1. Copyright © 2016 Zackin Publications Inc. All Rights Reserved.Subscription information is available online at www.sm-online.com.
A
ccording to the Mortgage Bank-
ers Association’s National De-
linquency Survey, mortgage
delinquency rates have decreased to the
lowest levels in almost a decade. The
decrease in delinquency rates and the
increased cost of servicing have shifted
the industry’s focus to risk management
and fiscal accountability.
This may be the best climate for ser-
vicers to re-evaluate their understanding
and utilization of their primary partner
in achieving risk mitigation - investor re-
porting. Despite its significance, the role
of investor reporting is largely unknown
or misunderstood.
Why does investor reporting matter,
and why should it be a primary partner
in a servicer’s risk mitigation activities?
When properly utilized, the investor
reporting group within any servicing
organization is the focal point for risk
mitigation and oversight of the servicing
process. To ensure accurate reporting
and remittance, an investor reporting
department should have a fundamental
grasp of contract interpretation, pay-
ment processing, foreclosure, claims,
general accounting and loss mitigation
concepts and of how they translate to
individual investor requirements, while
also meeting corporate objectives.
The reporting group’s understanding
of the financial implications of the dif-
ferent remittance types and their loss
exposure ramifications, as well as the
appropriate advance management and
recovery methods for the loan popu-
lation, is why it is positioned to aid
servicers in avoiding expensive and po-
tentially financially crippling relationships.
Investor reporting facilitates risk
management by providing process and
financial management oversight and fis-
cal risk mitigation. For the risk-aware
servicing shop, the investor reporting
group is essentially the “last line of de-
fense” and litmus test for the organiza-
tion’s operational effectiveness.
The nature of investor reporting re-
quires all aspects of the servicing process
to funnel through the monthly reporting
and provide a panoramic view of pro-
cess efficiency for both performing and
nonperforming metrics. As anomalies or
potential issues are identified, investor re-
porting performs due diligence to review,
research and coordinate the resolution of
the issues and underlying causes with the
applicable lines of business. This group
Reprinted with permission from the November - December 2016 issue
Investor Reporting:
A Servicer’s Primary Partner
In Achieving Risk Mitigation
Despite its significance, the role
of investor reporting is largely
unknown or misunderstood.
by Ona Ngnoumen

2. Copyright © 2016 Zackin Publications Inc. All Rights Reserved.Subscription information is available online at www.sm-online.com.
ensures that the appropriate regulatory
and investor compliance requirements
are met.
As servicers invest in the purchase
of mortgage servicing rights (MSRs) to
alleviate the spiraling cost of servicing,
both bank and non-bank servicers are
actively looking for ways to diminish
their financial exposure and may under-
value investor reporting as an integral
partner in the process. Although bank
servicers have the advantage of deposits
and a lower cost of capital, non-bank
servicers often have a cost of capital
rate significantly higher than their bank
counterparts. This disparity is exacer-
bated when advance requirements are
factored in.
A well-versed investor report-
ing group can help solve for the best
reporting type and advance recovery
mechanism to help alleviate these costs.
Additionally, proper monitoring and
management of the advance mechanism
helps optimize cost by ensuring that the
organization maintains razor-sharp mar-
gins on its advance requirements.
These are just a few of the areas
where a risk-astute operation can lever-
age its investor reporting department
as a partner in risk management and
mitigation of financial exposure. Such
an operation would also be positioned
to address the more recent government-
sponsored enterprise (GSE) changes to
investor reporting focused on enabling a
more uniform and simpler reporting ap-
proach that provides transparency into
low-level loan details to support height-
ened risk awareness.
The creation of the Federal Housing
Finance Agency (FHFA) and its conser-
vatorship of the GSEs make it advan-
tageous for investors and servicers to
have uniform requirements and inter-
faces in the sale and administration of
loans. To facilitate this, the FHFA is col-
laborating with Fannie Mae and Freddie
Mac to create the Common Securitiza-
tion Platform and Single Security.
Fannie Mae reporting
Fannie Mae initiated the evolution by
overhauling its 40-year investor report-
ing requirements in a move that has
had servicers and technology provid-
ers collaborating for the past two years
to comply. An implementation date of
February 2017 and the volume of par-
ticipants have necessitated the need for
service providers to perform surrogate
testing on behalf of their clients. Despite
their execution and operational com-
plexities, the focal points of the Fannie
Mae changes and their implications can
be summarized as follows:
For loan reporting, the major change
is going from pool-level “aggregate” to
loan-level reporting. Fannie Mae encour-
ages daily reporting of loan-level trans-
actional activity. Loan activity reporting
is now due on the 22nd calendar day or
previous business day and month-end.
In addition, mortgage insurance
cancelation or termination is to be re-
ported. Servicers are also responsible
for daily loan payoff, liquidation and
removal reporting. Payoff reversals will
no longer be allowed. If a loan is acci-
dentally removed from a pool, it cannot
be re-added.
A moratorium on loan sales during
the month of February 2017 will help
facilitate a smooth transition.
It is necessary to note, especially in
scheduled pools, that although Fannie
Mae has assumed the responsibility of
balancing the “pool,” the servicer still
bears the onus of assessing loan-level
test-of-expected and pool-to-security
metrics. These ensure that the principal
balances sold to the security or “pool”
aligns with the actual activity and prin-
cipal balances in the deal. It is the
servicer’s responsibility to take the nec-
essary measures to research and resolve
any discrepancies and bring the bal-
ances in line.
Additionally, the Fannie Mae require-
ments bring into question the fate of
Fannie Mae securities in subservicing
relationships in which the subservicing
agreement and servicing are facilitated
as a “private” investor reported to a
master servicer. Do the multiple report-
ing requirements also apply to them? If
so, this may necessitate a change to ei-
ther the existing servicing agreement to
facilitate the subservicer’s ability to re-
port directly to Fannie Mae and account
for the additional operational costs or
the master servicer’s reacquisition of the
MSRs in order to comply.
Freddie Mac reporting
As Fannie Mae leads the charge in
investor reporting changes, Freddie Mac
is not far behind, as it continues to mea-
sure the energy around the proposed
changes. The theme of uniformity to
industry standards prompted specula-
tion around the depth of changes that
Freddie Mac would implement. The in-
dustry wondered if the Freddie Mac
changes would align with industry stan-
dards and whether they would involve
what would be a seismic shift in existing
Freddie Mac policy, such as a change
from schedule/actual to schedule/
schedule, mid-month to end-of-month
reporting, and daily to once-a-month
payoff remittance.
These prompted concerns around
how scheduled balances would be de-
termined - Freddie’s expectations
around the remittance of “delinquent”
principal by servicers on previously “ac-
tual” balances - and the effects of these
changes on existing MSR valuations, as
the additional advance requirements
were not previously priced into the deal.
The speculations may have sublimi-
nally influenced Freddie Mac, as its cur-
rent position, although momentous, is
not as drastic as anticipated. The ma-
jor highlights for Freddie Mac are as
follows:
The major change is that the report-
ing cycle and borrower activity period
will be a calendar month cutoff. Freddie
strongly encourages daily reporting of
loan-level transactional activity. “All in”
reporting is due on the determination
date of the 15th or next business day.
As Fannie Mae leads the charge
in investor reporting changes,
Freddie Mac is not far behind, as it
continues to measure the energy
around the proposed changes.

3. Copyright © 2016 Zackin Publications Inc. All Rights Reserved.Subscription information is available online at www.sm-online.com.
Adjustments or corrections are to be re-
ported through the first business day of
the subsequent month.
As far as forecasted interest goes,
Freddie Mac will require servicers to
provide updated scheduled interest cal-
culations or “forecasts” with every prin-
cipal transaction cycle, or adjustment.
The principal remittance cycle re-
mains a mid-month. The payoff report-
ing and remittance remains unchanged.
Freddie Mac’s new requirements also
mean a single remittance type - i.e., the
elimination of the accelerated remit-
tance cycle (ARC), super ARC, “first
Tuesday” reporting, etc.
Further, the due date of last paid
installment is now driven by investor
reporting, not electronic default report-
ing (EDR), as this will eliminate the dis-
connect between the month-end EDR
reporting and the mid-month investor
reporting.
What’s more, servicers will have
more time during the month to research
and resolve edits.
In reality, the Freddie Mac proposal
suggests more of a “simulated“ industry
standard month-end reporting and re-
mittance cycle. Freddie Mac’s require-
ments still retain their “uniqueness” in
the industry. There is an apparent mis-
alignment between the reporting and
remittance - the former being driven
by the calendar month and the latter
remaining mid-month. Simplicity sup-
ports the alignment of reporting and
remittance to the same cycle. However,
in retaining a schedule/actual format,
Freddie Mac is working to keep the
principal and interest payments report-
ed and remitted within the same period.
One of the factors to consider is the
ability of Fannie Mae, the service pro-
viders and servicers to effectively exe-
cute the Fannie Mae changes. The level
of execution will determine the neces-
sity of a “cleanup” and the requisite
amount of time needed to facilitate it.
The outcome of the Fannie Mae initia-
tive is pivotal, as lessons learned will be
leveraged by Freddie Mac in its initiative.
Not to be forgotten, Ginnie Mae has
expressed interest in the ongoing inves-
tor reporting changes, if only currently
as an avid spectator.
Ultimately, these are holistic chang-
es that permeate the entire servicing
operations arena but are interpreted
through the investor reporting process.
Once completed, the changes to inves-
tor reporting will provide a uniform
risk management approach to reporting
and remitting. Although the underly-
ing investor reporting concepts remain
unchanged, the presentation will be uni-
form and asset management-based. It
should close the gap and diminish the
need for vastly different knowledge re-
quirements among Freddie, Fannie and,
potentially, Ginnie reporting. However,
the investor reporting and funds man-
agement process will evolve into a more
“real time” asset management process.
The change requires a greater under-
standing of the business and its underly-
ing product.
All of these factors require ser-
vicers to ask themselves the following
questions:
Are you investing in the appropriate
risk optimization strategy?
Are you optimally engaging and
utilizing all of your risk mitigation
partners?
And, most importantly, is your inves-
tor reporting group positioned to meet
your strategic risk and growth objec-
tives? s
Ona Ngnoumen is vice president of investor
reporting for mortgage lender BB&T. She can be
reached at ongnoumen@bbandt.com. (Note:
The opinions expressed in this article are those
of the author, and they do not reflect in any way
those of BB&T Mortgage.)