Robert Fishman: CSP

Fall 2013 Summit

Common Securitization Platform

Robert Fishman

Associate Director

Federal Housing Finance Agency

September 23, 2013

Fall 2013 Summit

The MISMO Fall 2013 Summit Education Program is sponsored by:

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Background

o In February 2012, FHFA issued its Strategic Plan for Enterprise Conservatorships. The plan sets forth three strategic goals for the next phase of the conservatorships:

• Build. Build a new infrastructure for the secondary mortgage market.

• Contract. Gradually contract the Enterprises’ dominant presence in the marketplace while simplifying and shrinking their operations.

• Maintain. Maintain foreclosure prevention activities and credit availability for new and refinanced mortgages.

o The effort to create the Common Securitization Platform (CSP) for the secondary mortgage market will further these goals.

• Upgrades the existing outmoded Enterprise infrastructures

• Facilitates programmatic credit risk transfer transactions

• Provides options for policy makers as current infrastructure limits options

o In October 2012, FHFA issued a white paper entitled, “Building a New Infrastructure for the Secondary Mortgage Market.”

• Proposed both a new securitization platform and a model contractual and disclosure framework

• Highlighted FHFA’s key principles of promoting liquidity, attracting private capital, benefiting borrowers, and operating flexibly and efficiently, while minimizing market disruption during the transition

• Focused on operational functions that are repeated across the industry and for which greater standardization would benefit the overall market

o This presentation focuses on the CSP

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CSP Focuses on the Enterprises’ Securitization Activities

o The Enterprises’ Single Family business can be viewed as having several distinct components

o The CSP is focused on the Securitization component, to leverage automation and straight-through processing

Loan Sourcing Loan Aggregation Loan Delivery / Acquisition

o Standards / programs / practices / tools for (1) underwriting / originations and (2) servicing (PL and NPL)

o Commitment process (loan delivery contracts)

o Pricing

o Cash Window processes

o Balance sheet management

o Pipeline hedging

o Data Validationo Security Issuanceo Disclosureso Master Servicingo Bond

Administration

Credit Risk / Loss Manag. Operations

o PL Monitoringo NPL Management

(loss mitigation; foreclosure alternatives)

o REO Operations

SecuritizationPrimary Market Role

o Loan data submission, data quality checks

o Delivery eligibility checks (Guide, contract, TOBs, pooling / allocation criteria)

o Document cert. processing / validationo Pool eligibility checkso Cash commitment delivery eligibility

checkso Exception / data correction processingo Funding (wire cash / security issuance)

Credit and Funding Risk Investor

o Credit Risk standards

o Counterparty Risk Management

o Credit enhancements

o Risk Analytics and Costing

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Integration Layer & Data Repository

Data Validation Issuance Disclosures Master Servicing Bond Admin

Issuers

Adaptors

Primary ServicersFED/DTCC Investors

Adaptors

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Guiding Principles for the CSP

• As outlined in the October 2012 white paper, the CSP will adhere to clearly defined design principles in order to provide a sound foundation on which to rebuild the country’s secondary mortgage market and to ensure that it is adaptable to policy and technology changes.

Technical Objectives Straight-through processing and event automation – Event-driven system architecture is being incorporated to minimize

manual intervention, facilitate efficient operations and performance, and allow for capture of operational and market metrics. 

Data transparency – Data architecture is being developed that provides data traceability and accessibility via common data infrastructure and data standards.

Open architecture – Standard external interfaces are being established for efficient interoperability with multiple Issuers/Enterprises; leverage existing industry data standards (e.g., MISMO, Uniform Mortgage Data Program).

Functional modularity – CSP’s internal components will communicate via standard interfaces to ensure that modifying, configuring, replacing, or adding new functional modules can be accomplished with minimal impact across the CSP.

Scalability – Integration architecture is being employed based on standard technologies with proven scale in financial services and other industries, to ensure accommodation of growth demands and increased throughput.

Integration Layer & Data Repository

Data Validation Issuance Disclosures Master Servicing Bond Admin

Issuers

Adaptor Adaptor Adaptor Adaptor Adaptor

AdaptorAdaptor AdaptorAdaptor

Primary ServicersFED/DTCC Investors

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Data Validation

o The Data Validation module currently includes the following capabilities, performing them as agent for the Issuer:

• Validate request for securitization data (i.e., validate issuer identification, collateral pool type, coupon, class codes, prefix checks, wiring instructions, servicer, etc.)

• Execute policy rule sets (i.e., SIFMA / “TBA” eligibility rules for fixed-rate and adjustable rate MBS/PCs and Single Class Securitization (Megas / Giants))

• Perform calculations (weighted average coupon, weighted average maturity, etc.)

• Validate unscheduled event data (loan removal requests, primary servicer transfer requests, data corrections, etc.

• Validate reference and market data (validate external collateral data and market indices)

• Manage Issuer / Guarantor requests (track all requests made by Issuers / Guarantors)

• Manage Issuer / Guarantor relationship (service level agreements, etc.)

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Security Issuance

o The Security Issuance module currently includes the following capabilities, performing them as agent for the Issuer:

• Register securities with the Fed or DTCC

• Settle securities with Fed or DTCC (transfer securities to owner and remit cash proceeds to the Issuer)

• Dissolve / Collapse pools

• Generate “At Issuance” Disclosures

o This module will perform these functions for all of the following security types:

• Single Class Securitizations

• Single Class Resecuritizations (Megas/Giants)

• Multi-Class Resecuritizations (REMICs, Strips)

• Whole Loan REMICs and Senior / Subordinated Securitizations

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Disclosures

o The Disclosures module currently includes the following capabilities, performing them as agent for the Issuer:

• At Issuance

Release documentation at offering Release preliminary offering supplements Release final offering supplements Disclose collapse events

• On-Going

Release monthly pool and loan level disclosure files Release tax disclosure files Disclose dissolve / inactivation events Release security level monthly distribution statement

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Master Servicing

o The Master Servicing module currently includes the following capabilities, performing them as agent for the Issuer:

• Set-up / on-board loans

• Establish servicing contract

• Process / report on loan activity

• Collect and track payments (draft servicer remittances, cash management interaction with Issuers, etc.)

• Process changes (i.e., loan change requests, loan removal requests, primary servicer transfers)

• Track servicing advances

• Support servicer compensation requests for mortgage-related expenses and property maintenance

• Monitor / direct document custody / custodial performance

• Roll-up loans to security (for first level Single Class securities)

• Provide transactional data to issuers

o The CSP will have Master Servicing capabilities that leverage straight-through processing; “high touch” / decisioning activities will not be undertaken by the CSP.

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Bond Administration

o The Bond Administration module currently includes the following capabilities, performing them as agent for the Issuer:

• Set-up / on-board securities

• Direct the collection of funds due to investors

• Maintain security collateral

• Manage advances

• Perform tax reporting

• Generate on-going disclosures

• Provide reporting

• Manage Single Class and Multi-Class Security processing

• Manage bond distributions

o These functions would be performed for both Single Class securities and Multi-Class securities (re-securitizations / REMICs)

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Other CSP Components

o Operational Data Store

o Transactional Data Stores

o Data Interfaces

o Message Bus

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CSP Next Steps

o In light of the importance of this initiative to the housing finance system, and reinforced by the comments received from the public, FHFA has directed the Enterprises to move forward on the development of the CSP.

o On March 4, 2013, FHFA issued the 2013 Conservatorship Scorecard for Fannie Mae and Freddie Mac, which states that the Enterprises shall undertake the following in 2013:

• “In conjunction with FHFA, continue foundational development of the CSP:

• Establish initial ownership and governance structure for the CSP.  Assign dedicated resources and establish independent location site for the CSP Team.

• Develop the design, scope and functional requirements for the CSP’s modules and develop the initial business operational process model.

• Develop multi-year plan, inclusive of CSP build, test and deployment phases and the Enterprises’ related system and operational changes.

• Develop and begin testing the CSP.

• Support FHFA progress reports to the public on the design, scope and functional requirements. Update documents based on feedback received.” 

o FHFA and the Enterprises are currently working on each of these objectives.

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Questions?

Robert Fishman

Federal Housing Finance Agency

202-649-3527

Robert.Fishman@FHFA.gov