The Federal Housing Finance Agency’s new capital and liquidity requirements for nonbank mortgage sellers and servicers will barely impact large servicers due to their existing strong financial situations, the FBR Capital Markets report on the new Federal Housing Finance Agency’s requirements for nonbanks said.
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.
But the same cannot be said for small and regional servicers that do not wield the same amount of financial stability. “The rules will likely be most onerous on small, regional servicers,” the FBR report said.
While the rules have been expected for some time, the ultimate impact of the proposed rules was unclear, the report explained.
“We believe the rules established are more meant to affect small, non-public non-depository institutions that have operated on the periphery in the sector,” the report said. “We believe covered, major financial companies like Nationstar (NSM) and Walter Investment (WAC) are well in excess of these new requirements at the servicer level.”
The revelation is sending both companies stock higher in today's trading.
There has been a lot of debate revolving around non-bank financial companies over the past year, in regards to developing regulations and supervisions that traditionally apply to insured depository institutions (IDIs).
"Nonbank servicers do not require the same capital levels as a large bank lender," the head of research at Kroll Bond Ratings Agency, Christopher Whalen, said back in May 2014.
“We believe that imposing capital requirements similar to those applicable to IDIs may not be appropriate given the existing capital levels and true risk profiles of these entities. After all, the original reason for prudential standards for banks was deposit insurance and the sense that IDIs could impose risks on tax-payers. Non-banks don’t have similar risk-taking opportunities or incentives.”
Both Nationstar and Walter were well capitalized at the time, with a wealth of total assets.
Ocwen, however, was left out of today's FBR analytical report. As one of the top nonbanks, the mortgage servicer has been under a lot of scrutiny from its legal battle with California and being sued by its own investors.
At any rate, Walter responded this morning with a release of its own.
"We are pleased that the proposed minimum financial eligibility requirements have been issued, providing additional clarity to the Enterprise's Seller/Servicers. We applaud the FHFA's thoughtful and deliberate approach to developing these requirements and look forward to their finalization later this year,” said Mark O'Brien, chairman and CEO of Walter Investment.
“We have reviewed the proposed standards for our seller/servicer entities which are the entities contractually obligated to the Enterprises. Based on our review of the requirements and our preliminary discussions with our counterparties we expect that our Seller/Servicers would currently be in compliance with the new requirements as proposed if the proposed rules were in effect today, positioning us to operate and grow our businesses for the foreseeable future. These are proposed requirements that are subject to further development and interpretation and we look forward to engaging with FHFA and the Enterprises as these rules are finalized," O'Brien continued.
The FHFA 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.
FBR added that they do not expect the final rules to differ significantly from the proposed rules issued.