Internal Controls in a Government Mortgage Securities Program

1. Internal Controls in a Government Mortgage Securities Program

2. Ginnie Mae 2 Ginnie Mae�s Mission

5. Ginnie Mae 5 Benefits of a Ginnie Mae MBS Full Faith and Credit of the U.S. Government Higher yields than Treasury yields Highly liquid security instruments - Easily Bought and Sold on global capital markets Monthly Cash Flow Guaranteed to Investors Diverse Universe of Products (Pool types) Uniform Quality Less susceptible to adverse market events

6. Ginnie Mae 6 What�s behind the Ginnie Mae Guarantee? The Full Faith and Credit Guaranty of the U.S. Government Benefits: Investors benefit because the guaranty ensures zero credit risk to investor community - Credit Risk is a financial risk that an obligation will not be paid and a loss will result Mortgage lenders benefit due to high demand for Ginnie Mae MBS Most importantly, low- and moderate-income homebuyers benefit from increased loan availability in the marketplace

7. What Ginnie Mae Does Raise capital for FHA and other government-insured Loans Created and issued first ever MBS Guarantee Issuer (servicer) specific performance Ginnie Mae guarantees that a servicer will meet its obligations regardless of the cost or resources needed to do so 7

8. Secondary Market for Government and Conventional Loans 8

9. Difference Between Ginnie Mae and GSE 9

10. The Capital Raised by Ginnie Mae Impacts Housing Provides 30-year, fixed-rate mortgages Expands affordable housing Provides secondary market liquidity Lowers financing costs Provides affordable rental housing Supports administration crisis efforts Countercyclical to private sector 10

11. Contingent Risk: Issuer/Servicer Failure Financial safety and soundness of Issuer Mitigation Tools Net Worth Requirements � Ginnie Mae implemented increased net worth, capital, and liquid asset requirements for all Single-Family, Multifamily, HECM, and MH Issuers Single-Family = $2.5 million Multifamily = $1 million HECM = $5 million MH = $10 million 11

12. Ginnie Mae 12 Mortgage-Backed Securities MBS trade through the Capital Markets - Secondary Market No new Credit Underwriting Uniform Quality-a Ginnie Mae is a Ginnie Mae Full Faith and Credit Guaranty gives MBS liquidity & highest rating in Bond Market MBS Widely Accepted

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14. Ginnie Mae 14

15. The Secondary Market: Recycling Capital 15

16. Ginnie Mae 16

17. Ginnie Mae 17 Program Participants Mortgagor Issuer Document Custodian Funds Custodian Pool Processing Agent/Central Paying/Transfer Agent Ginnie Mae Clearance, Settlement and Payment Processing Institution (Depository) Investors/Security Holders Data Collection, Analysis and Risk Management Agent Field Review Contractor

18. Ginnie Mae 18 General Issuer Eligibility Requirements FHA Approval Primary Mortgage Market Lending as a Principal Business Activity Management Capability Quality Control Program Lender is and remains in Good Standing with FHA, the GSEs and other Agencies Electronic Data Interchange (EDI) Agreement

19. Ginnie Mae 19 Issuer Financial Eligibility Requirements Net Worth Requirements Financial Statements and Documents Fidelity Bond/Errors & Omissions (�E&O�) Insurance

20. Ginnie Mae 20 Ginnie Mae MBS I All loans hold the same interest rate in Security Eligible Pools must contain at least 3 loans -$1,000,000 Monthly Remittance (Pass-Through to Investors) is on the 15th calendar day of each month. FRMs and other minor pools types-no ARMs Includes Multifamily collateral

21. Ginnie Mae 21 Ginnie Mae MBS II Custom Pools and Multiple Issuer Pools (MIPs) Custom-3 loan minimum and $1,000,000 Multiple Issuer-3 loan minimum & $250,000 Mixed Interest Rate Loan Collateral is Allowed within 25 BP to 75 BP Spread ARMs or FRMs allowed Pass Through is on 20th calendar day of each month

22. Ginnie Mae 22 Multiclass Products REMICs are custom-designed securities that redirect MBS cash flows to different classes of investors Examples: Sell fixed-rate MBS as a floating rate security (floater & inverse floater) Sell the principal to one buyer & interest to another Platinums combine many small MBS positions into a single new security for ease of management and better pricing

23. CONTROLS Ginnie Mae 23

24. Ginnie Mae 24 Issuer Responsibilities Issuers must pay to investors monthly the principal and interest (P&I) due on the pooled mortgages, whether or not actually received from the borrowers Issuers may be obligated to advance P&I funds from their own corporate funds for many months until, for instance, loan delinquencies are cured, foreclosures can be completed, and an insurance claim is received from FHA, VA or the RD If an Issuer becomes unable or unwilling to fund any remittance shortfalls through advances, Ginnie Mae will default that Issuer, seize the portfolio and service the loans to ensure the government guarantee remains intact Ginnie Mae�s guarantee fee of 6 basis points per pool monthly for single family and 13 basis points for multifamily provides adequate reserves for defaults and ongoing administrative expenses

25. Ginnie Mae 25 Issuer Reporting Obligations to Ginnie Mae Annual Audited Financials Quarterly Financial Reporting Monthly Reporting to Ginnie Mae on Pools Monthly Loan Level Detail Reporting Why all these Reports?

26. OVERVIEW: PPA/CPTA ROLE New Pool Issuance Agent Maintain Central Registry Transfer Agent RPB Collection Agent Central Paying Agent Unclaimed Funds Monitor Trustee and Administrator Information Agent Ginnie Mae 26

27. Ginnie Mae 27 Ginnie Mae�s Pre-pooling Requirements for Issuers Current Master Agreements on File Sufficient Commitment Authority to Pool Issuers must remain in �Good Standing� (No �stop codes� which may preclude pooling).

28. ISSUER PRE-POOLING REQUIREMENTS Enrolled as an authorized user of the GinnieNET System. Have Sufficient Commitment Authority (CA) to cover the outstanding balance of collateral being pooled. Be able to transmit a valid pre-assigned pool number. Ginnie Mae 28

29. Web-based GinnieNET: Issuer Roles GinnieNET allows three types of users: 1. Enrollment Administrator 2. Data Entry Staff 3. Authorized Signer Ginnie Mae 29

30. Enrollment Administrator Enrollment Administrator: Adds users, assigns roles, verifies credentials for fingerprint enrollment and resets passwords. In-person enrollment is mandatory with PPA/CPTA. Typically the Enrollment Administrator is the Issuer�s security administrator, not a data entry user. Ginnie Mae 30

31. Data Entry User Data Entry User: Performs pool data entry for the Issuer, whether through manual keystroke or through automated file upload; generates pool reporting. Ginnie Mae 31

32. Authorized Signer Authorized Signer: Has network access and initiates communication with the network. Validates, biometrically, that pool transmissions are consistent with all Ginnie Mae rules and procedures. This staff member must be named on the form HUD 11702: Resolution of Board of Directors and Certificate of Authorized Signatures. Ginnie Mae 32

33. Pool Processing: IPMS IPMS � Integrated Pool Management System, New Pool Processing Module: Confirms Issuer�s available Commitment Authority (�CA�) balance Verifies Issuer�s pre-assigned pool number Checks Issuer�s eligibility status (�good standing�) Obligates (draws down) the outstanding balance being pooled from the Issuer�s commitment line balance Ginnie Mae 33

34. Central Registry Holds all Ginnie Mae MBS certificates and certificate holders, which the CPTA updates and maintains for Ginnie Mae. This file allows automatic validation of certificate transfers and posting of original issue securities. The Central Registry also contains pool and issuer information. The Ginnie Mae guaranty is based on records maintained in the Central Registry. Ginnie Mae 34

35. Ginnie Mae 35 Monthly Remittance (P&I) to Security Holders Vital to UpholdGinnie Mae Guaranty Issuers must make their �Pass Through� obligations to investors, as scheduled. Arrange for ACH of Ginnie Mae I payments to FRB and Ginnie Mae II payments to CPTA Establish and have Proper Funds in Ginnie Mae I and II sweep account RPB REPORTING IS KEY- Initial RPB activity due NLT 2nd BUSINESS DAY of each month with corrections due NLT 4th BD of each month

36. Final Certification Issuers are required, within one year of pool issuance, to provide Ginnie Mae with a �Final Pool Certification� from the Document Custodian Ginnie Mae 36

37. The Reporting and Feedback System (RFS) allows Ginnie Mae to monitor their Issuers� performance and monthly reporting progress. Access is provided to Issuer submitted data, control reports, and query/search screens which aid in the monitoring of each Issuer Additional modules such as those listed below allow Ginnie Mae to effectively monitor the other operational aspects of the MBS programs: Service members Civil Relief Act (SCRA) Custodial Account Verification System (CAVS) Independent Public Accountant (IPA) Matching and Suspense (MAS) Data Disclosure (DD) Ginnie Mae Portfolio Analysis Database System (GPADS) E-Notification (eN) Contact Management (CM) RFS Overview

38. Overview of Single Family Loan Matching Loan Matching is an �Operations and Data� process Monthly process run each reporting period Matches loans in new pools Matches loans In existing pools---�Recycles� any non matched loans from previous period Inputs are Issuer reported loan data and agency (FHA, VA, RHS) �Master File� data Internal Ginnie Mae systems and data processing Objective is to match Ginnie Mae loan record to Agency loan record on specific pre-established criteria

39. Overview of Loan Matching FHA Monthly Originations Match Case Query (CHUMS) Loans in New Pools VA Monthly Originations Match RHS Monthly Originations Match Monthly FHA Match Monthly VA Match Monthly RHS Match Match to Terminated � FHA Only

40. RFS � monthly reporting system with live data, which is used to identify inconsistencies with issuer reporting, as well as monthly matching results. Ginnie Mae Portfolio Analysis Database System (GPADS) � risk analysis tool that provides Ginnie Mae with a variety of information on its MBS portfolio, summarized at the issuer, lender, and overall program levels. Used to support Ginnie Mae�s issuer monitoring efforts as well as broader information and analytical needs, GPADS enables Ginnie Mae to monitor portfolio performance at the lender, issuer, and program levels. Standard Monthly / Quarterly Reports � include analysis on program, issuer, and portfolio levels that track recent activity and trends with regard to a variety of topics, such as issuance activity, delinquency performance, early payment defaults, and liquidation volume. Risk Analysis Tools

41. GPADS is a management tool that allows Ginnie Mae to monitor risk using portfolio statistics, and to benchmark issuers� portfolio performance against broader Ginnie Mae and peer group trends. Enables Ginnie Mae to assess risk at the following levels: Lender Analysis Lender origination volumes and subsequent delinquency performance Compositional characteristics and identification of servicers purchasing from each lender Issuer Analysis Portfolio trends, composition, geographic location, delinquency performance and benchmarks, issuance and liquidation volumes/breakouts, and related portfolio analysis Includes scored risk models : portfolio, compliance, financials, and insurance Programmatic Analysis / Management Queries Overall Ginnie Mae portfolio statistics and norms Lists of issuers meeting different criteria Drill-down to specific loans with various risk characteristics Ginnie Mae Portfolio Analysis Database (GPADS)

42. Standard Monthly / Quarterly Reports

43. Standard Monthly / Quarterly Reports

44. Monthly Loan Level/Pool Level Data After pool has been issued, Issuers are required, on a monthly basis, to provide Ginnie Mae with updated loan level and pool level information. Data provided is used by Ginnie Mae to continually monitor portfolio activity. Ginnie Mae 44

45. Office of Finance Assessing risk is a major part of the Finance Office in an organization. Financial Statements Fiscal Year Financial Statement Audit A-123 Review The CFO must also use assessing risk as a major part of the organization�s strategic decisions. Ginnie Mae 45

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