Servicing Agent

Oversight and
Surveillance Program
Best Practices
Updated November 2022
Background
Freddie Mac Single-Family Seller/Servicer Guide (Guide) Section 8102.1 requires Servicers to establish
an oversight and surveillance program for monitoring their Servicing Agents’ compliance with applicable
servicing requirements. Freddie Mac encourages Servicers to incorporate the following best practices in
their Servicing Agent oversight and surveillance program, when applicable.

Contents

Section Page

Section 1: Establish a Master Servicer Management Team 3

Employing a seasoned mortgage servicing executive and experienced mortgage
servicing staff to oversee the activities of the Servicing Agent.

Section 2: Initial Due Diligence and Annual Reviews 4-6

Initial due diligence and annual reviews of the Servicing Agent’s governance
procedures, compliance, operations, loan administration and default servicing.

Section 3: Periodic Business Review Guidelines 6-7

New loan onboarding reconciliation and quality assurance and periodic reviews of the
Servicing Agent’s loan servicing areas.

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Section 4: Quality Assurance Review Guidelines
Periodic loan level reviews of loan servicing processes to ensure compliance with the
Freddie Mac Servicing Guidelines.

SERVICING OVERSIGHT AND SURVEILLANCE PROGRAM BEST PRACTICES 2

 Section 1: Establish a Master Servicer Management Team
Note: For smaller Master Servicers and/or Master Servicers who have a small portion of their servicing
portfolio subserviced by a Servicing Agent, a single point of contact or small qualified team may be
sufficient to perform the requisite oversight and review of the Servicing Agent’s performance.

The Master Service Management Team should:

• Be overseen by a qualified mortgage servicing executive with substantial background and
understanding of mortgage servicing practices.
• Be comprised of experienced mortgage servicing professionals/operations specialists with
detailed relevant knowledge of the assigned area who can oversee and monitor a Servicing
Agent’s performance of mortgage servicing functions. Selection should take into consideration the
volume and complexity of the serviced portfolio, and the average years of experience, education,
qualifications and demonstrated ability of the employees in relation to their respective levels of
responsibility. (Note: Some Freddie Mac processes, such as repurchases, billing and some Total
MI functions, must be performed by the Master Servicer.) Team member responsibilities should
include, but are not limited to:
o Performing loan servicing
o Call center operations
o Collections and default management operations
o Managing escrow accounts
o Investor accounting
o Reporting
o Remitting and cashiering
o New loan onboarding reconciliation
o Processing requests for alternatives to foreclosure
o Knowledge of and access to all Freddie Mac servicing tools, forms and resources
• Include a compliance and audit specialist who oversees the Servicing Agent’s compliance with all
applicable Guide servicing requirements and the Servicer’s purchase documents.
• Include a dedicated Freddie Mac liaison and a backup representative.
• Maintain correct contacts with the Servicing Agent to ensure timely responses to their inquiries.
• Maintain change management, including reporting changes to your organization or status.
• Comply with all Seller/Servicing institutional eligibility requirements in Guide Chapter 2101.

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 Section 2: Initial Due Diligence and Annual Reviews

2A: Initial and annual review of the Servicing Agent’s corporate governance procedures
and compliance, including:
• Statement of Auditing Standards No. 70 (SAS 70) or Statement on Standards for Attestation
Engagements No. 16 (SSAE 16).
• Outside audit findings of the Business Continuity Plan, whose requirements can be found in
Guide Section 1302.3.
• Compliance with Freddie Mac insurance requirements as outlined in Guide Sections 2101.6,
2101.7 and 2101.8.
• Training programs and policies related to servicing Freddie Mac mortgages, including mandatory
training programs and policies that address compliance with applicable laws. This includes
antifraud training and compliance with anti-money laundering, the Bank Secrecy Act (BSA), Office
of Foreign Asset Control (OFAC), the Fair Debt Collection Practices Act, and similar laws and
regulations.
• The Servicing Agent’s ability to perform its obligations, including its financial obligations, to the
Servicer and to Freddie Mac, in accordance with the requirements in Guide Sections 2101.1 and
2101.2.
• The composition of the Servicing Agent’s servicing portfolios and volume forecasts across all
Master Servicers and all mortgage owners and guarantors.
• The Servicing Agent’s hiring practices, including predictive indicators, background checks,
Freddie Mac Exclusionary List check and capacity models and plans for staffing the Master
Servicer’s portfolio.
• The Servicing Agent’s information security policies, procedures and compliance with laws and
regulations governing protected personal information. This includes the Graham-Leach-Bliley Act,
state privacy laws and laws governing information technology security and breaches and related
notice requirements.
• The Servicing Agent’s compliance with the Real Estate Settlement Procedures Act (RESPA),
Truth in Lending Act (TILA) and other laws and regulations enforced by the Consumer Financial
Protection Bureau (CFPB) and other federal and state regulators, to the extent that such laws and
regulations apply to the servicing of Freddie Mac mortgages.
• Default litigation management practices.
• Change control policies and procedures.
• Vendor management policies and procedures and reviews of the Servicing Agent’s outsourced
vendors. Outsourced vendors who provide services to the Master Servicer or Servicing Agent
from an offshore location (not in any state) must apply the same requirements and ensure the
same level of service and compliance that applies to outsourced vendors domiciled in and
providing services from a state.
• Business continuity policies and procedures, including annual testing and review of testing
outcomes.

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2B: Initial and annual review of the Servicing Agent’s servicing operations and loan
administration, including:
• Call center operations, making sure they comply with the Freddie Mac performance standards in
Guide Section 9201.5, including adequate hours of operation and staffing and review of customer
service surveys, if applicable.
• Complaint and error resolution, including, but not limited to, regulatory agency and borrower
complaints.
• Repurchase policies, including review of Freddie Mac repurchase demands, drafting and
submitting appeals and related processes.
• Adjustable-rate mortgage (ARM) rate adjustments, including timely borrower notifications and
reconciliation between Servicer accounts and investor reporting, and remitting obligations.
• Document control policies and procedures covering:
o Vault operations.
o Transportation of original documents and notes, including evidence of transit insurance.
o Management of Document Custodians and Guide Forms 1035 and 1035DC.
o Recertification Process After Portfolio Transfer (Guide Form 1034T).
o Lien releases.
o Modification agreement recordation and retention.
o Mortgage Electronic Registration System® (MERS®).
o Document reconciliation, including missing documents.
o Escrow amount administration for both taxes and insurance, like mortgage, hazard, flood
and lender-placed, as applicable. This includes claims filing, curtailment review and
appeal process and cash management, including security policies for cash, payment
process/available payment options and payoff processing.
o New loan boarding, including reconciliation and accurate boarding of ARM loans.

2C: Initial and annual review of the Servicing Agent’s default servicing, including:
• Collections scripts and tools.
• Loss mitigation performance that’s compliant with Guide Chapters 8402, 8404, 9101, 9102, 9201-
9209, 9301, 9401, 9402, 9501 and 9502, including but not limited to:
o Loss mitigation evaluation hierarchy policies.
o Freddie Mac Exclusionary List check procedures.
o Servicemembers Civil Relief Act (SCRA) procedures.
o Default-Related Legal Services (DRLS).
o Pre-foreclosure process review.
o Foreclosure process review and timelines.
o Bankruptcy process review and filing of motions for relief from the automatic stay.

2D: Initial and annual review of the Servicing Agent’s investor reporting and accounting
policies and practices for compliance with Freddie Mac requirements, including:
• Custodial account reconciliation policies.
• Electronic default reporting (EDR) and Loan Level Reporting and types of reporting tools used.
• Remittance policy.
• Non-performing loan statement review, reconciliation and payment policies.

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 • Compensatory fees review, appeal and reconciliation policies (e.g., to determine party
responsibility for delays and timely submission of appeals).
• Incentives (e.g., to determine recipient).

Section 3: Periodic Business Review Guidelines

(Note: A review should occur on a regular basis consistent with the size and makeup of the servicing
portfolio and may include):

3A: New loan onboarding reconciliation and quality assurance, occurring monthly or
after new loans are boarded:
• Validate the data provided to the Servicing Agent to ensure it matches the Purchase Documents.
• Make appropriate corrections in a timely manner either through the Post Fund Data Correction
(PFDC) tool or by providing the Servicing Agent with the corrected purchase data.
• Ensure timely and accurate transfer of escrow funds to the servicing agent.
• Maintain contact with the Servicing Agent to ensure timely corrections are made; if using multiple
Servicing Agents, report the appropriate one to Freddie Mac.

3B: Periodic review of the Servicing Agent’s servicing operations and loan
administration, including:
• Portfolio overview, roll rates and monitoring servicing performance in Freddie Mac’s Servicer
Performance Profile tool.
• Repurchase demands that are outstanding or under appeal.
• Call center statistics, including average speed to answer, abandonment rate, Quality Right Party
Contact, error resolution (open, closed and past standard).
• Regular OFAC screening and applicable notification to Freddie Mac.
• Fraud cases and applicable notification to Freddie Mac.
• Change management compliance with new Guide Bulletin releases and technology updates.

3C: Periodic review of the Servicing Agent’s default servicing and loss mitigation
activity, including:
• Timely sending of borrower solicitation packages.
• Monitoring of Borrower Response Packages (BRP), including appropriate characterization of
complete and incomplete packages, timely and accurate notices of incompleteness sent to
borrowers, timely and accurate evaluation of complete BRPs and packages in evaluation
process.
• Timely processing of loss mitigation activities in Freddie Mac tools, including reporting and
settlement.

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 • Foreclosure activity, including foreclosure timeline overview and past standard overview.
• Bankruptcy activity, including all applicable filings.

3D: Periodic review of the Servicing Agent’s investor reporting and accounting policies
and practices, including:

• Custodial account reconciliation and timely clearance of variances.

• Electronic Default Reporting and Loan Level Reporting including timely clearing of edits.
• Suspense funds management including review of aged suspense accounts.

Section 4: Quality Assurance Review Guidelines

Note: This should occur on a regular basis that’s consistent with the size and makeup of the servicing
portfolio. Include sample reviews of:

o Collection calls.
o Foreclosure timeline activity, including event review and SCRA review.
o Bankruptcy activities, including timely filing of motions for relief from the automatic stay.
o Loss mitigation activity, including repayment plan, forbearance, payment deferrals,
modifications (like Freddie Mac Flex Modification®), Freddie Mac standard short sale and
Freddie Mac standard deed-in-lieu of foreclosure.
o Custodial account reconciliation, including Guide Forms 59 and 59E and suspense
accounts.
o Payoffs and lien releases.
o ARM adjustments, including notices to borrowers.
o Escrow activities, including analysis, lender-placed insurance, tax and insurance and
mortgage insurance.
o Property preservation activity.
o Expense management, including timely submission and accuracy of claims.

Contact the Customer Support Contact Center (800-FREDDIE) for more information.

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