Freddie Mac EMortgage Update

1. Freddie Mac – EMortgage Update Ted Adams Director Technology Standards, Freddie Mac

2. eMortgage Defined Benefits For Our Customers Freddie Mac’s Implementation Approach Our Progress To Date Industry Current State and Beyond Discussion Topics

3. Freddie Mac Definition A mortgage where critical loan documentation, specifically the promissory note, is natively electronic and has been signed electronically. At a minimum, the promissory note must be electronic for Freddie Mac to classify it as an eMortgage. General agreement that current paper based world does not facilitate streamlined processes, collaboration or error reduction. Key to this definition is that items are natively electronic. They did not originate in paper form. An eMortgage is not an image of a paper doc. Although imaging may continue to be a part of the loan file. We will probably be dealing with hybrid loans – loan document will be a combination of electronic and paper for some time. (Issues around the security instrument) Probably the most critical document that we are focusing on is the Note and any modifying instruments such as modifications, conversion agreements, etc. General agreement that current paper based world does not facilitate streamlined processes, collaboration or error reduction. Key to this definition is that items are natively electronic. They did not originate in paper form. An eMortgage is not an image of a paper doc. Although imaging may continue to be a part of the loan file. We will probably be dealing with hybrid loans – loan document will be a combination of electronic and paper for some time. (Issues around the security instrument) Probably the most critical document that we are focusing on is the Note and any modifying instruments such as modifications, conversion agreements, etc.

4. Benefits For Our Customers Eliminate costs and errors associated with paper processing Increased data integrity throughout the process Reduction in number of post funding data corrections Automated compliance audits Improved delivery process More efficient quality control audits The Freddie Mac eMortgage implementation will use the MISMO SMART Document standard. Which combines data, view, and signatures in a single electronic file. This allows us to read data directly from the source document. This is a major shift from today’s process of having a dual delivery path, of electronic data and corresponding paper. This change brings with it a number of efficiencies.The Freddie Mac eMortgage implementation will use the MISMO SMART Document standard. Which combines data, view, and signatures in a single electronic file. This allows us to read data directly from the source document. This is a major shift from today’s process of having a dual delivery path, of electronic data and corresponding paper. This change brings with it a number of efficiencies.

5. Open Standards Approach The eMortgage solution belongs to our customers who can control: The vendor selection The functionality of the solution The investor(s) to which it connects The user experience of their internal and external customers as they interact with the solution. The use of open standards gives our customers freedom to select systems and products that best meet their needs. What is Freddie Mac’s approach to implementing eMortgages. We firmly believe the solution belongs to our customers. We want to ensure that they are in control of the borrower relationship and the settlement process through their chose eClosing platform. We will provide the appropriate connections and functionality necessary for us to purchase the loan. We believe that the way to achieve this implementation philosophy is through the use of open standards. It became clear very early on that standardization was critical to a fungible eMortgage product. Freddie Mac has taken a lead role in the development of standards necessary to support the implementation of eMortgages. There are 4 groups that we feel are critical to this standardization. I’d like to take a few minutes to talk about each of these organizations and the role they play. What is Freddie Mac’s approach to implementing eMortgages. We firmly believe the solution belongs to our customers. We want to ensure that they are in control of the borrower relationship and the settlement process through their chose eClosing platform. We will provide the appropriate connections and functionality necessary for us to purchase the loan. We believe that the way to achieve this implementation philosophy is through the use of open standards. It became clear very early on that standardization was critical to a fungible eMortgage product. Freddie Mac has taken a lead role in the development of standards necessary to support the implementation of eMortgages. There are 4 groups that we feel are critical to this standardization. I’d like to take a few minutes to talk about each of these organizations and the role they play.

6. Supporting Open Standards MISMO - Freddie Mac has taken a leadership role in the development of MISMO standards. Including XML data, eMortgage, information security, and Legal issues. MERS – Freddie Mac is a participating member and supports the use of and continuing development of the eRegistry. SPeRS – Freddie Mac was a member of the drafting committee and supports implementation of the SPeRS deliverables. PRIA – Freddie is a participating member of Property Records Industry Association. MISMO is probably the corner stone organization in supporting this effort. Established under the MBA, MISMO’s focus is on developing common data and technology standards for the real estate finance industry. With regard to eMortgages MISMO has played a key role in developing very important standards. MISMO is probably the corner stone organization in supporting this effort. Established under the MBA, MISMO’s focus is on developing common data and technology standards for the real estate finance industry. With regard to eMortgages MISMO has played a key role in developing very important standards.

7. Freddie Mac’s Role Limit our focus on providing our customers with the connections and functionality necessary to sell us eMortgages. We expect that our customers will use eMortgage systems provided by third-party vendors rather than custom build their own. Work closely with our customers to incrementally integrate these systems into our Selling System. Match the pace of market place adoption of eMortgages. So how are we going to use these standards to bring about eMortgages as a reality. This will not be a big bang approach. I think what you will see from Freddie Mac is a steady and deliberate move toward a large scale implementation. So how are we going to use these standards to bring about eMortgages as a reality. This will not be a big bang approach. I think what you will see from Freddie Mac is a steady and deliberate move toward a large scale implementation.

8. Our eMortgage Handbook Published December 2005 Sets forth requirements and guidance for Sellers that wish to create or manage mortgage loans using Electronic Records and Electronic Signatures. Based on industry standards. Provides guidance to Seller/Servicers and custodians for: Acceptable signatures Creating and using natively electronic documents Storing and sharing documents electronically Creating, delivering and managing electronic notes and other loan documents As part of our commitment to making clear our policies, In December 2005 Freddie Mac published its eMortgage Handbook. Available on the web at www.freddiemac.com This sets forth our requirements for doing business electronically with Freddie Mac. It provides guidance on a number of areas such as…. As part of our commitment to making clear our policies, In December 2005 Freddie Mac published its eMortgage Handbook. Available on the web at www.freddiemac.com This sets forth our requirements for doing business electronically with Freddie Mac. It provides guidance on a number of areas such as….

9. Successful Process Test Participants Included: Correspondent – Wells Fargo Funding Investor – Freddie Mac Lender – Greenlight Financial Services Settlement Agent – Veri-docs Third Party Custodian – Wells Fargo Document Custody eLending Platform / Vault – Fiserve Lending Solutions SMART Doc – VMP Mortgage Solutions Registry – MERS eRegistry Also in December 2005 we completed an end to end process test based on this open standards approach to implementation. Listed are the participants of that test including our hosts VMP mortgage who supplied the SMART Document technology. I think that this reflects the reality of eMortgages under the open standards approach. Many trading partners coming together and working toward the reality of a paperless mortgage. Also in December 2005 we completed an end to end process test based on this open standards approach to implementation. Listed are the participants of that test including our hosts VMP mortgage who supplied the SMART Document technology. I think that this reflects the reality of eMortgages under the open standards approach. Many trading partners coming together and working toward the reality of a paperless mortgage.

10. Current Industry State Refinance and origination slowdown is giving everyone a chance to retool and advance technology. eMortgage concept is gaining industry-wide momentum. Supporting industry infrastructure is in place (MERS eRegistry, MISMO SMART Document, SPeRS, etc.). One question that is frequently asked is how long before we see eMortgages as mainstream. A study in 2004 published by Mortgage Banking theorized that it may not be until 2010 when the majority of lenders will be set to go paperless. I’m not sure if that the authors of that article would still hold to that projection but it might give us a better sense to the answer by looking at the state of the industry today and what must still be accomplished. One question that is frequently asked is how long before we see eMortgages as mainstream. A study in 2004 published by Mortgage Banking theorized that it may not be until 2010 when the majority of lenders will be set to go paperless. I’m not sure if that the authors of that article would still hold to that projection but it might give us a better sense to the answer by looking at the state of the industry today and what must still be accomplished.

11. More to Accomplish Great progress has been made but more needs to be done to fully realize benefits. This is an industry wide challenge that will require the participation of all players. Freddie has detailed areas where additional work is needed in our eMortgage Timeline. In an open standards approach lenders, investors, and the industry as a whole will need to continue to work together to pave the way for wide scale adoption.In an open standards approach lenders, investors, and the industry as a whole will need to continue to work together to pave the way for wide scale adoption.

12. Key Needs To Address Standards for electronic documents such as Loan Modifications. Processes and technology to enable use of electronic document for loan set up. Change management protocols to adapt to new technology. Standards for electronic recording and notarization. Returning original documents to borrower at payoff.

13. Freddie Mac Actions Continue to work with industry groups to develop standards that help remove obstacles. Further refine the specifications for doing business with us electronically (i.e., Lender Delivery, Default, and QC specifications and Document Custodian). Adjust our implementation timeline according to market development. Fulfilling a commitment made by Joe Smialowski EVP Operations & Technology, later this spring we will be publishing our eMortgage Timeline. This will further define how we will be doing business in the electronic environment. We want to continue to encourage the industry to coalesce around the existing eMortgage standards. Fulfilling a commitment made by Joe Smialowski EVP Operations & Technology, later this spring we will be publishing our eMortgage Timeline. This will further define how we will be doing business in the electronic environment. We want to continue to encourage the industry to coalesce around the existing eMortgage standards.

14. Industry Actions Define and refine eMortgage strategy and review system readiness. Use available standards and published guides. Evaluate eMortgage technology options and make selections. Establish trading partner arrangements and build interfaces. Modify business processes to replace paper documents with electronic documents. Determine impacts to risk models between industry participants. Not just lenders and investors but all participants in the supply chain need will need to be e – enabled in order for us to reach critical mass. We need standardization in areas which none exist such as loan modifications and addenda. There are a list of issues that will need to be resolved. For example, in states that require the paper note to be returned at payoff, how will we deal with this in an eMortgage world. New ways of doing business might shift the way existing trading partners deal with or share risk. Trading partners should be looking at these possibilities. It is often the very non-technical issues that can be the most time consuming to resolve. Not just lenders and investors but all participants in the supply chain need will need to be e – enabled in order for us to reach critical mass. We need standardization in areas which none exist such as loan modifications and addenda. There are a list of issues that will need to be resolved. For example, in states that require the paper note to be returned at payoff, how will we deal with this in an eMortgage world. New ways of doing business might shift the way existing trading partners deal with or share risk. Trading partners should be looking at these possibilities. It is often the very non-technical issues that can be the most time consuming to resolve.

15. Summary As an industry we need to work together to address the barriers to wider adoption in order to realize the full benefits of eMortgages. Freddie Mac will continue to work with our business partners and through industry standards organizations to meet the challenges. Freddie Mac is committed to the success of eMortgages. We feel strongly that it will yield big benefits for our customers and ourselves. Freddie Mac is committed to the success of eMortgages. We feel strongly that it will yield big benefits for our customers and ourselves.

16. For Freddie Mac’s eMortgage Handbook: www.freddiemac.com/singlefamily/elm/index.html If you are interested in selling eMortgages to us, contact your Freddie Mac Account Manager Ted Adams Director Technology Standards 703-388-7910 Ted_Adams@freddiemac.com Ann Epstein Offerings Director 703-388-7880 Ann_Epstein@freddiemac.com Take questions, or if you would like to contact us after the conference.Take questions, or if you would like to contact us after the conference.