NEWS, EVENTS, PUBLICATIONS & EMERGING ISSUES
SW&M EMERGING ISSUE
July 28, 2009
FANNIE MAE - RESTRICTION OR TERMINATION OF SELLER/SERVICER APPROVAL STATUS
As many credit unions may be aware, last fall FMNA issued Announcement 08-23, which signaled FMNA’s policy changes related to lender seller and servicer “financial health” requirements. Amongst other new benchmarks, Announcement 08-23 imposes new profitability and minimum capital requirements.
In the last few weeks, FMNA has signaled that it intends to now act upon Announcement 08-23. Restrictions on sellers/servicers, as well as outright terminations appear to be forthcoming very soon for some credit unions who sell loans to and/or service loans for, FMNA.
FMNA’s approach and forthcoming actions appear to have failed to take into account a number of factors, including:
1. Minimal Seller Repurchase Risk. Most “mainline” financial institutions repurchase very few loans sold to FMNA and as such represent little to no risk to FMNA, even if they have low capital. By contrast, FMNA does business with many non-deposit financial organizations which have little to absolutely no capital to “back up” their repurchase obligations.
2. Minimal Servicer Risk. FMNA’s concern with “capital challenged” servicers appears to be that they may defalcate P&I payments intended for a serviced FMNA loan. Most financial institutions have sufficient safeguards in place to guard against this and also carry insurance.
3. Capital Restoration – Bank and Credit Union Differences. FMNA has informally signaled a willingness to work with financial institutions that have a plan in place to promptly restore capital to an adequate level. Unfortunately, this approach favors banks (and other institutions) which can raise capital swiftly, and disfavors credit unions’ limited ability to raise capital.
While the issues are complex and discussions with FMNA are ongoing, we believe credit unions and other financial institutions need to band together to address this very concerning development. We encourage you to review Announcement 08-23 and contact our office if you desire assistance.
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