"Let's QC" Webinar Series - Community Lending - Collateral Matters - Freddie ...
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“Let’s QC” Webinar Series –
Community Lending
Collateral Matters
Host: Steven Glancey
Speakers: Rico Rowell, Kevin Skowronski,
Angie Helgeson, and Tony Kelly-Morgan
September 9, 2021
Session Housekeeping
Muted Lines. All lines have been muted upon entry
and will remain on mute to prevent interference.
Recording. This session is being recorded and will be
Before we begin available on the QC Webpage. If you have any
objections, please disconnect now.
today’s session let’s
quickly review a Questions. Please enter your questions directly into
few housekeeping the Q&A box in the bottom right corner of your screen.
items and
engagement tools Technical Issues. Please use the raise hand icon to
request assistance.
Survey. Please participate in the short survey at the
end of the call.
Freddie Mac | Do Not Distribute 2
Welcome!
2021 Q3 “Let’s QC” Webinar –
Community Lending Series
Freddie Mac | Do Not Distribute 3
“Let’s QC” Quarterly Webinar Series – Community Lending
Goal of
Series 01 Provide training and guidance
02 Allow transparency and insight into our quality control
loan review process
03 Give you useful information to incorporate into your
underwriting and QC process
Freddie Mac | Do Not Distribute 4
Agenda
Defect Trends, Market Condition Adjustments and
Condominium Hotels or Similar Types of Transient Housing
Topic 1: Topic 2: Topic 3:
Defect Trending Market Condition Condominium Hotel or
• Top 7 defects overall Adjustments Similar Type of
Collateral review process Transient Housing
• Emerging trends •
• Appraisal reports with
• Guide requirements
supported adjustments • What to look out for
and market value when reviewing
conclusions condominium hotels
and transient housing
projects
Freddie Mac | Do Not Distribute 5
Topic 1 – Defect Trending • Top 7 defects overall • Emerging trends
Topic 1 – Defect Trending Top 7 Defects Overall # of Defects in Q2 2021 increased from 448 to 518 Category Defect # of Loans vs. Prior Quarter 1. Legal / Insurance Tax/Ins missing or insufficient 127 123 2. Assets Insufficient funds – docs missing 84 50 3. Liabilities Liability doc missing or insufficient 74 55 Freddie Mac | Do Not Distribute 7
Topic 1 – Defect Trending Top 7 Defects Overall # of Defects in Q2 2021 increased from 448 to 518 Category Defect # of Loans vs. Prior Quarter 4. Income COVID-19 temporary income violation 71 40 5. Income Income calculated incorrectly 62 42 6. Income Income docs missing 52 41 7. Collateral Appraisal flexibility violation 45 76 Freddie Mac | Do Not Distribute 8
Topic 1 – Defect Trending
Emerging Trends – What’s New in Q2
Defect Category Change in rate Quarter over Quarter
No Cash Out Owner-Occupied Loans (22)
LTV/ TLTV Exceeds Max Allowable
Credit History Requirements not met (8)
Credit
Credit Recovery Period Not Met (6)
Freddie Mac | Do Not Distribute 9Topic 1 – Defect Trending
Emerging Trends – What’s New in Q2
Defect Category Change in rate Quarter over Quarter
LPA Caution Lender Justification Missing (15)
LPA Caution Loans
LPA Caution Ineligible (13)
No-Cash Out Determined to be Cash-Out (5)
Misrep of Loan Program
Freddie Mac | Do Not Distribute 10Topic 1 – Defect Trending
Key Takeaways
01 Income is still a leading defect for the
Industry 03 Accurate data can reduce errors and
adverse action from Freddie Mac
02 LPA Caution loans carry a higher level
of scrutiny and support 04 COVID-19 temporary appraisal flexibility
violations are decreasing
Freddie Mac | Do Not Distribute 11Questions?
Topic 2 – Market Condition Adjustments • Collateral review process • Deliver quality appraisal reports with supported adjustments and market value conclusions • Examine two loan scenarios
Topic 2 – Market Condition Adjustments 5601.12(f)(iii) Property Description and Analysis Sales comparison approach: (iii) Date of sale and time adjustments - The appraisal report must include time adjustments to reflect any change in market conditions over the period analyzed. This is essential to determine an accurate market value for the subject property. Time adjustments reflect market condition changes from the time a comparable went under contract to the effective date of the subject property appraisal. Adjustments may be either positive or negative and should be supported by comparables that may include listings, contract sales or closed sales. The appraiser must provide an explanation for the use of time adjustments. Freddie Mac | Do Not Distribute 14
Topic 2 – Market Condition Adjustments Analyzing Changing Market Trends Time Adjustments ▪ General market inventory ▪ Trends in listing prices ▪ Contract-to-listing ratio (pending sales) ▪ Contract dates vs closed dates (market change) ▪ Exposure time and marketing time ▪ New construction patterns ▪ Number of available competing properties Freddie Mac | Do Not Distribute 15
Topic 2 – Market Condition Adjustments
Loan Scenario 1
Proximity to Subject 0.31 miles NE 0.26 miles NE 0.17 miles NE
Sale Price $ 575,000.00 560,000 $ 625,000 $ 589,000
Sale Price/Gross Liv. Area $278.72 sq.ft. $252.37 sq.ft. $278.52 sq.ft. $340.27 sq.ft.
Data Source(s)
Verification Source(s)
VALUE ADJUSTMENTS DESCRIPTION DESCRIPTION +(-)$ Adjustment DESCRIPTION +(-)$ Adjustment DESCRIPTION +(-)$ Adjustment
ArmLth ArmLth ArmLth
Sales or Financing Concessions Conv;0 Conv;0 Conv;0
Date of Sale/Time s05/20;c04/20 +63,000 s09/20;c07/20 +48,100 s09/20;c08/20 +38,900
Location N;Res; N;Res; N;Res; N;Res;
Leasehold Fee Simple Fee Simple Fee Simple Fee Simple Fee Simple
Site 25,265 sf 1.38 ac -24,800 31,363 sf -7,600 39,204 sf -17,400
View N;Res; B;Tertl,Lake; -10,000 B;Tertl,Lake; -10,000 B;Tertl,Lake; -10,000
Design (Style) DT1;Ranch DT1;Ranch DT1;Daylite Ranch 0 DT1;Daylite Ranch 0
Quality of Construction Q3 Q3 Q3 Q3
Actual Age 6 8 0 8 0 15 0
Condition C3 C3 C3 C3 +5,000
Above Grade Total|Bdms|Baths Total|Bdms|Baths Total|Bdms|Baths Total|Bdms|Baths
Room Count 6|4|2.0 7|2|2.0 0 7|3|2.0 0 4|1|1.1 +2,500
Gross Living Area 2,063 sq.ft. 2,219 sq.ft. -15,000 2,244 sq.ft. -17,400 1,731 sq.ft. +31,900
1873sf1873sfwo -74,900 1378sf1378sfwo -55,100
Basement &Finished Rooms Below Grade 0sf 0sf 1rr0br1.0ba1o 0 0rr2br1.0ba1o 0
Functional Utility Average Average Average Average
Heating/Cooling EFA, AC EFA, AC EFA, AC EFA, AC
Energy Efficient Items Average Average Average Average
Garage/Carport 3ga3dw 2ga3gd2dw -5,000 3ga2gbi3dw -5,000 2ga3gd2dw
Porch/Patio Deck Porch, Deck Porch, Deck Porch, Deck Porch, Deck
Additional Features Outbuilding Average +2,500 Outbuilding Average +2,500
Net Adjustment (Total) + - $ 10,700 + - $ (66,800) + - $ (1,700)
Adjusted Sale Price Net Adj. 1.9% Net Adj. 10.7% Net Adj. 0.3%
of Comparables Gross Adj. 21.5% $ 570,700 Gross Adj. 26.1% $ 558,200 Gross Adj. 27.7% $ 587,300
Freddie Mac | Do Not Distribute 16Topic 2 – Market Condition Adjustments
Current Month vs Year-To-Date
Residential
Current Month Year-To-Date
Median Sale Price % Change
Pending Sales 2020 v. 2019
Pending Sales 2020 v. 2019
Expired Cancelled Listings
Median Sale Price
Median Sale Price
Total Market Time
Pending Sales
Pending Sales
Active Listings
Closed Sales
Closed Sales
New Listings
New Listings
Market Time
City 1 5 4 1 5 -44.4% 9 343,600 66 137 133 -0.7% 137 335,000 51 11.5%
City 2 6 1 0 7 75.0% 5 409,400 207 77 74 18.3% 67 468,000 85 8.0%
City 3 40 47 7 72 18.0% 89 351,400 29 1,076 1,041 9.2% 996 310,000 40 15.2%
County Total 51 52 8 84 13.5% 103 368,800 41 1,290 1,248 6.7% 1,200 319,900 35 13.3%
Freddie Mac | Do Not Distribute 17Topic 2 – Market Condition Adjustments Does the appraisal view adjustment of $10k appear credible? Freddie Mac | Do Not Distribute 18
Topic 2 – Market Condition Adjustments
Loan Scenario 2
Proximity to Subject 2.63 miles SW 5.83 miles E 1.37 miles NW
Sale Price $ $ 478,558 $ 440,000 $ 425,000
Sale Price/Gross Liv. Area $193.30 sq.ft. $199.40 sq.ft. $212.56 sq.ft. $181.39 sq.ft.
Data Source(s)
Verification Source(s)
VALUE ADJUSTMENTS DESCRIPTION DESCRIPTION +(-)$ Adjustment DESCRIPTION +(-)$ Adjustment DESCRIPTION +(-)$ Adjustment
ArmLth ArmLth ArmLth
Sales or Financing Concessions Conv;0 VA;0 Conv;0
Date of Sale/Time s06/19;c04/19 s11/18;c10/18 s05/19;c04/19
Location N;Rural; N;Rural; N;Rural; N;Rural;
Leasehold Fee Simple Fee Simple Fee Simple Fee Simple Fee Simple
Site 25,265 sf 5.00 ac -25,000 5.02 ac -25,000 2.54 ac -15,000
View N;Woods; N;Territ; 0 N;Woods; N;Territ; 0
Design (Style) DT1;Ranch DT1;Ranch DT1;Ranch DT1;Ranch
Quality of Construction Q2 Q2 Q2 Q3 +30,000
Actual Age 4 0 -2,000 1 -2,000 5 0
Condition C2 C1 -3,000 C1 -3,000 C2 +5,000
Above Grade Total|Bdms|Baths Total|Bdms|Baths Total|Bdms|Baths Total|Bdms|Baths
Room Count 7|3|2.0 7|3|2.0 7|4|2.0 0 7|3|2.1 +2,000
Gross Living Area 2,202 sq.ft. 2,400 sq.ft. -8,900 2,070 sq.ft. +5,900 2,343 sq.ft. +6,300
Basement &Finished Rooms Below Grade 0sf 0sf 0sf 0sf
Functional Utility Average Average Average Average
Heating/Cooling Htpmp/Elc/Yes Htpmp/Elc/Yes Htpmp/Elc/Yes Htpmp/Elc/Yes
Energy Efficient Items Standard Standard Standard Standard
Garage/Carport 3ga6dw 3ga6dw 2ga6dw +5,000 2ga6dw +5,000
Porch/Patio Deck Porch/Deck Porch/Deck Porch/Patio 0 Porch/Patio 0
Fireplaces/Amenities 1 Fireplace 1 Fireplace None +5,000 1 Fireplace
Misc. Shed None +2,000 None +2,000 Shed
Net Adjustment (Total) + - $ (36,900) + - $ (12,100) + - $ 11,700
Adjusted Sale Price Net Adj. 7.7% Net Adj. 2.8% Net Adj. 2.8%
of Comparables Gross Adj. 8.5% $ 441,658 Gross Adj. 10.9% $ 427,900 Gross Adj. 13.7% $ 436,700
Freddie Mac | Do Not Distribute 19Topic 2 – Market Condition Adjustments
Current Month vs Year-To-Date
Residential
Current Month Year-To-Date
Median Sale Price % Change
Pending Sales 2020 v. 2019
Pending Sales 2020 v. 2019
Expired Cancelled Listings
Median Sale Price
Median Sale Price
Total Market Time
Pending Sales
Pending Sales
Active Listings
Closed Sales
Closed Sales
New Listings
New Listings
Market Time
City 1 7 12 4 10 33% 11 443,600 33 150 143 -2.7% 147 365,000 80 18.0%
City 2 18 16 2 17 45.0% 15 509,400 104 90 60 28.3% 50 428,000 105 16.0%
City 3 39 47 10 50 18.0% 91 451,400 39 980 1,025 11.2% 990 350,000 60 22.5%
County
Total 64 75 16 77 17.5% 117 495,500 40 1,220 1,228 12.7% 1,187 407,000 55 18%
Freddie Mac | Do Not Distribute 20Topic 2 – Market Condition Adjustments
Key Takeaways
Adjustments appear to be modified to meet Lender supplementary guidelines for net and gross
01 adjustment thresholds
02 Higher priced sales are being selected as comps dragging reconciled values up
The range from low to high comp sale prices has increased. It appears appraisers are doubling up
on the time adjustment in a few different ways
• Adjusting for time under market conditions
03 •
•
Using higher priced larger GLA homes to drag prices up
Making smaller GLA adjustments for comps
• Making smaller adjustments in other categories to minimize the negative effect against increases in other
sections of the report
• Appraisers seem to be more conservative on time adjustments in the refinance market than for
04 purchase transactions
Freddie Mac | Do Not Distribute 21Questions?
Topic 3 – Condominium Hotel or Similar Type of Transient Housing • Guide requirements • What to look out for when reviewing condominium hotels and transient housing projects
Agenda
Condominium Hotel or Similar Type of
Transient Housing
Topic 1: Topic 2:
Current Policy Other Issues
Requirements • Land on which the project is located –
• Guide section 5701.3(b) Guide 5701.3(a)
• Commercial space – Guide 5701.3(d)
• Shared amenities – Guide 5701.3(h)
Freddie Mac | Do Not Distribute 24Topic 3
Condominium Hotel
or similar type of
transient housing
(Section 5701.3(b))
Freddie Mac | Do Not Distribute Freddie Mac | Do Not Distribute 25Topic 3 – Condominium Hotel or Similar Type of Transient Housing
Section 5701.3(b)(1)
Condominium Hotel or similar type of transient housing
Any project that is a Condominium Hotel or similar type of transient housing.
1. Projects with one or more of the following characteristics are considered a
Condominium Hotel and are ineligible projects:
i. Projects and/or HOAs that are licensed, have a permit to operate, or are registered, as a
hotel or a motel, even though the units may be individually owned
ii. Projects that impose mandatory rental-pooling (or similar agreements that restrict the unit
owner’s ability to occupy the unit for living purposes such as blackout dates or occupancy
limits on personal use) to assure an inventory of units for rent on a frequent basis, such as
daily, weekly, monthly or seasonally
iii. Projects with revenue-sharing agreements between unit owners and the HOA, property
management, and/or rental operator contracted by the HOA or property management
Freddie Mac | Do Not Distribute 26Topic 3 – Condominium Hotel or Similar Type of Transient Housing
5701.3(b)(1)(i)
Project is Licensed/Registered
Condominium Hotel:
Projects and/or HOAs that are licensed, have a permit
to operate, or are registered, as a hotel or a motel,
even though the units may be individually owned.
Freddie Mac | Do Not Distribute 27Topic 3 – Condominium Hotel or Similar Type of Transient Housing 5701.3(b)(1)(ii) Mandatory Rental Pooling Projects that impose mandatory rental-pooling (or similar agreements that restrict the unit owner’s ability to occupy the unit for living purposes such as blackout dates or occupancy limits on personal use) to assure an inventory of units for rent on a frequent basis, such as daily, weekly, monthly or seasonally. Freddie Mac | Do Not Distribute 28
Topic 3 – Condominium Hotel or Similar Type of Transient Housing
5701.3(b)(1)(iii)
Revenue Sharing Agreements
Projects with revenue-sharing agreements between unit
owners and
▪ the HOA,
▪ property management (of the project), and/or
▪ rental operator contracted by the HOA or property
management
Freddie Mac | Do Not Distribute 29Topic 3 – Condominium Hotel or Similar Type of Transient Housing 5701.3(b)(2)(i) Project is Licensed/Registered Transient Housing: Projects and/or HOAs that are licensed (or have a designated licensed agent), have a permit to operate, or are registered, as a type of transient housing (e.g., vacation rental license, short term rental registrant, etc.) for the rental of non-HOA owned units. Each jurisdiction (city, county or state) has its own registration requirements. Freddie Mac | Do Not Distribute 30
Topic 3 – Condominium Hotel or Similar Type of
Transient Housing
5701.3(b)(2)(i)
Florida Local
Jurisdictions
Example
Freddie Mac | Do Not Distribute 31Topic 3 – Condominium Hotel or Similar Type of Transient Housing
5701.3(b)(2)(ii)
Hotel Conversions
Conversions of a hotel (or a conversion of a similar type of transient housing) are
ineligible unless the project:
▪ was a Gut Rehabilitation &
▪ the resulting Condominium Units no longer have the characteristics of a hotel or similar
type of transient housing
Gut Rehabilitation Glossary definition:
The repair and restoration of an existing building(s) to its shell. The rehabilitation involves all new mechanical
equipment (such as heating, exhaust, insulation, roofing, plumbing, and electrical). The renovations include
new interiors, fixtures, appliances, and flooring for individual units and common areas.
Freddie Mac | Do Not Distribute 32Topic 3 – Condominium Hotel or Similar Type of Transient Housing
5701.3(b)(2)(iii)
HOA has Hotel Type Revenue/Expenses
The HOA receives revenue from, or pays expenses for, hotel type services including but
not limited to:
▪ A registration desk (this includes a project’s front desk also serving as the vacation rentals
registration desk or an onsite rental operator’s registration desk)
▪ A rental registration website/hosting platform
▪ Daily cleaning services
▪ Porters/luggage service
▪ Any central telephone service
▪ Central key systems, or
▪ Room service
Freddie Mac | Do Not Distribute 33Topic 3 – Condominium Hotel or Similar Type of Transient Housing
5701.3(b)(2)(iv)
HOA Charges a Transient Rental Fee
▪ HOA charges a fee when a unit is rented on a transient basis
• Paid by either the unit owner or
• The unit owner’s transient renters
▪ Includes any surcharge to unit owners who do not elect to rent their units
through the HOA’s and/or property management’s preferred rental operator(s).
▪ Does not include any fees charged to reimburse the cost of the wear and tear to
the project’s facilities and/or Amenities
▪ Does not include fees charged for reviewing the terms of the transient rental
contract
Freddie Mac | Do Not Distribute 34Topic 3 – Condominium Hotel or Similar Type of Transient Housing
5701.3(b)(2)(v)
HOA Remits Transient Rental Taxes
▪ The HOA and/or
▪ its management agent, as rental operator or licensed agent,
▪ collects and remits required taxes to all applicable jurisdictions (city,
county and State) such as transient, short-term rental, and/or hotel
occupancy taxes as well as sales taxes, excise taxes, etc.
Each jurisdiction (city, county and/or state) has its own tax requirements.
Freddie Mac | Do Not Distribute 35Topic 3 – Condominium Hotel or Similar Type of Transient Housing
5701.3(b)(2)(vi)
HOA Provided Space for Rental Operations
The HOA provides a designated space (e.g., an HOA-
owned unit, an area in the project’s lobby or other
Common Elements area, etc.) for the operation of an on-
site rental operator free of charge to that rental operator.
Freddie Mac | Do Not Distribute 36Topic 3 – Condominium Hotel or Similar Type of Transient Housing
5701.3(b)(2)(vi)
HOA Provided Space for Rental Operations
Example A: Example B:
▪ Is rental operator paying market rent ▪ Is rental operator paying market rent for street front
for that rentals desk or is the HOA commercial unit?
providing it free of charge? ▪ Did rental operator purchase commercial unit?
Freddie Mac | Do Not Distribute 37Topic 3 – Condominium Hotel or Similar Type of Transient Housing 5701.3(b)(2)(vii) HOA Requires Use of Specific Rental Agency Unit owners are required through the Project Documents or other contractual agreement to use a specific rental agency(ies) for their transient rentals. Freddie Mac | Do Not Distribute 38
Topic 3 – Condominium Hotel or Similar Type of Transient Housing
5701.3(b)(2)(viii)
Non-Independent Property Management
The entity that manages the Condominium Project also manages its transient
rentals.
This does not include an entity that -
▪ has independent divisions for property management and for transient rentals
management,
▪ the property management division manages the Condominium Project, and
▪ unit owners are not mandated to contract with its transient rentals division
Freddie Mac | Do Not Distribute 39Topic 3 – Condominium Hotel or Similar Type of Transient Housing
5701.3(b)(2)(viii)
Divisions Example
What if:
1. The project is managed by
the CPM Division & unit
owners are not required to
contract with VRPM Division.
2. The project is managed by
the CPM Division & unit
owners are required to
contract with VRPM Division.
Freddie Mac | Do Not Distribute 40Topic 3 – Condominium Hotel or Similar Type of Transient Housing
5701.3(b)(2)(ix)
Interior Decorating Restrictions
Residential units have restrictions on interior decorating
that are imposed by the HOA or its management agent.
Freddie Mac | Do Not Distribute 41Other Issues Freddie Mac | Do Not Distribute
Topic 3 – Condominium Hotel or Similar Type of Transient Housing 5701.3(a) A project in which, when control of the Homeowners Association (HOA) has been or will be turned over to the unit owners, the unit owners do not have either: (1) an undivided ownership interest in the land on which the project is located; or (2) a leasehold interest in the land on which the project is located. Freddie Mac | Do Not Distribute 43
Topic 3 – Condominium Hotel or Similar Type of Transient Housing
Excessive Commercial Space
5701.3(d)
A project in which more than 35% of the total above
and below grade square footage of the project (or
more than 35% of the total above and below ground
square footage of the building in which the project is
located) is used as commercial or non-residential
space.
50%
Commercial
Space
Freddie Mac | Do Not Distribute 44Topic 3 – Condominium Hotel or Similar Type of Transient Housing
Shared Amenities
5701.3(h)
Unit owners in a Condominium Project must have the sole ownership in and the right to the use of the Common
Elements, including all buildings, roads, parking, facilities and Amenities expect as specified below.
A project with shared Amenities is eligible if two or more HOAs share the Amenities (such as recreational or
fitness facilities, swimming pools and clubhouses) for the sole use of the unit owners, and the HOAs have an
agreement specifying:
What if:
1. Condo and hotel are both in Building A. They
share the pool to the left of the hedge.
2. Hotel is in Building A and condo is in Building B.
Hotel owns the pool to the left of the hedge.
Condo HOA owns and has exclusive rights to the
pool to the right of the hedge.
Freddie Mac | Do Not Distribute 45Topic 3 – Condominium Hotel or Similar Type of Transient Housing
Key Takeaways
01 Looking for the HOA’s/project’s facilitation of transient rentals
02 Every jurisdiction has its own definition of short term/vacation/transient rentals
and timeframes
03 Keep other Guide requirements in mind when reviewing for condominium hotel
and transient housing characteristics
Freddie Mac | Do Not Distribute 46Questions?
Additional Resources
Freddie Mac Learning Customer Contact Support Freddie Mac Single-Family
Center sf.FreddieMac.com
Department of Business & Professional
Regulation (DBPR) – Florida 1-800-FREDDIE
Freddie Mac Single-Family
http://www.myfloridalicense.com/dbpr/ Seller/Servicer Guide
guide.FreddieMac.com
Hawaii Tax Online
https://hitax.hawaii.gov/LogOff/?Ended=1 Freddie Mac Single-Family
Quality Control
Freddie Mac | Do Not Distribute 48“Let’s QC” Quarterly Webinar Series – Community Lending Thank You
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