From security risks that arise when confidential documentation is transmitted via email to time-consuming back-and-forth messages between Servicers and Freddie Mac, the traditional steps for Custodial Account reviews admittedly have a few pain points. But a new initiative to automate the process helps mitigate risk while providing seamless communication, secure transmission of documentation and streamlined status tracking.

The updated process takes place entirely within Cash Manager, Freddie Mac’s Servicing Gateway tool that’s used to manage cash payment activity and facilitate the reconciliation of investor reporting and accounting. Servicers selected for a Custodial Account review are instructed to log into Cash Manager using the new Custodial Account review role, “External Custodian Reviewer,” to complete and submit the documentation by the due date; links to relevant reference materials and tutorials about reconciling Principal and Interest and Escrow Custodial Accounts facilitate the steps.

Custodial Account Review Dashboard without cursor

 

Reinforced Security and Simplified Communication Offer Major Boosts

The new automation addresses several issues with the current Custodial Account review process:

  • Security: Traditionally, Servicers send statements and other data that contains confidential information to Freddie Mac via email. The new method reduces risk as email is no longer required.
  • Document transmission: Documents can be blocked by an organization’s firewall or be simply too large to make it through a company’s email servers in one transaction, necessitating sending the information in several emails. Both scenarios can cause crucial data to fall through the cracks and add time to the overall process. Uploading documentation via Cash Manager ensures confirmed, timely delivery.
  • Communication: Back-and-forth email communication to confirm receipt of documents, ask for clarification or request additional information causes inefficiency; going forward, all messaging will be handled within Cash Manager, resulting in seamless communication from start to finish.

  • Status tracking: Servicers can track the status of their review directly from the Cash Manager, providing transparency at every step.

     

documents to upload

 

Custodial Account Review Process Ensures Cash Management of Borrower Funds

The Custodial Account review process ensures accurate and timely reconciliation of Principal and Interest and Escrow Custodial Accounts. The reviews also track withdrawals and ensure that accounts are adequately funded and variances are resolved timely. The reviews are mandated by Single-Family Seller/Servicer Guide (Guide) Chapter 8304, Managing Custodial Accounts. This new enhancement will improve the process.

Explicit, Easy-to-Understand Findings Encourage Actionable Results

Based on the findings of the automated review, Servicers will receive one of three notifications signifying their compliance with the Guide:

  • Servicer meets Freddie Mac’s requirements, with no noted deficiencies.
  • Servicer meets Freddie Mac’s requirements, yet there are one or more deficiencies that require remedial action.
  • Servicer doesn’t meet Freddie Mac’s requirements, with remedial actions required to resolve the deficiencies and strengthen processes.

The automated Custodial Account review process launches in June, when selected Servicers will begin to receive requests for reviews, which will begin in August. For more information, consult this training video.