The Federal Housing Finance Agency (FHFA [1]) announced [2] on Friday proposed new minimum financial requirements for mortgage sellers and servicers to do business with Fannie Mae [3] and Freddie Mac [4].
The proposed requirements include minimums for net worth, capital ratio, and liquidity criteria that must be met by servicers and sellers to do business with the GSEs. FHFA said the purpose of the requirements is to ensure safe and sound operations of the GSEs and at the same time further FHFA's goal of promoting efficient, competitive, liquid, and resilient national finance markets for housing. The proposed criteria will also provide stakeholders and industry participants with greater transparency, consistency, and clarity, as directed by the 2014 and 2015 Fannie Mae and Freddie Mac scorecards. FHFA and the GSEs will obtain feedback from regulators, industry participants, and other stakeholders, and improve their understanding.
According to FHFA's announcement, all servicers will be expected to comply with the proposed minimum requirements in order to to business with either of the GSEs six months after finalization.
- The proposed minimum requirements are as follows:
For net worth (for all sellers and servicers) a base of $2.5 million plus 25 basis points of unpaid principal balance for all loans serviced; - For capital ratio (for non-depository sellers and servicers, the proposed minimum requirement is a tangible net worth and/or total assets of less than or equal to 6 percent. Regulatory standard will still apply for depository institutions;
- For liquidity, the proposed minimum requirement for all non-depository sellers and servicers is 3.5 basis points of total agency serving, plus incremental 200 basis points of total nonperforming agency servicing that exceeds 6 percent of the agency's total servicing UPB. Institutions may include the following as assets for liquidity: Cash and cash equivalents, Available for Sale or Held for Trading Investment Grade Securities that include Agency mortgage-backed securities and obligations of the GSEs and Treasury; and the unused/unavailable portion of committed servicing advance lines. As with capital ratio, the regulatory standards for liquidity will still apply for non-depository institutions.
According to FHFA's announcement, the agency anticipates that the proposed minimum requirements will be finalized sometime during the second quarter of 2015 and will go into effect approximately six months later. FHFA and the GSEs plan to reach out to help sellers and servicers better understand the requirements and prepare for when they go into effect.
FHFA said the purpose of implementing the new requirements will be to "improve the safety and soundness of the enterprises by strengthening their minimum seller/servicer standards;" "To create a more consistent framework for seller/servicer eligibility;" "To provide the industry with greater clarity about the enterprises' seller/servicer counterparty requirements;" and to "provide for consistent application of the new eligibility requirements by both enterprises, subject to enterprise discretion where appropriate."