The Community Home Lenders Association (CHLA) sent a letter to the Federal Housing Finance Agency (FHFA) commenting on its proposed increases in financial requirements for Fannie and Freddie.
In February, the FHFA proposed updated standards that mortgage lenders would have to meet in order to sell loans to or service loans on behalf of Fannie Mae and Freddie Mac. The standards were set in 2015 and have remained with little modification since then.
The update is meant to strengthen required capital and liquidity for seller/servicers with different business models, as well as provide for more transparency and consistency, “by incorporating cost and risk assumptions that were not previously considered and re-evaluating modeling assumptions and inputs, given changes in the servicing environment.”
Sellers and servicers would be required to meet a base net worth of $2.5 million plus 35 basis points of the unpaid principal balance for Ginnie Mae servicing. For all other 1-to-4-family loans serviced, the requirement would be 25 basis points of the unpaid principal balance.
Nonbanks’ minimum capital ratio would not change, while their minimum liquidity would increase from 3.5 to four basis points of their total agency servicing for GSE servicing and 10 basis points for Ginnie Mae servicing.
HousingWire called the proposal a mixed bag, noting the significant changes for Ginnie Mae servicers.
CHLA applauded some aspects of the proposal. But its comments center around the belief that “increased bank-like capital standards are not needed to address Enterprise counterparty risk and advance exposure and could harm access to mortgage credit.”
CHLA proposes several changes to the proposal, including establishing an advance program for bank warehouse lenders to fund IMB servicer advances and restoring flexibility to count unused portions of committed lines of credit toward Liquidity Ratios. It also says that liquidity ratios should more accurately reflect servicer advance exposure by reducing actual servicing from 3.5 to 1.5 BPs and basing non-agency ratios on whether actual or scheduled.
The comments particularly single out the 2% hedging requirement, which it says “seems to be based on an objective of ensuring servicers always make advances on time, so Fannie and Freddie do not ever have to do so (even though they already do so on actual serviced loans).”
“Unfortunately, this requirement will have significant negative real-world consequences to consumers – due to increased concentration and less competition,” the letter reads.
CHLA also asks that the effective date of increased requirements be delayed until January 1, 2024.