Fannie and Freddie set new financial rules for mortgage servicers and sellers

Specifically targets nonbanks

In January, Fannie Mae and Freddie Mac announced a proposal for new minimum financial requirements for mortgage sellers and servicers that do business with the government sponsored enterprises, specifically targeting nonbanks.

Now, Fannie and Freddie are making those new rules official. The Federal Housing Finance Agency announced Wednesday that Fannie and Freddie are officially issuing new operational and financial requirement for all current and potential sellers and servicers that do business with the GSEs.

Under the new rules, all seller and servicers will be 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 new rules will also require that nonbanks must maintain a minimum capital ratio of tangible net worth greater than or equal to 6% of the nonbank’s total assets.

The GSEs are also stating 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 non-performing agency servicing in excess of 6% of the total Agency servicing unpaid principal balance.

The FHFA stated that the new operational requirements will become effective no later than Sep. 1, 2015 and the financial requirements will become effective Dec. 31, 2015.

"These updated operational and financial requirements will help mitigate risks associated with changes in the servicing industry," FHFA Director Mel Watt said of the new rules. "Strengthened enterprise servicer counterparty standards should also improve access to credit and protect taxpayers by reducing market uncertainty about the enterprises' expectations for mortgage servicer counterparties."

For all depository institutions, all sellers and servicers must maintain a minimum net worth $2.5 million plus a dollar amount equivalent to 25 basis points of the unpaid principal balance of all mortgages secured by 1- to 4-unit residential properties that it services directly, regardless of whether the mortgages are owned by the servicer or by a third-party investor.

In a statement, Joy Cianci, senior vice president for credit portfolio management at Fannie Mae, said that Fannie will “work closely with servicers to make sure they have a clear understanding of the requirements and continue to be strong counterparties for Fannie Mae.”

Cianci said that Fannie Mae sellers and servicers must implement the operational requirements by Sep. 1, 2015, and the financial eligibility changes by Dec. 31, 2015.

Dave Lowman, the executive vice president of single-family business at Freddie Mac, said that the rules recognize the expanding position of nonbanks in the industry.

"The new seller/servicer eligibility standards announced today incorporate the lessons of the recent housing crisis and reflect the expanding role of non-bank servicers in the mortgage industry,” Lowman said.

“These new standards are intended to improve the customer experience for borrowers and mortgage investors alike by establishing common-sense servicing benchmarks for operational efficiency and financial strength,” Lowman continued. “Today's announcement underscores Freddie Mac's commitment to work with the Federal Housing Finance Agency and other stakeholders to continually improve America's mortgage finance system."

Lowman said that Freddie sellers and servicers must be in compliance with the new operational standards on Aug. 18, 2015 and the revised financial standards on Dec. 31, 2015.

 “In response to changes taking place in the servicing industry, FHFA directed Fannie Mae and Freddie Mac, as part of their 2014 and 2015 Conservatorship Scorecards, to update their counterparty standards for mortgage servicers,” the FHFA said in a statement. “The new requirements are intended to help ensure the safe and sound operation of the enterprises and provide greater transparency, clarity and consistency to industry participants and other stakeholders and reflect feedback received over the past several months.” 

3d rendering of a row of luxury townhouses along a street

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