Freddie Mac Multifamily AMO Workshop - CREFC ChecklistFreddie Mac Multifamily AMO Workshop - CREFC...

CREFC Checklist

2017 Asset Management & Operations Servicer Workshop

© Freddie Mac

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

© Freddie Mac

CREFC® templates introduction

Template tips & tricks

NOI Worksheet & coding

Comments

PRS update

Resources

Session Agenda


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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


© Freddie Mac

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


© Freddie Mac

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


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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


© Freddie Mac

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.


Path 1

Path 2

© Freddie Mac

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



Financial Indicator:

YTD Annualized



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.


Path 1

Path 2

Path 3

© Freddie Mac

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


© Freddie Mac

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)


© Freddie Mac

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


© Freddie Mac

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


© Freddie Mac

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


© Freddie Mac

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


© Freddie Mac

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


© Freddie Mac

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


© Freddie Mac

Comments and Best Practices


© Freddie Mac

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


© Freddie Mac

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


© Freddie Mac

» 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)


© Freddie Mac

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


© Freddie Mac

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

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