Attachment A - Statement of Work.pdf

Attachment A: Statement of Work (SOW) Behavioral Modeling Software

1.0 Background Information

The Federal Housing Finance Agency (FHFA) was created by the Housing and Economic Recovery Act of 2008 (HERA) to regulate and supervise Fannie Mae, Freddie Mac, and the eleven (11) Federal Home Loan Banks (jointly, the “regulated entities”). HERA combined three organizations, the Office of Federal Housing Enterprise Oversight, the Federal Housing Finance Board, and a group from the Department of Housing and Urban Development, which collectively had previously regulated these regulated entities. These institutions play critical roles in supporting the United States’ housing finance system. Fannie Mae and Freddie Mac guarantee mortgage-backed securities (MBS) and hold mortgages and MBS’ for investment. The Federal Home Loan Banks lend money to banks and other financial institutions using mortgages as collateral and invest in mortgage-related assets. Following the bursting of the housing bubble, FHFA placed Fannie Mae and Freddie Mac in conservatorships, where they remain. Additional information on FHFA and its mission can be found at http://www.fhfa.gov.

Among other responsibilities, the FHFA calculates independent estimates of the market value and market value sensitivity to interest rate and house price changes of the regulated entities’ mortgage-related assets (both whole loans and securitization exposures), consolidated obligations (debt), derivatives (swaps, swaptions, caps and floors), and advance positions. FHFA also calculates independent estimates of the income sensitivity of the regulated entities’ positions to interest rate and house price changes and conducts other types of scenario analysis. The calculation of the market value and income sensitivity of mortgage-related assets requires credit risk modeling because mortgage borrowers’ decisions to prepay or default are not independent.

FHFA has a requirement for flexible, commercially available off-the-shelf (COTS) mortgage prepayment, delinquency, default, and loss (behavioral) modeling software that is fully integrated and tested with the PolyPaths Desktop and Asset Liability Management software and is fully integrated and tested with mortgage security data and structured fixed-income cash flow models equivalent to Intex Solutions.

2.0 Scope

The FHFA seeks to acquire a flexible, COTS behavioral modeling software package fully integrated with FHFA's existing PolyPaths Desktop and Asset Liability Management software which would allow FHFA to map and load mortgage and mortgage-related instrument data along with market and macroeconomic data to produce and validate prepayment, delinquency, default and loss rates used in baseline and scenario market valuations and cash flow analyses. The software must model the prepayment and credit behavior of Agency1 and Non-Agency single-family and multifamily mortgage loans and securities. The latest version of the software must be fully integrated with the latest version of PolyPaths and a structured cash flow model equivalent

1 Agency loans and securities are guaranteed from default risk by the Government National Mortgage Association (Ginnie Mae), the Federal National Mortgage Association (Fannie Mae), or the Federal Home Loan Mortgage Corporation (Freddie Mac).

http://www.fhfa.gov/ to Intex Solutions’ offerings. FHFA and the Contractor can bilaterally negotiate to include other plug-in modules and features of the provided behavioral modeling package as needs arise for ancillary functionalities.

3.0 Objectives

The objective is to acquire a COTS behavioral modeling software package for modeling mortgage prepayment, delinquency, default and loss rates that, at a minimum:

1) Is fully integrated into FHFA’s existing PolyPaths Desktop and Asset Liability Management software and the Microsoft Windows operating system;

2) Is fully integrated with mortgage security data and structured fixed-income cash flow models equivalent to Intex Solutions offerings;

3) Models mortgage loans, single-class (or pass-through) securities and structured securities such as Collateralized Mortgage Obligations (CMOs); and,

4) Models both Agency and Non-Agency single-family and multi-family mortgage loans and securities.

FHFA’s modeling staff input the security indicative data for the regulated entities’ mortgage-related assets (both whole loans and securitized or structured positions) along with financial market data and stress scenarios to produce independent estimates of the market value and income sensitivity to changes in interest rates and house prices taking into account prepayments and possible credit losses. Modeling staff use these model estimates to produce independent reports for internal (non-public) supervisory use.

4.0 Requirements

A. Analytical Requirements

1. Integration

The software must be fully integrated with PolyPaths Desktop and Asset Liability Management software and, through this framework, with a structured cash flow model equivalent to Intex Solutions’ offerings. Full integration means that the Contractor has, jointly with PolyPaths and the structured cash flow model equivalent to Intex Solutions’ offerings, built and thoroughly tested the necessary linkages between the behavioral modeling software, the structured cash flow models equivalent to Intex Solutions’ offerings and the PolyPaths software.

2. Volume

The behavioral modeling software must be able to process mortgage portfolios consisting of tens of millions of mortgage loans and thousands of mortgage-related securities in a timely fashion. Mortgage securities include single-class or pass-through securities and CMOs.

3. Asset Classes

The behavioral modeling software must be able to process all the following asset classes: residential mortgage-backed securities (RMBS), asset-backed securities (ABS) and whole loans. RMBS and ABS may be in complex structured securities, e.g., CMOs, Real Estate Mortgage Investment Conduits (REMICs) and Re-REM ICs or single-class securities, including the Connecticut Avenue Securities, Structured Agency Credit Risk and other credit risk transfer deals. The software must also model the prepayment and credit behavior of multifamily loans and securities.

RMBS and whole loans must cover, at a minimum, agency and non-agency, conventional and government (FHA/VA); fixed-rate and variable rate (including pay option ARMs); interest-only, amortizing and negatively amortizing, with and without prepayment penalties; and loans that have been modified. The behavioral modeling software, integrated with PolyPaths, must be able to forecast monthly vectors of prepayment speeds that can be broken down into voluntary and involuntary components for agency multifamily loans and securities including, but not limited to: Fannie Mae (FNMA) Delegated Underwriting and Servicing (DUS) MBS, FNMA DUS REMICs, FNMA DUS Megas, and Ginnie Mae (GNMA) Project Loan REMICs.

4. Perspective

The behavioral modeling software must be able to process agency instruments from both the investor and from the regulated entities’ perspective. The modeling process should be the same, but the results should include losses to the regulated entities, where applicable, as FHFA requires more specificity on securities issued and guaranteed by the regulated entities than on securities owned but not issued by the regulated entities.

Those instruments must be able to be processed at the Committee on Uniform Securities Identification Procedures (CUSIP)-level with the default and prepayment behavior of the underlying collateral processed at least at the pool-level. Fannie Mae and Freddie Mac also guarantee investors the timely payment of interest and the eventual payment of principal by absorbing credit risk on their issuances. The behavioral model must be able to process the loan-level collateral of those instruments at the loan level. The behavioral model must calculate and report monthly delinquencies, defaults, voluntary prepayments, and loss severity.

5. Explanatory Variables

Both Agency and Non-Agency models must include industry standard loan attributes, e.g., origination credit score, origination loan-to-value (LTV) ratio, loan purpose, property type, occupancy type, documentation type, as well as dynamic loan attributes, such as contemporaneous combined LTV, updated with a nationally recognized house price index.

6. Market Data

The behavioral modeling software must include all required historical and forecasted market and macro-economic data updated on a monthly basis. Such series may include, but are not limited to, historical and forecasted house prices at the state, MSA, CBSA, and zip-code level (i.e., FHFA or Case Shiller), various yield curve and rate index time series, and agency current coupons. The software must provide historical and forecasted house prices for both single-family and multifamily properties. The software also must provide flexibility for the substitution of user-defined historical data and forecasts for all the required market and macroeconomic data elements.

7. Sensitivity and Scenario Analysis

The behavioral modeling software integrated with PolyPaths must allow the user to perform "what if' sensitivity analyses and scenario analyses to simulate changes in the regulated entities’ risk profiles due to changes in default, prepayment and loss severity rates resulting from changes in the portfolio composition, interest rates, house prices, other key macro-economic variables, pricing assumptions and business rules. Models must simulate over, at a minimum, interest rates and house prices. The models must be able to estimate the prepayments and credit losses given forward-looking scenarios such as the future forward rate paths generated by the PolyPaths model.

8. Estimation Dataset

The behavioral models must have been estimated using a relevant and sufficiently comprehensive dataset by asset class and covering a variety of economic cycles and have been shown via benchmarking and back-testing to produce reliable results.

B. Computational Requirements

The behavioral modeling software integrated with PolyPaths shall be able to model, at the instrument level, large volumes of financial data efficiently. Instruments include mortgage loans, mortgage pools, and both single class (“pass-through”) and multi-class (CMO) mortgage securities. Current average model production requirements are quarterly computations of market value sensitivity to interest rates of 1000 Agency pass-through and CMO securities, 600 non- Agency (private label) CMO securities, 2400 whole loan mortgage pools, 3000 simple and complex GSE debt bonds and 3400 derivatives including but not limited to caps, swaps and swaptions. Production requirements could expand to include 17 million whole loan mortgages.

The capability to model the mortgage loans at the loan level, rather than in aggregated pools, is required. The software must scale to use all available computational resources consistent with the distributed processing capabilities of PolyPaths.

C. Other

1. Asset Classes

FHFA prefers behavioral modeling software that also processes other agency multi-family loans, such as Freddie Mac (FHLMC) K-deals, commercial non-agency mortgage-backed securities, GNMA construction loans and reverse mortgages. FHFA prefers behavioral modeling software that models manufactured housing ABS, home equity installment loans, home equity lines of credit collateral, credit cards, automobiles loans and student loans.

2. Explanatory Variables

FHFA prefers behavioral models that include house price data at the most granular level.

3. Sensitivity and Scenario Analysis

FHFA prefers behavioral modeling software that includes tools for modeling the behavior of loans in forbearance. FHFA prefers behavioral model software which simulates over unemployment and other macro-economic variables.

4. Estimation Dataset

FHFA prefers behavioral models that are estimated from a nationally recognized and geographically diverse dataset covering multiple financial institutions and consisting of millions of relevant records. FHFA prefers behavioral models estimated on agency data (for agency models) and non-agency data (for non-agency models) and those which identify second liens, originated either coincident with the first lien or later. FHFA prefers behavioral modeling software which can verify the accuracy of combined loan-to-value ratios.

5. Integration

FHFA prefers behavioral modeling software that is also integrated with other interest rate and credit risk modeling software beyond the PolyPaths software.

5.0 Deliverables

A. Software Executable Files, Data Files and License Keys

The Contractor must deliver software executable files and dynamic-linked libraries, associated data files and license keys within five (5) business days after contract award. Delivery of license keys may follow the Contractor’s usual frequency but must coincide with the contract award date and any option year award dates.

B. Software Installation and Implementation Services

1. The Contractor must deliver support services for the initial implementation and installation of the software within FHFA’s existing network within 30 calendar days of the contract start date. FHFA requires support services to produce reports within 60 calendar days of contract start date.

2. FHFA acquisition and installation of additional hardware support is outside the scope of this contract.

C. Software Maintenance and Support

1. The Contractor shall deliver the most current electronic version of the user manual and version release notes within five (5) business days of contract award. Electronic and searchable versions of the manual are required. The Contractor shall update the user manual and release notes regularly to reflect changes to the software. The Contractor shall also provide in-depth white papers on modeling techniques upon request.

2. The Contractor shall update the software on a regular basis to keep pace with changes in industry standards and best practice modeling, for example, changes in mortgage underwriting standards. The Contractor shall make benchmarking and back-testing results available to FHFA upon request or via a client portal on the Contractor’s website.

FHFA prefers that the Contractor update the modeling software when model performance consistently breaches established benchmarking and back-testing thresholds.

3. The Contractor shall correct software deficiencies or malfunctions and the FHFA shall not be obligated to wait for new software version releases to correct malfunctions.

4. The Contractor shall provide industry-standard support for FHFA users of the software.

The Contractor shall make experts available by phone, email and online meeting technology (as appropriate) to answer questions about the software. Such experts shall respond to questions within 1 business day.

5. The Contractor shall provide liaison support between the Contractor’s software and the integrated PolyPaths software and cash flow modeling software equivalent to Intex.

D. Training Services

The Contractor shall provide training opportunities to the FHFA. Training opportunities may include webinars, audio and video conference meetings, or in-person demonstrations or trainings at the FHFA Washington, D.C. headquarters or at the Contractor’s office. Training opportunities shall include: (1) introductory training for new users; (2) demonstration of the newest features of the software; and (3) topics identified by experienced users and the Contractor.

E. License Agreement Technical Requirements

1. FHFA requires up to 10-20 concurrent user licenses of the software in the base year and option years;

2. Licensed users may include personnel from multiple divisions across the FHFA;

3. FHFA requires software that can be installed primarily in a server environment at FHFA headquarters in Washington, D.C. and on a disaster recovery server. The server solution must support operations from Amazon Web Services (AWS) under an Infrastructure as a Service (Iaas) model. FHFA also requires additional installation of a license, for testing purposes, on a FHFA desktop or laptop;

4. FHFA requires user access to the server installation directly from the Washington, D.C.

FHFA headquarters, as well as remotely by personnel who are traveling on official government business;

5. FHFA requires details on how new software level releases will be provided to the FHFA;

6. FHFA requires support for at least the second most recent general release of the software if FHFA elects to not accept the most recent version of the software;

7. FHFA requires the ability to use the software to:

a. Produce position-level risk reports for internal (non-public) use that depict model estimates of market value and credit loss sensitivity to interest rates and house prices;

b. Produce and publicly release summary aggregate risk reports that depict model estimates of market value and credit loss sensitivity to interest rates and house prices; and

8. Allows the FHFA to retain and use the reports created during the contract period of performance after contract completion.

F. Electronic format

The Contractor must ensure that written deliverables are in an electronic format (e-documents)— either in a Microsoft Office product format (Word/ PowerPoint/ Project/ Excel) or an Adobe Acrobat PDF format and are in compliance pursuant to Section 508 of the Rehabilitation Act of 1973, as amended (29 USC 794d), and its implementing standards and guidelines (36 CFR Part 1194).

G. Acceptance of Deliverables

FHFA will provide notification of acceptance or rejection of written deliverables within ten (10) calendar days from receipt. If rejected, FHFA will provide details regarding the basis of rejection. In no way does FHFA waive its rights under any other inspection clause elsewhere within the contract.

6.0 Government-Furnished Property

FHFA will not provide the Contractor with government-furnished property except if the Contractor staff visit FHFA headquarters to provide training or demonstration services. If required, FHFA will provide the Contractor with conference room space equipped with video monitors and connection cables so that the Contractor can use their laptop to provide presentations and demonstrations of the software. FHFA will also provide the Contractor with guest Wi-Fi accounts during the training sessions.

7.0 Physical Security

Contractor staff are escorted to FHFA offices at DC headquarters, following the normal building security requirements, when delivering training services at FHFA offices.

8.0 Information Technology (IT) Security

Requirements for solutions that are COTS:

1. The solution supports encryption of data at rest and data in transit using FIPS 140-2 approved algorithms;

2. The solution implements role-based access control to allow for a least privilege access model;

3. The solution audits user-activity and allows FHFA privileged users to view audit reports;

Additional requirements for COTS software supporting networked information technology:

The solution shall be capable of transmitting, receiving, processing, forwarding and storing digital information utilizing system packets that are formatted in accordance with commercial standards of Internet Protocol (IP) version 6 (IPv6) as set forth in the USGv6 Profile (NIST Special Publication 500-267) and corresponding declarations of conformance defined in the USGv6 Test program. The solution shall also maintain interoperability with IPv4 systems and provide the same level of performance and reliability capabilities.

9.0 Information Communication Technology (ICT) Accessibility (Section 508)

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. As such, the following requirements apply to this requirement:

1. 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.

2. 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/

3. E202 – No General Exceptions Authorized by FHFA

The following items are identified as containing ICT: COTS Software

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.

Applicable requirements for software and Web products:

• E207 – WCAG Level A & AA Success Criteria

• E302 – Functional Performance Criteria

• E502 – Interoperability with Assistive Technology

• E503 – Application

10.0 License Agreement Terms and Conditions

The following terms and conditions must be included in any related End User License Agreement (EULA), Terms of Use (ToU), or other comparable document for this work:

1. At the termination or expiration of the license agreement, FHFA shall have the right to maintain and use indefinitely print or electronic copies of its reports, presentations, or other content created in accordance with the license agreement.

2. Authorized Users may be from multiple divisions across FHFA and may concurrently access and use the software and related modeling data from their official duty stations or via remote access when such Users are conducting business for the benefit of FHFA. The number of Authorized Users is stipulated within the Schedule of the purchase order.

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/

3. FHFA does not permit compliance audits; however, the license agreement may require that FHFA will provide written assurance of its compliance or other alternative agreed to in writing by the Contracting Officer.

4. The license agreement shall not include an indemnification of the Contractor by the

FHFA.

5. The license agreement shall be governed by, and construed in accordance with, the federal laws of the United States of America.

6. The Contractor shall represent and warrant that it makes commercially reasonable efforts to ensure that the software, data, or product as applicable is free of any viruses, worms, Trojan horses, malware, and/or other malicious code.

7. The license agreement shall not include terms that authorize assignment of the purchase order except in accordance with Federal Acquisition Regulation (FAR) Subpart 42.12.

8. Contractor shall acknowledge and agree that if there is a conflict between the terms and conditions of the license agreement and those of the purchase order, the purchase order governs.

9. The license agreement shall permit FHFA to use the software and its outputs for official

Government purposes, including but not limited to reports, presentations, graphs, public releases, other publications, and examination of the regulated entities.

10. The license agreement may acknowledge that FHFA is a federal government agency and is exempt, by law, from the payment and collection of sales taxes.

11.0 Travel

Travel may be required by the Contractor if FHFA requests on-site training. The Contracting Officer’s Representative (COR) shall provide written authorization for travel to the Contractor prior to any Contractor travel commencing. Any travel related to this contract will be in accordance with the Federal Travel Regulation (FTR) and is managed on an ad hoc, time-and-materials pricing basis.

12.0 Place of Performance

The software license development, maintenance and client support services are performed from the Contractor’s facility. Training opportunities may be online, at the FHFA Washington, D.C.

headquarters, or at the Contractor’s facility.

13.0 Period of Performance

The period of performance is 01 October 2025 through 30 September 2026 for the base year with a potential period of performance end date of 30 September 2030, if all options are exercised.