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FDIC Shared-Loss Program Overview. December 2011. Topics for discussion. Review the purpose, structure and size of the shared-loss program Describe the shared-loss agreement requirements Review the compliance monitoring process. 2. 2. Overview of the Shared-Loss Program . 3.

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FDIC Shared-Loss Program Overview


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    1. FDICShared-Loss ProgramOverview December 2011

    2. Topics for discussion Review the purpose, structure and size of the shared-loss program Describe the shared-loss agreement requirements Review the compliance monitoring process 2 2

    3. Overview of the Shared-Loss Program 3

    4. Shared-Loss Program What is the purpose of the shared-loss program? • The primary purpose of the program is to minimize resolution costs by: • Keeping assets in the banking sector after bank failure • Minimizing the FDIC’s operational risks and liquidity needs • Providing loan modifications and restructurings • Maintaining and -- where possible-- increasing asset value 4

    5. Shared-Loss Program What are the major elements of a Shared-Loss Agreement? • Single Family: • Coverage for loans collateralized by single family 1-4 unit properties (first and subordinate liens). • Agreements have a 10 year term • Assuming banks must follow FDIC loan modification program or HAMP • Credit loss coverage for: 1) modified loans, 2) short sales, 3) sold foreclosed real estate • Commercial: • Coverage on a variety of commercial loans such as office, retail, hospitality and construction. • Agreements 8 years; first 5 years for losses & recoveries, 3 years for recoveries only • Credit loss coverage is provided when: • Assets are written down according to examination criteria of the purchaser’s primary regulator • Assets are sold (note sales require FDIC approval) • For All Agreements: • Qualifying expenses to third parties are capitalized or treated as a covered loss • Coverage is allowed for up to 3 months of accrued but unpaid interest 5

    6. How has the general structure of Shared-Loss Agreements changed over time? Shared-Loss Program As of July 31, 2011, 128 (or 49%) of the agreements have a 95/5 split, of which 7 agreements have crossed the 95/5 threshold. 6

    7. What is the sizeof the shared-loss program? Shared-Loss Program Asset Summary 1 Percent liquidated (% LIQ) represents: Principal pay-offs, pay-downs, short sales, foreclosure sales, and funding draws Net principal write down include estimated: charge-offs, losses on short sales and foreclosure sales, principal write offs, and capitalized expenses Total number of loans = 853,000(single family residential loans = 331,000 and commercial loans = 522,000) 7

    8. What is the size of the shared-loss program? Shared-Loss Program • At the end of July 2011, there were 261 failures (net of 3 terminated agreements). • As of July 2011, the single family assets represent 36%, and non-single family assets represent 64% of the total loss share portfolio. The liquidation rate on the initial asset balance is 28%. 8

    9. Shared-Loss Requirements

    10. Single Family Resolution Strategies: Overview SLA Requirements FIRST LIEN Resolution Strategies Loan Modification Short Sale Foreclosure Sale STAND ALONE SECOND LIEN REQUIRES FDIC APPROVAL Charge-Off Bulk Sale Loss claims are submitted only for modifications or when the foreclosure is completed and the collateral is sold Within the Single Family Shared-Loss Agreement, the FDIC provides loss coverage for 5 basic types of resolution strategies that may be employed based on least loss analysis:

    11. What is DRR’s role in monitoring SF requirements in the Shared loss Agreement? SLA Requirements 1 AI may already be a HAMP servicer. If so, servicer uses HAMP first. • START: • Initial Site Visit • Loss Share Specialist briefs AI on LM options (HAMP, FDIC, Proprietary) • Loss Share Specialist provides SF modification and NSF restructuring guidance 2 AI implements FDIC Program. Loss Share Specialist reviews AI Policies and Procedures and confirms compliance with FDIC. AI considers program type 3 AI may propose a self-designed Proprietary * program for loans which do not qualify for FDIC or HAMP. * Proprietary Program Qualifications: These may apply to loan and specialty property types that are not covered by HAMP (e.g., non-owner occupied investment property, option ARMs, mobile homes, vacation homes). 11

    12. Market Comparison How does the 90+ delinquency rate for the single family portfolio compare to the market? 90+ DQ as a percent of total Subprime Alt-A FDIC Total Mortgage Market GSE • Notes: • Failed bank data was sourced from the single family certificate, and includes first lien notes only • 90+ days delinquent includes loans in foreclosures • Subprime and Total Mortgage Market data was sourced from the Mortgage Bankers Association • Alt-A data was sourced from Loan Performance, Inc • GSE data was sourced from FHFA

    13. Where is the Shared Loss Portfolio located? Single Family (SFR) Concentration of $UPB per State $6,000,000,000 - $20,000,000,000 (2) $1,000,000,000 - $6,000,000,000 (5) $100,000,000 - $1,000,000,000 (27) $0 - $100,000,000 (18) • Source: FDIC’s Loss Share Analytical Database, RSAD, as of September, 2011. • Note: Because the loan level data of certain assets and loans does not contain usable geographical information, 17,415 loans with UPB of $1,943,742,651 are not displayed on this chart. 13

    14. Commercial Shared-Loss Asset Resolution: Overview SLA Requirements Within the Commercial Shared-Loss Agreement, the FDIC provides loss coverage for documented charge-offs and actual expenses and allows 4 types of resolutions based on least loss analysis: Shared-Loss Asset Resolution Covered Loss Events Charge-offs & Recoveries Reimbursable Expenses Asset Disposition Events Permitted Amendments Permitted Advances REQUIRES FDIC APPROVAL Loan Sales Exceptions

    15. SLA Requirements What are the AI documentation and SLA basic compliance requirements? • Keep books and records sufficient to ensure and document compliance, including but not limited to: • Documentation of alternatives considered with respect to defaulted loans or loans at risk of default • The calculation of loss claims submitted to the FDIC • Support for each line item on the loss claim • Recovery amounts on loans after loss share payments were received • Manage, administer and effect charge-offs and recoveries for each loan in accordance with: • Usual and prudent business and banking practices and customary servicing procedures • The AI’s practices and procedures, including the written internal credit policy guidelines for the AI’s non-SLA assets • Retain sufficient staff to perform its duties under the SLA

    16. Where is the Shared Loss Portfolio located? Non-Single Family (NSF) Concentration of $UPB per State $6,000,000,000 - $20,000,000,000 (4) $1,000,000,000 - $6,000,000,000 (9) $100,000,000 - $1,000,000,000 (23) $0 - $100,000,000 (16) • Source: FDIC’s Loss Share Analytical Database, RSAD, as of September, 2011. • Note: Because the loan level data of certain assets and loans does not contain usable geographical information, 64,195 loans with UPB of $18,631,780,380 are not displayed on this chart. 16

    17. Compliance Monitoring Contractors (CMCs)

    18. Compliance Monitoring How is compliance verified? • FDIC specialist visits the bank within 30 days of assuming the failed bank assets • The Specialist and Compliance Monitoring Contractor (CMC) review monthly/quarterly certificates for loss claim payment • The CMC does an annual visit to audit policies and procedures, compliance to the agreements, and payments and follows up with regular off-site monitoring of the AI • The CMC issues a report that describes any findings and recommends corrective actions • DRR produces a Watchlist that details various steps of non-compliance

    19. What guidance has been issued? Compliance Monitoring • FDIC Loan Modification Guidance Non-Owner Occupied (“NOO”) Single Family Residential (SFR) Loans. Guidance RSAM-2010-003 • FDIC Loan Modification Guidance Single Family Residential (SFR) Loans. Guidance RSAM-2010-006 • Guidance for Accrued Interest. RSAM-2010-008 • Commercial Loss Mitigation Guidance for Commercial Real Estate (CRE) Loans. RSAM-2010-009 • Cash-for-Keys Expense Coverage. Guidance RSAM-2011-010 • Single Point of Contact. Letter to all Assuming Institutions • Loans with Governmental and/or Private Institutional Guaranties. RSAM-2011-012 • Covered Expenses - Facilitating Short Sales. RSAM-2011-013 • Commercial Loss Mitigation Guidance for Loan Participations. RSAM-2011-015 www.fdic.gov/bank/individual/failed/lossshare/RSAM_guidance.html

    20. Early Voluntary Termination of LSAs DRR uses set criteria for targeting interest of AIs for voluntary early termination Incentive to AI = decreased monitoring costs DRR will accept offers to buy out shared-loss agreements that are less than the projected cumulative loss amount from any AI with the following: SLA must be over 1 year old portfolios less than $50 million can terminate larger relationships with FDIC Board approval To date, 3 SLAs have been terminated early Communications 20

    21. Additional information on the FDIC.GOV website www.fdic.gov/bank/individual/failed/lossshare