Freddie Mac Single-Family Seller/Servicer Guide 8304.4 — Reconciling Custodial Accounts

This section contains requirements related to: ■ Reconciling custodial accounts ■ Reconciling the Principal and Interest Custodial Account ■ Freddie Mac’s Principal and Interest Custodial Account review ■ Reconciling deposits to the Principal and Interest Custodial Account ■ Reconciling withdrawals from the Principal and Interest Custodial Account ■ Reconciling the Escrow Custodial Account ■ Freddie Mac’s Escrow Custodial Account review ■ Reconciling deposits to the Escrow Custodial Account ■ Reconciling withdrawals from the Escrow Custodial Account ■ Reconciling an optional Custodial Account

(a) Reconciling custodial accounts The Servicer must reconcile all Custodial Accounts within 45 days of the end of each Accounting Cycle. The purpose of the Custodial Account reconciliation is to enable the Servicer to: ■ Identify, at the loan level, variances between the Servicer’s receipts, cash disbursements and liabilities due to third parties and Freddie Mac’s records ■ Identify and correct the root cause of the items causing the variance ■ Notify Freddie Mac of errors in Freddie Mac’s records ■ Fund shortages and clear all variances no later than 90 days from the end of each Accounting Cycle even if the Servicer has not identified the root cause. However, Freddie Mac reserves the right to request that funding occur immediately.

(b) Reconciling the Principal and Interest Custodial Account The Servicer must not consolidate multiple Seller/Servicer numbers into a single reconciliation. In reconciling the Principal and Interest Custodial Account, the Servicer must: 1. Reconcile the Principal and Interest Custodial Account within 45 days from the end of each Accounting Cycle 2. Establish a separate Custodial Account and reconciliation for each Seller/Servicer number 3. Use the ending balance of the Monthly Account Statement that corresponds to the Accounting Cycle 4. Consolidate all Principal and Interest Custodial Accounts for a specific Seller/Servicer number into a single reconciliation, if the Servicer has multiple Principal and Interest Custodial Accounts for a specific Seller/Servicer number 5. Properly document and account for any prepaid and delinquent interest in order to accurately determine the Custodial Account adjusted liability 6. Identify, at the loan level, variances between the Servicer’s receipts, cash disbursements and liabilities due to third parties and Freddie Mac’s records 7. Fund shortages and clear all variances within 90 days from the end of the Accounting Cycle, even if the Servicer has not identified the root cause of the issue. However, Freddie Mac reserves the right to request that funding occur immediately. 8. Use the Form 59, Principal and Interest Custodial Account Reconciliation - Monthly Account Statement (MAS), to reconcile the account and identify variances. The Servicer may use either the online version of Form 59 or a copy that is an exact replica of the form, to complete the reconciliation. The Servicer must document every line item on Form 59 of the custodial account reconciliation as follows: ■ Bank statements with a running daily balance that cover the Accounting Cycle ■ Bank statements that show deposits in transit, outstanding debits and funding of shortage variances ■ The final version of the MAS ■ Delinquent and prepaid interest trial balances ■ Supporting documentation for other billings ■ Cumulative variance logs ■ Any additional documentation requested by Freddie Mac If the Servicer disagrees with the ending balance or any adjustments listed on the Draft Report with the exception of short sale charge-offs applied to the MAS (see Section 9208.3(a)), the Servicer must notify Freddie Mac (see Directory 7) within 90 days of the end of the Accounting Cycle represented by the MAS. Freddie Mac reserves the right to deny the Servicer’s request for a refund or interest on a refund if the Servicer does not notify Freddie Mac within the required time frame. Note: Refer to Section 8304.4(c) for information on Freddie Mac’s review of this reconciliation.

(c) Freddie Mac’s Principal and Interest Custodial Account review Freddie Mac conducts periodic examinations of the Principal and Interest Custodial Account Reconciliation. At any time, Freddie Mac may request, and the Servicer must provide, Freddie Mac with a complete reconciliation no later than the requested due date. The reconciliation package must include: ■ A completed and fully executed Form 59, Principal and Interest Custodial Account Reconciliation Worksheet — Monthly Account Statement, along with supporting documentation for every line item on Form 59 ■ Bank statements, including any that show evidence of deposits of shortage variances ■ Trial balance of delinquent and prepaid interest ■ Variance logs and any supplemental information to explain the nature and age of the variance displaying the Freddie Mac loan number ■ Any additional documentation requested by the Freddie Mac examiner

(d) Reconciling deposits to the Principal and Interest Custodial Account In reconciling a Principal and Interest Custodial Account, the Servicer must, as of the end of each Accounting Cycle, account for all payments received as well as advances and other billings due to Freddie Mac. Section 8302.1(f) specifies the time frames the Servicer must meet for the deposit of the funds listed below. The required deposits to the Principal and Interest Custodial Account by source are as follows: (i) Freddie Mac’s share of payments received: ■ Principal and interest collected on all Freddie Mac Mortgages, whether received from, or on behalf of, the Borrower or applied from a buydown account ■ Principal curtailments ■ Payoffs, including short sales and third-party foreclosure sale proceeds ■ Prepayment penalties, if applicable If the Servicer chooses, it may also deposit and later withdraw the Servicing fees that it earns. If the Servicer does not withdraw these funds by the end of the Accounting Cycle, it must account for them in its reconciliation. (ii) Advances and other billings due from the Servicer: ■ Advances for remittance shortages ■ Interest due for newly funded Mortgages ■ Repurchase proceeds

(e) Reconciling withdrawals from the Principal and Interest Custodial Account In reconciling the Principal and Interest Custodial Account, the Servicer must, as of the end of the Accounting Cycle, account for all withdrawals from the account, including the following: ■ Principal and interest and payoffs to Freddie Mac ■ Earned Service fees and amounts in excess of the Minimum Gross Yield originally deposited with a full Principal and Interest Payment ■ Participant’s share of Principal and Interest Payments ■ Recovery of advances for delinquent Mortgages ■ Deposit errors and other reconciling items ■ Transfers to a Principal and Interest Disbursement Clearing Custodial Account. Refer to Section 8304.4(j) for reconciliation requirements regarding this optional Custodial Account

(f) Reconciling the Escrow Custodial Account The Servicer must not consolidate multiple Seller/Servicer numbers into a single reconciliation. In reconciling the Escrow Custodial Account, the Servicer must: 1. Reconcile the Escrow Custodial Account within 45 days from the end of the Accounting Cycle 2. Establish a separate bank account and reconciliation for each Seller/Servicer number 3. Complete a consolidated reconciliation if the Servicer has more than one Escrow Custodial Account under a specific Seller/Servicer number, and a consolidated reconciliation for its Escrow liabilities 4. Use the positive Escrow balance that corresponds to the end of the Accounting Cycle 5. Properly document and account for all Escrow balances in order to accurately determine the Escrow Custodial Account adjusted liability 6. Identify, at the loan level, variances between the Servicer’s receipts, cash disbursements and liabilities due to third parties and Freddie Mac’s records 7. Fund shortages and clear all variances within 90 days from the end of the Accounting Cycle 8. Include any buydown balances in the Servicer's Escrow Custodial Account reconciliation, if any buydown funds are deposited into the Escrow Custodial Account. The Servicer may complete a separate reconciliation for buydown subsidies if the Servicer chooses to set up an optional buydown Custodial Account. Refer to Section 8304.4(j) for requirements for reconciling a separate buydown Custodial Account. 9. Reconcile to the positive Escrow balance as of the end of the Accounting Cycle using Form 59E, Escrow Custodial Account Reconciliation Worksheet. The Servicer may use either the online version of Form 59E or a copy that is an exact replica of the form, to complete the reconciliation. The Servicer must document every line item on Form 59E of the Escrow Custodial Account reconciliation as follows: ■ Bank statement(s) with a running daily balance that cover the Accounting Cycle ■ Bank statements that show deposits in transit, outstanding debits, and funding of shortage variances ■ Loan level trial balance displaying the Escrow balances ■ If the Servicer’s trial balance nets the escrow liability, and add the negative escrow balance ■ Cumulative variance logs that display the Freddie Mac loan number Note: Refer to Section 8304.4(g) for information on Freddie Mac’s review of this reconciliation.

(g) Freddie Mac’s Escrow Custodial Account review Freddie Mac conducts periodic examinations of the Escrow Custodial Account Reconciliation. At any time, Freddie Mac may request, and the Servicer must provide Freddie Mac with, a complete reconciliation no later than the requested due date. The reconciliation package must include: ■ A completed and fully executed Form 59E, Escrow Custodial Account Reconciliation Worksheet, along with supporting documentation for every line item on Form 59E ■ Bank statements, including any that show evidence of deposits of shortage variances ■ Trial balance displaying all Escrow liabilities ■ Variance logs and any supplemental information to explain the nature and age of the variance displaying the Freddie Mac loan number ■ Any additional documentation requested by the Freddie Mac examiner If the Servicer’s trial balance reflects a net Escrow balance, the Servicer must add the negative Escrow to determine the liability. The Servicer may use either the online version of Form 59E, or a copy that is an exact replication of the form, to complete the reconciliation. Upon Freddie Mac’s request, the Servicer must be able to provide Freddie Mac with a paper copy of the completed Form 59E, together with any supporting documentation, for up to one year from the date of the related reconciliation worksheet. All documentation must be received by Freddie Mac no later than the requested Due Date. Refer to the instructions section of Form 59E for information on supporting documentation.

(h) Reconciling deposits to the Escrow Custodial Account In reconciling the Escrow Custodial Account, the Servicer must, as of the end of the Accounting Cycle, account for all Escrow Funds received, as well as advances or interest paid on Escrow. The Servicer is required to maintain an active Escrow Custodial Account even if no Escrow amounts are collected from the Borrower(s). The Escrow Custodial Account may also be used for: ■ Deposit partial payments ■ Suspense amounts where the Borrower has not established clear intent for the payment, and ■ Insurance payment proceeds Note: Section 8302.1(f) specifies the time frames the Servicer must meet for the deposit of funds to Custodial Accounts. The following details the deposits to include in the reconciliation:

(i) Payments received: ■ Escrow Funds paid by the Borrower or deposited on the Borrower’s behalf, such as insurance loss claim proceeds ■ Payments held in unapplied or suspense pending proper distribution such as, partial payments and biweekly payments from plans that allow for biweekly collection of payments on monthly amortizing Mortgages ■ Buydown funds, if applicable. Refer to Section 8304.4(j) for reconciliation requirements regarding an optional buydown Custodial Account (ii) Funds due from the Servicer: ■ Advances as specified in Section 8304.2(c) ■ Interest on Escrow, if paid and deposited to the Borrower’s Escrow account (i) Reconciling withdrawals from the Escrow Custodial Account In reconciling the Escrow Custodial Account, the Servicer must, as of the end of the Accounting Cycle, account for all withdrawals made from the account. The following lists the withdrawals to include in the reconciliation: 1. Disbursements of Escrow Funds, including insurance proceeds resulting from a loss claim 2. Partial payments applied, including biweekly payment plan funds on monthly amortizing Mortgages 3. Buydown funds applied to the Borrower’s Mortgage 4. Recovery of the Servicer’s advances when the Servicer receives a subsequent Escrow payment for the Mortgage for which the Servicer made the advance 5. Refunds of surplus Escrow Funds resulting from an Escrow analysis or Mortgage payoff 6. Deposit errors and other reconciling items

(j) Reconciling an optional Custodial Account If a Servicer chooses to open an optional Custodial Account, as referenced in Sections 8302.1(a) and 8302.2(a), as of the end of the Accounting Cycle, the Servicer must complete the following consolidated reconciliations: (i) Principal and Interest Disbursement Clearing Custodial Account The balance of this type of Custodial Account must equal zero or the amount of a Principal and Interest Payment or payoff amount due to Freddie Mac. The Servicer must only make deposits to this type of Custodial Account immediately prior to the applicable draft date. The Servicer must consolidate the Principal and Interest Disbursement Clearing Custodial Account reconciliation with the Servicer’s Principal and Interest Custodial Account reconciliation. Refer to Sections 8304.4(a) through 8304.4(e) for requirements on reconciling the Principal and Interest Custodial Account. (ii) Buydown Custodial Account The balance of this type of Custodial Account must equal the total of buydown funds deposited at the time Freddie Mac purchased a Mortgage, minus the monthly buydown amount times the number of payments applied since Freddie Mac’s purchase. The balance in this Custodial Account may represent the buydown balance of more than one Mortgage. Refer to Section 8304.4(a) for requirements on reconciling this account.