FM Commentary

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FM Commentary

Delivery Caps: Balancing Risk While Continuing to Support the Market

Zach Oppenheimer

Last week’s MBA conference was a great opportunity to meet with our customers and industry partners and engage in productive dialogue. One topic of conversation was delivery caps. I would like to provide more clarity around this topic regarding our existing practices and express our commitment to further industry dialogue on this subject. In this commentary, I will explain the purpose of our loan delivery caps and the process by which we establish them for some customers.

Fannie Mae focuses on providing liquidity to a wide range of housing and mortgage market participants, including large, medium, and small institutions. As many large institutions have pulled back from their role as aggregators, Fannie Mae is seeing significant increases in the business it receives from medium and smaller institutions.

We very much value the business we receive from medium and smaller institutions, both bank and non-bank customers, and view this business as very important to our mission as a liquidity provider.

This increase in business, however, poses challenges for us, including increasing our counterparty risk exposure. Many of these newly approved lenders are unfamiliar to us and do not have a track record with Fannie Mae by which to gauge loan profile and performance of their future deliveries. As a matter of prudence, we need to ensure that all of our customers have the financial strength to stand behind the loans that they sell to us. 

Fannie Mae requires that every approved customer have the capacity to meet our eligibility requirements and fulfill their contractual obligations. We assess each customer’s ability to meet their obligations in order to manage our relationships in a prudent manner. Our assessment includes a number of factors, including the customer's net worth, expected delivery profile, actual performance, and financial strength. We use a number of risk management tools to address our counterparty exposure and, in some limited cases, we have imposed volume limits on certain customers' deliveries to Fannie Mae where we felt it appropriate given these factors.

To date, we have set delivery caps with only a small percentage of the more than one thousand lenders who are approved to do business with Fannie Mae. In all cases where a delivery cap may be put in place, we engage the lender in a discussion about their business needs and work to establish appropriate delivery levels. We also have notified in writing affected customers of any such limits, which they in turn must acknowledge in writing.

We welcome the opportunity to help more lenders access the secondary market directly and we work to guide each prospective and newly approved lender through the process.

We have had many conversations with market participants on this topic and we will continue to do so. Our intent is to work collaboratively with all segments of our customer base to ensure that investment quality loans are delivered into the secondary market.

Zach Oppenheimer
Senior Vice President, Head of Customer Engagement

October 31, 2012

The views expressed in these articles reflect the personal views of the authors, and do not necessarily reflect the views or policies of any other person, including Fannie Mae or its Conservator. Any figures or estimates included in an article are solely the responsibility of the author.

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