The path to approval of Fannie Mae and Freddie Mac

So you’ve been a mortgage broker for a while, and you think you’re ready for the next step – the approval of Fannie Mae and Freddie Mac as seller and servicer, so you can service your own loans.

In general, to be an approved Seller and Administrator for FNMA or FHLMC, you must meet the following requirements: a corporate net worth of $ 500,000 to $ 1 million; adequate storage lines; three letters of reference; errors and omissions insurance and fidelity insurance; an excellent quality control program; and staff with experience in all aspects of mortgage origination, processing, underwriting, financing and shipping, administration, service accounting and, of course, the service itself.

These are just general minimum requirements, so let’s take a closer look at the requirements and the process. Foreword to the following information with the understanding that the reader is aware that the approval of a signature by FNMA or FHLMC is at their sole discretion and is largely a judgment based on your total package and all factors included in it. All requirements are subject to change.

In regards to FHLMC approval, the net worth requirements are either $ 1 million or $ 500,000, depending on whether you use the Generally Accepted Accounting Principles (GAAP) of $ 1 million, or FHLMC’s definition of net worth. acceptable ($ 500,000). Unfortunately, many potential applicants are unaware of the possibility of a $ 500,000 net worth. Even a call to Freddie Mac found that the operator was unaware of that option, and claiming $ 1 million was a difficult and fast requirement to be approved.

FHLMC defines acceptable net worth as GAAP net worth less any of the following: goodwill, purchased service, capitalized excess service, investments in joint ventures, investments in limited partnerships, REO, property, plant and equipment, accounts receivable from affiliates , investment in affiliates, other intangibles and other assets, and deferred taxes on excess capitalized service. Audited financial statements must be provided as part of the approval package.

A requirement that many still think is in effect, but is not, is the requirement that a mortgage company be HUD-FHA approved to be a seller and servicer of the FHLMC.

Additional requirements include having an acceptable quality control program; Errors and omissions insurance and fidelity insurance of $ 300,000 minimum coverage; a business plan (specific and reasonable for short and long term strategies); three letters of reference from investors; credit reports on executive management; adequate origination and sale experience; and experience in underwriting, administration, default management, REO maintenance, and investor accounting and maintenance. The provision of services is often the weak point of mortgage companies. You must demonstrate whether or not you use a sub-administrator, and have staff with more than adequate capacity and knowledge to handle the service. FHLMC no longer says that you need a specific amount of service on the books to be approved and can indeed be approved without service, but the stronger the package, the more likely it is to be approved.

If you accept third-party originated (TPO) loans, you should also provide information on your standards and procedures for accepting and managing them, as there have been many problems with the history of these loans.

To apply to FHLMC, request an application packet (call 800-Freddie) and follow the instructions completely. You will need to submit resumes, financial statements, credit reports, a business plan, various certifications, the approval of your choice, a list of parent or subsidiary companies, corporate bonds in various corporate capacities, any legal issues with the company or management officials , a list of investors (including their letters of reference), a list of your warehouse lenders, quality control program and questionnaire, number and quantity of loans originated and sold in the last two years, number and quantity of loans serviced plus your delinquency rates, copy of insurance coverage, and any other relevant information that you think would help your package. There is a $ 1000 application fee.

As far as FNMA is concerned, its requirements are very similar to those of FHLMC. However, there are differences, and as I list the general requirements (FNMA can also request any additional information you need; the application package is a guide and basis for work), anything that is different will be identified with an asterisk.

You need a corporate net worth of at least $ 500,000, a quality control program, experienced personnel in all areas relevant to the business, proof that the personnel have not had any problems when employed in other entities approved by the FNMA, a service system in place (own or subservices), error and omission and fidelity insurance (equal dollar amounts), references, credit reports, history and scope of business, list of any owner of five percent or more of the company , audited financial statements, estimated volume to be sold to FNMA during the first 12 months, and availability of all key personnel for an on-site interview with FNMA personnel.

To apply to FNMA, call the nearest regional office and request an application packet. It will return the following information (part of it in its forms): areas in which it operates; the approval you request; any legal disclosure of problems with the company or staff; narrative on the history and scope of the company; resumes in the same areas as FHLMC; investors currently serving; error and omission testing and fidelity coverage; Financial state; quality control program; FNMA advertising service sales contracts; estimated sales volume for the first 12 months; amount and dollar amount of loans originated in the last three years; credit authorizations; number of employees in maintenance and origination; Personal liaison in sales, underwriting, maintenance and investor accounting; number and dollar amount of loans administered; delinquency list; list of warehouse lines; and various certifications, along with a $ 1000 application fee.

To summarize, if you have, or are willing to acquire, the net worth, insurance, and lots of experienced staff, and can demonstrate that you have the corporate ability to meet all of the FNMA or FHLMC approval requirements, perhaps you should consider becoming a a salesperson and manager. The mortgage business is in a cycle of improvement, with the housing market (new and resale) beginning to show signs of coming alive again. This may be your moment. But remember, it’s not right for everyone, so make sure approvals and service fit your corporate goals.

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