Selling Guide

Published June 5, 2018

Minimum Financial Requirements

Sellers/servicers must meet minimum net worth, capital, and liquidity requirements to maintain their seller/servicer eligibility. If a seller/servicer fails to maintain any of these minimum requirements, such failure constitutes a breach of the Lender Contract:

Minimum Net Worth: All approved sellers/servicers must maintain a minimum Lender Adjusted Net Worth, calculated in accordance with A1-1-01, Application and Approval of Seller/Servicer , of at least $2.5 million, plus a dollar amount that represents 0.25% of the unpaid principal balance (UPB) of the seller/servicer’s total portfolio of one- to four-unit residential mortgage loans for which the seller/servicer is contractually obligated to service for the owner of the loan. The minimum Lender Adjusted Net Worth does not include mortgage loans serviced under a subservicing arrangement—that is, for which the seller/servicer is contractually obligated to service for another servicer.

Note: For entities such as nonprofit corporations whose financial reporting requirements or standards do not facilitate calculation of Lender Adjusted Net Worth, as discussed above, Fannie Mae will determine equivalent financial data to determine compliance with the minimum net worth requirements.

Minimum Capital: Sellers/servicers also must have minimum acceptable levels of capital. Sellers/servicers that are depository institutions are required to meet the minimum regulatory capital requirements of their primary regulator. All other entities must have a minimum Lender Adjusted Net/Total Assets ratio of 6%, or equivalent, as determined by Fannie Mae.

Minimum Liquidity for Non-Depository Sellers/Servicers: Non-depository sellers/servicers must maintain a minimum liquidity requirement based on the Agency Serious Delinquency (SDQ) Rate, as described in the following table.

The Agency SDQ Rate is defined as:

100 times (the UPB of loans 90 days or more delinquent or in foreclosure for Fannie Mae, Freddie Mac, and Ginnie Mae divided by the total UPB of mortgage loans serviced for Fannie Mae, Freddie Mac, and Ginnie Mae.

If the Agency SDQ Rate is ... Then the minimum liquidity requirement is ...
less than or equal to 6% .035% of the UPB of the seller/servicer’s portfolio of the mortgage loans serviced for Fannie Mae, Freddie Mac, and Ginnie Mae.
greater than 6%
  • .035% of the UPB of the seller/servicer’s portfolio of the mortgage loans serviced for Fannie Mae, Freddie Mac, and Ginnie Mae.

  • 2% of the UPB of the Agency SDQ Rate over 6%.

Example:

Total UPB of mortgage loans serviced for Fannie Mae, Freddie Mac, and Ginnie Mae = $100,000,000

  • Agency SDQ Rate = 7%

  • Base liquidity = 035% times $100,000,000 = $35,000

  • Incremental liquidity amount = 2% times $100,000,000 times (7% minus 6%) = $20,000

  • Minimum liquidity requirement = $35,000 + $20,000 = $55,000

The minimum liquidity requirement for subservicers does not include mortgage loans serviced for another servicer. Available liquidity includes

  • unrestricted cash and cash equivalents;

  • Allowable for Sale or Held for Trading investment grade securities including Agency MBS;

  • obligations of GSEs, and U.S. Treasury obligations; and

  • unused, undesignated, and available portions of credit lines, including those for, or partially for, servicing advances.

Additional Financial Requirements

Fannie Mae may, at any time based on its view of a seller/servicer’s financial strength, impose additional financial requirements, including enhanced net worth, capital, or liquidity requirements, as well as provisions related to

  • declines in net worth,

  • profitability,

  • cross-default, and

  • recourse.

Any additional requirements Fannie Mae imposes may apply to a particular seller/servicer, a defined group or type of seller/servicer, or all sellers/servicers. A seller/servicer’s failure to comply with any additional requirements may result in Fannie Mae declaring a breach of the Lender Contract.

Decline in Net Worth: Fannie Mae may declare a breach of the Lender Contract in the event of a material decline in a Lender’s Adjusted Net Worth. Typically Fannie Mae considers a decline in Lender Adjusted Net Worth of more than 25% over a quarterly reporting period, or more than 40% over two-consecutive quarterly reporting periods, to be material.

Profitability: Fannie Mae may declare a breach of the Lender Contract if the seller/servicer records four or more consecutive quarterly losses and experiences a decline in its Lender Adjusted Net Worth of 30% or more during the same period.

Cross-default Provisions: A seller/servicer must provide Fannie Mae with notification in the form of an updated Lender Record Information ( Form 582), within 30 days of the occurrence of any of the following:

  • a breach by the seller/servicer on a credit or funding facility, including warehouse lines or servicing advance lines of credit;

  • a breach by any seller/servicer-affiliated or related entity in any of its obligations with Fannie Mae, including parental guarantees; or

  • a breach of any agreements with any other creditors where such breach involves an amount that exceeds 3% of the seller/servicer’s Lender Adjusted Net Worth.

The notice must be provided to Fannie Mae electronically. At any time after receipt of such notice or Fannie Mae otherwise learning of such a breach, provided such breach has not been cured within any applicable cure period in such agreement, Fannie Mae may declare a breach of the Lender Contract.

Recourse Obligation: Fannie Mae may permit a seller/servicer to take on credit recourse obligations, provided the seller/servicer meets additional requirements imposed by Fannie Mae on the seller/servicer. Fannie Mae will assess the financial strength of the seller/servicer to determine whether the seller/servicer can take on credit recourse obligations. If permitted, Fannie Mae will determine whether the seller/servicer must post collateral or provide other forms of risk reduction measures to secure the additional obligations.

Compliance with Lender Contract

To maintain eligibility as a seller/servicer, the seller/servicer must comply with its Lender Contract. Failure to do so is a breach of the Lender Contract.

Business Continuity and Disaster Recovery

The seller/servicer must ensure it and any subservicers, third-party originators, outsourcing firms, and third-party vendors used by the seller/servicer implement and maintain disaster recovery and business continuity procedures to ensure their ability to regain critical business operations in the event of a disruption or disaster. The seller/servicer must have processes in place to ensure business continuity and disaster recovery procedures are both updated and tested on a regular basis. They must also ensure they have the ability to regain critical business operations in the event that subservicers, third-party originators, outsourcing firms, or third-party vendors used by the seller/servicer fail to maintain business continuity or disaster recovery procedures, suffer complete business failure, or dissolution.

Business Continuity Procedures

Business continuity procedures are defined as plans to continue operations if adverse conditions occur, such as a storm, a fire, or a crime. The plan must include moving operations or recovering operations in another location if a disaster occurs at a worksite or data center.

All sellers/servicers must have business continuity procedures in place that include:

  • identification of critical functions and resources required to continue operations in the event of a business disruption or disaster, and

  • alternate processing facilities.

Disaster Recovery Procedures

Disaster recovery is defined as a documented process or set of procedures to recover and protect a business information technology infrastructure in the event of a disaster.

All sellers/servicers must have disaster recovery procedures in place that include:

  • identification of critical functions and resources required to continue operations in the event of a business disruption or disaster,

  • provisions for off-site retention of critical systems and data file resources, and

  • alternate network and telecommunication capabilities.

Audit and Management Control Requirements

The seller/servicer must have internal audit and management control procedures to evaluate and monitor the overall quality of its loan production and servicing processes, as applicable. At a minimum:

  • The procedures must be independent of all key functions of the loan manufacturing process and the servicing processes that they review, so that such procedures provide an objective and unbiased evaluation that adds value and improves the seller/servicer’s operations.

  • The seller/servicer’s lines of reporting must reflect the independence of the audit process at all levels, resulting in activities that are conducted in an unbiased manner and without quality compromises resulting from internal influences or conflicts of interest.

  • The audit function must not share any reporting lines with the functional areas that it reviews.

  • The audit function must report directly to the seller/servicer’s senior management and/or board of directors. Exceptions are permitted in situations in which the size of the seller/servicer’s organization is insufficient to support adequate resources to allow for separation of these functions. In those situations, the seller/servicer’s audit plan must include the rationale for the lack of separation as well as the controls that have been established to mitigate the risks associated with the lack of separation of these functions.

  • The procedures must be consultative, so that they help the seller/servicer accomplish its objectives by bringing a systematic, disciplined approach to evaluating and improving the effectiveness of risk management, control, and governance processes.

Eligible Seller/Servicer Maintenance Fee

Sellers/servicers will be assessed an Eligible Seller/Servicer Maintenance Fee of $1,000 at the beginning of each calendar year. Fannie Mae will waive this annual fee if a seller/servicer has met either of the following thresholds during the previous calendar year:

  • delivered at least one mortgage loan, as a whole loan or in an MBS pool, to Fannie Mae; or

  • owned (as master servicer) the servicing rights for a portfolio of Fannie Mae loans as of December 31, with a minimum unpaid principal balance of $25 million.

Amounts due will be billed during the first quarter of the calendar year. Failure to pay the Eligible Seller/Servicer Maintenance Fee in a timely manner will result in Fannie Mae's revoking the seller/servicer approval.

Deactivated Sellers/Servicers

If a seller/servicer has not delivered any mortgage loans to Fannie Mae in the previous calendar year, the seller/servicer's status may be deactivated. Once deactivated, the seller/servicer will be required to go through the reactivation process in order to be eligible to sell (if selling status was deactivated) or service (if servicing status was deactivated).

Reactivation Process: The seller/servicer will be re-activated as a Fannie Mae seller/servicer after Fannie Mae reviews the applicable documentation and determines that the seller/servicer meets the eligibility requirements. The seller/servicer will be charged a $2,500 reactivation fee to complete the reactivation process. This fee will be waived for a selling reactivation if the seller was the owner (as master servicer) of the servicing rights for a portfolio of Fannie Mae loans as of December 31, with a minimum unpaid principal balance of $25 million. This fee will also be waived for a servicing reactivation if the seller has delivered at least one mortgage loan, as a whole loan or in an MBS pool, to Fannie Mae during the previous calendar year.

Requirements for Servicer Rating

The servicer that has external servicer ratings as a primary servicer for prime residential mortgage loans must obtain a rating from at least one of the following agencies and must maintain the corresponding minimum rating provided in the following table:

Rating Agency Minimum Required Rating
Moody’s Investors Service SQ3
Standard & Poor’s, Inc. Average
Fitch, Inc. RPS3

The servicer of Alt-A or non-prime products must maintain ratings equivalent to the ratings for prime servicers if the servicer’s Lender Contract does not have any required minimum servicer ratings. If servicer ratings are available from fewer than three agencies, all available ratings must comply with the standards above.

Related Announcements

The table below provides references to the Announcements that have been issued that are related to this topic.

Announcements Issue Date
Announcement SEL-2018-02 February 27, 2018
Announcement SEL-2017-10 December 19, 2017
Announcement SEL-2017–01 January 31, 2017
Announcement SEL-2015–13 December 15, 2015
Announcement SEL-2013–07 September 24, 2013
Announcement SEL-2012–10 October 2, 2012
Announcement SEL-2011–13 December 20, 2011