Revised February 13, 2018 - Fannie Mae

Action Plan Submission Guide

Revised February 13, 2018

The information and analysis in this Action Plan Submission Guide ("Submission Guide") is being provided solely for Fannie Mae's (FM) and the Lender's use in development of Action Plans, and for no other purpose or reference. Feel free to contact Watchlist Management with questions as you develop Action Plans.

Overview and Purpose FM requirements for the submission of Action Plans are provided in the Servicing Guide. This Submission Guide is a resource tool, outlining information and analysis to be included in Action Plans, in order to aid Servicers in preparing Action Plans for identified FM Watchlist loans. The overall objective is for the Servicer to outline and discuss in the Action Plan the challenges that are impacting the property, the Sponsor's actions to address those issues, and the Servicer's efforts to mitigate risk/loss. In the case of stable/improving property performance, the overall objective is for the Servicer to outline and discuss in the Action Plan the Sponsor's actions that have been/are being taken to address the issues and the Servicer's efforts to mitigate risk/loss.

More specifically, Action Plans should address the property financial performance (improving, flat or deteriorating) with trends and drivers, property condition (improving, flat or deteriorating) with trends and status of previously reported issues, market statistics and property's performance relative to comps, Sponsor's wherewithal and performance, other key risks/issues, mitigants, Sponsor's and Servicer's strategies, Servicer's analysis of the viability of the Sponsor's strategy, and Sponsor/Servicer next steps. In addition, Action Plans should address where the Servicer is in the approval process of a borrower request (i.e. approval of a change in Management Company). The Sponsor's strategy may be to return the property to competitive/performing status or to address/manage issues if the property is anticipated to continue to underperform or result in an imminent default. Supporting information (e.g. marketing plan, operating budget, CapEx budget, Servicer analysis, compliance audit) should be referenced and discussed in the Action Plan and uploaded to the Multifamily Asset Management Portal (MAMP).

In preparing the Action Plan, the Asset Manager should consider whether they are preparing the first Action Plan or a subsequent Action Plan for the loan. The first Action Plan should include context for recent declines in property performance and/or issues resulting in the loan's Substandard risk rating as well as what is anticipated to happen during the next 6 months (assuming a continued Substandard rating) until the subsequent Action Plan is due. The Subsequent Action Plan should tie the prior Action Plan to the current Action Plan and explain changes, etc. as well as what is anticipated to happen during the next 6 months until the subsequent Action Plan is due (assuming a continued Substandard rating).

Servicers can upload multiple Action Plans to MAMP via a CSV file and/or complete individual Action Plans via data entry into the template on MAMP. See below for a broad outline of the template. The Data Dictionary, which is located on MAMP/Guides and Templates/User Guides and templates/Submission Process Guides, indicates which fields in the template are FM provided vs. Lender provided. Fields are display, calculation, user entry, user selection and text boxes. Refer to the Data Dictionary for data definitions and field specific requirements. Note: Supporting information (e.g. marketing plan, operating budget) is to be attached individually in MAMP (Attachment tab) for each respective Action Plan prior to bulk upload of the csv file.

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This Submission Guide outlines factors and characteristics Servicers should consider when discussing each loan's risk profile and developing the Action Plan. Two Appendices are included. Appendix 1 contains facts and features to consider for Specialty Products (Affordable/Credit Enhanced Bonds/LIHTC, Co-ops, Manufactured Housing, Military, seniors and Student Housing). Appendix 2 contains links to resources for Specialty Products. This Submission Guide does not alter or amend in any respect any other contract or agreement between FM and the Servicer including the Servicing Guide.

This outline is not exhaustive and is intended to be a guide. There may be additional relevant factors and/or characteristics for Servicers to consider, assess and include. If any factors below are not relevant to the specific loan, the Servicer need not discuss it in that loan's Action Plan.

Key Action Plan Components The Action Plan is divided into the 3 sections noted below. Following is detailed information on how to address the key Action Plan components. ? Loan Level Information (FM and Servicer provided) ? Additional Lender Input (Text Boxes) (Servicer's discussion and analysis) ? Property Level Information (FM and Servicer provided)

Loan Level Information

1. Borrower/Sponsor Borrower's name, Sponsor's/KP's name and financial information (e.g. NW, liquidity, cash flow).

2. Loss Sharing Loss sharing type and loss share percentages.

3. Loan Information Includes various loan data points (e.g. FM and Servicer risk ratings, maturity date, current UPB, other collateral) for each loan tied to the property. o Other Collateral Type and Amount ($) - Represents collateral other than the subject. (E.g. debt service escrow, Letter of Credit and the corresponding dollar amount).

4. KP Total Exposure Represents the total amount of exposure the Servicer has with the KP/Sponsor (Sponsor) and includes all of the loans listed in the Loan Information section, plus any additional loans to the Sponsor that are not part of the Group ID1. Various data points are included for each loan (see

Loan Information), plus the weighted average (WAVG) DSCR for the Sponsor's total loan exposure.

Additional Lender Input (Text Boxes)

1. Borrower/KP Capacity & Commitment Provides an assessment of Sponsor's financial capacity, commitment, strategy for the property and portfolio, and any other considerations. The Action Plan reader should be able to understand the capacity and willingness of the Sponsor to address property needs, mitigate risk in the loan and evaluate the viability of the Sponsor's approach/strategy to resolve property/loan performance.

1 Refer to the Data Dictionary for a definition of Group ID

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Financial Capacity and Commitment to the Property o Analyze Sponsor's financial capacity (e.g. NW, liquidity, contingent liabilities (note as of dates) compared to (a) underwriting as reflected in the underwriting memo and (b) requirements for the underperforming asset, including cash infusion/capital investment, debt service shortfalls on the subject loan(s) and overall portfolio). Indicate whether current financials have been requested and expected to be received (if the Sponsor's financials are dated greater than 12 months). o Analyze Sponsor's portfolio to assess if there is excess cash flow from other properties, which may be available to fund debt service shortfalls. Discuss portfolio WAVG DSCR and LTV. o Quantify shortfalls, CapEx, other property improvements, etc. that Sponsor has already funded. o Discuss Sponsor's willingness/ability to fund on-going monthly deficits and/or value shortfalls at maturity, maintain the property, resolve issues, etc. o If the Sponsor is a Fund, discuss investment focus and strategy, fund termination date and any extension date(s) relative to the loan's maturity date. If Sponsor is a REIT, discuss investment, focus and strategy, business model etc. o Conduct Internet search(es) of the Sponsor to obtain available information. If publicly traded, financial, credit ratings and oftentimes other information such as overall strategic focus etc. is accessible via 10-K, 10-Q reports. If privately held, information is oftentimes accessible.

Strategic Plan for the Property and Portfolio o Understand the Sponsor's strategy for the loan/portfolio Example 1 ? Sponsor is implementing a marketing plan to increase occupancy and manage increasing utility costs. Example 2 ? Sponsor is completing a change in use; converting Independent and/or Assisted Living units to Memory Care to meet market demand. ? Discuss whether planned/unplanned at UW, scope, budget, timeline, feasibility, market acceptance. ? Indicate if Sponsor has requested and if Servicer has provided approval. Example 3 - Sponsor is planning to increase rents. ? Discuss amounts ($ and %), timeline, anticipated market acceptance, any required approvals. Example 4 - Sponsor is undertaking a CapEx plan to improve the property's competitive status, reputation. ? Discuss budget, scope, timeline, funding source (e.g. replacement reserves, out of pocket), and impact to tenants/occupancy. Supporting information (e.g. marketing plan, operating budget, CapEx budget, Servicer analysis) should be referenced and discussed in the Action Plan and uploaded to MAMP. o Determine whether the Sponsor is a long-term or short-term holder of the asset(s). o Assess whether the Sponsor is experienced in the subject market, property type, intends to remain active in the market or leave the market (include the timeline).

Other Considerations o Determine whether the FM financing provided the Sponsor with cashed out equity or property distributions during the life of the loan. Note timelines and any corresponding dollar amounts.

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o Address if there is any existing/pending litigation with the Sponsor. Note the status, impact on the property and/or Sponsor, timelines, etc.

o Analyze affiliations between the Borrower, Sponsor and the Management Company. o If the loan was assumed, provide the assumption date, purchase price and note fresh equity

contributions. o Evaluate and discuss refinance options/exit from the loan

Prepayment eligibility. Yield Maintenance (YM) end date (date after which borrower may repay the loan

without paying YM fees) and the time frame until the loan maturity date. Impact of subordinate debt, mezzanine financing. Time to maturity (focus on maturity within 24 months). Viability of refinancing and market terms. o Compare annual debt service shortfalls (until the loan maturity) to the property's current LTV. Discuss whether there is financial benefit for the Sponsor to continue funding shortfalls relative to the equity (i.e. "light at the end of the tunnel").

2. Outstanding Issues Discusses any outstanding issues, which may have a negative impact on the property and/or Sponsor such as:

Weak market and/or new competition. Concerns with borrower's ability to payoff/refi Mezz financing or Sub debt at upcoming maturity. A tax abatement is nearing its end and property operations cannot support the increased taxes. Risk that the loan may not meet the exit test and matures within 24 months or less. Sponsor's overall portfolio is not generating sufficient cash flow to cover obligations.

3. Overall Strengths and Weaknesses (Loan Management and Loan Structure) Identifies, evaluates and discusses (1) strengths and weaknesses with the loan/property/Sponsor, corrective plan to address and (2) loan management and/or loan structuring issues.

The examples of strengths and weaknesses below show both the positive side (strength) and negative side (weakness) of several issues that can typically impact multifamily properties.

Asset Managers should address loan management issues they are working on within the Action Plan, if/what actions the Servicer must take to resolve or correct and whether they pose a risk or mitigant. This is important as it highlights strengths or weaknesses.

Many FM Loans have a 10 year term with a fixed rate and 30 year amortization. But not all loans have that common structure. Asset Managers should highlight in the Action Plan if there is a unique loan structure and whether it poses a risk or mitigant.

The strengths and weaknesses are also to be discussed in the applicable Action Plan section(s) to further explain the risk profile of the loan/Sponsor and whether the risk profile is improving, flat or deteriorating.

Examples of Strengths o Sponsor - has covered shortfalls on Watchlist properties with DSCR below break-even and/or paid off loans requiring contributions to right size the loans (demonstrating positive Sponsor behavior/commitment). Quantify amounts and include dates. o LIHTC Property - Recapture amounts/remaining tax credits exceed annual funding deficits illustrating incentive for the Sponsor to continue covering deficits.

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o Student property ? Sponsor has funded property upgrades to better compete with the competition near the University. Occupancy and rents have been increasing, with DSCR nearing break-even.

o Successful (funded) renovation ? Sponsor has funded renovation costs and renovation has been completed. Certificates of occupancy (CO) have been received and tenants have returned to the property. Increased rents are being achieved (quantify) and occupancy is 90%+, which is in excess of the market.

Examples of Weaknesses o Sponsor - has a history of maturity defaults, low liquidity and/or limited access to funds to cover debt service shortfalls on the loan and it is infeasible for property operations to return to positive cash flow timely. o LIHTC property - rents are right at the maximum allowable, indicating the Sponsor is unable to increase rents, expenses are increasing and DSCR remains well below break-even. o Student property ? the Sponsor missed the leasing season, occupancy continues to drop as a result and DSCR is well below break-even. o Failed (unfunded) renovation - occupancy continues to drop and the Sponsor has limited liquidity and/or access to funds to continue to cover debt service shortfalls.

Examples of Loan Management issues (identify as risks/mitigants) o Example ? Students property with unauthorized change in Management Company. The new Management Company is not in the local market and does not have experience with Students properties - Risk Discuss how the Asset Manager is addressing this issue, status of Servicer approval, next steps, etc. o Example - Seniors property is undergoing a change in use (include "Servicer approved in month/year") to convert independent living units to memory care units - Mitigant Discuss the number of units, reasons for the change in use (e.g. property to better compete in the market etc.) budget, status, timeline. Discuss projected impact on the property (e.g. occupancy/rents are (a) anticipated to increase x%, (b) increasing x%, (c) have increased x%, etc.) and impact on the loan's overall risk profile.

Examples of Loan Structures (identify as risks/mitigants) o Example ? The loan has a variable interest rate in a rising interest rate environment and property cash flow is not sufficient to cover the cost of an interest rate swap - Risk Discuss Sponsor's strategy to help mitigate this risk and viability of the strategy o Example ? The loan has a shorter amortization (20 year vs. 30 year amortization) NOI has been on the decline resulting in continued below break-even DSCR and higher debt service is required with the 20 year amortization ? Risk ? Discuss Sponsor's strategy to help mitigate this risk and discuss viability of the strategy o The loan is 12 months from maturity and the Sponsor is pursuing a refinance with a 30 year amortization at market terms. NOI would benefit from the longer amortization and provide adequate cash flow for the new financing. - Mitigant ? Discuss Sponsor's refinance strategy and discuss viability of the strategy.

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4. Asset Management Conclusions/Strategy/Action Plan Discusses the Sponsor's strategy, which may be to (a) return the property to competitive/performing status or (b) manage issues to be addressed if the property is anticipated to continue to underperform or (c) if a default is imminent. Discusses the Asset Manager's evaluation and viability of the Sponsor's strategy to address current issues and/or if the Servicer has its own strategy.

Outline the Sponsor's strategy to improve the property's performance/competitive status o Example 1 - Is the Sponsor planning to increase rents? Discuss amounts ($ and %, timeline, anticipated market acceptance, any required approvals, viability of the strategy, etc.). ? Example: Increased rents have been achieved; compare actual increases to planned increases ? Example: Increased rents are anticipated to be achieved by x time period ? Example: Increased rents are not anticipated to be achieved o Example 2 - Is the Sponsor undertaking a CapEx plan to improve the property's competitive status, reputation? Discuss budget, scope, timeline, funding source (e.g. replacement reserves, out of pocket), status, impact to tenants/occupancy, viability of the strategy, etc. o Supporting information (e.g. marketing plan, operating budget, CapEx budget, Servicer analysis) should be referenced and discussed in the Action Plan and uploaded to MAMP.

Discuss actions / changes / follow-up on items from the prior Action Plan o Cite accomplishments, actions taken, events, completion dates, Sponsor investment in the property (e.g. $500k for roof replacement), milestones reached and/or missed and reasons why, responsible party(ies), relevant comments and next steps. o Example - If the prior Action Plan noted the Sponsor was planning to increase rents by a certain date, note in the next Action Plan if/when rents were increased, amount increased ($ and %) and market acceptance of the higher rents etc. If rents were not increased, discuss why and any next steps. o "Next Steps" may include the following (as examples) Meet with the Sponsor to discuss strategy, request an updated budget, new leasing and management plan. Obtain/discuss adequacy of Sponsor's plan to improve property performance and/or correct issues. Follow-up with Sponsor or Management Company for required responses to Deferred Maintenance (DM) / Life Safety (LS) letters and/or timeline for property repairs Request market survey from Management Company Increase frequency of property inspections (Example: drive-by while in the area)

Property Level Information

1. Collateral Information Details property specifics such as the Management Company, replacement reserves, tax credit information (syndicator, tax credit expiration date, compliance period end date, and estimated recapture amount), etc.

2. Collateral Description and Condition/Market Demographics (text box) Provides an overview of the property and comparison to the market and submarket in which it is located.

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Collateral Description and Condition Provide a brief description of the collateral, particularly if this is the first Action Plan due. Evaluate whether the property is impacted by "obsolescence," location issues, inferior amenities,

events (e.g. crime, fire, catastrophe), etc. Discuss any ingress and/or egress issues and impact on the property. Discuss current property condition (DM, LS, environmental issues and the Sponsor's plan to correct). Are the DM repairs in the current year's budget? Next year's budget? Provide greater detail when the overall property condition rating, DM and/or LS ratings are a "3" or worse with little to no improvement over prior year conditions. Analyze adequacy of replacement reserves and completion escrows. Is there a renovation underway/completed?

o Discuss if contemplated at UW, if there is a completion repair agreement (CRA) or if funds are escrowed, outline the project scope, timeline, status (on budget? on time?) etc.

o If the renovation is unfunded, discuss Sponsor's wherewithal to fund. Is this a phased property?

o Discuss if leasing staff and/or expenses and/or amenities are shared. o Note if there is a reciprocal easement agreement or indicate if/why there isn't one. o Explain the impact of any of the foregoing on property operations. O&M Plan (Operations and Maintenance Plan) for asbestos containing materials, lead based paint, etc.? MMP (Mold & Moisture Plan) for mold? o Outline the plan requirements, status of on-going repairs, etc. Conduct internet search(s) of the property and the market to obtain other available information.

Market Demographics Analyze market/submarket demographics, occupancy, rents, concessions, construction, etc. Discuss how the property is performing compared to the submarket, direct competitors (rents,

quality, amenities, unit size, location, age, etc.). Address new supply currently impacting operations and/or coming on line and when. Sources may include Management Company prepared market surveys, published submarket data. Discuss any market/submarket issues and whether they are short-term/cyclical, or longer-term. Note any companies that are exiting or entering the market and any impact on the subject property, and/or any other changes with local employment, economic/demand drivers, and/or any demographic population changes. Discuss the Management Company (e.g. owner or third party managed), submarket knowledge, ability to bring the property performance up to market, skill set of staff).

3. Property Financial Analysis (text box) The Action Plan reader should be able to identify the key operating factors impacting the property performance and the viability of resolution. More specifically, this section outlines Asset Manager's analysis of the property's financial performance including trends and drivers and outlines Asset Manager's assessment of the impact on overall property operations (e.g. are unexpected expenses anticipated to be one-time or longer-term?) Includes Asset Manager's discussion of key line items or issues that can be benchmarked/tracked and discussed in the property financial analysis (e.g. increasing occupancy/rents, renovation completion, tax abatement expiration, change in Management Company, accounts payable collection).

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Revenue

Explain deterioration/improvement in EGI. Identify key drivers for all line items and impact on NCF and DSCR. Evaluate occupancy, unit turnover, evictions and skips.

o Compare current results to UW and prior periods. Include variance analysis (year over year (YOY) and quarter over quarter (QOQ)) to assess whether the trends are seasonal, or reflect declining / improving trends.

o Discuss whether negative trends are within Sponsor or management's expertise/control to correct or if positive trends are sustainable over time.

Look for early warning signs. o Skips & evictions (bad debt) ? as a percent of turnover? o Other income ? what is it comprised of? Is it recurring or one-time?

Expenses

Explain increases/decreases in total operating expenses. Identify key drivers for all line items and impact on NCF and DSCR.

o Compare current results to UW and prior periods. Include variance analysis (YOY and QOQ) to assess whether the trends are seasonal or reflect declining / improving trends.

o Discuss whether negative trends are within Sponsor or management's expertise/control to correct or if positive trends are sustainable over time.

o Example: security costs: Understand and discuss if there are security issues. Are cameras, fencing and security staff adequate? If inadequate, can property operations cover the increased expenses? Is security at the property in accordance with the neighborhood?

Identify if CapEx is included in R&M and understand the effect on the property's NCF and DSCR (including moving it below the line in your analysis); work to correct and resubmit the property financial statement to FM via MAMP.

Balance Sheet Identify if the balance sheet contains any irregularities or matters that require follow-up with the Sponsor (e.g. identification of new subordinate debt, disposal of assets, new/significant liabilities, unfunded tenant security deposit accounts). Quantify aged Accounts Payable, discuss trends and whether due to a third party or related party. Quantify aged Accounts Receivable, discuss trends and management's collection plans. Accounts Payable and/or Accounts Receivable aging reports should be referenced and discussed in the Action Plan and uploaded to MAMP.

Other

Analyze late payment history. Analyze impact of any loan structure issues on property operations (e.g. loan is fully amortizing). Quantify $/unit investment needed to return property to competitive/performing status (e.g. estimate debt service shortfalls for the next 12 months, DM/capital needs and compare to Sponsor's financial capacity. If the property is undergoing a renovation, discuss if contemplated at UW, if there is a completion repair agreement (CRA) or if funds are escrowed, Sponsor's experience, outline the scope, timeline, status (on budget? on time?). If renovation is unfunded, discuss Sponsor's wherewithal to fund. If the property is impacted by fire, natural disaster etc., explain if there is business interruption insurance (BI), status/timing of a claim being filed and financial impact on property operations. Discuss pool performance if loan is part of a crossed pool. Note the crossed structure (e.g. cross collateralized, cross defaulted).

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