Attachment A - Statement of Work.pdf

CONTROLLED

CONTROLLED BY FHFA

FEDERAL HOUSING FINANCE AGENCY

STATEMENT OF WORK

Supervisory Capital Stress Test Program

Services

1.0 BACKGROUND

Division A of the Housing and Economic Recovery Act of 2008, Public Law No. 110-289, 122 Stat. 2654 (2008), titled the Federal Housing Finance Regulatory Reform Act of 2008 (HERA), established the Federal Housing Finance Agency (FHFA) as an independent agency of the United States Government, effective July 30, 2008. Under the Federal Housing Enterprises Financial Safety and Soundness Act, as amended by HERA, FHFA is charged with the responsibility to ensure the capital adequacy and financial safety and soundness of the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac), and the 11 Federal Home Loan Banks (12 U.S.C. 4513). Fannie Mae and Freddie Mac (the Enterprises, or the GSEs), combined, either own or guarantee nearly $7 trillion of residential mortgages in the United States (U.S.), and play a key role in housing finance and the U.S. economy.

FHFA’s Enterprise Regulatory Capital Framework (ERCF) establishes risk-based and leverage capital requirements for the Enterprises.1 The risk-based capital framework includes a stress capital buffer based upon a supervisory capital stress testing program, currently under development at FHFA.

FHFA recognizes the implementation of a supervisory capital stress test program for the Enterprises is a complicated and resource-intensive process that includes risk identification, scenario design, model development and maintenance, and governance. As such, FHFA seeks professional services in support of its supervisory capital stress testing program to aid FHFA in its development of a single-family supervisory capital stress testing white paper that provides options and considerations for (i) identifying the most methodologically appropriate stress testing approach(es) for the Enterprises’ single-family mortgage exposures, (ii) calculating the Enterprises’ single-family financial results, and (iii) other topics related to stress testing the Enterprises’ risk exposures.

2.0 PERFORMANCE OBJECTIVES

FHFA requires contractor services to support its supervisory capital stress testing program. The Contractor would provide expertise, analysis, and advisory services to FHFA regarding a single-family supervisory capital stress testing white paper. Once operational, FHFA’s supervisory capital stress test model, or suite of models, will support Agency decision makers in determining each Enterprise’s ERCF stress capital buffer and will support Agency decision makers in benchmarking the Enterprises’ DFAST results.

Contactor assistance would include but is not limited to identifying options and providing

1 The finalized ERCF can be found at the following web address:

https://www.fhfa.gov/SupervisionRegulation/Rules/Pages/Enterprise-Regulatory-Capital-Framework-Final- Rule.aspx https://www.fhfa.gov/SupervisionRegulation/Rules/Pages/Enterprise-Regulatory-Capital-Framework-Final-Rule.aspx https://www.fhfa.gov/SupervisionRegulation/Rules/Pages/Enterprise-Regulatory-Capital-Framework-Final-Rule.aspx recommendations on (i) expected benefits, excepted costs, and options for a build vs. buy decision on the elements of FHFA’s single-family supervisory capital stress test; (ii) building the credit risk framework for FHFA’s single-family supervisory capital stress test;

(iii) building the accounting framework for FHFA’s single-family supervisory capital stress test; and (iv) building the consolidation engine for FHFA’s single-family supervisory capital stress test.

The Contractor will deliver technical reports, presentations, and where appropriate, worked numerical examples reflecting its expertise and advice to support FHFA’s development of a single-family supervisory capital stress testing white paper. The Contractor’s deliverables will serve as foundational material for FHFA personnel to create and finalize a single-family white paper to support FHFA personnel building out the supervisory capital stress testing program for the Agency.

3.0 SCOPE OF WORK

The Contractor shall provide advisory, consulting, and other related services to FHFA for the purpose of providing expert advice and considerations on FHFA’s development of a single-family supervisory capital stress testing white paper. These services include, but are not limited to, assessments, recommendations, and worked examples to aid FHFA in its development of a single-family supervisory capital stress testing white paper. At a minimum, FHFA intends the white paper to include the following key areas:

1. Single-family scenario design:

• Identification of key risk drivers.

• Vendor-based scenarios.

• Internally developed scenarios.

2. Single-family data resources:

• Identification of data requirements.

3. Single-family credit and market risks:

• Guaranteed portfolio.

• Retained portfolio.

• Credit risk transfer.

• Credit risk loan performance modeling.

• Counterparty credit risk.

• Loss mitigation.

• New loan acquisition modeling.

• Non-performing and reperforming loan execution.

4. Accounting projections for the single-family financial results:

• Net interest income and net revenues, including ongoing and upfront guarantee fees and buy-ups and buy-downs.

• Investment gains on single-family-related risk exposures such as mortgage-backed securities.

• Credit-related income and expenses, including projections for charge-offs and foreclosed property expense, and the allowance for loan and lease losses.

• Credit enhancement expenses and recoveries.

• Other expenses including debt extinguishment, subservicing costs, and loss mitigation fees.

• Provision for taxes and changes to deferred tax assets.

5. Balance sheet projections for the single-family portfolio.

6. Single-family supervisory capital stress testing benchmarks.

7. Governance of the single-family supervisory capital stress testing.

4.0 SERVICES

Advisory services and other assistance shall be required to support FHFA in its role as regulator in developing its supervisory capital stress test white paper. However, model development, testing, and implementation are explicitly outside the scope of the statement of work. Types of tasks the Contractor may be required to perform include but are not limited to the following:

Project management:

• Develop a workplan, timeline, and responsibilities schedule including coordination of various parties, as appropriate, to provide FHFA with recommendations, assessments, and worked numerical examples, where appropriate, covering the key areas of the supervisory capital stress test white paper.

Written recommendations supported by analysis, advice, and, where appropriate, worked numerical examples, on the key aspects of the supervisory capital stress testing white paper.

These include recommendations on the following:

• Identify data requirements to stress test the Enterprises’ single-family mortgage exposures.

• Finding and recommending a balance between FHFA constructing its own single-family stress testing scenarios, using scenarios from other federal regulators, and buying a vendor’s suite of stress testing scenarios.

• Utilization of a build vs. buy strategy for the single-family performance modeling, namely, whether FHFA should employ its internal models or vendor models to project loan performance on the Enterprises’ single-family mortgage exposures.

• Appropriate vendor models for credit risk modeling for the Enterprises’ single-family exposures.

• Modeling cash flows on single-family loans in an Enterprise’s consolidated trusts, and the single-family flows across an Enterprise’s guaranteed and retained portfolios.

• Either design or purchase an accounting platform for single-family financial results, with detailed optionality and rationale on which vendor platforms FHFA should consider if vended approach is recommended.

• Projecting net interest income and net revenues for an Enterprises’ single-family business, including options on projecting single-family revenue, projecting either investment gains or losses, calibrating a provision for credit loss, projecting credit enhancement expense from risk transfer and credit enhancement recoveries, and projecting a provision for taxes and deferred tax asset changes.

• Utilization of an internally driven risk-based capital engine for calculating risk-weighted assets on the Enterprises’ exposures or vended solution so that the capital model is connected with the credit loss and accounting frameworks.

• The development of a consolidation and reporting engine for stress testing an Enterprise’s single-family business and whether FHFA should either build or buy the necessary components.

The build vs. buy recommendations for FHFA’s supervisory capital stress test framework should reflect an assessment of the full range of options including the suitability of various commercially available software packages currently available for development of the supervisory capital stress test framework for single-family exposures

Other advisory services related to the supervisory capital stress test as may be mutually agreed.

• Provide FHFA with a technical report aggregating recommendations, analysis, and alternatives reviewed over the course of the Contractor’s work on any advisory services related to the single-family supervisory capital stress testing white paper as may be mutually agreed.

The Contractor shall have advanced knowledge and expertise with the Federal Reserve’s DFAST and CCAR processes and the implementation by individual banks of respective DFAST and CCAR requirements. The Contractor must possess expert knowledge of and demonstrated success in the areas of capital stress testing on large complex financial institutions, macroeconomic and financial forecasting. Furthermore, the Contractor must have a thorough understanding of residential mortgages, the mortgage finance system, and the Enterprises’ role in financial and housing markets.

5.0 PLACE OF PERFORMANCE

Work will generally be performed at the firms’ place of business. Project kick-off meeting, subsequent status meetings, and other activities may be conducted virtually. However, if it becomes necessary to conduct a meeting on-site, the on-site address is:

FHFA - Constitution Center 400 7th Street, SW Washington, DC 20219

6.0 DELIVERY OF SERVICES

FHFA shall define delivery schedules for individual work requests.

The Contractor shall provide deliverables as required by the FHFA Contracting Officer Representative (COR) or Contracting Officer. These deliverables shall be written, and may include but are not limited to:

• Detailed work programs and action steps required to successfully complete tasks.

• Recommendations, technical reports, and worked numerical examples.

• Status reports and performance reports.

• Scheduled and ad-hoc briefings.

• Scheduled and ad-hoc conference calls.

FHFA shall have unlimited rights to all deliverables as defined in FAR 52.227-14. The Contractor shall not mark any portion of a deliverable as having “limited rights,” “limited rights data,” or “restricted rights” as defined in FAR 52.227-14 without the written approval of the COR or Contracting Officer, prior to Contractor(s) performance.

The Contractor shall be available on an as needed basis to provide immediate advice to FHFA management on matters related to the above-defined scope. The Contractor will be expected to be responsive (48 hrs. or less), during normal business hours.

7.0 REPORTING AND COMMUNICATION

The Contractor shall provide all written work products/deliverables to FHFA in electronic format with read/write capability, using applications compatible with those of FHFA. The Contractor shall ensure activities and work products/deliverables are identified, documented, and tracked so that the Contractor’s performance can be continuously evaluated and monitored for timeliness and quality service.

The Contractor shall produce reports with links to associated and referenced documents and shall prepare documents in formats appropriate to the documents and audience. This may include, but not limited to, Microsoft Word, HTML, or PowerPoint.

All work products shall be in accordance with FHFA standards, policies and procedures governing documents and presentations.

The Contractor shall be obligated to keep FHFA informed of progress, status, and completion over the course of the work. The Contractor shall provide a monthly status report using the below format. Reporting and communications shall be rendered in numerous locations as deemed appropriate, including without limitation, FHFA offices or facilities, the Contractor’s offices or facilities, and other locations as necessary. Strategy sessions and meetings are to be convened on an as needed basis in locations where appropriate.

Monthly progress reports shall be submitted to the CO and COR within five (5) business days of the end of the preceding month being reported on and shall include the following:

• Requests for and/or status in changes in key and non-key personnel.

• Summary of progress during the reporting period.

• Unanticipated technical or management problems of significance and suggestions for how to address them.

• Issues/risks anticipated in future reporting periods.

• Summary of important meetings and briefings during the reporting period and those planned for the following period.

All reports and correspondence shall be submitted to the COR, with copies simultaneously provided to the CO. The final format of the report will be mutually agreed to by the Contractor and COR and may change when necessary and as requested by the COR.

8.0 INFORMATION AND COMMUNICATION TECHNOLOGY REQUIREMENT (ICT)

ACCESSIBILITY REQUIREMENTS

All Contractor deliverables shall be compliant with Section 508 of the Rehabilitation Act of 1973 and meet applicable Section 508 Standards. Section 508 of the Rehabilitation Act, as amended by the Workforce Investment Act of 1998 (P.L. 105-220) requires that when Federal agencies develop, procure, maintain, or use information and communication technology (ICT), it shall be accessible to people with disabilities. Federal employees and members of the public who have disabilities must have access to, and use of, information and data that is comparable to people without disabilities.

• Products, platforms, and services delivered as part of this work statement that are ICT, or contain ICT, must conform to the Revised 508 Standards, which are located at 36 C.F.R. § 1194.1 & Apps. A, C & D, and available at https://www.access-board.gov/guidelines-and-standards/communications-and-it/about-the-ict-refresh/final-rule/text-of-the-standards-and-guidelines

• E102 / 702.10 – Web Content Accessibility Guidelines (WCAG) success criteria level A & AA are incorporated as a requirement. The referenced WCAG criteria is available at http://www.w3.org/TR/WCAG20/ https://www.access-board.gov/guidelines-and-standards/communications-and-it/about-the-ict-refresh/final-rule/text-of-the-standards-and-guidelines https://www.access-board.gov/guidelines-and-standards/communications-and-it/about-the-ict-refresh/final-rule/text-of-the-standards-and-guidelines https://www.access-board.gov/guidelines-and-standards/communications-and-it/about-the-ict-refresh/final-rule/text-of-the-standards-and-guidelines http://www.w3.org/TR/WCAG20/

E202 – No General Exceptions Authorized by FHFA Items that contain ICT: Financial Advisory Services

Applicable Functional Performance Criteria: All functional performance criteria apply when using an alternative design or technology that achieves substantially equivalent or greater accessibility and usability by individuals with disabilities, than would be provided by conformance to one or more of the requirements in Chapters 4-6 of the Revised 508 Standards, or when Chapters 4-6 do not address one or more functions of ICT.

Standards apply to all: Video, Multimedia, Presentations, and Electronic Documents including reports and recommendations:

• E203 – Access to Functionality

• E204 – Functional Performance Criteria

• E205 – WCAG Level A & AA Success Criteria

• E208 – Support Documentation and Services

• E302 – Functional Performance Criteria

• E602 – Support Documentation

• E603 – Support Services

9.0 PERSONNEL SUPERVISION

The day-to-day supervision of contractor personnel and direct control over the work performed by contractor personnel shall be the sole responsibility of the Contractor.

10.0 KEY PERSONNEL

All key personnel will be bound by FHFA’s clause 6.217.

Program principal (PP)

Description and Responsibilities: Knowledge of the mortgage finance industry and all areas of the secondary mortgage market value chain. Possess deep experience and skills in either one or more of the areas required for subject matter experts (SMEs). In addition, the PP must have sufficient knowledge of all the supervisory capital stress test areas to bring consistency to the individual work products of multiple SMEs. The PP shall also advise FHFA personnel in setting overall direction for the project.

Education and Experience: At least twelve (12) years of mortgage finance industry experience, including at least five (5) years of specialized experience in at least one of the following specific supervisory capital stress testing areas: 1) capital stress testing design;

or 2) capital stress testing model development. A four-year degree from either an accredited college or university is required. A master’s degree or more is preferred.

Project Manager (PM)

Description and Responsibilities: The PM will be responsible for managing day-to-day activities of the engagement such as, but not limited to, task management, project coordination, planning, monitoring, reporting status, budgeting, scheduling, approving all deliverables, and serving as the primary contact with the contracting officer/contracting officer technical representative.

Preferred Education and Experience: Minimum of five (5) years of consulting and/or financial services industry experience and a four-year degree from either an accredited college or university is preferred. A Project Management Professional (PMP) certification is preferred.

11.0 Period of Performance

The period of performance for this contract is one (1) year from the date of award plus two

(2) optional 6-month terms.