FHFA's Proposed Rules for Non-Banks: Will They Be Effective? - Analyst Blog

On Friday, the Federal Housing Finance Agency (FHFA), regulator of Federal National Mortgage Association ( FNMA ) and Federal Home Loan Mortgage Corp. ( FMCC ), proposed new minimum financial eligibility rules for non-bank mortgage sellers who originate and service mortgages for the two government-owned enterprises. This step by FHFA is to reduce risk at Fannie Mae and Freddie Mac and enhance liquidity in the national housing finance market.

Proposed Rules

The proposed requirements for sellers and servicers of Fannie Mae and Freddie Mac would set the standards for net worth, capital ratio and liquidity. As per the FHFA's proposed rules, non-bank lenders and servicers possessing business relations with Fannie Mae and Freddie Mac would be required to have a minimum net worth of $2.5 million plus 0.25% of the unpaid principal balances of all the mortgages serviced.

Further, capital requirements for the servicers include a tangible net worth to total assets ratio of a minimum 6%. Further, 3.5 basis points of total agency servicing plus additional 200 basis points of total nonperforming agency servicing above 6% of the total agency servicing unpaid principal balance will be required by all non-depository sellers and servicers.

After-Effects of the Rules

The proposed rules by FHFA would ensure that the process becomes more transparent and clear for the shareholders. However, the finalization of rules is expected in second-quarter 2015 and is currently open for industry and stakeholders' comments. Moreover, the implementation of rules will be effective after six months following the finalization.

Some non-bank mortgage companies, which would be abiding by the rules include Ocwen Financial Corp. ( OCN ) and Nationstar Mortgage Holdings Inc. ( NSM ). Such companies along with originating mortgages would at times purchase mortgage servicing rights from major banks like Wells Fargo and Co. ( WFC ) and Bank of America Corp.( BAC ) and even process foreclosures.

Moreover, these mortgage companies succeeded in providing enhanced customer service to borrowers at a lower cost as compared with big banks. However, for meeting the new capital standards, few non-bank servicers might increase borrowers' mortgage costs or decrease the availability as new capital might be issued.


The requirement of rules followed elevated risk at Fannie Mae and Freddie Mac. At times such mortgage companies that serviced loans backed by Fannie and Freddie failed to absorb the slump and uptick in defaults.

The FHFA's proposition will aid in averting another financial crisis and reducing risk of the housing market. Moreover, the transparent system is expected to be appreciated by the stakeholders and other industry participants, which would help in the finalization of rules and bringing consistency in the overall system.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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