Freddie Mac Multifamily AMO Workshop - CREFC ChecklistFreddie Mac Multifamily AMO Workshop - CREFC...
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CREFC Checklist
2017 Asset Management & Operations Servicer Workshop
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Presenters
AMO Workshop – CREFC Checklist 2
Lori Umberger
Director, Surveillance
Avani Dorawala
Manager, Surveillance
Mei-Fong Long
Manager, Surveillance
Mina Hensley
Manager, Servicer & Client Mgmt
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CREFC® templates introduction
Template tips & tricks
NOI Worksheet & coding
Comments
PRS update
Resources
Session Agenda
AMO Workshop – CREFC Checklist 3
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Submit information to PRS using
» Individual CREFC® template
» Bulk CREFC ® template
» B2B interface
Individual and bulk templates: differences regarding data content and
how they are submitted
» The individual CREFC ® template downloaded with pre-populated data; bulk
CREFC ® template can only be downloaded as a blank template
» Enterprise Now has reporting capabilities to generate a report that can be
copied and pasted into the bulk CREFC ® template
B2B capability deployed in March and we’re working with certain
business partners to fully integrate. Contact Ethan Quinn
([email protected]) to learn more.
Individual Template, Bulk Template and B2B
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Four CREFC ® templates for Multifamily and seniors housing properties
» Quarterly and Annual Multifamily template
» Quarterly and Annual Healthcare template
Each template contains
» Operating Statement Analysis Report (OSAR)
» NOI Adjustment Worksheet (NOIWS)
Template is virtually identical for both Annual and Quarterly
» Prepopulation works slightly differently
» For individual submissions, do not submit a prepopulated quarterly template
for an annual submission
» For bulk submissions, both quarterly and annual records may be submitted
on the same template
PRS – Individual CREFC Template Overview
AMO Workshop – CREFC Checklist 5
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Annual templates/submissions are required for each fiscal year-end
» Bond supplement, Co-op supplement and Unstabilized Monitoring forms
require attachments for relevant loans
» These characteristics identified in the queues
Quarterly templates/submissions required
» 1Q Reporting
– Loan is securitized and on the CREFC ® Watchlist as of 3/31
– Balance sheet special products
» 2Q and 3Q Reporting
– Non-SBL loans
– SBL only if loan is on the Watchlist as of quarter-end
» Bond supplement and Co-op supplement not required for quarterly reporting.
The Unstabilized Monitoring form IS required.
NOIWS and OSAR – Quarterly vs. Annual
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Template – Tips and Tricks
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Several data fields are commonly filled out incorrectly.
See correct entry:
Commons Errors
Enter FM Loan Number Enter Prospectus ID
Number of Units/Beds/Pads Enter Unit Type: Units, Beds, or Pads
AMO Workshop – CREFC Checklist 8
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Enter Underwritten Annual Replacement Reserves (i.e., 12 months) in the Cap
Ex Reserve field in the Property Overview. Use step-up amounts per the
Replacement Reserve Agreement as applicable.
NOIWS – Cap Ex Reserve (Property Overview)
NOIWS – Property Overview
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Select Financial Indicator and enter correct No. of Months Covered that
matches selection
NOIWS – Financial Indicator
If Annual is selected, No. of Months Covered should reflect the # of months on year-end statement
If TTM is selected, No. of Months Covered should be 12 months
If YTD Normalized or YTD Annualized selected, No. of Months Covered is typically < 12 (i.e., 3, 6, 9)
Provide comments if entries vary from typical scenarios
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Annual: Financial Indicator and # of Months
Annual
12-month
operating statement
Less than 12 months
operating statement
Financial Indicator: Annual
# of months: 12 months
Financial Indicator: Annual
# of months: equal to the
number of months reported
Annualize Borrower
actuals in adjustment
column
Any annualization of reported data should be reflected in the Adjustment column and then footnoted in
the NOIWS comments. The beginning and ending date of the statement should be reported in the
comments.
AMO Workshop – CREFC Checklist 11
Path 1
Path 2
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Quarterly: Financial Indicator and # of Months
Quarterly
Less than 12 months
operating statement 12-month
operating statement
Financial Indicator: TTM
# of months: 12 months
Financial Indicator:
YTD Normalized
# of months: equal to the
number of months reported
Financial Indicator:
YTD Annualized
# of months: equal to the
number of months reported
Annualized
Borrower Actuals in
Normalized Column?
Normalized?
Any annualization of reported data should be reflected in the Adjustment column and then footnoted in
the NOIWS comments. The beginning and ending date of the statement should be reported in the
comments.
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Path 1
Path 2
Path 3
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NOI Worksheet and Coding
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When entering data into the Borrower Actual column, refer to the CREFC ®
Master Coding Matrix for the appropriate income and expense category per
line item in the Borrower’s Operating Statement
» Master Coding Matrix can be found on page 96 of CREFC ® IRP Version 8.0
» Freddie Mac converted the matrix to Excel and posted it to our website
Each property type has specific coding guidelines
Coding Borrower’s Statement Per CREFC
AMO Workshop – CREFC Checklist 14
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Coding Common Revenue Line Items
Revenue Line Items Coding
Bad Debt Vacancy
Model Unit Loss GPR or Base Rent
Concessions Vacancy
Security Deposits Collected/Returned/Interest Eliminate
Interest Income Eliminate
Interest Reduction Payments Miscellaneous Income
Freddie Mac is inconsistent with the CREFC ® requirements regarding Bad
Debt
Bad debt should be INCLUDED with vacancy loss
Classify loss/gain to lease and short-term premiums in Gross Potential Rent (or
Base Rent)
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Commonly Miscoded Expense Line Items
Expense Line Item Code To
Professional Fees Professional Fees
Trash Utilities
Security G&A
Subcontracted Labor Payroll & Benefits
Turnover Expenses R&M
Employee Unit Loss Payroll & Benefits
AMO Workshop – CREFC Checklist 16
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Tenant Improvements & Leasing Commissions (TI&LC)
» IF property has commercial space, TI&LC will remain in Capital
Expenditures (CapEx) (normalized to underwritten amount)
» IF property does NOT have commercial space, TI&LC should be added to
Other expenses
If available, recommend submitting work showing how Borrower’s
Statement is coded
» Scratchpad provided in the individual template download
» Manually write on the Borrower’s Statement where each item is coded and
upload as an additional attachment with other required documents (i.e.,
original Borrower’s statement and rent roll)
Expense Line Items
AMO Workshop – CREFC Checklist 17
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CapEx should be reported as is per the Operating Statement in the Borrower
Actual Column, then adjusted in the Adjustment Column to match CapEx per
Freddie Mac UW in the Normalized Column. The assessment will be returned
if CapEx does not align with UW or the Loan Agreement/Reserve Agreement
» If the I&E numbers are < 12 months of data (i.e., for Quarterly submissions YTD
Normalized), prorated CapEx should be reported in Normalized Column
Extraordinary CapEx will be adjusted out per CREFC Master Coding Matrix
guidelines and Servicer should add comment on both NOIWS and OSAR
explaining the nature of these expenditures
» Extraordinary CapEx: actual major capital expenditures that were not anticipated
Capital Expenditures (Income & Expense)
NOIWS – Income and Expense
If Annual or YTD Annualized numbers (i.e., 12 months) are reported, the CapEx should be 12 months of CapEx
If I&E numbers reported are < 12 months, then the amount reported in CapEx should be prorated accordingly
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Normalization Guidance per the CREFC IRP:
» Property Taxes: Reflect the actual amount due or paid directly by Servicer
for the reported calendar year. Exclude any delinquent taxes or credits from
prior years.
» Insurance: Reflect, if escrowed, actual amount due or paid directly by the
Servicer for the reporting calendar year. If not escrowed, use greater of the
Borrower actual or underwritten
» Management Fee: Reflect borrower reported fee; however, normalize to
UW if MF % is less than what was used for underwriting
NOIWS – Normalization Guidance
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Include actual amount due from the Borrower for the reporting period
» If loan is converting from interest-only to amortizing during the reporting
period, ensure both payment types are prorated accordingly
» For combo i/o’s that convert during the reporting period, Servicer should
stress NCF with full amortizing requirements and note stressed DSCR in
comments
» For loans that gain supplemental financing during reporting period, begin
reporting the supplemental’s debt service the month it was due
Debt Service
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For loans with multiple liens, debt service for all liens should be
reported
Lien outstanding balance and debt service requirements
» First lien goes in “Note A”
» Second lien in “Note B”
» Third lien in “Note C”
See handout for situations with more than three liens on the property
Debt Service for Multiple Liens
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Comments and Best Practices
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Comments
» Normalization and annualization explanations
» Begin date for operating statement for annualized numbers
» Adjustments
» Omitted items outside the Master Coding Matrix
» Highlight odd fiscal years
» Debt service adjustment / variances / methodologies
NOIWS – Comments Section
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OSAR comments should include (where applicable)
» Per CREFC ® guidelines, no variance commentary is required on a
quarterly basis unless the loan is on the Watchlist
– We reserve the right to follow up if further clarification is needed
» Variances greater than 20% (higher or lower) between the current
full year and prior full year for the following:
– Effective Gross Income
– Total Operating Expenses
– Total Capital Items
– DSCR
» Variance from underwriting exceeds the above thresholds for the
first 3 years of reporting or while underwriting is still relevant
OSAR – Comments Section
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» For Watchlist or RR 7-10, comments address the following
– Define the problem/issue and explain the situation
– Identify root causes for fluctuations in income or expenses that exceed
thresholds mentioned above
– Identify source of information (Property manager, Borrower, Primary
Servicer)
» Best Practices
– Include Market data if relevant and available, noting concerns or
improvements and property performance relative to competition
– Provide property manager’s/Borrower’s plan to improve cash flow if the
property is on the Watchlist or not performing as well as expected based
on the original underwriting, if still relevant
OSAR – Comments Section (Cont’d)
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Incorrect Financial Indicator based on submission type
Incorrect number of months reported
Historical financials previously submitted through PRS are not reported
in current submission
CapEx does not match UW/Agreements for Annual, TTM and YTD
Annualized statements or is not prorated for YTD Normalized
statement
Occupancy rate incorrectly formatted (i.e., 9876% vs. 98.76%)
Debt service
» Multiple liens are not reported in the correct Note/lien position
» Inaccurate Debt Service reported
Common Return Reasons
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PRS July 2017 Release
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Upcoming changes to PRS include a new Financial Statement / Rent
Roll Queue
PRS July 2017 Enhancements
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Other Resources and Questions
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Desk References
» Provides FM recommended responses in certain data fields for which
Seller/Servicers may need further guidance
» http://www.freddiemac.com/multifamily/seller_servicer/asset/
– PRS CREFC Individual Desk Reference
– PRS CREFC Bulk Desk Reference
– SBL New Servicer Curriculum
Introductory Guide to the CRE Finance Council-Investor Reporting
Package
» Provides comprehensive instructions on how to complete OSAR and NOIWS
» http://www.crefc.org/CREFC/Resources/CREFinanceCouncilIRP/CREFC/Ind
ustry_Standards/CREFC_IRP/CREFC_IRP.aspx?hkey=ebd69be8-e54b-
41d2-b4eb-d18abe844429PRS
Resources
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1. Debt Service Table
Appendix: CREFC Checklist
31AMO Workshop – CREFC Checklist
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Debt Service Table
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