The Federal Housing Finance Agency (FHFA) and Ginnie Mae are walking back some of the more controversial proposed eligibility requirements for sellers, servicers and issuers they oversee.
But the agencies will not wipe out the requirements entirely. An initially proposed 200 basis point hedging requirement will instead be 50 basis points for both agencies. Institutions with less than $1 billion in originations during a 12 month period would be exempt — a new carveout the agencies said is for “small sellers.”
The ratio of tangible net worth to total assets for all non-depositories will stay at 6%, rather than the initially proposed 9%, for Ginnie Mae issuers and government-sponsored enterprise sellers and servicers.
Companies would have at least a full year to comply with the new requirements, up from an initial compliance period of eight months which the industry had balked at.
The FHFA said the date to implement the tangible net worth, base liquidity and liquidity buffer changes will be September 2023, and December 2023 for changes to origination liquidity and third-party ratings. A requirement that large depositories submit annual capital and liquidity plans complete with mortgage servicing rights stress tests will not be mandatory until December 2024.
The initial proposed changes met heavy criticism from industry stakeholders.
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The agency initially proposed setting a minimum capital ratio for all non-depositories, regardless of size, of 9%, an increase from the 2015 level of 6%. The proposed changes were planned to take effect for current and new servicers starting in December.
The agency also proposed tacking on a 200 basis point charge on the hedging position for all servicers. The charge would counteract the risk of “significant price spikes” that could trigger margin calls, which the FHFA said it observed in March 2020.
Scott Olson, executive director of the Community Home Lending Association, said at the time the liquidity requirement was “out of the blue,” and would penalize smaller sellers and servicers. In a letter to the FHFA, CHLA said the requirement would harm consumers by increasing concentration and making the market less competitive.
In a joint letter to FHFA, Urban Institute researchers Karan Kaul and Laurie Goodman, and former Ginnie Mae president Ted Tozer, previously said the new proposed liquidity requirements appeared to be “punitive.” They argued the extra liquidity charge would discourage hedging, and could push originators to use less effective hedging strategies.
