Fannie Overseer Setting Capital Rules for Nonbank Mortgage FirmsClea Benson and Jody Shenn
A U.S. housing regulator will require nonbank mortgage firms to meet minimum liquidity and net worth standards to curb risks to taxpayers from the rapidly expanding industry.
Companies selling mortgages to Fannie Mae and Freddie Mac or collecting payments on loans backed by the two U.S.-owned enterprises must meet the new standards, the Federal Housing Finance Agency said Friday. The agency will seek public comment before completing the proposal, which it said is likely go into effect by the end of the year.
“The proposed minimum financial requirements ensure the safe and sound operation” of Fannie Mae and Freddie Mac and “further FHFA’s goal of fostering liquid, efficient, competitive and resilient national housing finance markets,” the agency said in a statement.
The FHFA’s move, which comes amid regulatory scrutiny of nonbank mortgage servicer Ocwen Financial Corp., is likely to set a bar for the entire industry because Fannie Mae and Freddie Mac now back more than half of new U.S. home loans. An increasing share of payment-collection work is shifting to companies regulated at the state level that don’t have to meet the same requirements as nationally regulated banks.
The regulator’s proposal would require the net worth of nonbanks doing business with Fannie Mae and Freddie Mac to equal at least 6 percent of their total assets. They also would have to hold liquid assets equivalent to about 0.04 percent of the loans they oversee for the two companies or U.S.-owned Ginnie Mae, and possibly more if they have a lot of delinquent loans.
Both banks and nonbanks selling or servicing loans for Fannie Mae and Freddie Mac would need to have a net worth of at least $2.5 million plus 0.25 percent of the value of the unpaid principal balance of the loans they service.
The FHFA’s inspector general raised concerns in a July report about the rapid growth of nonbank firms. The three largest nonbank servicers, led by Ocwen, have tripled in size since 2012. The auditor raised concerns about nonbank firms using short-term financing to buy servicing rights for troubled loans that might only pay out in the long term and acquiring responsibility for more loans than they could handle.
Fannie Mae’s three largest nonbanks servicers oversaw 13 percent of its loans as of Sept. 30, including 32 percent of delinquent debt, according to a securities filing. Nine out of Fannie Mae’s top 20 servicers were non-banks at the end of 2013, accounting for 28 percent of contracts with that overall group, according to the inspector general.
Fannie Mae and Freddie Mac, which package loans into securities on which they guarantee payments of principal and interest, have been under U.S. control since the 2008 financial crisis.