Freddie Mac · OTC:FMCC
Freddie Mac — Earnings Presentation (May 2021)
58 slides from Freddie Mac's earnings presentation, May 20, 2021
Slide 1: “Let’s QC” Webinar Series – Community Lending
“Let’s QC” Webinar Series – Community Lending Defect Trends, Credit Events and Affordable Seconds® Host: Steven Glancey Speakers: George Karinshak, Kelly Marrocco, Susan Wrenn-Linderman and Mike Zeman May 20, 2021
Slide 2: Session Housekeeping
Session Housekeeping Muted Lines. All lines have been muted upon entry and will remain on mute to prevent interference. Recording. This session is being recorded and will be Before we begin available on the QC Webpage. If you have any objections, please disconnect now. today’s session let’s quickly
Slide 3: Welcome!
Welcome! 2021 Q2 “Let’s QC” Webinar – Community Lending Series Freddie Mac | Do Not Distribute 3
Slide 4: Goal of Series
“Let’s QC” Quarterly Webinar Series – Community Lending Goal of Series 01 Provide training and guidance 02 Allow transparency and insight into our quality control loan review process 03 Give you useful information to incorporate into your underwriting and QC process Freddie Mac | Do Not Distribute 4
Slide 5: Defect Trends, Credit Events and Affordable Seconds
Agenda Defect Trends, Credit Events and Affordable Seconds® Topic 1: Topic 2: Topic 3: Defect Trending Adverse Credit Events Affordable Seconds® • Top 10 Overall • Scenario 1 – Mortgages • Policy Overview • Quarter over Quarter Included in Bankruptcies • Delivery Requirements • Second Home and • Sce
Slide 6: Topic 1 – Defect Trending
Topic 1 – Defect Trending • Top 10 Overall • Quarter over Quarter • Second Home and Investment Properties
Slide 7: Top 10 Defects Overall
Topic 1 – Defect Trending Top 10 Defects Overall # of Defects in Q1 2021 increased from 366 to 448. Category Defect # of Loans vs. Prior Quarter 1. Legal / Insurance Tax/Ins missing or insufficient 123 95 2. Collateral Appraisal flexibility violation 76 44 3. Liabilities Liability doc missing or ins
Slide 8: Top 10 Defects Overall (continued)
Topic 1 – Defect Trending Top 10 Defects Overall # of Defects in Q1 2021 increased from 366 to 448. Category Defect # of Loans vs. Prior Quarter 6. Income Income docs missing 41 42 7. Income COVID-19 temporary income violation 40 13 8. Liabilities Docs to exclude debts missing or insufficient 18 13
Slide 9: Key Takeaways
Topic 1 – Defect Trending Key Takeaways 01 COVID-19 temporary appraisal flexibility violations are still a concern 03 Uptick in missing source of funds to close Collateral defects outside of COVID-19 02 Income calculation and missing documentation remain elevated 04 temporary guideline violations re
Slide 10: Q4 2020 vs Q1 2021 Changes in Defect Rates
Defect Trending – Changes in Defect Rates Q4 2020 vs Q1 2021 Defect Category Change in rate Quarter over Quarter Income, including COVID-19 temp requirements 4% increase Wage Earner (57 to 59) 145% increase for Self Employed (22 to 54) Bankruptcy documentation 100% drop in Second Homes / Investment
Slide 11: Key Takeaways
Topic 1 – Defect Trending Key Takeaways 01 Remain Vigilant – Defects can exist and shift among many categories 02 COVID-19 temporary requirements are still in effect 03 Income and Liability defects remain elevated Freddie Mac | Do Not Distribute 11
Slide 12: Defects for Second Homes and Investment Properties
Topic 1 – Defect Trending Defects for Second Homes and Investment Properties Taxes and insurance Income docs Liability documents documents missing missing or missing or insufficient or insufficient insufficient Freddie Mac | Do Not Distribute 12
Slide 13: Questions?
| ‘SI Questions?
Slide 14: Topic 2 – Adverse Credit Events
Topic 2 – Adverse Credit Events Loan Scenario 1 – Mortgages Included in Bankruptcies
Slide 15: Loan Scenario
Topic 2 – Adverse Credit Events / Loan Scenario 1 – Mortgages Included in Bankruptcies Loan Scenario ▪ Purpose: Purchase ▪ Debt To Income: 30% ▪ Occupancy: Owner-Occupied ▪ Loan Product Advisor Risk Class: Caution ▪ Property: Single-Family Dwelling ▪ Adverse Credit: Credit report reflects a prior Ch
Slide 16: Credit Analysis
Topic 2 – Adverse Credit Events / Loan Scenario 1 – Mortgages Included in Bankruptcies Credit Analysis • Review of the credit report revealed a bankruptcy was filed in 12/16 and discharged in 5/17. • The Note date for the subject loan is 10/1/2020. • A mortgage tradeline was reflected with history r
Slide 17: Credit Analysis (continued)
Topic 2 – Adverse Credit Events / Loan Scenario 1 – Mortgages Included in Bankruptcies Credit Analysis (continued) • Further analysis of the credit report reflected 8 tradelines that were currently open and active comprised of the following: o Auto loan paid as agreed for 36 months o Two student loa
Slide 18: Guide Section 5202.5(a)(i)
Topic 2 – Adverse Credit Events / Loan Scenario 1 – Mortgages Included in Bankruptcies Guide Section 5202.5(a)(i) 5202.5: Adverse or derogatory credit information (a) Evaluating adverse or derogatory credit information i. Handling significant adverse or derogatory information caused by extenuating c
Slide 19: Appeal
Topic 2 – Adverse Credit Events / Loan Scenario 1 – Mortgages Included in Bankruptcies Appeal ▪ On appeal the lender ▪ The papers included ▪ The Statement of ▪ A public record provided the the Statement of Intention further printout was included Bankruptcy Papers Intention that reflected reflected t
Slide 20: Final Decision
Topic 2 – Adverse Credit Events / Loan Scenario 1 – Mortgages Included in Bankruptcies Final Decision • In this case the bankruptcy papers alone are not sufficient to establish an acceptable credit reputation for the borrower. • The appeal documentation verified the disposition of the property; howe
Slide 21: Key Takeaways
Topic 2 – Adverse Credit Events / Loan Scenario 1 – Mortgages Included in Bankruptcies Key Takeaways A mortgage debt reported as being included or discharged in a bankruptcy on 01 the credit report does not prove that the debt(s) was discharged. The discharge must be verified with the bankruptcy pap
Slide 22: Questions?
| ‘SI Questions?
Slide 23: Loan Scenario – Evaluating a Borrower’s Credit for Manual Underwriting
Topic 2 – Adverse Credit Events Loan Scenario 2 – Evaluating a Borrower’s Credit for Manual Underwriting
Slide 24: Guide Section 5202.3
Topic 2 – Adverse Credit Events / Loan Scenario 2 – Evaluating a Borrower’s Credit for Manual Underwriting Guide Section 5202.3 5202.3: Evaluating Borrower credit reputation for Manually Underwritten Mortgages The Seller must review the credit reports and direct verifications and thoroughly evaluate
Slide 25: Loan Product Advisor Feedback & Guide Reference
Topic 2 – Adverse Credit Events / Loan Scenario 2 – Evaluating a Borrower’s Credit for Manual Underwriting Loan Product Advisor® Feedback & Guide Reference Freddie Mac | Do Not Distribute 25
Slide 26: Loan Product Advisor Feedback & Guide Reference
Topic 2 – Adverse Credit Events / Loan Scenario 2 – Evaluating a Borrower’s Credit for Manual Underwriting Loan Product Advisor Feedback & Guide Reference 5202.5: Adverse or derogatory credit information (a) Evaluating adverse or derogatory credit information Adverse credit information in and of its
Slide 27: Red Flag #1
Topic 2 – Adverse Credit Events / Loan Scenario 2 – Evaluating a Borrower’s Credit for Manual Underwriting Red Flag #1 Credit Report Property Search 123 Street Freddie Mac | Do Not Distribute 27
Slide 28: Red Flag #2
Topic 2 – Adverse Credit Events / Loan Scenario 2 – Evaluating a Borrower’s Credit for Manual Underwriting Red Flag #2 Loan Application 123 Street Freddie Mac | Do Not Distribute 28
Slide 29: Repurchase
Topic 2 – Adverse Credit Events / Loan Scenario 2 – Evaluating a Borrower’s Credit for Manual Underwriting Repurchase GENERAL ELIGIBILITY REQUIREMENTS The general requirements for a Manually Underwritten Mortgage (MUM) were not met pursuant to Freddie Mac Guidelines outlined in Chapter 5202. For Man
Slide 30: Appeal
Topic 2 – Adverse Credit Events / Loan Scenario 2 – Evaluating a Borrower’s Credit for Manual Underwriting Appeal Husband Wife Freddie Mac | Do Not Distribute 30
Slide 31: Guide Section 5202.5
Topic 2 – Adverse Credit Events / Loan Scenario 2 – Evaluating a Borrower’s Credit for Manual Underwriting Guide Section 5202.5 Borrower met the requirements of Guide Section 5202.5. The account reflecting the derogatory credit was not the borrower’s responsibility and therefore not included in over
Slide 32: Key Takeaways
Topic 2 – Adverse Credit Events / Loan Scenario 2 – Evaluating a Borrower’s Credit for Manual Underwriting Key Takeaways 01 Review the Loan Product Advisor Credit Messaging 02 Review the credit requirements outlined in Guide Section 5202 03 Always investigate red flags Freddie Mac | Do Not Distribut
Slide 33: Questions?
| ‘SI Questions?
Slide 34: Topic 3 – Affordable Seconds
Topic 3 – Affordable Seconds® • Sources of Affordable Seconds® • Requirements for Participation in Appreciation • Mortgages with Affordable Seconds that are used to subsidize the purchase price of resale restricted properties • Affordable Seconds® Checklist • Investor Feature Identifiers (IFIs)
Slide 35: Sources of Affordable Seconds
Topic 3 – Affordable Seconds® Sources of Affordable Seconds The source of the Affordable Second must not be the property seller or another interested party to the transaction EXCEPT as provided in Guide Sections 4204.2(a)(i)(B) Special requirements for Seller-funded Affordable Seconds and 4204.2(a)(
Slide 36: Seller-Funded Affordable Second
Topic 3 – Affordable Seconds® Seller-Funded Affordable Second Seller requirements: • Depository institution • Programs that have been established to support Community Reinvestment Act (CRA) mandates • Must not participate in appreciation (equity sharing) Freddie Mac | Do Not Distribute
Slide 37: Seller-Funded Affordable Second
Topic 3 – Affordable Seconds® Seller-Funded Affordable Second Affordable Second • Must not be funded through the first lien mortgage transaction • May be forgivable or repayable • May be used toward the minimum down payment requirement *Additional requirements in Guide Section 4204.2 for Affordable
Slide 38: Another Source of an Affordable Second
Topic 3 – Affordable Seconds® Another Source of an Affordable Second The source of the Affordable Second must not be the property seller or another interested party to the transaction EXCEPT as provided in Guide Sections 4204.2(a)(i)(B) Special requirements for Seller-funded Affordable Seconds and 4
Slide 39: Affordable Seconds from the Property Seller
Topic 3 – Affordable Seconds® Affordable Seconds from the Property Seller This is permitted in two circumstances for income- based resale restricted properties: • The property seller may be a government agency or a non-profit entity that acts on behalf of the government agency. • The property seller
Slide 40: Delivery Instructions
Topic 3 – Affordable Seconds® Delivery Instructions Investor Feature Identifiers (IFIs) are used to identify the source of the Affordable Second The following IFI's were introduced in March of 2020 • IFI J07 – Affordable Second and the source is from a non-profit not affiliated with a government age
Slide 41: Participation in Appreciation (equity sharing)
Topic 3 – Affordable Seconds® Participation in Appreciation (equity sharing) An Agency typically is one of the following: • A municipality which includes any duly authorized authority or agency or the federal, state, local or municipal government • A non-profit community or religious organization, o
Slide 42: Flexibility for Subsidy Providers
Topic 3 – Affordable Seconds® Flexibility for Subsidy Providers • The terms of the Affordable Second may permit the agency or subsidy provider a share of appreciation exceeding the percentage of the Affordable Second if all of the following requirements are met. Example: If you have a 90% first lien
Slide 43: Guide Section 4204.2
Topic 3 – Affordable Seconds® Guide Section 4204.2 Cannot exceed the percentage of the Affordable Second unless: • The agency or subsidy provider must not charge interest on the Affordable Second • The agency’s share of appreciation must not exceed 75% unless the Affordable Second provider is a subs
Slide 44: Participation in Appreciation
Topic 3 – Affordable Seconds® Participation in Appreciation Requirements that protect the borrower’s investment in the property The terms of the Affordable Second must allow the Borrower to recover all of the following before the Agency or subsidy provider is able to share in the appreciation. • The
Slide 45: How Affordable Seconds are Used to Subsidize the Property’s Sales Price
Topic 3 – Affordable Seconds® How Affordable Seconds are Used to Subsidize the Property’s Sales Price Market Value - Resale Restricted Price = Subsidy Amount Example: $300,000 - $200,000 = $100,000 $300,000 is the market sale price $200,000 is the restricted price $100,000 is the subsidy amount and
Slide 46: Affordable Second as a Subsidy
Topic 3 – Affordable Seconds® Affordable Second as a Subsidy The typical terms of this type of Affordable Second • No payments or deferred payments • Entire balance may be forgiven at some specified point in time May not restrict Freddie Mac’s sale or transfer of a property once Freddie Mac has acqu
Slide 47: Affordable Seconds Checklist
Topic 3 – Affordable Seconds® Affordable Seconds Checklist Link to checklist – https://sf.freddiemac.com/content/_assets/resources/pdf/fact-sheets/affordable_seconds_guidelines_factsheet.pdf. Freddie Mac | Do Not Distribute 47
Slide 48: Key Takeaways
Topic 3 – Affordable Seconds® Key Takeaways New sources of Affordable Seconds Mortgages with Affordable Seconds 01 03 • Seller-funded Affordable Second • Affordable Second funded by property that are used to subsidize the purchase seller - government agency or non-profit price of resale restricted p
Slide 49: Topic 3 – Affordable Seconds
Topic 3 – Affordable Seconds® • Loan Product Advisor® • Delivery Requirements
Slide 50: Determine the Type of Secondary Financing
Topic 3 – Affordable Seconds® Determine the Type of Secondary Financing • What are the terms of the secondary financing? • Is this an Affordable Second? o If so, does it meet the requirements outlined in Guide Section 4204.2? • Does the Affordable Second require a payment before the due date of the
Slide 51: Affordable Second and Delivery
Topic 3 – Affordable Seconds® Affordable Second and Delivery (Loan Product Advisor version 5.0.06 and higher) If NO repayment is due within the first 5 years (the payment is “deferred”): • The Seller must enter the Affordable Seconds terms in the “Other New Mortgage Loans on the Property You are Buy
Slide 52: Affordable Second and Delivery
Topic 3 – Affordable Seconds® Affordable Second and Delivery (Loan Product Advisor version 5.0.06 and higher) If the Payment on the Affordable Second is deferred: (NO repayment is due within the First 5 Years) Freddie Mac | Do Not Distribute
Slide 53: Affordable Second and Delivery
Topic 3 – Affordable Seconds® Affordable Second and Delivery (Loan Product Advisor version 5.0.06 and higher) If the payment on the Affordable Second is NOT deferred: • The Seller must enter the Affordable Second terms in the Other New Mortgage Loans on the Property You are Buying or Refinancing sec
Slide 54: Affordable Second and Delivery
Topic 3 – Affordable Seconds® Affordable Second and Delivery (Loan Product Advisor version 5.0.06 and higher) IF the payment on the Affordable Second is NOT deferred: Freddie Mac | Do Not Distribute
Slide 55: Key Takeaways
Topic 3 – Affordable Seconds® Key Takeaways Two different ways an Affordable 01 Seconds can be entered into Loan Product Advisor 03 Another way if there are no deferred payments One way if the Affordable Seconds Make sure the loan has been entered 02 has deferred payments 04 correctly to ensure the
Slide 56: Questions?
| ‘SI Questions?
Slide 57: Additional Resources
Additional Resources Freddie Mac Learning Customer Contact Support Freddie Mac Single-Family Center sf.FreddieMac.com Freddie Mac Duty to Serve 1-800-FREDDIE Freddie Mac Single-Family Seller/Servicer Guide guide.FreddieMac.com Freddie Mac Single-Family Quality Control Freddie Mac | Do Not Distribute
Slide 58: Thank You
“Let’s QC” Quarterly Webinar Series – Community Lending Thank You