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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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topics for discussion
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

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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

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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

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how has the general structure of shared loss agreements changed over time
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.

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what is the s ize of the shared loss program
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)

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what is the size of the shared loss program
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%.

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single family resolution strategies overview
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:

what is drr s role in monitoring sf requirements in the shared loss agreement
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).

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how does the 90 delinquency rate for the single family portfolio compare to the market

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
where is the shared loss portfolio located
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.

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commercial shared loss asset resolution overview
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

what are the ai documentation and sla basic compliance requirements

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
where is the shared loss portfolio located16
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.

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how is compliance verified

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
what guidance has been issued
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

early voluntary termination of lsas
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

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Additional information on the FDIC.GOV website

www.fdic.gov/bank/individual/failed/lossshare