as the ARM approaches its interest rate adjustment date.
n Sell many of the mortgages that you originate. We offer securitization options for many of the mortgages in your portfolio, including fixed-rate mortgages, ARMs and balloon/reset mortgages, 1- and 2-unit mortgages, and more.
n Increase current income. Sell par plus or premium loans for a gain-on-sale.
n Generate servicing income and improve return on equity. With a securitization transaction, you have the option of retaining the servicing — collecting monthly principal and interest payments — or performing either a subsequent or concurrent transfer of servicing.
3
Freddie Mac
mortgage-backed securities
With our swap executions, you exchange mortgages for Freddie Mac mortgage-backed securities. You can hold these securities in your portfolio, reducing your institution’s risk-based capital requirements, and sell them when the market is right. Or, you can sell them to a dealer right away and strengthen your liquidity.
Execute a swap
Through a swap execution, you exchange your mortgages for a Freddie Mac mortgage-backed security. Whether you decide to hold the security in your portfolio or sell it to a dealer for cash, swap ping loans for our mortgage-backed securities offers you a number of benefits over holding whole loans.
n Swap and Hold. With a swap and hold, you exchange the loans in your portfolio with Freddie Mac and receive a security backed by your own mortgages.
By holding these securities instead of whole loans in your investment portfolio, you’ll have lower capital requirements. You’ll also benefit from the monthly servicing income as well as yield on the security paid to you as the holder of the security.
n Swap and Sell. If you choose to swap and sell, you exchange your loans for securities and, in turn, you can sell those securities to a dealer for cash to make more loans. Securities are more liquid than whole loans and can provide additional benefits over selling mortgages for cash.
Step 1
Seller lends to borrowers
Step 2
Loans sold to Freddie Mac using a
swap execution
Step 3
Freddie Mac security delivered
back to Seller
Step 4a
Security is sold to a dealer for cash
Step 5a
Cash delivered directly to Seller
Step 4b
Security is delivered to Seller’s investment portfolio
Step 5b
Seller receives monthly income
from Freddie Mac mortgage-backed
securities, resulting in lower capital requirements,
increased liquidity, and other benefits
4
A cash execution for your mortgage holdings meets many needs:
n Cash execution options for nearly all of the mortgages that you originate, including fixed-rate mortgages, ARMs, balloon/reset mortgages, 1- and 2-unit mortgages, and more.
n Competitive pricing based on current market prices.
n First-rate portfolio analysis services including strategic sale options that can help to manage the challenges of any market condition.
Cash executions can be simpler than swap executions for your mortgage portfolio because you don’t have the added complexity of structuring mortgages for a securities transaction or arranging securities trades.
Step 1
Seller lends to borrowers
Step 2
Loans sold to Freddie Mac using a
cash execution
Step 3
Cash delivered directly to Seller
Cash Sales
Cash executions offer you the opportunity to sell loans and receive cash instead
of mortgage-backed securities. We package, guarantee, and auction these loans to
investors around the world, and pass their pricing on to you.
By selling your mortgage portfolio to Freddie Mac for cash, you’ll recover the capital for
the mortgages you originate and lend the same funds again and again — so you’ll always
be there to meet the lending needs of more families in the communities you serve.
5
Portfolio Transaction Process
Here’s a step-by-step guide that will walk you through the process of using our
portfolio services.
Step 1 Initial discussion
Let us know of your interest in a securitization or cash transaction for loans held in your portfolio before any loan data is sent to Freddie Mac. Early notification and discussion will allow us to provide the resources necessary to assist you through the process.
Along with a team of Freddie Mac experts, your Freddie Mac representative will assist you in determining the best course of action to meet your needs. We can assist you with preliminary loan data analysis and consultative services, and provide recommendations on the type and size of transactions to accomplish your goals.
Step 2 Tape/disk conversion process
Provide loan-level information in the form of a data file. This data file can be provided in many formats and file layouts, including Microsoft® Excel spreadsheets (other delimited formats are also acceptable). Any missing, inconsistent, or questionable data should be explained under separate cover.
Step 3 Data evaluation
Our team will review the data file to ensure that all the necessary information has been provided. Any information that does not meet our requirements or is missing will be reviewed with you. The information provided must accurately reflect the loan characteristics. If this requirement is met, then:
n We start loan stratification (Step Five) to determine eligibility.
n If data consistency and reliability are a concern, we ask that due diligence (Step Four) be performed in order to collect, clarify or complete the necessary loan record data fields before the stratification process can be completed.
It is during Step Four that additional data required for Freddie Mac’s loan/pool delivery should be collected, and the loans being sold must be evaluated to ensure they meet Freddie Mac’s underwriting guidelines.
In either case, the completeness and consistency of data will determine the amount, level, and timing of the due diligence process.
6
Step 4 Due diligence
Due diligence is the process of reviewing each loan file and supporting documentation to:
n Ensure that the required data is either collected and clarified or audited to ensure that the loans and loan information are complete and accurate.
n Establish that each loan meets our underwriting and documentation requirements.
n Identify credit, documentation, and/or underwriting waivers.
Loan acceptability will be determined and documented in a Master Commitment for your portfolio sale based on the review of the loan data file and your representations and warranties that the loans being sold are of investment quality and meet our underwriting requirements. Acceptable variances to our Single-Family Seller/Servicer Guide (Guide) will be documented within the Master Commitment Contract as waivers to normal underwriting and documentation policies.
We can help you determine the type and level of due diligence necessary to complete the transaction efficiently. We will also facilitate the due diligence work as required.
You need to provide us with the completed results of due diligence, in the form of reports and data. Whether due diligence is performed by you, by Freddie Mac or outsourced to a third party, we’ll need a complete copy of each type of note instrument to be delivered. This is particularly important if the notes are non-standard instruments, have been altered or modified and/or involve adjustable-rate products. Note modifications, riders and addendums are considered part of the note and must be included as part of this note library compiled for legal and eligibility review.
Step 5 Loan stratification and credit analysis
Once we have received the required data, we will perform a loan stratification analysis to determine loan conformity. This process analyzes certain characteristics of each loan not related to underwriting or documentation to determine eligibility. From this analysis and in conjunction with the results of the due diligence process, we will complete a credit review of the files and determine whether any adjustments to the portfolio need to be made to conform to our credit policy.
Step 6 Bid presentation
The final eligible loan population for your mortgage portfolio sale, with details regarding terms, conditions, guarantees and, if applicable, pooling execution analysis, is presented to you in a bid document. This provides an opportunity for all of the key parties to understand the terms of the transaction, ask questions, and reaffirm timing and execution objectives.
Our intent is to work closely with you through this process to ensure that the transaction process, when concluded, meets your expectations. Issues to be discussed during this phase of the transaction are the servicing rate or fee, pool sizes, seasoning or age of the underlying loans, geographic dispersion or risk concentrations and loan balance. The use of our buyup/buydown matrices will also be discussed.
Important note: Sample loan and portfolio analysis reports are provided on pages 9 and 10.
7
Step 7 Master Commitment issuance
A Master Commitment Contract will be prepared and forwarded to you and will include all information related to the loans that are eligible for securitization or cash sale. We will identify loans to be delivered to us requiring special handling on waivers.
Important note: The Master Commitment must be signed and returned to Freddie Mac before loans can be delivered for sale or settlement.
Step 8 Preparation for delivery
A printed list or electronic file of the loans in each pool will be provided to support the loan delivery process via our delivery system. If you elect to move forward, we will provide summary reports for your review and confirmation that the pools represent the characteristics you want to deliver. The process of delivering loans for securitization is very similar to the process for cash sale.
From this point (with assistance from Freddie Mac’s Transaction Management Group), you will be responsible for entering all necessary loan data into our system to prepare for delivery of the loans (and pool data if securitizing) to Freddie Mac for settlement.
Important note: If a due diligence team has been assigned to assist with delivery, they will manage this process for you.
Step 9 Pool and document delivery/transmission and settlement
Upon completion of the above steps, you are set to transmit the loan-level data to us for settlement. A Freddie Mac transactions manager will receive the data transmission and work with you to ensure timely settlement. For securitization, the pool transmission date should normally occur 10 business days prior to the requested pool settlement date. Adhering to this time frame should ensure a successful settlement.
You are responsible for complying with our custodial document delivery Guide requirements to deliver all appropriate documentation to the document custodian prior to pool transmission for settlement. We can act as the document custodian through our Designated Custodian, The Bank of New York Mellon Trust Company, N.A.
8
99
Sample Portfolio Product Analysis
Sample Reports and Analysis
The following are examples of the type of loan and portfolio analysis reports that
Freddie Mac creates as part of the bid presentation package.
10
Sample Pooling and Valuation of Loans Report
Sample Average Loan Characteristics Report
Data Elements
Contact your Freddie Mac representative today and discover how you can benefit from a
portfolio strategy and sale option.
To help you get started, here are the data elements needed to complete an analysis of your portfolio. We accept many formats that may already be coded in your in-house or service bureau systems, including a Microsoft® Excel spreadsheet, containing the fields listed in the table below.
Please contact your Freddie Mac representative for more information.
11
Field Name Sample Description
Loan Number Uniquely identify each loan
Property Type Code SF = Single Family PU = PUD TH = Town House 2f = Two Family CO = Condo COOP = Coop 3f = Three Family CHT = Condotel (Condo Hotel) MANU = Manufactured Housing 4f = Four Family CM = Commercial MF = Multifamily
Owner Occupied Code OOC = Owner Occupied 2HM = Second Home INV = Investor
Purpose Code PUR = Purchase COR = Cash Out Refinance REHI = Home Improvement Refinance REFI = No Cash Out Refinance CNST = Construction Permanent COR = Debt Consolidation Cash Out Refi
Construction to Perm Flag Y or N
Number of Units Number of units
Seller Product Type Identify the following: • Fixed-rate loan (15-, 20-, 30-year) • Bi-weekly (15- or 30-year fixed) • ARM (Please specify origination product) • Balloon (e.g., 5-, 7-year, 40-year amortization due in 30 years) Please specify fixed and adjustment period. • Interest only products, simple interest product, negam feature (e.g., 1/1, 3/1, 3/6, 7/1, or 10/6 year ARM) • Specify if FHV/VA loan Please specify product type at time of origination.
Lien Position Specify if loan is a first mortgage or second mortgage.
Loan Type Specify if Conventional, FHA /VA loan
MI Flag Y or N
MI Code 000 = No MI 009 = California Housing Loan Ins. Fund 013 = RMIC 024 = Triad 001 = GE 010 = MI Fund of Mass HFA 016 = HGIC 089 = Farmers Home (FMHA) 005 = CMG 011 = PMI 017 = Radian 099 = Other MI Company 006 = MGIC 012 = UGIC 021 = Florida HFA 100 = Unknown
MI Coverage Percentage Percentage of mortgage insurance coverage on the loan
Loan Origination Date MM/DD/YYYY
First Payment Date MM/DD/YYYY
Maturity Date MM/DD/YYYY
Modified Date MM/DD/YYYY – date loan modified; use update mod terms for these loans
Modification Reason Reason loan modified – modified rate, workout, curtailment and recast payment
Modification Balance Unpaid pricing balance as of modification used to calculate the new payment information
Interest Paid to Date MM/DD/YYYY
Original Term Original term of the loan in months (number of months between the first payment due date and the maturity date)
Amortization Term Amortization term of the loan in months
Original Loan-to-Value Ratio Original balance divided by the lesser of purchase price or appraised value
Total or Combined Loan-to-Value Ratio Original balance + secondary/other financing $ amount divided by the lesser of purchase price or appraised value
Current Interest Rate Current interest rate
Original Loan Balance Original loan amount
Current Loan Balance Current unpaid principal balance
Current Monthly Principal and Interest Principal and interest only, please do not include taxes or insurance.
Number Times 30 or More Days Delinquent Number of times at least 30 days delinquent in the past 12 months
Number Times 60 or More Days Delinquent Number of times at least 60 days delinquent in the past 12 months
Number Times 90 or More Days Delinquent Number of times at least 90 days delinquent in the past 12 months
Borrower Count Number of borrowers on loan 1, 2, 3, 4, 5 and up (e.g., 1 = primary borrower only; 2 = primary borrower with co-borrower)
Borrower First Name First name of borrower
Borrower Last Name Last name of borrower
Borrower SSN Borrower Social Security number
Co-Borrower First Name First name of co-borrower
Co-Borrower Last Name Last name of co-borrower
Co-Borrower SSN Co-borrower Social Security number
Address Street address of property
City City of property
12
Field Name Sample Description
State State of property (USPS abbreviation)
Zip Code Zip code of property (5 digits)
Total Monthly Income The gross monthly income of the borrower or combined if there is a co-borrower used to qualify the loan
Total Debt Ratio Total monthly debt/total monthly income
Appraised Value Original property appraised value
Sales Price/Purchase Price Original purchase price
Appraisal Type Appraisal used (e.g., URAR, Drive By, AVM)
Prepayment Penalty Flag Was loan originated as a Prepayment Penalty Mortgage – Y or N? (Even if it has expired still = Y)
Prepayment Penalty Period Prepayment lockout period in months (e.g., 24, 36, 60)
Prepayment Penalty Hard/Soft Flag Hard or soft flag for prepayment penalty loans
Documentation Indicator Full documentation, Stated Income/Verified Assets (SIVA), Stated Income/Stated Assets (SISA), No Ratio (NIVA), Business Bank Statements, Personal Bank Statements
Origination Channel Origination source (e.g., retail or wholesale/correspondent)
Servicer Name of current Servicer
Originator Name of institution that originated the loan
Self Employment Flag Y or N for a self-employed borrower
Interest Only Flag Y or N
Interest Only Term The interest only term in number of months
Lender Paid MI Flag Y or N
Lender Paid MI Fee Lender paid MI monthly fee (e.g., .730)
Servicing Fee Servicing fee (e.g., .250, .375) For ARMs: Servicing fee of the fixed period
Servicing Fee Tail For ARMs: Servicing fee once adjusted to the ARM phase
FICO Score for Loans Seasoned <120 days Credit score used to qualify the loan
Relocation Flag Y or N (Loan is part of a relocation program)
Fields for ARM loans only:
Index Code ARM index code (e.g., 1-year weekly treasury, 3-year weekly treasury, 1-year MTA, 6-month LIBOR). Provide definitions with data file.
Margin Gross mortgage margin
Original Interest Rate Original note rate (Mandatory if already adjusted)
First Rate Change Date First interest rate change date – MM/YY
Next Interest Rate Change Date First payment change date
Interest Rate Adjustment Frequency Interest rate adjustment frequency in months (e.g., 12, 36, 60)
Initial Periodic Rate Cap Provide the initial periodic rate cap (e.g., 5.00 cap at the initial interest change date). If different between up or down please provide separately.
Periodic Rate Cap Periodic rate cap at the subsequent scheduled interest change date (e.g., 2.000, 1.000). The maximum allowable increment by which ARM rate can increase. If different between up or down please provide separately.
Lifetime Maximum Interest Rate Lifetime ceiling rate for the mortgage (Mandatory Mortgage-Backed Security/Cash Path only)
Lifetime Rate Floor Minimum coupon for the mortgage
Lookback Period Number of days preceding change date used to determine index value used in calculating the interest rate (e.g., 45 days) (Mandatory Mortgage-Backed Security/Cash Path only)
ARM Convertibility Code Y or N (Mandatory Mortgage-Backed Security/Cash Path only)
Additional Fields for MTA/Option ARMs only:
Option ARM Category 1 - Pay Capped ARMs 3 - Interest Only Hybrid Option ARMs 99 - Other – please describe2 - Hybrid Option ARMs 4 - Hybrid Option ARM using % of fully Amortizing Payment
Intro Rate Flag Y or N
Periodic Payment Cap Percentage Provide the payment cap if applicable (e.g., 7.5%)
First Payment Change Date First payment change date
Next Payment Change Date Next payment change date
Initial Teaser Term The fixed period in months for the teaser rate period
Initial Fixed Payment Term The fixed period in months between the first payment due date and the first payment adjustment date
Current Accrual Rate Rate used to determine the fully amortizing P&I payment
Teaser Rate or Minimum Payment Rate Rate used to calculate minimum payment. If the minimum payment is derived as a % of fully amortizing payment, calculate the implied rate.
Full Amortizing P&I Payment Fully amortized principal and interest payment using current accrual rate
Minimum Payment Amount The amount paid when exercising the minimum payment option
% of Fully Amortizing Payment For loans where minimum payment is derived as a % of fully amortizing payment
Negam Limit A number amount that the loan is allowed to negatively amortize (110 or 115). If the loan is $100,000 and the negam limit is 115, the most the loan balance can be is $115,000.
Negam Balance A dollar amount that the loan has negatively amortized since origination
Recast Term The frequency, in months, with which the payment on the loan can be reset to an unlimited amount (i.e., when the negam limit is reached)
Current Amortized LTV Current amortized LTV of the loan
Scheduled Amortized Current LTV Scheduled amortized current LTV at time of delivery
Scheduled Balance Scheduled unpaid principal balance at time of delivery
Next Interest Rate Interest rate at next change
8200 Jones Branch Drive, McLean, Virginia 22102 n FreddieMac.com
Publication Number 432 n October 2010
Recommended