FHFA announces new financial rules for nonbanks

Proposed rules include capital reserve requirement

The Federal Housing Finance Agency announced the proposal of new minimum financial requirements for nonbank mortgage sellers and servicers that do business with the enterprises as part of an effort to reduce risk for the GSEs.  

Under the FHFA’s new proposal, all seller and servicers are required to have a minimum net worth base of $2.5 million plus 25 basis points of the total unpaid principal balance for the loans each nonbank services.

Additionally, the FHFA is also proposing that nonbanks must maintain a minimum capital ratio of tangible net worth equal to 6% the nonbank’s total assets.

The FHFA is also proposing additional minimum liquidity requirements for nonbanks, including: 3.5 basis points of total agency servicing (Fannie Mae, Freddie Mac, and Ginnie Mae) and incremental 200 basis points of total nonperforming agency servicing in excess of 6% of the total Agency servicing unpaid principal balance.

The rules would have a direct impact on top nonbank servicers like Ocwen Financial (OCN), which frequents the news lately, with Ocwen just finishing up a settlement with California over servicing-related questions, only to be slammed with a lawsuit by its investors, who accused Ocwen of mortgage payment negligence.

 “The proposed minimum financial requirements ensure the safe and sound operation of the Enterprises and further FHFA’s goal of fostering liquid, efficient, competitive and resilient national housing finance markets,” the FHFA said in the release.  

“FHFA is releasing the proposed criteria to provide greater transparency, clarity and consistency to industry participants and other stakeholders,” the FHFA continued.

The FHFA also states that depository institutions should continue to comply with previously announced regulatory standards.

The FHFA said that the announcement of the new rules continue the FHFA’s efforts to increase transparency, as laid out by FHFA Director Mel Watt in his first public speech as director.

The FHFA’s plan may not affect Ocwen for long though, given that the company announced recently that it plans to exit agency servicing altogether.

“We are going to focus our servicing business primarily on non-agency servicing,” Ocwen CEO Ron Faris told investors recently.

Faris said that Ocwen plans to sell off its entire portfolio of agency servicing. “We estimate the difference between our $1.1 billion book value and fair value of our agency MSRs is between $400 and $500 million dollars,” Faris said.

“In addition to potentially realizing these gains, we have the potential to free up $200 to $300 million currently allocated to fund agency advances,” Faris added. “This strategy has the potential to free up over $1.7 billion of capital to invest in new businesses, to reduce leverage, or to return to shareholders over time.”

If Ocwen does indeed sell off all of its agency servicing, its level of capital wouldn’t be within the FHFA’s purview any longer.

Unless, of course, Ocwen plans to sell any of the loans it originates to Fannie or Freddie. Faris also told Ocwen’s investors that the company plans to increase its mortgage origination operations and become a “more profitable” originator moving forward.

The FHFA added that it is currently taking industry and stakeholder feedback on the proposal and anticipating requirements will be finalized in the second quarter of 2015. The rules will then go into effect six months after they are finalized.

Click here for the FHFA’s “frequently asked questions” about the new rules. 

U.S. Rep. Maxine Waters, D-CA, ranking member of the House Financial Services Committee, issued a statement Friday, commending the FHFA for taking "positive steps toward establishing protections to prevent American homeowners and taxpayers from falling victim to fraud and abuse." 

Waters added, "I commend Director Watt and the FHFA for proposing robust standards for non-bank servicers. After the explosive growth of nonbank servicing following the crisis, not to mention the litany of consumer complaints against them, strong requirements are important to ensure that taxpayers are being protected and that our nation’s homeowners are no longer falling victim to harm.”

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