Fannie Mae and FHA Boost Net Worth Requirement for Reverse Mortgage Lenders

image Independent reverse mortgage bankers are facing increased net worth requirements which could change the way they currently operate.

Fannie Mae announced earlier this week that it was increasing the minimum required net worth required for approved sellers to $2.5 million, plus 0.25% of the outstanding principal balance of its total portfolio of mortgage loans serviced for the GSE.

Over the last 12 months, Fannie Mae has increased approved sellers net worth requirements from $1.65 million by June 30, 2009 to $2.5 million by the end of the year.  That’s no small jump for mortgage bankers.

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Besides FNMA, the Federal Housing Administration is proposing a rule to increase lender net worth requirements from $250,000 to $1.25 million and would become active within one year of the enactment of the rule said a statement from HUD.

With FNMA approval being out of reach of most mortgage bankers, the number of reverse mortgage lenders who are able to see the benefits of delivering directly to the GSE will shrink.

However, this also presents an opportunity for FNMA approved seller/servicers to act as investors to mortgage bankers who can’t meet its net worth requirements.

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  • Most, if not all, of the Fannie Mae qualified lenders were aware of this mandate months ago. It is rumored that the number of qualified reverse mortgage lenders could be reduced by as much as 2/3 soon.

    The FHA proposal would thin out a very significant part of the market. Are there credible estimates of the fallout?

    Some argue that this will reduce competition. While that may be true at the lender level, it is doubtful if it will thin out the origination core. Usually when the number of competitors diminishes but the level of business remains level, most of the employees who are displaced are absorbed by the remaining players.

    Licensing could decimate (literal meaning) the number of reverse mortgage originators. Some estimate the reduction will be far worse.

    It is believed that as the deadlines near many states will immediately disqualify all applicants who are convicted felons. What would it say to the public if this is not the case?

  • Most, if not all, of the Fannie Mae qualified lenders were aware of this mandate months ago. It is rumored that the number of qualified reverse mortgage lenders could be reduced by as much as 2/3 soon. rnrnThe FHA proposal would thin out a very significant part of the market. Are there credible estimates of the fallout?rnrnSome argue that this will reduce competition. While that may be true at the lender level, it is doubtful if it will thin out the origination core. Usually when the number of competitors diminishes but the level of business remains level, most of the employees who are displaced are absorbed by the remaining players.rnrnLicensing could decimate (literal meaning) the number of reverse mortgage originators. Some estimate the reduction will be far worse. rnrnIt is believed that as the deadlines near many states will immediately disqualify all applicants who are convicted felons. What would it say to the public if this is not the case? rnrn

  • What a staggering thought! Felons disqualified as originators! That is, disqualified IF they have to apply for state licensing. What about those who don't have to apply for licensing? Are they cloaked by their federally chartered employers? M-m-m-m.

    Also what state agencies are going to disqualify the applicants and where will the funds come from to track the applications mandated and forced on the states by HERA? It seems to me the states may well be overwhelmed with enforcement issues since licensing applies to the entire mortgage banking industry or perhaps only to that percentage falling within the policing of state agencies.

    Who polices the employees of the federally chartered banks? If federal agency or agencies, what is the licensing requirement for the individuals working for those banks and what agency has the time or funding provided by Congress to police the individual loan originators of those federally chartered banks? Inquiring minds want to know.

    • Are you saying that some people can sell RMs that are NOT licensed to do so?
      And, do the licensed people have license renewal forms that require affirmation of any new crimes/terminations/fines/etc.?
      If the answer to question one is yes, then that is terrible.
      The license renewal process could help catch newbie-crooks and provide evidence for a case against those giving false answers.

      • I was actually speaking of the new NMLS licensing being adopted state by state as mandated by Congress in HERA. Since a federally chartered bank is not regulated on a state by state basis, I wondered what federal regulatory body/bodies does/do police the loan originators of those institutions. And that aside, I know at least one lender who does background checks on potential loan originators as part of the vetting process. Is that a standard procedure that excludes the “newbie-crooks” as you call them?

        Of course, beyond that mess, is how the states police out of state originators of nationally chartered banks. I foresee a lot of knotty problems.

  • What a staggering thought! Felons disqualified as originators! That is, disqualified IF they have to apply for state licensing. What about those who don’t have to apply for licensing? Are they cloaked by their federally chartered employers? M-m-m-m.rnrnAlso what state agencies are going to disqualify the applicants and where will the funds come from to track the applications mandated and forced on the states by HERA? It seems to me the states may well be overwhelmed with enforcement issues since licensing applies to the entire mortgage banking industry or perhaps only to that percentage falling within the policing of state agencies. rnrnWho polices the employees of the federally chartered banks? If federal agency or agencies, what is the licensing requirement for the individuals working for those banks and what agency has the time or funding provided by Congress to police the individual loan originators of those federally chartered banks? Inquiring minds want to know.

  • I guess I'm more familiar with the insurance/securities business where EVERYONE selling MUST have a license, state by state for insurance and Series 6 or Seven federal for securities. And, each state license has questions pertaining to any regulatory actions/sanctions during the past license period. So if I had license and committed a crime or whatever, I must indicate it on my renewal, hence catching newbie-crooks. (Much more complicated for securities but roughly the same.) So if I sell in 20 states, which I have I, need 20 licenses. A good background check, with followups, might work though.

  • Are you saying that some people can sell RMs that are NOT licensed to do so?rnAnd, do the licensed people have license renewal forms that require affirmation of any new crimes/terminations/fines/etc.?rnIf the answer to question one is yes, then that is terrible.rnThe license renewal process could help catch newbie-crooks and provide evidence for a case against those giving false answers.

  • I was actually speaking of the new NMLS licensing being adopted state by state as mandated by Congress in HERA. Since a federally chartered bank is not regulated on a state by state basis, I wondered what federal regulatory body/bodies does/do police the loan originators of those institutions. And that aside, I know at least one lender who does background checks on potential loan originators as part of the vetting process. Is that a standard procedure that excludes the “newbie-crooks” as you call them? rnrnOf course, beyond that mess, is how the states police out of state originators of nationally chartered banks. I foresee a lot of knotty problems.

  • I guess I’m more familiar with the insurance/securities business where EVERYONE selling MUST have a license, state by state for insurance and Series 6 or Seven federal for securities. And, each state license has questions pertaining to any regulatory actions/sanctions during the past license period. So if I had license and committed a crime or whatever, I must indicate it on my renewal, hence catching newbie-crooks. (Much more complicated for securities but roughly the same.) So if I sell in 20 states, which I have I, need 20 licenses. A good background check, with followups, might work though.

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