When word began to spread earlier this month that Fannie Mae is capping loan purchases from new seller/servicers based on their capital positions, a new fear began to take hold: the GSEs are preparing to hike their minimum net-worth requirement for all customers.
Presently, for legacy seller/servicers the minimum is roughly $2.5 million, but the fear is that over time that threshold will be ratcheted up to $5 million—all in the name of risk management.
Both GSEs have said little about the situation publicly though a Fannie Mae spokesman admitted to this newspaper recently that yes, “net worth is a significant consideration” as is a firm’s management team and performance.
For newly minted Fannie seller/servicers purchases will be tied to how much capital they have on their books.
One investment banker who works with lenders on both licensing and capital issues said, “In the meetings I’ve been in there has been talk about $5 million being the new number.”
The investment banker declined to go on the record but added, “If it happens, there will be a ton of people who will get booted out of this industry unless they have a fast way to raise money.”
David Lykken, managing partner of Mortgage Banking Solutions, Austin, Texas, said he has heard the talk about higher capital requirements but cautioned that lenders shouldn’t solely be focused about a number. “It’s so much more than about just net worth,” he said.
He and other advisors hammered home the point that having an experienced management team is almost as important as capital. Still, Lykken is realistic: “If you think you can get your Fannie approvals by just meeting the minimum [net worth requirement] think again.”
Recently, rumors were circulating that the Ginnie Mae might hike its minimum capital requirements, but one source at the agency, requesting his name not be used, shot down the thought. “There are a lot of risk management tools available to us now that we didn’t have before. We might come up with a 'scorecard’ on lenders,” this source suggested.
Of course, with nonbank mortgage lenders beginning to gain market share, the last thing they want to think about is raising capital, especially at a time when they’re swamped with new applications.
But one secondary market official portrayed the situation differently: “We deal with mortgage banking clients all the time and we have a minimum. Companies can raise money but sometimes it’s a matter of whether they want to,” he said.
“Some owners like to pull out all the retained earnings and keep that money while maintaining just the minimum. In the future I’m not sure that’s going to fly.”