Following a similar move by Ginnie Mae, Fannie Mae is making it more difficult to qualify as an approved seller servicer.
Fannie issued a bulletin yesterday indicating it updated its lender eligibility and contractual requirements.
The revisions were prompted by "extraordinary circumstances occurring in the mortgage industry over the past several months," Announcement 08-23 stated.
Beginning on Dec. 31, 2008, new lenders will be required to have a $2.5 million net worth, excluding goodwill and other intangible assets, the Washington, D.C.-based company said. In addition, 0.25 percent of the outstanding portfolio serviced for Fannie is required on top of the $2.5 million.
Seller-servicers that are already approved by the secondary lender will be required to have a net worth of $1.65 million plus 0.25 percent of their servicing portfolio as of Dec. 31, though they will have until June 30, 2009, to comply. Then, on Dec. 31, 2009, all seller-servicers will be required to maintain a $2.5 million net worth plus the 0.25 percent.
Last week, Ginnie Mae announced it raised the minimum net worth requirement for new issuers of single-family MBS to $1 million from $250,000 as of Oct. 1. Issuers approved prior to Oct. 1 will have until Oct. 1, 2010, to meet Ginnie's new requirements.
Fannie said a breach of contract will have occurred when approved seller-servicer's financial or business condition adversely and materially changes in its judgment. This would include a 25 percent decrease in net worth over a quarterly period or a 40 percent decline over the two-quarter period ending Dec. 31, 2008. After that, a breach of contract will have occurred if net worth declines 30 percent when a lender records four consecutive quarterly losses.
Among the possible remedies are the requirement for more frequent financial reporting, accelerating the repurchase process and requiring a sale or transfer of servicing. The lender may also be limited on acquiring additional servicing or may be required to post more collateral.
Lenders are immediately required to notify Fannie within 30 days of defaulting on a warehouse line or breaching an agreement with other creditors that exceed 3 percent of net worth. The notice is also required when a related entity breaches its obligations with Fannie.
Lenders are required to provide audited financials and credit reference authorizations within 90 days of their fiscal yearend. Failing to meet this deadline could prompt a $1,000-per-month fine, suspension of selling or servicing privileges or termination of a contract.
Fannie said that when the servicing of a loan is transferred, the transferor lender remains obligated for all selling representations and warranties and recourse obligations and assumes joint and several liability for all selling representations and warranties and recourse obligations related to the loans it services unless explicitly agreed to the contrary in writing by Fannie. This update is effective on Dec. 31, 2008.
Servicers are required to maintain at least an SQ3- rating with Moody's Investors Service, an average rating with Standard & Poor's Ratings Services and an RPS3- ratings with Fitch Ratings.
Ginnie Raises Issuer Net Worth Requirements
The Government National Mortgage Association has quadrupled its net worth requirement for approved issuers of single-family mortgage-backed securities.