Securitization Credit Enhancement Reserve Fund 1992-CHF

Securitization Credit Enhancement Reserve Fund 1992-CHF

(Audit Report No. 98-083, October 2, 1998)

Summary

The Office of Inspector General (OIG) has completed an audit of securitization credit enhancement reserve fund 1992-CHF. The securitization was comprised of 1,763 commercial mortgage loans with a total principal balance of almost $1.5 billion. The objectives of the audit were to determine whether (1) non-performing loans were adequately serviced; (2) withdrawals from the reserve fund were allowable, supported, and correctly calculated; and (3) special servicer fees were properly calculated.

We concluded that the servicing for Securitization 1992-CHF was generally adequate. However, the trustee and servicers could not adequately support $28.2 million in withdrawals from the reserve fund, and the special servicer was overpaid $385,727 for supplemental special servicer fees.

Recommendations

We recommended that the Deputy Director, Franchise and Asset Marketing Branch, Division of Resolutions and Receiverships (DRR), take the following actions:

(1) Require documentation from the trustee and servicers that will support the
withdrawals from the reserve fund. Perform a complete analysis of the
withdrawals by loan number for the realized losses and pool value reductions (the
OIG has identified 192 such loans and has supplied the master servicer with the
list).
(2) Disallow $245,566 in supplemental special servicer fees resulting from the
special servicer billing 1 month early (questioned cost).
(3) Disallow $140,161 in supplemental special servicer fees resulting from the
special servicer billing before it had performed any loan servicing work
(questioned cost).

Request the trustee to inform FDIC and the certificateholders of any adjustments made to the reported realized losses.

Ensure that the trustee issues corrected Statements to Certificateholders for the months of December 1995, January 1996, and March 1996.

Management Response

On August 13, 1998, the Deputy Director, Franchise and Asset Marketing Branch, DRR, provided a written response to a draft of this report. The Deputy Director agreed with recommendations 2, 3, and 5, and he agreed to disallow a total of $385,727 in questioned costs. The Deputy Director did not agree with recommendations 1 and 4. However, with regard to recommendation 1, after further discussions with DRR staff and contractor personnel, we believe that DRR's actions meet the intent of our recommendation. With regard to recommendation 4, documentation that the trustee provided on September 28, 1998 to support adjustments indicates that no further management action is necessary. The Corporation's response provided us with the requisite elements of a management decision for all recommendations.

As a result of our audit, we will report questioned costs of $385,727 in our Semiannual Report to the Congress.

Last Updated 03/27/01