Freddie Mac Single-Family Seller/Servicer Guide 5705.1 — Cooperative Share Loans

Freddie Mac purchases Cooperative Share Loans secured by an ownership interest in Cooperative Projects that meet Freddie Mac’s eligibility requirements. This section contains requirements related to: ■ Seller’s assessment of Cooperative Project risks ■ Seller approval for Cooperative Share Loans ■ Glossary definitions and other terms used in this chapter Sellers must obtain written approval to be eligible to deliver Cooperative Share Loans to Freddie Mac. A Seller should contact its Freddie Mac representative or Customer Service at 800FREDDIE to discuss how to obtain the applicable term of business. Freddie Mac reserves the right to cease approving Sellers or accepting deliveries of Cooperative Share Loans from any or all Sellers. The term “Mortgage” as used in the Guide includes, as the context requires, the term “Cooperative Share Loan.” Requirements pertaining to Mortgages apply to Cooperative Share Loans.

(a) Seller’s assessment of Cooperative Project risks Freddie Mac requires a Cooperative Project review to address certain project risks, including, but not limited to: ■ The marketability and condition of the project ■ The marketability of the units within the project ■ The financial stability and viability of the project ■ Project-level litigation ■ Restrictions on Shareholders’ rights to occupy the unit; and ■ The adequacy of insurance coverage to protect the project from damage and loss Freddie Mac expects the Seller to have staff that is experienced and knowledgeable about Cooperative Project risks and to place as much emphasis on the adequacy of the Cooperative Interest as collateral as it does on underwriting the Borrower’s creditworthiness. The quality of a Cooperative Share Loan can be impacted by the financial stability and viability of the particular project, among other project characteristics. The conclusion that a Cooperative Share Loan is acceptable to Freddie Mac must be based on the determination that the Borrower is creditworthy and the Cooperative Interest in the Cooperative Corporation is adequate collateral for the Cooperative Share Loan transaction.

(b) Seller approval for Cooperative Share Loans To be approved to sell Cooperative Share Loans, Sellers/Servicers must meet minimum requirements to be considered for approval to sell Cooperative Share Loans, including: 1. Possess sufficient expertise with Cooperative Projects and Cooperative Share Loans, along with the capacity and resources to ensure that the Cooperative Project is likely to be successful does not expose Freddie Mac to material credit risk and meets eligibility requirements 2. Possess substantial experience in the geographic market in which Cooperative Share Loans are being originated 3. Demonstrate volume of Cooperative Share Loans correlates to years of experience 4. Engage dedicated project review staff with experience in underwriting Cooperative Projects, and retain legal counsel (or have access to legal counsel) familiar with Cooperative Projects and Cooperative Project eligibility requirements 5. Maintain written policies and procedures consistent with Freddie Mac’s project eligibility requirements. The policies and procedures must address pre-sale and owner-occupancy requirements, declining market trends, project completion and any other issues that layer additional risk for Cooperative Share Loans. The policies and procedures for identifying the Cooperative Share Loans to be sold to Freddie Mac may be no less stringent than the policies and procedures for the Seller’s investment decisions. 6. Maintain controls for monitoring performance of Cooperative Share Loans it originates (e.g., a 60-day Delinquency within the first three months or any 90 or more day Delinquency ever). Sellers must also maintain policies and procedures to implement default management corrective actions that also evaluate and monitor the performance of the Cooperative Share Loans following implementation of such corrective action. Seller/Servicer must not be aware of any quality or servicing issues related to the Cooperative Share Loans it originates. 7. Provide project-related reporting and any project underwriting documentation or Cooperative Project Documents upon request from Freddie Mac or request the documentation from the Cooperative Corporation on Freddie Mac’s behalf, if applicable

(c) Glossary definitions and other terms used in this chapter (i) Glossary definitions The Seller should be familiar with Freddie Mac’s Glossary definitions of the following terms: Glossary definitions for Critical Repairs and Routine Repairs C Critical Repairs (includes material deficiencies and significant deferred maintenance) Repairs and replacements that significantly impact the safety, soundness, structural integrity or habitability of the project’s building(s) and/or that impact unit values, financial viability or marketability of the project. These include: ■ Material deficiencies which, if left uncorrected, have the potential to result in or contribute to critical element or system failure within one year ■ Any mold, water intrusions or potentially damaging leaks to the project’s building(s) that have not been repaired ■ Advanced physical deterioration ■ Any project that failed to pass state, county, or other jurisdictional mandatory inspections and/or certifications specific to structural soundness, safety, and habitability; or ■ Any unfunded repairs costing more than $10,000 per unit that should be undertaken within the next 12 months (does not include repairs made by the unit owner or repairs funded through a special assessment) Examples of some items to consider include, but are not limited to, sea walls, elevators, waterproofing, stairwells, balconies, foundation, electrical systems, parking structures or other loadbearing structures. R Routine Repairs These repairs are not considered to be critical and include work that is: ■ Preventative in nature or part of normal capital replacements (e.g., focused on keeping the project fully functioning and serviceable); and ■ Accomplished within the project’s normal operating budget or through special assessments that are within guidelines (ii) Other terms used in this chapter The following additional terms are used in this chapter: Additional defined terms B Blanket Mortgage A Mortgage secured by a Cooperative Project; is also referred to as an “underlying mortgage.” E Established Cooperative Project An Established Cooperative Project is a Cooperative Project in which: ■ The Cooperative Project is complete, and is not subject to additional phasing, and ■ The sponsor/developer (or Holder of Unsold Shares) has turned control of the Cooperative Corporation over to the Cooperative Unit owners H Holder of Unsold Shares Any of the following persons or Entities that (a) hold Cooperative Shares in Cooperative Units, (b) except as described below, do not intend to cause the Cooperative Units to be occupied and (c) intend to lease the Cooperative Units or keep the Cooperative Units vacant: ■ Sponsor/developer ■ Persons/entities that the sponsor/developer designates as holders of unsold Cooperative Shares; and ■ Subsequent transferees of such unsold Cooperative Shares which retain their character as unsold Cooperative Shares until one of the occupancy events described below occurs For purposes of this definition, intending to cause the Cooperative Unit to be occupied means occupancy by the persons holding the Cooperative Shares in the Cooperative Unit (i.e., subsequent transferees) the principals of an Entity holding such Cooperative Shares or any family members of the persons holding the Cooperative Shares, employees or persons affiliated with such Entities holding the Cooperative Shares. N New Cooperative Project A New Cooperative Project is a Cooperative Project in which: ■ The Cooperative Project is not complete, or is subject to additional phasing, or ■ The sponsor/developer (or Holder of Unsold Shares) has not turned control of the Cooperative Corporation over to the unit owners