It’s been a busy couple of weeks for the Federal Housing Finance Agency (FHFA), which announced a financial advisor to help the process of ending conservatorship for Fannie Mae and Freddie Mac, opened up the process for evaluating new credit score models, updated servicer requirements and realigned the agency’s structure.
First up, FHFA announced it had selected Houlihan Lokey Capital, Inc. as a financial advisor to assist in the development and implementation of a roadmap to end conservatorships. In addition to developing the roadmap, Houlihan Lokey will consider business and capital structures, market impacts and timing, and available capital raising alternatives, among other items as outlined in the previously published Statement of Work.
“Hiring a financial advisor is a significant milestone toward ending the conservatorships of the enterprises,” FHFA Director Mark Calabria said in a release. “The next major milestone for FHFA is the re-proposal of the capital rule, which will happen in the near future.”
The contract amount for Houlihan Lokey in the first year is $9 million. FHFA has options to extend for an additional four-and-a-half years, with the total contract not to exceed $45 million.
FHFA also had been looking into alternative credit score models, and published a solicitation for a joint credit score.
The Credit Score Solicitation describes the process for credit score model developers to submit applications to Fannie and Freddie, which will begin accepting applications May 18. The application period will be open for 120 days, ending Sept. 15.
“The publication of the solicitation is the first step in the process of evaluating new credit score models,” Calabria said. “FHFA will ensure that the enterprises validate and approve credit score models in a timely and prudent manner, so that Americans continue to have a safe and sound path to sustainable homeownership.”
Servicers who do business with Fannie and Freddie also have updated minimum financial eligibility requirements to meet.
The updated minimum financial requirements will provide transparency and consistency of capital and liquidity required for seller/servicers with different business models, FHFA said in a release.
A key improvement from the minimum financial requirements established in 2015 is that the new standards establish financial requirements for the servicing of Ginnie Mae mortgages.
The proposal keeps the minimum net worth for servicers at $2.5 million, and the 25 basis points of unpaid principal balance (UPB) for 1-4 unit residential mortgage loans which are not serviced by Ginnie Mae. For Ginnie Mae servicing, the requirements rise to 35 basis points of UPB.
Base liquidity would rise from 3.5 basis points of agency servicing UPB to 4 basis points, plus 10 basis points of Ginnie Mae servicing UPB.
The threshold for non-performing loans (NPL) moves from greater than 6 percent requiring an incremental NPL charge to greater than 4 percent. The incremental charge would increase from 200 basis points for the portion of agency NPL above 6 percent to 300 basis points for the portion of agency NPL above 4 percent.
After reviewing industry and stakeholder feedback, FHFA anticipates finalizing these requirements in the second quarter of 2020, and anticipates that the requirements will be effective six months after they are finalized.
Finally, Calabria announced that the agency itself was undergoing change, with a realignment of its structure, which includes new hires.
Realignment actions include:
- Establishing three new units that report directly to the director: The Division of Research and Statistics (DRS) headed by Deputy Director Lynn Fisher, the Division of Accounting and Financial Standards (DAFS) headed by Deputy Director Nina Nichols, and the Office of Equal Opportunity and Fairness (OEOF);
- Hiring a new deputy director, Paul Miller, and associate director, Scott Valentin, for the Division of Enterprise Regulation (DER);
- Elevating four key positions:
- In the Office of General Counsel, Christopher Curtis will be principal deputy general counsel, and Sean Dent will be senior deputy general counsel;
- In DRS, Anju Vajja will be senior associate director for policy research; and
- In the Office of Minority and Women Inclusion, Paul Priest will be associate director for diversity and inclusion and administration;
- Renaming the Division of Conservatorship (DOC) the Division of Resolutions (DOR); and
- Recruiting an OEOF director, a chief economist, a senior associate director for data, and a chief operating officer.
“The revised structure and appointments of highly qualified senior leaders will ensure that FHFA continues to protect taxpayers from future bailouts and deliver on our obligation to create a competitive, liquid, efficient and resilient housing finance market,” Calabria said.