http://www.mortgagenewsdaily.com/channels/voiceofhousing/175342.aspx
Oh now their going to change the rules, it seems like their a day late in coming to these conclusions.
In just three short weeks mortgage bankers from across the nation will gather in Atlanta for a convention, the 97th. How many will be returning for the 100th convention in 2013? Look around remember the faces you see in Atlanta, most likely over one third will not be there and very possibly as many as half!
Why? Well the rules are changing and the question is how many traditional mortgage bankers will be able to survive to compete under the new rules?
First, the most difficult hurdle: Retain 5% of each loan closed (6% for Ginnie Mae). To do so for a depository institution is not nearly as difficult as it is for the independently owned mortgage banker. The independent mortgage banker will be required to raise capital to support their portfolio or take on the new role of a mortgage broker. Not only will the once highly leveraged Mortgage Banking industry be required to have “skin in the game” they will have to have substantial capital positions just to play in the game! Once the most highly leveraged business model in the financial services industry Mortgage Bankers will be required to have unimpaired capital in proportion to their book of business. The “Bank” part of Mortgage Banker is going to be by far the focus of the future.
The loan level retention of 5% or 6% is not the only hurdle for increased capital required to be a mortgage banker. There are increased minimum net worth requirements to maintain Ginnie Mae issuer qualification; $2.5 million dollars with $500,000 minimum of liquidity available for a buyback request. Wait don’t stop there you also have to have 1% additional net worth for the MBS securities closed above $5 million to $20 million and then 20 basis point for everything over $20 million. The new standards will be a phased in requirement over the next three years.
It was just two years ago (August of 2008) when the minimum net worth was raised from $250,000 to $1,000,000. Then to insure the capital adequacy of Ginnie Mae, issuers must pass a capital adequacy test similar to the FDIC requirements for a depository institution. The field of participants who participate in the mortgage capital supply chain as non-depository mortgage bankers will shrink!
Was it wise to allow a company to act as a major distributor of credit without adequate capital to take responsibility for their improper actions, inadequate underwriting, and their poor asset management? No of course not and now we are paying the consequences of the lax attention paid to a major sector of our financial system.
