Common Claim Initiative _____

1
Common Claim Initiative_____

• Overview of FFEL Community Discussion with the
  Department of Education
• November 15, 2004
• Baltimore, Maryland

2
Common Claim Initiative - 2004

• ED questions April 20, 2004
• DACS presentation to ED June 3, 2004
• Follow-up questions from ED June 22, 2004
• DACS response to ED July 12, 2004
• OIG reviews Summer 2004

3
Todays Focus

• Background of the Common Claim Initiative (CCI)
• Discussion points regarding
• Payment History
• Collection History
• Deferment Forbearance History
• Why CCI satisfies program requirements

4
Background of the CCI_____

• Barbara Wilhelm
• Sallie Mae Guarantee Servicing Operations

5
Statutory Mandate

• 1992 Reauthorization required standardized forms
  and procedures
• FFELP industry began
• Development of common forms
• Development of standard processes
• Support of electronic initiatives

6
Primary Goals of CCI

• Meet statutory requirements
• Separate functions that are better supported in
  program review vs. claim review
• Provide standards that can be supported by
  electronic exchange
• Eliminate redundancy in data collection

7
Claim Review Purpose

• Protect federal fiscal interest
• Verify timely conversion to repayment
• Verify proper due diligence was performed
• Validate no servicing gaps greater than 45 days
• Ensure timely claim filing
• Verify borrowers outstanding balance
• Validate claim status
• Capture data for guarantor collection activity

8
CCI Components

• Common Default Aversion Assistance Request (DAAR)
  Form
• Common Claim Form
• Common Supplemental Claim Form
• Common Claim Review Procedures
• Common Account Maintenance (CAM)

9
CCI Support

• Common Manual
• Common Review Initiative (CRI)
• Data Validation Testing

10
CCI SupportCommon Manual

• Common Manual was updated to support the CCI
  process
• CCI process was endorsed by the Common Manual
  Governing Board
• Guarantor-Specific Information contained in
  Appendix C

11
CCI SupportCommon Review Initiative (CRI)

• Reviews all major lenders and servicers
• Verifies that the loan is converted to repayment
  timely
• Verifies that payments are applied correctly
• Verifies that deferments are granted properly
• Verifies that forbearances are granted properly
• Verifies system procedures are in place to
  accurately perform required due diligence

12
CCI SupportData Validation Testing

• Prior to Approval for CCI Filing
• All major lenders servicers submit CCI Claim
  Form and full loan servicing documentation
• Guarantor compares servicing documentation to
  CCI Claim Form to ensure data is reported
  correctly
• Lenders servicers are approved to use the
  CCI Claim Form only after the successful
  completion of testing

13
CCI SupportData Validation Testing

• CCI Claim Review Statuses
• Exceptional Performer Status
• Standard Review Status
• Program Review Status

14
CCI SupportData Validation Testing

• After Claim Payment
• Lenders servicers are subject to further review
  of claims purchased to ensure continued data
  integrity

15
Discussion Points RegardingPayment History_____

• Ron Stroud
• Texas Guaranteed

16
Payment HistoryRegulatory Requirements

• 682.406(a)(3) requires an accurate payment
  history showing the lender exercised due
  diligence in collecting the loan
• 682.414(a)(1)(ii)(C) - requires guarantors to
  keep detailed history of payments received by the
  guarantor
• 682.414(a)(4)(ii)(I) requires lenders to keep
  detailed history of payments received by the
  lender

17
Payment HistoryInformation Provided on Claim Form

• Total borrower payment amount (Field 37a)
• Number of months satisfied by payment
  (Field 38)
• Capitalized interest (Field 45)
• Principal repaid (Field 46)
• Interest-Paid-Through Date (Field 50)
• Payments received during due diligence
  (Field 61)

18
Payment HistoryCritical Claim Review Functions

• Obtain the borrowers outstanding balance
• Capitalized interest
• Principal repaid
• Interest claimed as of

19
Payment HistoryCritical Claim Review Functions

• Answer borrower inquiries
• Total borrower payment amount

20
Payment HistoryCritical Claim Review Functions

• Determine the next payment due date
• Number of months satisfied by payment

21
Payment HistoryCritical Claim Review Functions

• Accurately monitor due diligence for rolling
  delinquency
• Payments received during due diligence

22
Payment HistoryCritical CRI Functions

• Review allocation of payments between principal,
  interest, late charges, and across individual
  loans
• Determine procedure for partial payments
• Determine procedure for prepayments
• Determine how interest is calculated

23
Discussion Points RegardingCollection
History_____

• Rinn Harper
• Texas Guaranteed

24
Collection HistoryRegulatory Requirements

• 682.406(a)(3) requires an accurate
  collection history showing the lender exercised
  due diligence in collecting the loan
• 682.411 lender due diligence in collecting
  guaranty agency loans
• 682.414(a)(1)(ii)(D) requires guarantors to
  keep detailed collection history between the
  agency and the borrower

25
Collection HistoryRegulatory Requirements

• 682.414(a)(4)(ii)(J) requires lenders to
  keep detailed collection history between the
  lender and the borrower
• 682.Appendix D (Cure Bulletin 88-G-138)

26
Collection HistoryInformation Provided on Claim
Form

• Collection activity dates (Field 61)
• Collection activity codes (Field 61)

27
Collection HistoryCritical Claim Review Functions

• Collection activity dates and codes
• Review due diligence for violations and gaps per
  Appendix D
• Utilizes standard due diligence reporting codes
• Due diligence codes come from actual collection
  history

28
Collection HistoryCritical Claim Review Functions

• Collection activity dates and codes
• Provides for monitoring borrower, co-maker, and
  endorser due diligence
• Accommodates standard and rolling delinquency
• Provides for activities within the due diligence
  cycle (payments, deferment, forbearance)
• Provides for monitoring of skip tracing activities

29
Collection HistoryCritical CRI Functions

• Verify required borrower, co-maker, and endorser
  due diligence completed
• Verify required borrower, co-maker, and endorser
  skip tracing was performed
• Verify default aversion assistance was
  requested timely

30
Discussion Points RegardingDeferment
Forbearance History_____

• Kathy Leatherbury
• USA Funds

31
Deferment Forbearance HistoryRegulatory
Requirements

• 682.414(a)(4)(ii)(F) requires lenders to
  retain evidence of the borrowers eligibility for
  a deferment
• 682.414(a)(4)(ii)(G) requires lenders to
  retain documents necessary for forbearance

32
Deferment Forbearance HistoryRegulatory
Requirements

• Questions and Answers 2, Dated May 13, 1988
• Question 18a
• What if the guaranty agency discovers
  violations, e.g. improper certification of a
  deferment or no documentation of a forbearance,
  on an account more than 180 days ago? No errors
  are discovered in the interest and special
  allowance billings for these periods but the
  guaranty agency isnt comfortable overlooking
  these violations.

33
Deferment Forbearance HistoryRegulatory
Requirements

• Questions and Answers 2, Dated May 13, 1988
• Answer 18a
• For reinsurance purposes, the Department is
  looking only at the last 180 days of delinquency
  prior to default. Failure to fully document a
  deferment or forbearance in itself may not
  create a reason to deny a claim. If the borrower
  made payments after the deferment or forbearance,
  there is not a delinquency issue. Only the last
  180 days of delinquency are reviewed.

34
Deferment Forbearance HistoryRegulatory Changes

• Not all deferment and forbearance types require
  the borrower to submit a request
• In-school deferments may be granted based on
  documentation other than the traditional
  deferment form, e.g., 682.210(c)(1)(i),(ii), and
  (iii)
• Some forbearance types allow for forbearance
  without a form signed by the borrower or
  endorser, e.g., 682.211(f)

35
Deferment Forbearance HistoryInformation
Provided on Claim Form

• Number of months deferment and forbearance (Field
  39)
• Deferment granted during due diligence
  (Field 61, DB DE)
• Forbearance granted during due diligence
  (Field 61, FB FE)

36
Deferment Forbearance HistoryCritical Claim
Review Functions

• Determine next payment due date
• Number of months satisfied by deferment or
  forbearance

37
Deferment Forbearance HistoryCritical Claim
Review Functions

• Accurately monitor rolling delinquency
• Deferment or forbearance granted during due
  diligence

38
Deferment Forbearance HistoryCritical CRI
Functions

• Deferment testing
• Eligibility
• Documentation
• Length
• Begin and end dates
• Timely resumption of repayment

39
Deferment Forbearance HistoryCritical CRI
Functions

• Forbearance testing
• Eligibility
• Documentation
• Length
• Interest accrual and capitalization verified
• Timely resumption of repayment

40
Why CCI Satisfies Program Requirements_____

• Barbara Wilhelm
• Sallie Mae Guarantee Servicing Operations

41
Why CCI Satisfies Program Requirements

• Implements all of the statutory initiatives in
  HEA 432(I), Uniform Administrative and Claims
  Procedures
• Meets regulatory requirements that lenders
  provide accurate payment and collection histories

42
Additional Safeguards

• Industry workgroups provide forum for loan
  holders to address issues identified and to
  remain current with regulations
• Default Aversion and Claims Standardization
  workgroup (DACS forms and process)
• Default Aversion and Claims Advisory Team
  (DACAT electronic formats)

43
Next Steps

• ED is reviewing the information presented
• ED is exploring any remaining questions
• ED has committed to obtain feedback from the
  industry workgroup (DACS) regarding any
  recommended changes

44
Thank you for joining us!Please be sure to
complete your conference evaluation form.

• Rinn Harper, Texas Guaranteed
• Kathy Leatherbury, USA Funds
• Tracy Roberts, EDFUND
• Ron Stroud, Texas Guaranteed
• Barbara Wilhelm, Sallie Mae Guarantee Servicing
  Operations