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A4-1-01, Maintaining Seller/Servicer Eligibility (05/01/2024)

Introduction
This topic contains information on maintaining seller/servicer eligibility, including:

Maintaining Seller/Servicer Eligibility

To maintain eligibility, the seller/servicer must comply with the minimum 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 does not meet the minimum loan sale requirement below, the seller's approval to sell loans to Fannie Mae will be terminated and access to all technology that is licensed only to approved sellers will be terminate within 60 days. If a servicer does not meet the minimum loan servicing requirement below, the servicer's approval to service loans for Fannie Mae will be terminated and access to all technology that is licensed only to approved servicers will be terminated. Once terminated as a seller or a servicer, the entity must go through the seller/servicer application process to become an approved seller or servicer again and be eligible to sell or service loans. Fannie Mae will review the application documentation and determine whether the seller or servicer meets the then current eligibility requirements. Contact the Onboarding Team (see E-1-02, List of ContactsE-1-02, List of Contacts) for additional information.

Note: Sellers/servicers are not required to purchase or own Fannie Mae stock as a condition of eligibility (as stated in the Mortgage Selling and Servicing Contract).


Definitions

The following table provides the definition of terms related to maintaining seller/servicer eligibility as described in the minimum requirements below.

Term Definition
Adjusted net worth

Adjusted Net Worth is defined as:

  • total equity capital as determined by Generally Accepted Accounting Principles (GAAP); minus
  • goodwill and other intangible assets (excluding mortgage servicing rights); minus
  • affiliated receivables; minus
  • pledged assets net of associated liabilities; minus
  • deferred tax assets net of associated deferred tax liabilities.

Note: If the deferred tax liabilities are greater than the deferred tax assets, then the deduction from the Adjusted Net Worth will be zero.

Allowable liquidity

Allowable liquidity includes:

  • unrestricted cash and cash equivalents;
  • unpledged, available-for-sale or held-for-trading investment grade securities limited to the following:
    • Fannie Mae, Freddie Mac, and Ginnie Mae MBS;
    • obligations of GSEs;
    • U.S. Treasury obligations; and
  • 50% of the unused portion of committed servicing advance lines of credit of one- to four-unit residential first lien mortgage loans serviced for Fannie Mae, Freddie Mac, and Ginnie Mae.
Large non-depository sellers/servicers An entity servicing $50 billion or more in residential first lien mortgage servicing UPB plus other servicing UPB as determined at the end of each calendar quarter.
Long-term corporate family rating A long-term rating that reflects the relative likelihood of a default on a corporate family's debt and debt-like obligations and the expected financial loss suffered in the event of default from a rating agency.
Long-term senior unsecured debt rating A rating assigned to a financial obligation with an original maturity of one year or more that reflects the likelihood of a default on contractually promised payments on senior unsecured debts and the expected financial loss suffered in the event of default on such dents from a rating agency.
Other servicing UPB

The outstanding UPB of a seller/servicer's portfolio of one- to four-unit residential first lien mortgage loans the seller/servicer is contractually obligated to service for all investors other than Fannie Mae, Freddie Mac, and Ginnie Mae, plus the following regardless of the investor:

  • second lien mortgage loans;
  • funded home equity lines of credit;
  • reverse mortgage loans; and
  • construction and land development mortgage loans

The outstanding UPB of mortgage loans serviced by a seller/servicer under a subservicing arrangement is excluded.

Rating agency An entity that is a "Nationally Recognized Statistical Rating Organization" as defined by Section 78c(a) of Title 15 of the United States Code (15 U.S.C. 78c(a)).
Residential first lien mortgage servicing UPB

The outstanding UPB of a seller/servicer's portfolio of one- to four-unit residential first lien mortgage loans the seller/servicer is contractually obligated to service for Fannie Mae, Freddie Mac, or Ginnie Mae, as applicable, excluding;

  • funded home equity lines of credit,
  • reverse mortgage loans, and
  • construction and land developments mortgage loans.

The outstanding UPB of mortgage loans serviced by a seller/servicer under a subservicing arrangement is excluded.

Servicer rating An evaluation of a seller/servicer for its capacity to carry out servicing business, which is different from evaluations of financial instruments or credit standing of corporations, from a rating agency. Servicer ratings may be conducted based upon the type of servicing actions performed, including evaluations for entities that act as primary servicers, special servicers or master servicers.

 


Minimum Requirements

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

Category Description
Loan Sales

A seller must sell at least 12 loans to Fannie Mae during the prior calendar year.

Loan Servicing A servicer must service at least one loan for Fannie Mae as of December 31 of the prior calendar year.
Minimum Net Worth (applicable to depository and non-depository sellers/servicers)

All depository and non-depository sellers/servicers must maintain at all times an Adjusted Net Worth of at least $2.5 million, plus an amount equal to or greater than the sum of the following:

  • 0.25% of the portion of the seller/servicer's Residential First Lien Mortgage Servicing UPB serviced for Fannie Mae and Freddie Mac, plus
  • 0.35% of the portion of the seller/servicer's Residential First Lien Mortgage Servicing UPB serviced for Ginnie Mae, plus
  • 0.25% of the Other Servicing UPB

See Seller Eligibility Criteria for Servicing Marketplace in  A3-3-02, Concurrent Servicing TransfersA3-3-02, Concurrent Servicing Transfers for additional requirements for SMP lenders.

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

Minimum Capital Requirements (applicable to depository sellers/servicers) Sellers/servicers that are depository institutions are required to meet at all times the minimum regulatory capital requirements of their primary regulator. 
Minimum Capital Requirements (applicable to non-depository  sellers/servicers) Non-depository sellers/servicers must maintain at all times a minimum Adjusted New Worth/total assets ratio of 6%, or equivalent, as determined by Fannie Mae.
Minimum Liquidity (applicable to non-depository sellers/servicers)

Non-depository sellers/servicers must maintain at all times an Allowable Liquidity at a level equal to or greater than the sum of the following:

  • 0.07% of the portion of the seller/servicer's Residential First Lien Mortgage Servicing UPB serviced for Fannie Mae and Freddie Mac with scheduled/scheduled or scheduled/actual remittance types, plus
  • 0.035% of the portion of the seller/servicer's Residential First Lien Mortgage Servicing UPB serviced for Fannie Mae and Freddie Mac with actual/actual remittance types, plus;
  • 0.10% of the portion of the seller/servicer's Residential First Lien Mortgage Servicing UPB serviced for Ginnie Mae, plus
  • 0.035% of the Other Servicing UPB.

 

Origination Liquidity (applicable to certain non-depository sellers/servicers)

Non-depository seller/servicers who originate greater than $1 billion in one- to four-unit residential first lien mortgage loans (excluding reverse mortgages, one- to four-unit residential construction-to-permanent loans to home buyers, and lot loans to consumers) in the most recent four-quarter period must maintain an origination liquidity of 0.5% of the sum of the following:

  • one- to four-unit residential first lien mortgage loans (excluding reverse mortgages, one- to-four-unit residential construction-to-permanent loans to home buyers, and lot loans to consumers) held for sale, at lower of cost or market; plus
  • one- to four-unit residential first lien mortgage loans (excluding reverse mortgages, one- to-four-unit residential construction-to-permanent loans to home buyers, and lot loans to consumers) held for sale, at fair value; plus 
  • UPB of interest rate lock commitments after fallout adjustments.

Additional Requirements for Large Non-depository Sellers/Servicers

In addition to the minimum requirements for non-depository sellers/servicers above, Large Non-depository sellers/servicers must comply with the requirements described in the following table.

Category Description
Supplemental Liquidity

In additional to the minimum liquidity requirements for non-depository seller/servicers above, Large Non-depository sellers/servicers must maintain supplemental Allowable Liquidity at all times at a level equal to a greater to or greater than the sum of the following:

  • 0.02% of the portion of the seller/server's Residential First Lien Mortgage Servicing UPB serviced for Fannie Mae and Freddie Mac, and 
  • 0.05% of the portion of the seller/servicer's Residential First Lien Mortgage Servicing UPB serviced for Ginnie Mae.
Capital and Liquidity Plan

Within 90 days after the end of each calendar year, Large Non-depository sellers/servicers must submit a plan to Fannie Mae that describes how the seller/servicer intends to manage its capital and liquidity in a manner consistent with Fannie Mae requirements.

The capital and liquidity plan must include the following at a minimum:

  • a description of the seller/servicer's corporate governance over the capital and liquidity planning process, such as oversight responsibilities of senior management and its board of directors, and a discussion of the seller/servicer's risk management framework;
  • a description of the processes to monitor and measure liquidity risks, such as business activity reports and financial forecast and cashflow projections;
  • capital and liquidity contingency funding plans, including providing for testing and reaffirmation of such plans at least annually;
  • an annual liquidity stress test, including a stress test of the value of mortgage servicing rights in an adverse scenario as developed by the seller/servicer, or as prescribed by Fannie Mae, or both; and
  • a requirement to provide written notice to Fannie Mae
    • within five business days following any material change to or material deviation from the plan; and
    • within one business day of any material changes during times of stress.

Note: The seller/servicer is authorized to run the stress test either in-house or using a third-party vendor.

To submit the capital and liquidity plans to Fannie Mae, sellers/servicers must contact their Fannie Mae customer account team for further instructions.

Third-party Servicer Rating

Large Non-depository seller/servicer's must maintain a Rating Agency rating as follows:

  • Sellers/servicers servicing equal to or greater than $50 billion in Residential First Lien Mortgage Service UPB plus Other Servicing UPB must have one primary Servicer Rating or master Servicer Rating, as applicable;
  • Sellers/servicers servicing greater than $100 billion in Residential First Lien Mortgage Servicing UPB must have:
    • one primary Servicer Rating or master Servicer Rating, as applicable; and 
    • one Long-term Senior Unsecured Debt Rating or Long-term Corporate Family Rating.
  • Sellers/servicers servicing greater than $150 billion in Residential First Lien Mortgage Servicing UPB plus Other Servicing UPB must have:
    • one primary Servicer Rating or master Servicing Rating, as applicable; and
    • issued by two Rating Agencies, a Long-term Senior Unsecured Debt Rating or a Long-term Corporate Family Rating.

 


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.

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;

  • 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;

  • a breach of, or an impairment of any rights contained in any agreement that is material to the seller/servicer's origination of loans eligible for sale to Fannie Mae, servicing of Fannie Mae loans, the financial or business condition or operations of the seller/servicer, or the seller/servicer's ability to comply with the Lender Contract;

  • the occurrence of any change event, or circumstance which has or could reasonably be expected to have a material adverse effect on the seller/servicer's origination of loans, servicing of Fannie Mae loans, on the financial or business condition or operations of the seller/servicer, or the ability to comply with the Lender Contract.

An impairment of rights is any event that may restrict the ability of the seller or servicer to conduct its business, continue to sell loans, or service any loan assets in the regular course of its business.

The seller/servicer must provide Fannie Mae with written notification in the form of an updated Lender Record Information ( Form 582) submission and email notification to the Changes in Lender Organization mailbox (see E-1-02, List of ContactsE-1-02, List of Contacts) within five business 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, including back-up systems, procedures and processes in the event of the expiration or termination of any contract that is material for seller/servicer's servicing of Fannie Mae loans, or ability to comply with the Lender Contract. Lender must provide a copy of its business continuity procedures to Fannie Mae upon Fannie Mae's written request.
  have processes in place to ensure business continuity and disaster recovery procedures meet the requirements of the Selling Guide and 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; a crime; a disruption of critical servicing functions; or the termination or expiration of a contract that is material to the seller/servicer's ability to service Fannie Mae loans or comply with the Lender Contract. 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 or termination or expiration of such a material contract, 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.


Written Policies and Procedures

The seller should have effective and fully documented written policies and/or procedures that ensure that its staff, and any outsourcing and third-party vendors used by the seller, consistently comply with Fannie Mae's requirements. This may include providing training to its staff and reviewing staffing needs on an ongoing basis.


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. The procedures must comply with the disaster recovery and business continuity requirements above if the seller/servicer or any subservicer contracts with a vendor or third-party service provider for any critical servicing functions or ability to comply with the Lender Contract.


Recent Related Announcements

The table below provides references to recently issued Announcements that are related to this topic.

Announcements Issue Date
Announcement SEL-2024-03 May 01, 2024
Announcement SEL-2023-10 November 01, 2023
Announcement SEL-2023-02 March 01, 2023
Announcement SEL-2022-10 December 14, 2022
Announcement SEL-2021-11 December 15, 2021
Announcement SEL-2021-10 November 03, 2021
Announcement SEL-2021-08 September 01, 2021
Announcement SEL-2020-07 December 16, 2020