FHFA, Ginnie Mae jointly revise requirements for mortgage companies

The Federal Housing Finance Agency and Ginnie Mae jointly released updated minimum financial-eligibility standards for counterparties that turned out to be less restrictive than mortgage trade groups had feared.

The new standards slated to go into effect late next year appear to mark a partial retreat from an earlier Ginnie proposal that would have imposed higher bank-like capital requirements on non-depositories. It also backs off an earlier version of the FHFA standards that contained a controversial origination-liquidity requirement. The FHFA also partially restored an allowance for unused portions of committed agency servicing-advance lines of credit so that 50% can be put toward liquidity requirements when the new standards go into effect.

The original Ginnie proposal called for a 10% risk-based capital ratio with a risk-weight of 250% for mortgage servicing rights. The standards Ginnie is implementing now instead require issuers to maintain a minimum capital ratio of 6%, and has the same risk weighting for MSRs as in the proposal.

The origination liquidity requirement the FHFA previously floated would have been equal to 2% of seller-servicers’ outstanding hedging position. The new standard, which Ginnie issuers also will be subject to, will be 50 basis points times the total of loans held for sale plus adjusted pipeline loans with rate-lock commitments.

Overall, while the requirements have been scaled back from previous proposals, they are “still something that could impact people,” said Scott Olson, executive director of the Community Home Lenders of America, noting that he considered the servicing-advance line change to be a positive for the industry. He added that lenders which have originated less than $1 billion of loans over the last four quarters getting an exemption from some requirements was relatively positive because it indicated Ginnie and FHFA recognize the difference in the risk a large counterparty poses to them compared to smaller ones.

“But the rules are complicated and I think our members are going to need some time to think  through what this really means for them individually,” he added. “We are going to study this and maybe make some suggestions to tweak or modify around the edges here but we’re also pleased.”

The change in the calculation for the origination liquidity requirement is one of the more marked departures from earlier proposals and a measure that may require more industry analysis before its full implications become clear, said Ed DeMarco, president of the Housing Policy Council and a former regulator.

The additional time FHFA and Ginnie added for implementation may help the industry sort such things out, he noted. Previous implementation timelines had been more on the order of six months, whereas the current timeline makes standards effective either as of Sept. 30 or Dec. 31 of next year.

“It’s certainly appropriate to have reasonable and rigorous capital and liquidity standards, it’s better to have them aligned than this be misaligned, and it’s better to have ample time to adjust to these meaningful changes rather than to have to do it in a rush, particularly in what is a pretty rough market right now,” DeMarco said.

The two entities’ standards still differ in several areas. Ginnie, for example, will not give partial credit to portions of unused servicing-advance lines of credit in liquidity requirements. However, it did say it would count principal and interest, tax and insurance, and foreclosure advances toward liquidity.

Several groups, including the Mortgage Bankers Association, the Conference of State Bank Supervisors and the Structured Finance Association expressed appreciation for Ginnie and FHFA’s efforts to coordinate at least on some of the standards.

“People will split hairs on the details of these proposals, but I think the idea of them working together is what’s most important,” Michael Bright, CEO of the Structured Finance Association, said in an email. “Ginnie issuers and Fannie/Freddie seller servicers all have important roles to play in the system, and it makes a lot of sense for Ginnie and FHFA to coordinate.”