/ HCD Credit Initiative
Maturity Management

Date:June 2, 2009

To:Fannie Mae Multifamily Servicers

From:Caroline Blakely, VP HCD Credit Risk Management

Subject:Lender Memo 09-12: Maturity Management

HIGHLIGHTS
Fannie Mae announces changes to:
  • Requirements and sets expectations for Servicers’ maturity management process.

The purpose of this Lender Memo is to highlight current Servicers’ Mortgage Loan maturity management responsibilities as well as announce enhancements to the process. Given current commercial real estate credit markets and an increased expectation that maturing MortgageLoans will have fewer refinance options, Fannie Mae is requiring aggressive risk management practices. Servicers must proactively evaluate maturing Mortgage Loans to determine if an exit strategy exists, utilize technology to track and report to internal and external stakeholders, and communicate proactively with Borrowers.

Based on an analysis of current Servicer practices, as well as recognition of market realities, Fannie Mae is revising DUS® and NT Guide requirements with the following changes.

Policies and Procedures

  • Servicers must define a rigorous process for addressing maturing Mortgage Loan risk management that must be memorialized in its internal policies and procedures. Expected topics to be covered include internal handoffs, monitoring responsibilities, reporting requirements and required Borrower noticing and interaction.
  • At a minimum, the procedures must include the requirements of the Fannie Mae DUS and NT Guide and new requirements being introduced by this Lender Memo.

Inventory Portfolio

  • Servicers must immediately prepare a list of Mortgage Loans that are maturing over the next 24 months and send the list in the attached format to itsFannie Mae Representative by June 15, 2009 via the Deal Team Mailbox. An updated list will be required to be submitted by each Servicer monthly going forward. The Lender’s Fannie Mae Representative will work with each Lender to reconcile their list to Fannie Mae’s internally generated lists.

Portfolio Evaluation

  • The Servicer is required to proactively evaluate the Unpaid Principal Balance (UPB), Mortgage Loan count, and current operating performance of Mortgage Loans at least 24 months prior to maturity. This evaluation must include an assessment of a Property’s ability to be refinanced at current Capitalization Rate, Debt Service Coverage Ratio (DSCR) and Net Operating Income. If the Servicer anticipates refinancing the Mortgage Loan with Fannie Mae, then the analysis must be performed against current Fannie Mae underwriting guidelines.
  • The evaluation process, as applicable, should include participants from underwriting, asset management, portfolio management and finance (e.g. Mortgage Loan loss reserves).
  • Mortgage Loans will be graded as ‘Meets Criteria’ or ‘Does Not Meet Criteria’.
  • ‘Meets Criteria’: Mortgage Loan qualifies for refinance consistent with either Fannie Mae underwriting guidelines as then published or published underwriting criteria of an alternative capital source.
  • ‘Does Not Meet Criteria’: Mortgage Loan does not qualify for internal or external refinance based on current Fannie Mae guidelines.

Mortgage Loan Level Requirements

  • Any Mortgage Loan that is within 24 months of its maturity date must submit quarterly operating information if not already required under the existing Guide requirements (e.g. Small Mortgage Loans, Top Loss Pool Mortgage Loans). Quarterly operating information will be submitted through the HCD Information Exchange.
  • For any Mortgage Loan rated as ‘Meets Criteria’, the Servicer is required to complete at least one (1) full property inspection within 24 months of the maturity date. The final inspection must be a completed within 9 months of the maturity date on Form 4262. Completed inspections must be submitted through the HCD Information Exchange.
  • For any Mortgage Loan rated as ‘Does Not Meet Criteria’, the Servicer is required to complete at least two (2) full site inspections within 24 months of the maturity date. The inspections must be completed on the Form 4262. The last inspection must be completed within 9 months of the maturity date. Completed inspections must be submitted through the HCD Information Exchange. In addition, the Servicer is required to review the quarterly operating statements, analyzing operating expenses (repair and maintenance and capital expenses, particularly) to assess prudent management of the condition of the Property by the Borrower.
  • Servicers must proactively work with the Borrowers and Fannie Mae on Mortgage Loans rated as ‘Does Not Meet Criteria’.

Borrower Communication

  • Servicers are required to send the first maturity notification letter to the Borrower 18 months prior to the Mortgage Loan’s maturity date.
  • First letter notifies the Borrower of the upcoming maturity
  • Servicers are required to send the second maturity notification letter to the Borrower 12 months prior to the Mortgage Loan’s maturity date.
  • Second letter notifies the Borrower of the upcoming maturity, provides a contact name, and requests a detailed payoff plan.
  • Servicers are required to send the final maturity notification letter to the Borrower 6 months prior to the Mortgage Loan’s maturity date.
  • Final letter notifies the Borrower of the upcoming maturity, requests proof of payoff (e.g. commitment letter from alternate funding source), and notifies the Borrower that the Mortgage Loan will be placed in default if not paid off or refinanced.
  • Mortgage Loans within 6 months prior to maturity that do not qualify for either Fannie Mae then-current underwriting or the published underwriting criteria of an alternative credit source must be worked aggressively. Letters and phone calls should be used as much as needed (daily, weekly or monthly) until the Borrower provides written proof of payoff or refinance.
  • Proof of payoff can include: Certified Escrow letter, contact information of the lending institution with appropriate follow up, or other reasonable evidence.

Fannie Mae Communication

  • Each Servicer is required to submit a Monthly Maturity Management Tracking Report. The report highlights Mortgage Loans maturing within the next 24 months. The Servicer is required to submit the report even if there are no Mortgage Loans maturing in the next 24 months.
  • The report must be sent to the Servicer’s Deal Team Mailbox and the Servicer Relationship Management Mailbox on the first Business Day of every month. TheExcel form is an attachment to this Lender Memo. Updated Excel versions of the form will be available via efanniemae.com
  • In addition, each Servicer is required to submit updates to the Monthly Maturity Management Tracking Report as new information becomes available.
  • The comment section of the Monthly Maturity Management Tracking Report must include, at a minimum:
  • A report of discussions had with the Borrower (e.g. potential new lender, term of new loan, proof of payoff received),
  • The anticipated payoff date,
  • The reason the Mortgage Loan is likely to refinance, or not refinance and potentially go into default.

Please contact Greg Keith at (301) 204-8248 or email at if you have any questions regarding the contents of this memo.

If you have any specific questions about the Monthly Maturity Management Tracking Report, please contact your Fannie Mae Representative.

Attachments

Monthly Maturity Management Tracking Report

Lender Memo 09-12

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