Credit Loss Forecast of Fannie Mae and Freddie Mac

The purpose of this notice is to publish the intent of a sole source award to Moody's Analytics, Inc., West Chester, PA. The Federal Housing Finance Agency (FHFA) intends to award a sole source contract to Moody's Analytics Inc. for Historical Database: US National and Regional and Regional Alternate Forecast Data, Moody's economy.com for five (5) FHFA users because these products support FHFA's efforts to forecast credit losses of the regulated enterprises, Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Corporation (Freddie Mac). FHFA already employs the Moody's data in its credit loss forecasting platform in support of mission-critical oversight of Fannie Mae and Freddie Mac, specifically using the State-Level "FHFA Purchase Only Index" and the State Level BLS Unemployment forecasts obtained via the historical and regional forecast data contained within Historical Database: US National and Regional and Regional Alternate Forecast Data, Moody's economy.com. FHFA's mission is to ensure effective supervision, regulation and housing mission oversight of Fannie Mae, Freddie Mac and the Federal Home Loan Banks to promote their safety and soundness, support housing finance and affordable housing, and support a stable and liquid mortgage market. The forecasted series and the historical series used during model estimation must remain consistent across time, meaning the data must originate from the same source, in order to ensure integrity and continuity of the forecast, and to allow for meaningful and efficient validation of the forecast. A different vendor's database would require a significant effort on the part of FHFA to reconstruct and revalidate the existing modeling processes, and likely would result in FHFA estimates of credit losses that would not be at all comparable across time, leading to skepticism of the public in the validity of FHFA produced estimates. In addition the significant additional cost associated with using a different vendor would include those costs associated with FHFA having to re-estimate all of the FHFA credit loss models. Specifically, the additional costs would have to include at a minimum, three months' time for about three FTEs. These costs alone would well exceed the price of the procurement from Moody's Analytics Inc. Additional losses would also exist in the form of having resources redirected away from other mission critical activities, and in terms of the cost associated with the interruption of FHFA being able to produce credit loss estimates on a regular basis. FHFA has totally integrated the Moody's Analytics forecasts into the FHFA credit forecasting process; conducting a different vendor search and reconstructing the modeling processes would create detrimental time delays in reporting requirements and affect the consistency across time in the FHFA production of credit loss forecasts. If there is any interruption in service (data availability), FHFA will not be able to produce credit loss estimates on a regularly scheduled basis, as is now the expected customary procedure and therefore FHFA could fail to meet required deadlines for reporting on the progress of the Conservatorship of the Enterprises to Congress. In addition, key research backing the development of new risk-based capital regulations will be delayed. FHFA, Department of Housing Mission and Goals, Capital Policy Office was unable to locate any alternative vendors for forecasts on the FHFA purchase only index when FHFA first contracted with Moody's Analytics. These products provide FHFA with historical and 30 year forecasts of key data used in our credit default and prepayment models, and in our models that forecast credit losses under various scenarios. Moody's alone (to FHFA knowledge) generates a forecast of the FHFA Housing Price Index (even FHFA does not produce a forecast of this series), and FHFA uses the Moody forecasts of unemployment and other variables-all of which are generated under a number of scenarios, such as optimistic, expected, double-dip recession, and so on. It is imperative that FHFA use forecasts from a nationally recognized and market-tested vendor to ensure that FHFA is not building in FHFA biases in any way to the forecast data being incorporated into our model estimates. Moody's Analytics is a highly recognized national and market-tested vendor producing the databases critical to credit loss forecasting, supporting FHFA's mission to the public and Congress. FHFA intends to award a follow-on purchase order for a base period of performance for 12 months, beginning February 1, 2012 through January 31, 2013. Options for such services for four additional one-year periods of performance will also be sought for inclusion in the purchase order. This subscription services is only available from its producer/manufacturer and not through dealers or distributors. Moody's Analytics Inc is the only source for this subscription service, Historical Database: US National and Regional and Regional Alternate Forecast Data, Moody's economy.com. This is an announcement of FHFA's intent to issue a purchase order to Moody's Analytics Inc. for the Historical Database: US National and Regional and Regional Alternate Forecast Data, Moody's economy.com for five (5) FHFA users; FHFA will not issue a solicitation.