Selling Guide

Published October 2, 2018

Maintaining Seller/Servicer Eligibility

To maintain eligibility as a seller/servicer, the seller/servicer must comply with the minimum financial requirements described in this topic. If a seller/servicer fails to maintain any of these requirements or fails to comply with its Lender Contract, such failure is a breach of the Lender Contract.

In addition, the circumstances and qualifications that were in place for Fannie Mae’s consideration at the time of the seller/servicer’s approval generally must not adversely change after approval.

If a seller/servicer has not sold any loans to Fannie Mae in the previous calendar year or is not servicing any loans for Fannie Mae as of December 31, its seller/servicer status may be deactivated. Once deactivated as a seller or a servicer, the entity must go through the applicable reactivation process in order to be eligible to sell or service. Fannie Mae will review the applicable documentation and determine whether the seller/servicer meets eligibility requirements.

Sellers/servicers are not required to purchase or own Fannie Mae stock as a condition of eligibility.

Minimum Financial Requirements

Sellers/servicers must comply with the minimum financial requirements described in the following table.

Category Description
Eligible Seller/Servicer Maintenance Fee

Sellers/servicers must pay a maintenance fee $1,000 per calendar year; billed in the first quarter of the calendar year by Fannie Mae. Fannie Mae will waive the maintenance fee if during the previous calendar year, the seller/servicer either:

  • sold at least one loan to Fannie Mae; or

  • acted as the servicer (or master servicer) for Fannie Mae loans as of December 31, with an aggregate minimum UPB of $25 million.

Reactivation fee Reactivated sellers/servicers must pay a reactivation fee of $2500. Fannie Mae will waive this fee under the following circumstances:
  • if selling reactivation, the seller was the servicer (or master servicer) for Fannie Mae loans as of December 31, with an aggregate minimum UPB of $25 million; or

  • if servicing reactivation, the seller/servicer has sold at least one loan to Fannie Mae during the previous calendar year.

Minimum Net Worth The seller/servicer must maintain a Lender Adjusted Net Worth of at least $2.5 million, plus an amount equal to 0.25% of the outstanding UPB of its portfolio of 1- to 4-unit residential loans the seller/servicer is contractually obligated to service for the owner of the loan. The minimum Lender Adjusted Net Worth requirement for subservicers does not include loans serviced under a subservicing arrangement.

Lender Adjusted Net Worth is defined as:

  • Lender’s Total Equity Capital as determined by Generally Accepted Accounting Principles (GAAP),

  • MINUS goodwill and other intangible assets (excluding mortgage servicing rights); and

  • If elected by Fannie Mae based on our assessment of associated risk, MINUS “affiliated receivables” and “pledged assets net of associated liabilities.”

For entities such as nonprofit corporations whose financial reporting requirements or standards do not facilitate calculation of Lender Adjusted Net Worth, Fannie Mae will use equivalent financial data to determine compliance with the minimum net worth requirements.
Minimum Capital Requirements 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 (applicable only to non-depository sellers/servicers) Non-depository sellers/servicers must maintain liquidity at the levels described below:
  • If the Agency SDQ Rate is less than or equal to 6%, the seller/servicer must maintain minimum liquidity of .035% of the UPB of the loans serviced by the seller/servicer for Fannie Mae, Freddie Mac, and Ginnie Mae.

  • If the Agency SDQ Rate is greater than 6%, the seller/servicer must maintain minimum liquidity of

    • .035% of the UPB of the loans serviced by the seller/servicer for Fannie Mae, Freddie Mac, and Ginnie Mae; plus

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

The Agency SDQ Rate is:

100 multiplied by (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 loans serviced for Fannie Mae, Freddie Mac, and Ginnie Mae).

The minimum liquidity requirement for subservicers does not include loans serviced under a subservicing arrangement.

Availability 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.

Servicer Rating If the servicer has external servicer ratings as a primary servicer for prime residential loans, at least one of the following minimum ratings is required:

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 ratings are available from fewer than three agencies, all available ratings must comply with the standards above.

Additional Financial Requirements

Fannie Mae may, at any time based on its view of a seller/servicer’s financial strength or its assessment of market conditions or other relevant factors, impose additional financial requirements, including enhanced net worth, capital, or liquidity requirements, as well as provisions related to the items in the Additional Financial Requirements table below.

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.

Fannie Mae may declare a breach of the Lender Contract if any of the circumstances described in the following table occur.

ADDITIONAL FINANCIAL REQUIREMENTS
Category Description
Material Decline in Lender Adjusted Net Worth Typically, a decline is material if Lender Adjusted Net Worth declines by more than 25% over a quarterly reporting period or by more than 40% over two-consecutive quarterly reporting periods.
Decline in Profitability Four or more consecutive quarterly losses accompanied by a decline in Lender Adjusted Net Worth of 30% or more during the same period.
Cross-Default Provisions The occurrence of any of the following (to the extent not cured within any applicable cure period in the applicable agreement):
  • a breach by the seller/servicer on a credit or funding facility, including warehouse or servicing advance lines of credit;

  • a breach by any seller/servicer’s affiliate 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 seller/servicer must provide Fannie Mae with written notification in the form of an updated Lender Record Information (Form 582) submitted electronically within in 30 days of the occurrence of any of the foregoing.

Recourse Obligation

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

Business Continuity and Disaster Recovery

The following table describes business continuity and disaster recovery requirements.

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 if there is a disruption or disaster.
have processes in place to ensure business continuity and disaster recovery procedures are both updated and tested on a regular basis.
confirm 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.

Management of Vendors and Other Third-party Service Providers

Lenders must have written procedures for the approval and management of vendors and other third-party service providers.

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-2018-07 September 04, 2018
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