FFEL Loan Purchase Programs

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FFEL Loan Purchase Programs

• September 26, 2008

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Presenters

• Jeff Baker
• Director Policy Liaison Implementation
• Federal Student Aid
• U.S. Department of Education
• Jay Hurt
• Chief Financial Officer
• Federal Student Aid
• U.S. Department of Education
• Margaret Ayanian
• Business Operations
• Federal Student Aid
• U.S. Department of Education

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Logistics

• Title Department of Educations plans to
  purchase FFEL Program Loans and Participation
  Interests
• Date September 26, 2008
• To Participate You Must
• Logon at URL provided in registration
  confirmation email and
• Dial in to 1-888-469-1368 Confirmation number
   6871798
• Participant Pass code  2417097
• Additional information on the Loan Purchase
  Programs at www.federalstudentaid.ed.gov/ffelp

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Legal Authorities

• Ensuring Continuing Access to Student Loans Act
  of 2008 (P.L. 110-227)
• HR 5715
• Signed by the President on May 7, 2008
• Strengthened GA Lender of Last Resort Program
• Provided Secretary authority to purchase FFEL
  loans
• Cannot provide advanced funding to lenders
• Federal Register Notice
• Required by statute
• Draft Posted to IFAP on June 24, 2008
• Official Publication July 2008

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Program Objectives

• Ensure that eligible students and parents receive
  federal student loans for the 2008-2009 academic
  year
• Support the FFEL Program as a successful
  private/public partnership
• Ensure no net cost to the federal government
• No statutory authority to provide advance funding

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Two Programmatic Components

• Loan Purchase Commitment Program
• Commitment by ED to purchase eligible 2008-2009
  FFEL loans through September 30, 2009
• Called put
• Any FFEL lender/holder
• Loans must be fully disbursed to be purchased
• 45 day advance notice of loans to be sold
• EDs commitment has value in financial markets

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Two Programmatic Components

• Loan Participation Purchase Program
• Commitment by ED to purchase participation
  interests in eligible 2008-2009 FFEL loans
  through September 30, 2009
• EDs purchase will provide immediate liquidity
• To terminate EDs participation interest lender
  repays ED with defined yield
• Loans can be re-purchased by lender
• Loans can be sold (put) to ED

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Webinar Objectives

• Purpose To provide additional detail of
  operational processes involved in the
  Participation Purchase Program and the Loan
  Purchase Commitment Program.
• Target Audience
• Personnel at servicers, lenders and custodians
  who are responsible for collections and reporting
  
• Personnel at servicers and lenders who are
  responsible for loan sale transfer operations.

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Agenda

• Loan Eligibility Requirements
• Participation Purchase Program
• Loan Schedules
• Month-End Aggregate Settlement Date Report
• Pay.gov Remittance Activity
• Agreed Upon Procedures (AUP) Requirements/
  Compliance Audits
• Loan Purchase Commitment Program
• Pre-Sale - Loan Level Detail Report
• Bill of Sale Documents
• Security Release Documents
• Post Sale Adjustments
• Collateral Transfer Documents
• Agreed Upon Procedures (AUP) Requirements

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• Loan Eligibility

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Loan Eligibility General

• Only Stafford and PLUS (no consolidation) loans
  made for a loan period that includes, or begins
  on or after, July 1, 2008 and for which the first
  disbursement is made on or after May 1, 2008 and
  no later than July 1, 2009.
• Loans must include all other eligible subsidized
  and unsubsidized 2008-2009 loans for the borrower
• No defaulted loans
• No Lender of Last Resort loans
• No loans with borrower benefits, except
• An upfront borrower fee reduction
• .25 interest rate reduction for automatic
  repayment.
• Servicing agreement must be terminable within no
  more than 30 days notice

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Loan Eligibility - Programmatic

• Loan Purchase Commitment Program
• Loans must be fully disbursed by Purchase Date
• Loans previously in Loan Participation Program
  may participate in program
• Loan Participation Program
• Minimum of one disbursement made
• Loan must be fully disbursed by September 30,
  2009
• Loans may only be participated once in the
  program
• Hard and soft edits are being run against
  incoming loan schedule data files to identify
  issues

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Loan Eligibility Requirements

• Loans Number 1 and 2 meet loan period eligibility
  requirements because first disbursement is made
  on or after May 1, 2008 and not later than July
  1, 2009 and Loan Period End Date is greater than
  or equal to July 1, 2008
• Loan Number 3 is an ineligible loan because the
  loan period does not include July 1, 2008.

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• Participation Purchase Program

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Loan Schedules - Changes

• Changes to the Loan Schedule File include
• New Record Count in Header
• Switch to updated Loan Schedule format starting
  October 6, 2008
• Test files for updated Loan Schedule can be sent
  to ED starting on October 3, 2008

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Loan Schedules

• Weekly Loan Schedule
• Participation Purchase Funding Requests
• Month-End Loan Schedule
• Reports aggregate pool of loans held in Class A
  Participation Certificate by ED
• Report date is the last calendar day of month end
  and due to ED seven (7) business days after month
  end
• If Sponsor has multiple Servicers, each servicer
  must submit a separate Month-End Loan Schedule
• May not be used for Participation Purchase
  Funding Requests
• Details of file format and instructions provided
  in Electronic Announcement 16

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Month-End Aggregate Settlement Date Report

• One report, aggregating all Month-End Loan
  Schedules (in the case of multiple Servicers)
• Reports Collection Activity of all loans
  Section IV, used for distribution in Cash
  Available to pay Participation Yield (Line 23)
  and Outstanding Balance of Class A Participation
  Interests (Line 24)
• Report date is the last calendar day of month end
  and due to ED seven (7) business days after month
  end
• Must reconcile to only one Pay.gov confirmation
  number
• Details of Excel file format and instructions
  provided in Electronic Announcement 17

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Pay.gov Remittance Activity

• Custodians are required to remit amounts equal to
  Cash Available for Distribution (Line 22) of
  Monthly Aggregate Settlement Report, no later
  than seven (7) business days after calendar month
  end
• Payments should be made through Pay.gov ACH Funds
  Remittance. Instructions provided at
  http//www.fp.ed.gov/fp/attachments/activities_wha
  tsnew/PaygovFundsRemittance092008.doc
• Confirmation number will be provided from Pay.gov
  website upon remitting payment
• Each Aggregate Monthly Settlement Report must
  reconcile to only one Pay.gov confirmation number

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AUP - PARTICIPATION PROGRAM

• Authority Section 8 of the MPA
• Audit Type An agreed upon procedures (AUP)
  attestation engagement
• AUP Objective To perform procedures and report
  results and findings in order to assist ED in
  evaluating the loans compliance with the
  provisions of the MPA. The procedures are focused
  on loan eligibility, similar to a commercial
  transaction.

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AUP - PARTICIPATION PROGRAM

• AUP Scope
• Initial Participation Purchase Request (PPR)
  AUP report due to ED within 60 days of
  consummation
• Subsequent PPR AUP report due to ED based on ED
  published schedule
• AUP is at the Sponsor level not at the Servicer
  level
• Professional Standards Government Auditing
  Standards must be used in conjunction with the
  AICPA Attestation Standards
• AUP Guide Published by early October 2008. The
  guide will require that AUP reports be submitted
  to ED electronically to an e-mail address
  identified in the guide. The guide will also
  require submission of a Statement of Compliance
  to be signed by the Sponsor and Servicer.

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Compliance Audits

• Authority Section 8 of the MPA
• Audit Type Due Diligence Audit
• Audit Objective The Department and its
  representatives may conduct a due diligence audit
  of the Servicers operations, Loan Documents,
  Eligible Loans and Settlement Reports. This will
  assist ED in evaluating compliance with the
  provisions of the MPA.
• More information on Compliance Audits to follow
  in future announcements

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• Loan Purchase Commitment Program

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Loan Transfer/Conversion File

• Seller submits 45-Day Notice of Intent to Sell
  with recommended purchase date.
• Nine (9) business days prior to purchase date
  seller submits Loan Transfer/Conversion File to
  the ED Servicer.
• During the next three (3) business days, ED
  Servicer will perform loan eligibility and data
  integrity edits on the loan data. ED Servicer
  will work with Seller/Sellers Servicer to clear
  exception items or adjustments to loan balances.
• Six (6) business days prior to the purchase date,
  the loan balances for the sale are locked down
  and the final Loan Purchase Detail Loan Schedule
  is provided to the Seller. Any subsequent
  transactions processed on the loans to the sold
  to ED will be handled as post sale adjustments.

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Detail Loan Schedule

• The report will include a final listing of all
  eligible loans submitted by a seller to be sold
  to the Department.
• Selling lender reviews and agrees with the
  Pre-Sale Report totals and final listing of all
  eligible loans to be sold to the Department.
• Pre-Sale Reports will include a calculation of
  the final sale purchase price including principal
  and interest outstanding through sale date,
  return of the 1 origination fee, and 75.00 per
  loan.

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Detail Loan Schedule

• Six business days prior to Purchase Date, ED
  Servicer will prepare the Loan Level Detail
  Report above using the following data elements
  from the Conversion Transfer File received from
  the Sellers Servicers
• DEAL ID unique 5 digit field that identifies
  the individual loan sale
• OLA Original Loan Amount
• SUB PBO Principal Balance Outstanding for
  Subsidized Stafford loans
• UNSUB PBO Principal Balance Outstanding for
  UnSubsidized Stafford loans
• PLUS PBO Principal Balance Outstanding for PLUS
  Loan
• Estimated IRB as of Sale Date Estimated
  Interest Receivable Borrower as of Sale Date

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Bill of Sale Documents

• Bill of Sale documents to be submitted to ED on
  the fifth (5) business day prior to Purchase
  Date.
• o    Formal Bill of Sale, including assigned
  Deal ID
• o    Final Loan Schedule Summary
• o    Loan Schedule (Loan Level Detail Report)
• o    Security Release Certification (if
  applicable)
• o    Notice of Assignment and Designation of
  Payee Financial Institution Form (optional) or
• o Subsequent notification of receipt of funds
  by the Secured Lender

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Security Release Documents

• Formal Bill of Sale, with named Secured Lender
• Security Release Certification
• Notice of Assignment and Designation of Payee
  (optional) or
• Subsequent notification that Secured Party has
  received funds

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Transition/Post Sale Adjustments

• Six business days prior to the purchase date, the
  loan balances for the sale are locked down and
  the final Loan Purchase Detail Loan Schedule is
  provided to the Seller. Any subsequent
  transactions processed on the loans to the sold
  to ED will be handled as post sale adjustments.
• Seller/Sellers Servicer continues to service the
  loans included in the sale during this period
  until the loans are sold to ED on the purchase
  date.
• Seller/Sellers Servicer will track the
  transactions that come in during the lockdown
  period thru sale date along with any post sale
  adjustments. In both cases, transactions will be
  forwarded to the ED Servicer for processing.

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Transition/Post Sale Adjustments

• Examples of adjustments include
• Borrower Payments
• Payment Reversals (NSF)
• Cancellations/School Refunds
• Payment Corrections
• Demographic changes
• Payment Corrections
• Post sale adjustments will include both cash
  transactions (borrower payments, cancellations,
  school refunds) and non-monetary transactions
  (address changes).
• A separate transmittal form will be used for
  reporting the different types of post sale
  adjustments.
• Instructions and transmittal forms to be used for
  reporting post sale adjustments will be issued
  next week.

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Collateral Transfer Documents

• By Purchase Date, Seller transmits loan documents
  to the
• ED Servicer.
• Loan documents include
• Original or copy of the Master Promissory Note
  (MPN)
• School certification record .
• Electronic session data if MPN was executed
  electronically (e-signed). All data that
  demonstrates the e-sign process that was used by
  the borrower, including the electronic signature.
  Session data must contain date and time audit
  trails.

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Collateral Transfer Documents

• For required collateral documents, ED Servicer
  can accept files in the following formats
• TIFF
• PDF
• Word
• Text
• Image document guidelines will be issued that
  will provide details on the layout of the index
  image file and transmission protocols available
  for submission of documents to the ED Servicer.

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AUP PURCHASE PROGRAM

• Authority Section 5 of the MLSA
• Audit Type An agreed upon procedures (AUP)
  attestation engagement
• AUP Objective To perform procedures and report
  results and findings in order to assist ED in
  evaluating the loans compliance with the
  provision of the MLSA. The procedures are focused
  on loan eligibility, similar to a commercial
  transaction.

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AUP PURCHASE PROGRAM

• AUP Scope
• Initial Bill of Sale (BOS) AUP report due to ED
  within a yet to be determined number of days
  after consummation
• Subsequent BOS AUP report due to ED based on ED
  published schedule
• AUP is at the Seller level not at the Servicer
  level

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AUP PURCHASE PROGRAM

• Professional Standards
• Government Auditing Standards must be used in
  conjunction with the AICPA Attestation Standards
• An AUP guide will be published by late October
  2008. The guide will require that AUP reports be
  submitted to ED electronically to an e-mail
  address identified in the guide.

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Questions
Questions may be asked now or submitted to the
following e-mail addresses loan.participation_at_ed
.gov OR loan.purchase_at_ed.gov
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