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, 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 that modelling is a resource-intensive process and that the design and implementation of a supervisory capital stress test model, or suite of models, for the Enterprises is a complicated activity. As such, FHFA seeks professional services in support of its supervisory capital stress testing program to advise it on how to efficiently and effectively design, implement, and maintain a supervisory capital stress test model, or suite of models, for the Enterprises.

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 on all aspects of the design, implementation, and maintenance of a supervisory capital stress test model for the Enterprises. Contactor assistance would include but is not limited to the (i) design of the supervisory capital stress test specification and stress test scenarios to ensure validity, rigor, and consistency across a macroeconomic framework; (ii) implementation of the capital stress test model; and (iii) organization and staffing needs to support model enhancements, model maintenance, and on-going operations.

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

The Contractor will deliver technical reports and plans reflecting its expertise, analysis, and advice on a supervisory capital stress test for the Enterprises. The Contractor may also provide worked numerical examples supportive of its reports and plans. These worked numerical examples may include spreadsheet-based illustrations reflecting sections of the Contractor’s recommended model design. Overall, these deliverables will be used by FHFA personnel to build out FHFA’s supervisory capital stress testing program. Once operational, FHFA’s supervisory capital stress test will help the Agency determine each Enterprise’s ERCF stress capital buffer and will help FHFA benchmark the Enterprises’ DFAST results.

3.0 SCOPE OF WORK

The Contractor shall provide analytical, advisory, consulting, drafting, and other related services to FHFA for the purpose of providing expert advice, technical know-how, and worked numerical examples on the design, implementation, and maintenance of a supervisory capital stress test model for the Enterprises.

These services may include, but are not limited to a comprehensive needs assessment, detailed analysis, and recommendations regarding the supervisory capital stress test in the following areas:

• Model design:

o Overall design of the capital stress test model, including the specification of major components and required functionality, and o An internally consistent scenario design for the supervisory capital stress test to ensure validity, rigor, and consistency across a well-specified macroeconomic framework, where the framework is tailored to the risks that affect the Enterprises’ single-family and multifamily guarantee books of business and retained portfolios.

• Implementation:

o A framework for the development of the supervisory capital stress test model with advice and planning on items including but not limited to the integration of components of the capital stress-test model to project an Enterprise’s balance sheet and income statement under a variety of economic scenarios, and conversion of assets into ERCF capital requirements to determine peak capital exhaustion under a variety of economic scenarios, o A framework for the control and governance structures for the operation of the supervisory capital stress test model, including but not limited to appropriate policies and procedures for planning, executing, documenting, and reporting on the supervisory capital stress test, and o Staffing plans for the supervisory capital stress test program which includes details on the requisite skills needed to develop and effectuate the supervisory capital stress test.

• Maintenance:

o A framework on the overall development of control and governance structures for on-going enhancements to the capital stress test model.

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 model. 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, technical reports, and worked numerical examples on the model design, implementation, and maintenance of FHFA’s supervisory capital stress test.

Model design:

• Scenario design:

o Provide written recommendations, technical reports and worked numerical examples reflecting all aspects of scenario design, including:

The design of internally consistent stress scenarios tailored to the

Enterprises’ risks and provide substantive example sets of stress scenarios. At a minimum, the stress scenarios should include projections of economic, financial, and operational variables that affect the Enterprises’ single-family and multifamily guarantee books of business and retained portfolios.

The design of internally consistent baseline scenarios tailored to the Enterprises’ risks and provide substantive example sets of baseline scenarios.

The availability and suitability of commercially available macroeconomic forecasting software for use as scenarios in the supervisory capital stress test.

The applicability of the Federal Reserve Board’s Comprehensive Capital Analysis and Review scenarios for FHFA’s internal capital stress test.

The design of internally consistent countercyclical stress scenarios.

• Provide written recommendations, technical reports and/or worked numerical examples reflecting all aspects of the supervisory capital stress test design. These reports should reflect an assessment of the full range of options for the supervisory capital stress test model, reflect the suitability of various commercially available software packages currently available for development of the supervisory capital stress test model, and identify critical components of the supervisory capital stress model and other issues that may be material in its design. Key elements include the following:

o Key aspects of the overall design of the supervisory capital stress test model, including the specification of major components and required functionality.

o Design of models to translate the scenarios into quarterly forecasts for financial line-items.

o Level of granularity needed to reasonably forecast cashflows for all balance sheet components (e.g., mortgages, debt, derivatives, liquidity portfolio, etc.).

o Accounting concepts and rules, relevant to the Enterprises (e.g., CECL, etc.), that should be incorporated in the supervisory capital stress test model.

o Data requirements for each component of the supervisory capital stress test model.

o Design of output reports from the supervisory capital stress test model.

o Integration of components of the supervisory capital stress test model to project an Enterprise’s balance sheet and income statement under a variety of scenarios.

o Conversion of assets as reported on a balance sheet and as projected through the economic scenarios result in risk-weighted assets used for regulatory capital calculations.

o Availability and suitability of commercially available software that provide an overall framework for the supervisory capital stress test model or specific components of the supervisory capital stress test model (e.g., term structure module, CMO cash flow module, etc.).

Implementation:

• Provide written recommendations, technical reports, and/or worked numerical examples reflecting the full range of options for implementing the Contractor’s recommended supervisory capital stress test model, including identification of critical components of the supervisory capital stress model and other issues that may be material in its implementation. These materials include but are not limited to the following key elements:

o A framework for the development of the supervisory capital stress test model with items including but not limited to recommendations, technical reports, and advice on the integration of components of the supervisory capital stress test model to project an Enterprise’s balance sheet and income statement under a variety of economic scenarios, and conversion of assets into ERCF capital requirements to determine peak capital exhaustion under a variety of economic scenarios.

o A framework on the overall development of control and governance structures for the operation of the supervisory capital stress test model with items including but not limited to appropriate policies and procedures for planning, executing, documenting, and reporting on the supervisory capital stress test model.

o A framework for staffing the supervisory capital stress test program with the requisite skills to develop and effectuate the supervisory capital stress test.

Include recommendations and advice on staffing needed during the initial model implementation stage to the supervisory capital stress test model.

Maintenance:

• Provide written recommendations, technical reports and/or worked numerical examples reflecting all aspects of model maintenance. These materials should include but are not limited to the following key elements:

o A framework on the overall development of control and governance structures for on-going enhancements to the supervisory capital stress test model, including but not limited to model updates and disclosures.

o Staffing plans for the maintenance phase of the supervisory capital stress test model.

o Recommendations on additional resources and processes that FHFA should put in place to further develop and maintain its supervisory capital stress test model.

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 other advisory services related to the supervisory capital stress test 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 bank capital stress testing, macroeconomic, and financial forecasting, and their respective impacts on large complex financial institutions.

Furthermore, the Contractor must have a thorough understanding of residential and multifamily 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/

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 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/ 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 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 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 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 four

(4) optional 12-month terms.