A. Retroactive Application of Last Paid Installment Calculation Methodology

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1 Federal Housing Finance Agency Constitution Center 400 7tl~ Street, S.W. Washington, D.C Telephone: (202) Facsimile: (202) January31, 2011 Raymond S. Barbone Chairman, Loan Administration Committee Mortgage Bankers Association Dear Ray: On behalf of the Federal Housing Finance Agency (FHFA), I am pleased to provide the information you requested regarding Fannie Mae s policies and practices for imposing compensatory fees when servicers exceed the allowable timelines for completing foreclosures. As we have discussed previously, we appreciate your candor in sharing your members concerns and below we address the specific concerns you related in your recent letter. A. Retroactive Application of Last Paid Installment Calculation Methodology Request: MBA respectfully requests that FHFA issue guidance clar~fying that, to the extent compensatory fees are appropriately charged~ this calculation will apply only to loans with respect to which the last paid installment date is on or after October], 20]]. We understand that MBA would like for FHFA to change the policy. However, as we have discussed, FHFA does not plan to revisit the decision. Until the Servicer Alignment Initiative (SM) was launched, Fannie Mae had not previously assessed compensatory fees for delays occurring before referral to foreclosure. However, Servicers have long been required to promptly and diligently liquidate delinquent mortgages when efforts to help homeowners keep their homes or complete a disposition alternative are unsuccessful, and Fannie Mae has had the right to assess compensatory fees for failure to refer to foreclosure in a timely manner. This is a longstanding remedy for liquidation delays that has been in Fannie Mae s Servicing Guide for many years and was enhanced in 2003 (see 2011 Servicing Guide, Part I, Chapter 2, Section (1/31/03)). As is the case with post-referral delays, Fannie Mae will not hold the servicer accountable for uncontrollable delays in the period prior to referral provided delays are accurately reported to Fannie Mae and sufficiently documented. For uncontrollable delays where a corresponding delinquency code is not available or the allowance did not cover the full delay, Fannie Mae considers adjustments when the servicer provides the correct supporting documentation through the rebuttal process.

2 Page 2 B. Refusal to Recognize Uncontrollable Delays Request: MBA respectfully requests that the FHFA issue guidance clar~5~ ing that servicers have no financial liabilityfor uncontrollable delays in completingforeclosures, even where those delays exceed the timeline plus grace period allowed under the GSEs current guidance. The FHFA shouldfurther clar~fy that delays are uncontrollable when they are caused by conduct of borrowers, borrowers attorneys, designated counsel~ thirdparties or their attorneys who may become involved in foreclosure proceedings, courts or court systems, or legal requirements such as bankruptcy, pre-foreclosure mediation or notice requirements. If there is an uncontrollable delay that exceeds the allowed buffer built into the published timelines, an adjustment may be made through the rebuttal process as long as the servicer provides the required documentation in support of the delay. For example, most of the types of delays referenced in the question would be considered uncontrollable provided the servicer submitted the required supporting documentation in the rebuttal process and the servicers actions or omissions did not contribute to the delay. Fannie Mae explains in the attached Frequently Asked Questions (dated December 15, 201 1) that the servicer is responsible for managing and monitoring all aspects of the performance of any retained attorney to whom it makes a referral, including loss mitigation activities, cure rates, and timeline performance. However, the servicer will not be required to reimburse Fannie Mae for any losses incurred because the retained attorney failed to properly meet his or her responsibilities, nor will the servicer be subject to the imposition of compensatory fees related to deficiencies in the performance of the retained attorney, as long as the losses or deficiencies are unrelated to any failure by the servicer to monitor or manage the performance of the retained attorney or failure of the servicer to provide, on a timely basis, required or requested documents, information, or signatures to the retained attorney. If compensatory fees are assessed against the servicer, the servicer may not seek or receive payment or reimbursement of the compensatory fees from the retained attorney. Along with the following example, you ll find additional examples within the attached Frequently Asked Questions (Exhibit 1). You ll also find a draft Rebuttal Reference Guide (Exhibit 2) which is distributed to Servicers along with the rebuttal template (Exhibit 3) that should be submitted along with the supporting documents outlined in Exhibit 2. Example: Florida loan delinquent prior to October 1, 2011 > In the absence of court delays, a typical Florida foreclosure required 135 days to complete once referred. Fannie Mae allowed an additional 315 days for uncontrollable delays in the foreclosure process, as well as the 135 days* for the pre-referral timeline, for a total timeline of 585 days. *Note: the number of additional days for pre-referral applies to all states: for loans with LPI dates prior to September 1, 2011 an additional 135 days is added to the published state timeline which begins at attorney referral; and, for loans with LPI dates after September 1, 2011 the servicer may receive an additional 150 days.

3 Page 3 > The LPI to foreclosure sale timeframe achieved by the servicer was 711 days, exceeding the allowable timeline of 585 days by 126 days (the servicer s timeline was 711 actual days 135 days for LPI to referral days for typical foreclosure action days of built-in buffer for uncontrollable delays). The servicer was assessed a compensatory fee for 126 days of controllable delay. > The servicer requested a credit for 407 days of uncontrollable delays through the rebuttal process, 92 days more than the 315 days already built in for uncontrollable delays in Florida, due to court delays in rendering judgment (304 days) and setting the foreclosure sale date (103 days). The chronology documentation provided by the servicer revealed a delay in the judgment entry process from 5/6/09 3/6/10 (304 days) and a delay in the sale scheduling process from 7/12/10 10/23/10 (103 days), validating the 407 days of claimed uncontrollable delays. Fannie Mae had allowed 315 days for the average experience of uncontrollable delays, and the servicer documented 407 actual days of uncontrollable delays, reducing the number of days billed by 92 ( ). > The final fee assessed was adjusted from 126 days to 34 days (126 92). C. Calculation Based on Unpaid Principal Balance and Pass through Rate Request. MBA respectfully requests that~, to the extent compensatoryfees are appropriately charged~ the calculationfor determining compensatoryfees be based on the lower ofunpaid principal balance or the fair market value ofthe property. Request: MBA respec~ fully requests thai~, to the extent compensatoryfees are appropriately charged~ for purposes ofcalculating compensatoryfees, the GSEs should use the cost offunds associated with their short-term borrowing rate from the date the loan should have been resolved to when it actually was resolvecl The compensatory fee formula (pass through interest rate multiplied by the unpaid principal balance multiplied by the number of days of delay in liquidating a loan) is a longstanding remedy for liquidation delays that has been in Fannie Mae s Servicing Guide for many years and was enhanced in 2003 (see 2011 Servicing Guide, Part I, Chapter 2, Section (1/31/03)). FHFA is not anticipating any changes to the existing formula for calculating compensatory fees. The use of the unpaid principal balance (as opposed to the market value of the property) in the formula is appropriate because the delinquent loan is held on Fannie Mae s balance sheet at its full unpaid principal balance and Fannie Mae is finding the loan s cost at that amount. Fannie Mae is capped in the amount of assets permitted to be held on the balance sheet under the terms of the Treasury Preferred Stock Purchase Agreement (PSPA). The full unpaid principal balance of the delinquent loan is recorded on the balance sheet in a non-performing, non-income producing status and precludes the acquisition of an alternate, income producing replacement mortgage in the same principal amount. Also, carrying the non-performing asset could potentially require the sale of higher yield assets to free capacity within the constraints of the balance sheet cap.

4 Page 4 In terms of the rate, it represents the opportunity costs of capital. The compensatory fees that have been assessed to date do not compensate for a number of other economic consequences that Fannie Mae has incurred as a result of foreclosure delays, such as property rehabilitation costs, housing price declines, additional taxes and homeowners dues, neighborhood property value degradation, and the 10% dividend payments to the U.S. Treasury. D. Data Correction and Reporting Request: MBA respec~ fully requests that FHFA require the GSEs to allow servicers to submit corrections on an on-going basis and allow facts to support an acceptable delay in the foreclosure timelines as part of the appeals process. Request: MBA urges the GSEs to develop the codes listed above to allow for accurate billing. In response to ongoing servicer concerns regarding compensatory fee assessments being based upon incorrect data reported by the servicers, Fannie Mae will take into consideration requests for data corrections substantiated by a third party file review if the incorrect data was reported prior to October 1, 2010 (see Announcement SVC ). However, since the data was inaccurately reported, the servicer will be responsible for all costs associated with the file review, which is required to establish the correct monthly status of the loan for the history of the loan delinquency. Fannie Mae is in the process of revising the rebuttal submission process instructions and determining the costs associated with the file review. At a previous meeting, FHFA had committed to improve Fannie Mae s delinquency status codes, and Fannie Mae has expanded those codes as of December The additional codes provide status details to Fannie Mae that may preclude a compensatory fee assessment, or reduce the calculated assessment, to avoid the need for the servicer to notif~r Fannie Mae of the delay through the rebuttal process. Until the servicer adopts the new codes, Fannie Mae will make adjustments through the rebuttal process. Fannie Mae makes allowances as follows: If the delay is due to: And the Delinquency The maximum delay allowed Is Bankruptcy (Chapter 7) Status Code is: (Acceptable Delay Allowance): 65 or 3L* 80 days per filing Bankruptcy (Chapter 12 or 13) 59, 67 or 69* 125 days per filing Probate days for first occurrence only Military Indulgence days for first occurrence only Contested Foreclosure or Litigation 33 * 60 days for first occurrence only Workout Package Completed H5 ~ 60 days for each workout Trial Modification BF ~ or 09** 120 days for each trial *These Delinquency Status Codes are available in HomeSaver Solutions Network (HSSN) beginning with the December 2011 reporting cycle. Allowances prior to the availability of these codes will be considered through the servicer rebuttal process. * *prior to implementation ofbf, FNMA will utilize 09 to identify trial modifications.

5 Page 5 For delays not addressed through the delinquency status codes, or delays that exceed the status code allowance, servicers may submit a rebuttal with supporting documentation for consideration. E. Appropriate State Foreclosure Timelines Request: MBA would welcome the opportunity to provide insight into state law timelines that are insufficient~, and would urge that the timelines be updated regularly to reflect actual court performance in the relevant states. When SAl was announced, FHFA directed Fannie Mae and Freddie Mac to adjust the timelines on a periodic basis to account for changes in circumstances over time. The Enterprises and FHFA are currently reviewing the published state foreclosure timelines to adjust for state law changes and/or court delays. F. Appeals Timeline and Imposition of Finance Charges Request: MBA respecifully requests that the GSEs grant at least 60 days, instead of3o days to pay the compensatoryfees or to appeal the charges. Anyfinance charge should not accrue during the appeals process or proposed FHFA dispute resolution process (see below). The finance charge should be at the prime rate as opposed to several percentage points above prime. Finally, no finance charge should accrue until after the FHFA issues its guidance discussed above. FHFA committed to having the Enterprises rules regarding appeals clearly written and to working with the Enterprises to ensure the dispute resolution process is fair. Spec~fIcally Meg suggested that a small group, higher up the food chain, would review appeals. In addition FHFA stated that appropriately documented uncontrollable delays trump grace periods. Additional FA Qs may be needed to clar~5~ the Enterprises position regarding the timelines. As stated in Fannie Mae s Compensatory Fee 2011 FAQ document, Fannie Mae will consider extension requests for servicers that received bills on a significant number of loans, as well as for servicers that may have to retrieve archived data in order to respond to the request. To date, Fannie Mae has not sanctioned any servicer for not completing rebuttals within the 30 day allowable timeline or for non-payment of compensatory fees. FHFA is currently reviewing the remittance timelines, rebuttals, and escalation processes for the Enterprises and remains committed to providing servicers with clear instructions and an appropriate escalation process to resolve disputes, by March G. Overall Performance Measurement Request: MBA respecifully requests that the GSEs establish an overall performance measurement that would reward good loss mitigation andforeclosure processing performance instead ofimposing compensatory fees on a loan-level basis.

6 Page 6 At this time, FHFA has no pians to change the loan-level compensatory fee process. The Enterprises do have other programs in place to reward servicers for performance excellence. For example, Fannie Mae s Servicer Total Achievement and Rewards (STAR) Program provides public recognition of servicer performance, including delinquent loan processing. Freddie Mac provides information around its Servicer Success Program in Seller/Servicer Guide Bulletins and H. Dispute Resolution Process Request: MBA recommends that FHFA develop and implement a dispute resolution process. FHFA encourages servicers to address disputes directly with their servicing management representative, who will involve the Enterprise staff as necessary. As noted above, FHFA is working to ensure that servicers understand the rebuttal process and have access to appropriate escalation processes within the Enterprises. However, at this time FHFA does not anticipate becoming directly involved in disputes over loan-level decisions. I. Loss Mitigation Incentive Payments Request: MBA believes that loss mitigation incentive payments should not be based on a pullthrough threshold. Instead~ the basis for determining incentive payments should be a successful outcome. This would align Fannie Mae and Freddie Macpolicies. The intention of the Fannie Mae pull-through threshold is to ensure that servicers are appropriately building the capacity to process Borrower Response Packages. This process was established due to the history of problems on the processing front. As we continue to observe and evaluate the Servicing Alignment Initiative s progress toward meetings its goals, we will assess the usefulness of this metric along with others. In closing, we would like to reiterate our appreciation for the time you have taken to convey your concerns to us. We look forward to continuing this dialogue. ~~Sincerely,,,~ Meg Burns (Z~ Senior Associate Director Office of Housing and Regulatory Policy Attachments

7 Exhibit 1 Compensatory Fee Statements Frequently Asked Questions December 15, 2011 On August 31, 2010, Fannie Mae issued Servicing Guide Announcement SVC : Foreclosure Time Frames and Compensatoiy Fees for Breach of Servicing Obligations to notify servicers that Fannie Mae plans to exercise its right to assess compensatory fees for delays in completing the foreclosure process on seriously delinquent loans. In the first quarter of 2011, Fannie Mae began issuing servicers compensatory fee invoices for failure to process severely aged loans according to the applicable state timelines. Although these fees will not include any additional costs directly attributable to the delay, we reserve the right to assess additional fees for those costs, should they exist, in the future. General Information 1. Are compensatory fees new? No, Fannie Mae s Servicing Guide (2011 Servicing Guide, Part I, Chapter 2, Section (1/31/03)) provides for the imposition of compensatory fees under certain circumstances. The fees are a tool we are now leveraging to encourage servicer compliance with longstanding foreclosure timeline policies. 2. Why is Fannie Mae charging compensatory fees? Fannie Mae s servicing policy provides a number of foreclosure avoidance options for servicers to assist struggling borrowers. Unfortunately, some borrowers are unable to resolve their payment delinquencies, and servicers are unable to successfully work out a foreclosure avoidance solution. In those cases, the foreclosure process must proceed in a timely manner to avoid lengthy loan resolution delays that are harmful to communities and costly for Fannie Mae and, ultimately, taxpayers. The effort to hold servicers accountable for meeting required foreclosure timelines is essential for reducing credit losses and resolving severely delinquent loans that are not eligible for, or where borrowers have been unresponsive to, workout options. 3. Will this policy encourage servicers to rush the foreclosure process? Fannie Mae s servicing policy provides more than sufficient timelines for resolving loan delinquencies. The Servicing Guide provides a prescribed time frame for loss mitigation prior to the initiation of the foreclosure process, during which servicers are required to work with borrowers on a resolution. Currently, policy allows for up to 105 days; however, for loans that become delinquent after October 1, 2011, servicers will be allowed up to 120 days before referring to foreclosure (with exceptions if a resolution is pending). Once the foreclosure process has begun, servicers and attorneys are still required to pursue all available alternatives to foreclosure, allowing significant additional time which varies by state for a solution prior to the foreclosure sale. Enforcing foreclosure timelines doesn t rush the process, but instead provides a specific reasonable targeted deadline and defines expectations to help mitigate losses.

8 4. Why is Fannie Mae updating their process for compensatory fee assessments for 2011 liquidations? As indicated in Servicing Guide Announcement SVC , FHFA has directed Fannie Mae and Freddie Mac to establish consistent mortgage loan servicing and delinquency management requirements. Fannie Mae has chosen to implement this standardization of requirements effective for all loans that liquidate through the foreclosure process from January 1, 2011 on. 5. How is Fannie Mae assessing compensatory fee assessments for 2011 liquidations? Fannie Mae will be reviewing the entire delinquency timeline from Last Paid Installment Date (LPI) through the foreclosure sale date. Allowable delays will be considered as provided in Q14, and each loan will be compared to the corresponding timeline to determine if a fee is warranted. Delinquency Time Frames 6. Where can servicers locate the time frames for 2011 liquidations? Foreclosure time frames are published on efanniemae.com. 7. Will Fannie Mae provide an allowable grace period for 2011 liquidations? No. The timelines published on efanniemae.com are based on the USFN optimum timelines plus a state specific grace period. For comparative purposes, the USFN state foreclosure time frames can be found by visiting USFN.org. While an additional grace period will not be provided, servicers will be granted various allowances based on delinquency status codes as indicated in Q How is Fannie Mae accounting for the period from LPI to referral to attorney?~ Additional days are added to the published state timelines to account for the period from LPI to attorney referral. If the loan in review has an LPI date prior to September 1, 2011, 135 days is added to the specific state timeline. For loans with LPI dates on or after September 1, 2011, 150 days will be added to the state timeline. 9. How is the Total Timeline established? The state timeline as published on efanniemae.com is combined with either 135 or 150 days (as explained in Q8) to define the total number of days the servicer has to complete the foreclosure sale before a compensatory fee would be assessed. Compensatory Fee Assessments 10. Will Fannie Mae assess fees on liquidated loans where the REO property is in an Unable to Market (UTM) status? These loans will be flagged for future billing, but will not be included in compensatory fee billing statements until the UTM status is resolved. This is to limit retractions for rescissions, eliminations, etc. 11. Is there a current minimum threshold for a compensatory fee assessment? There is no minimum loan level threshold for assessments for 2011 liquidations. However, fees that total less than $1,000 for a servicer during the billing cycle will not be assessed.

9 12. If a servicer rebuts a loan (or loans) and receives an adjustment that brings the monthly total below $1,000 will the remaining balance be waived? No. The minimum assessment is based on original balance billed and further waivers will not be considered. 13. Will any reduction or elimination of compensatory fees be considered for files managed by Fannie Mae network attorneys? The servicer is responsible for managing and monitoring all aspects of the performance of any retained attorney to whom it makes a referral, including loss mitigation activities, cure rates, and timeline performance. The servicer will not be required to reimburse Fannie Mae for any losses incurred because the retained attorney failed to properly meet his or her responsibilities, nor will the servicer be subject to the imposition of compensatory fees related to deficiencies in the performance of the retained attorney, as long as the losses or deficiencies are unrelated to any failure by the servicer to monitor or manage the performance of the retained attorney or failure of the servicer to provide, on a timely basis, required or requested documents, information, or signatures to the retained attorney. If compensatory fees are assessed against the servicer, the servicer may not seek or receive payment or reimbursement of the compensatory fees from the retained attorney. 14. How will Fannie Mae address loans that are in bankruptcy or in loss mitigation when reviewing delinquency timelines? Fannie Mae will provide allowances for acceptable delay activities that are properly reported via the corresponding delinquency status codes noted below. These allowances will be deducted from the overall delinquency timeline (LPI to foreclosure sale) and then compared to the total timeline to determine if a compensatory fee is warranted. Delinquency Allowable Exception Status Code Number of Days Chapter 7 Bankruptcy 65, 3L* Maximum of 80 days per filing Chapter 12 Bankruptcy 59 Maximum of 125 days per filing Chapter 13 Bankruptcy 67, 69* Maximum of 125 days per filing Workout Package Completed H5* Maximum of 60 days for each attempted workout Trial Modification BF*, 09** Maximum of 120 days for each attempted Trial Probate 31 Maximum of 60 days for the first instance Military Indulgence 32 Maximum of 60 days for the first instance Contested Foreclosure and Litigation 33* Maximum of 60 days for the first instance *These Delinquency Status Codes will be available in HSSN beginning with the December 2011 reporting cycle. Allowances prior to the availability of these codes will be considered through the servicer rebuttal process. **prior to implementation of BF, FNMA will utilize 09 to identify trail modifications

10 15. Can you provide an example compensatory fee calculation? For loans that liquidate through foreclosure sale in 2011, compensatory fees will be calculated as follows: UPB x Daily Pass Through Rate (PTR!365) x Number of Days Delayed Example #1 Take for example a loan with an LPI of November 1, 2008, that liquidated through foreclosure sale on January 12, After a review of the delinquency status code reporting of the period from LPI to foreclosure sale, it is discovered that a Chapter 7 Bankruptcy was reported in February, March, and April The property is in Indiana which has a performance maximum of 330 days. The loan has a UPB of $410, and a pass through rate of 6.00%. The assessed compensatory fee would be calculated as follows: Total Time from LPI to Foreclosure Sale: 1/12/ /1/2008 = 802 Total Allowable Exceptions: = 89. Only 80 Days Allowed for Ch 7 = 80 Total Timeline Allowed: (LPI <9/1/11) = 465 Total Adjusted Time from LPI to Foreclosure Sale: = 722 Days Over Timeline Allowed: = 257 Daily fee: (410, * 6.00%)/365 = $67.53 Compensatory Fee: * 257 = $17, Example #2 Take for example a loan with an LPI of September 1, 2008, that liquidated through foreclosure sale on February 15, After a review of the delinquency status code reporting of the period from LPI to foreclosure sale, it is discovered that a Chapter 13 Bankruptcy was reported in October and November of 2009, and Forbearance in May The property is in Pennsylvania which has a performance maximum of 330 days. The loan has a UPB of $55, and a pass through rate of %. The assessed compensatory fee would be calculated as follows: Total Time from LPI to Foreclosure Sale: 2/15/2011 9/1/ Total Allowable Exceptions: =61 for Chapter for Forbearance = 92 Total Timeline Allowed: (LPI <9/1/11) = 465 Total Adjusted Time from LPI to Foreclosure Sale: = 805 Days Over Timeline Allowed: = 340 Daily fee: (55, * %)/365 = $17.54 Compensatory Fee: * 340 = $5, Example #3 Take for example a loan with an LPI of November 1, 2008, that liquidated through foreclosure sale on January 15, After a review of the delinquency status code reporting of the period from LPlto foreclosure sale, it is discovered that a Chapter 7 Bankruptcy was reported in October and November of 2009, and November The property is in Ohio which has a performance maximum of 300 days. The loan has a UPB of $154, and a pass through rate of 5.625%. The assessed compensatory fee would be calculated as follows: Total Time from LPI to Foreclosure Sale: 1/15/ /1/2008 = 805 Total Allowable Exceptions: = 91. Since restart of the Ch 7 code indicates multiple filings, 91 days is the acceptable delay. Total Timeline Allowed: (LPI <9/1/11) 435 Total Adjusted Time from LPI to Foreclosure Sale:

11 Days Over Timeline Allowed: = 279 Daily fee: (154, * 5625%)/365 $23.74 Compensatory Fee: * 279 = $6, What happens when a servicer refuses to pay a bill? If a servicer fails to respond and/or remit payment timely, penalty amounts will be charged. remains delinquent, additional remediation action will be considered. If the servicer 17. How will Fannie Mae assess fees on loans with mortgage insurance claims? Fannie Mae will not assess a compensatory fee on loans that have had interest curtailments paid. 18. Will Fannie Mae hold servicers accountable for foreclosure delays related to affidavit issues? On October 1, 2010, Fannie Mae issued Lender Letter LL : Servicer Review of Procedures Relating to the Execution of Affidavits, Verifications, and Other Legal Documents. This Lender Letter reminded servicers that Fannie Mae may assess compensatory fees due to delays in the liquidation process which may include delays due to issues with affidavits. Compensatory fees for delays due to affidavit issues will be captured and billed as part of our normal compensatory fee process. 19. Where should servicers send payments? LH7~i Servicers should remit the requested funds using special remittance code 370 within 30 days of receipt of the bill. If servicers are unable to remit in this manner, a check and loan level list of payments may be issued to: Fannie Mae Attention: Compensatory Fees P.O. Box Atlanta, GA Should a physical address be needed for tracking purposes, payments may also be mailed to: Transferred Loans Fannie Mae Attention: Compensatory Fees 1075 Loop Road (LB# ) College Park, GA How will Fannie Mae treat files that are transferred to a different servicer during the foreclosure process? There will be no impact for regular loan servicing transfers where servicing reps and warrants transfer in full. In regards to Special Assets servicing transfers of terminated servicing portfolios, both of which bifurcate pre and post-transfer servicing reps and warrants, Fannie Mae will identify the transfer date and assign liability for the compensatory fee calculation as indicated below.

12 21. How does Fannie Mae assess fees for loans that have been transferred tolfrom another servicer? Initial fees are calculated using the same methodology from question 15. The timeline is split using the transfer date. For example: Total delinquent days was 300 and servicer A serviced the loan for 100 days while it was delinquent, servicer B serviced it for 200 days while delinquent. The number of days the loan was delinquent is then evaluated and the following exclusions are applied: If prior servicer delinquent days < allowable timeline a 90 day grace period is deducted from the current servicer s timeline to account for transfer delays. If a loan is 150 or greater days past the LPI date, as of the Transfer date, then the current servicer portion is waived Prior servicer delinquent days is reduced by 60 days to account for delays/halts in processing upon notification of the pending transfer Fees are then split using a % methodology. If servicer A serviced the loan for 100 of the 300 days, that servicer is billed for 33% of the fee. 22. Can you provide an example compensatory fee calculation on a transferred loan? Example #1 Take for example a loan with an LPI of November 1, 2009, that liquidated through foreclosure sale on February 17, After a review of the delinquency status code reporting of the period from LPI to foreclosure sale, it is discovered that forbearance was reported in February, March, and April The property is in Texas which has a performance maximum of 120 days. The loan has a UPB of $253, and a pass through rate of 6.56%. Prior to liquidation, the loan transferred (per Fannie Mae s request) to a new servicer, on August 1, At the time of transfer the loan was 9 months delinquent. The assessed compensatory fee would be calculated as follows: Total Time from LPI to Foreclosure Sale: 2/17/ /1/2009 = 473 Total Allowable Exceptions: = 89. Max 120 Days Allowed = 89 Total Timeline Allowed: (LPI <9/1/11) = 255 Total Adjusted Time from LPI to Foreclosure Sale: = 384 Daily fee: (253, * 6.56%)/365 = $45.58 Days Over Timeline Allowed: Preliminary Compensatory Fee: * 129 = $5, Prior Servicer Assessment: We will evaluate from November 1, 2009, through the transfer date of August 1, Prior Servicer Responsible Days: ( day allowance for transfer) = 213 days Prior Servicer % of Responsibility: (213/473) = 45% Total Compensatory Fee Billed to Prior Servicer: 5, * 45% = $2, Current Servicer Assessment: We will evaluate from the transfer date of August 1, 2010, through the sale date of February 17, Current Servicer Responsible Days: 0 as loan was > 4 months delinquent at transfer Current Servicer % of Responsibility: 0% Total Compensatory Fee Billed to Current Servicer: $0.00 Example #2

13 Take for example a loan with an LPI of August 1, 2009, that liquidated through foreclosure sale on February 3, After a review of the delinquency status code reporting of the period from LPI to foreclosure sale, it is discovered that a Chapter 13 was reported from August through December The property is in Nevada which has a performance maximum of 210 days. The loan has a UPB of $212, and a pass through rate of 5.12%. Prior to liquidation, the loan transferred (per Fannie Mae s request) to a new servicer, on November 1, At the time of transfer the loan was 3 months delinquent. The assessed compensatory fee would be calculated as follows: Total Time from LPI to Foreclosure Sale: 2/3/ /1/2009 = 551 Total Allowable Exceptions: = 153. Max 125 Days Allowed = 125 Total Timeline Allowed: (LPI <9/1/11) = 345 Total Adjusted Time from LPI to Foreclosure Sale: = 426 Daily fee: (212, * 5.12%)/365 = $29.83 Days Over Timeline Allowed: = 81 Preliminary Compensatory Fee: * 81 = $2, Prior Servicer Assessment: We will evaluate from August 1, 2009 through the transfer date of November 1, Prior Servicer Responsible Days: (92-60 day allowance for transfer) = 32 days Prior Servicer % of Responsibility: (32/551) = 5.81% Total Compensatory Fee Billed to Prior Servicer: $2, x 5.81% = $ Current Servicer Assessment: We will evaluate from the transfer date of November 1, 2009 through the sale date of February 3, Current Servicer Responsible Days: ( day allowance for transfer) = 369 days Current Servicer % of Responsibility: (369/551) = 66.97% Total Compensatory Fee Billed to Current Servicer: $2, x 66.97% = $1, Servicer Rebuttals 23. Do servicers have a deadline to notify Fannie Mae of their intention to rebut compensatory fees on any loans? Consistent with other Fannie Mae billing procedures, servicers will have 30 days from the billing date to notify Fannie Mae of any rebuttals. 24. Can servicers request additional time to respond to rebuttals on 2011 liquidations? iihwx~ii Yes. Fannie Mae will allow servicers to request additional response time for Q1, Q2, and Q billings. For example, Fannie Mae will consider extension requests for servicers that received bills on a significant number of loans, as well as servicers that may have to retrieve archived data in order to respond to the request. Servicers should work with their Portfolio Manager or Servicing Consultant to request an extension to the 30 day timeline if necessary. These extension requests may also include requests for a phased response (servicer will respond to 50% of loans within 30 days and the other 50% within 60 days). 25. Are there instances in which Fannie Mae would not consider a servicer s rebuttal? Yes. Fannie Mae does consider some factors to be indisputable. For example, compensatory fee assessments rely on accurate reporting. As indicated in Fannie Mae Seivicing Guide Announcement SVC : Servicers are reminded of the requirement to advise Fannie Mae of the action taken to resolve a

14 delinquency, the effective date of the action taken, and the reason for the default, as indicated in the Servicing Guide, Part VII, Chapter 701: Delinquency Status and Reason for Delinquency Codes. Fannie Mae may rely on this data, in whole or in part, in its assessment of performance deficiencies and imposition of compensatory fees. Rebuttals that indicate the correct status code or liquidation date was not reported will not be considered. In addition, Fannie Mae s timeline includes the time typically required under state law for an uncontested, routine foreclosure and an allowance that takes into consideration delays that may typically occur outside the control of the servicer. An adjustment will not be approved if the cited delay is covered by the allowance for uncontrollable delays. 26. What is the process for submitting loans with compensatory fees for rebuttal? ~ ~ Servicers should submit their rebuttal on the Fannie Mae supplied rebuttal template. Servicers are also required to provide relevant supporting documentation with the rebuttal. Supporting documents may include but are not limited to: attorney chronologies, servicing notes, or court documents. Supporting documents should be named as the Fannie Mae loan number and documents for each loan must be saved as a separate file. Rebuttal spreadsheets and supporting documents should be submitted through the Fannie Mae File Transfer Portal (FTP). The rebuttal template, rebuttal reference guide, and FTP user guide will be supplied with the compensatory fee invoice. Servicers may also request these documents by contacting Compensatory_Fees~fanniemae. corn Rebuttals received that are not in the proper format will be returned without review. 27. Who has delegation to rescind, waive, or reduce a compensatory fee? The NSO Compensatory Fee team will be responsible for waiver or rescission of all fees. Questions 28. Who should the servicer contact with questions regarding the assessment of compensatory fees? For general questions, servicers should contact their Servicing Consultant or Portfolio Manager.

15 Exhibit 2 Compensatory Fees Rebuttal Reference Guide Suggested Documentation for Rebuttals -Additional documents may be warranted based on the type of delay cited. Allowable Delay Type Exception Days* Documentation Needed Court Delays (State Mandated Changes, State Mandated Moratoriums, Service Delays, etc.) N/A Attorney chronology Attorney chronology and servicing notes for Attorney Delays N/A period delay is cited Servicing notes for mediation Mediation (Pre-Foreclosure) N/A period/mediation Documents Attorney chronology (to confirm sale dates FNMA Mandated Moratoriums N/A were postponed/cancelled) Title Delay N/A Attorney chronology Attorney chronology or BK documents if Chapter 7 Bankru ptcy** 80 prior to foreclosure referral Attorney chronology or BK documents if Chapter 11 Bankruptcy N/A prior to foreclosure referral Attorney chronology or BK documents if Chapter 12 Bankruptcy** 125 prior to foreclosure referral Attorney chronology or BK documents if Chapter 13 Bankruptcy* * 125 prior to foreclosure referral Probate** 60 Attorney chronology Attorney chronology and/or servicing notes Military lndulgence** 60 for period delay is cited Contested FCL/Litigation * * 60 Attorney chronology Workout Package Completed** 60 Servicing notes for period delay is cited Trial Mod/Forbearance** 120 Servicing notes for period delay is cited Other Loss Mitigation Activity N/A Attorney chronology and approval letters ~Allowable Exception Days Maximum number of days that are automatically granted based on the reporting of monthly delinquency status codes. ** Considerations for uncontrollable delays not reported via the proper monthly delinquency status code (if available) will not be considered. Things to Remember: o The rebuttal template can not be altered. If alterations are made, submission may be returned without review. o If allowances were provided in the initial fee calculation, Final Delay Days Rebutted must exceed the number of days in the allowance in order for the rebuttal to be considered. o Only delays cited will be considered. o If rebuttals are submitted with a negative number or a 0 in the Final Delay Days Rebutted column, they will not be reviewed as these delays were accounted for within the allowances and/or uncontrollable delay days built into the performance maximum. o Proof of dates listed for each delay must be provided via supporting documentation. o Loans for which a rebuttal is not being submitted should not be included on the worksheet.

16 Exhibit 3 A B C 0 6 F 0 H I FM Servicer Servicer Property Delay#1 Delay #1 1 Loan# REOID Name ID State Servicer Comments Delay~ Start End A1OXX)tX ABC A1OYYYY ABC CSOWWW ABC 5/1/08 It was advised there was a title problem. Title Issue was not resolved until 2/19/10 and a new referral was sent to attorney. Publication completed on 3/11/10 Foreclosure sale was scheduled for 6/1/10 on 4/7/ E+08 GA Title Issue 3/15/2008 3/11/2010 Attorney had trouble locating defendant. Notice of Action sent to complete on 3/5/08. Service Court FL completed on 3/14/08. Delay 12/14/2007 3/14/2008 6/4/09. Judgment submitted to Court. awaiting approval. Attorney sent Motion and Order to Continue Heating to Court on 7/13/09 and 9/15/09. Judgment entered on 12/16/09. Praecipe for sale submitted to Court on 1/19/10. Attorney received Notice of Sale on 4.45Ee08 IN 9/21/10 for 10/27/10 sale. Sale held on 10/27/10. Court Delay 6/5/ /16/2009 i K I to N AE AF AG AN Uncontrofleble Delay~aya Bufltlnto Allowable Peifomiance Exception Ma3dmum Days (FNMA Tlmelh~e Already Final Delay ~Dela~ Delay#2 Total Delay #2 Delay#Z Delay ~Standerd tndustty Granted (Per Days Rebutted 1 #1 Days Delay #2 Start End Days ~ limeflne) Invoice) (AF-AG.AH) Court Delay 4/8/2010 6/1/ : _ Court Delay 1/13/ /27/ Page 1 Rebuttal Template-DRAFT.xlsx