Fannie Mae acknowledged last week that their form of Acknowledgement Agreement with lenders is "overly complicated and full of dense legal language" and, after consulting with a panel of warehouse lenders, is announcing a new model. An Acknowledgement Agreement lays out the terms among the company, the servicer which pledges mortgage servicing rights (MSRs) as collateral, and the servicer's warehouse lender or other financier.
Joe Grimes, Fannie Mae vice president of Customer Account Risk Management talked about the new contract in a recent post on the company's blog. He said that Fannie Mae does not provide warehouse loans or other lender financing but the company's consent is required when MSRs on loans Fannie Mae owns or guarantees are pledged as collateral.
The changes were in part motivated by responses to a Mortgage Lender Sentiment Survey® in which "88 percent of the lenders surveyed reported that they are looking to grow their mortgage origination business, and 76 percent of the lenders surveyed reported plans to grow their mortgage servicing business."
Depository institutions say cross-selling opportunities of other financial products is one of the important ways they intend to stoke growth but Grimes notes that non-depository mortgage bankers tend to have fewer options. "Many rely on warehouse financing or lines of credit secured by mortgage servicing rights" to support growth as well as balance sheet management and liquidity.
The new agreement, Grimes said, is:
- Written in plain English
- Streamlined and easier for business readers to navigate
- Provides greater clarity regarding the rights and obligations of Fannie Mae and the provider of financing
- Recognizes that Fannie Mae's servicers may wish to pledge MSRs to, and enter into Acknowledgment Agreements with, more than one warehouse lender
- Affords the provider of financing the option to either exercise a right of assumption with respect to the pledged servicing or to request a distribution of excess servicing proceeds from Fannie Mae
- Includes specific timeframes for Fannie Mae to perform particular activities and provide notifications, providing greater certainty to its customers and their financing providers
Grimes said the new agreement is one of the many things his company is doing to help lenders grow their business and making doing business more simple. "It's important to us that we enable our lender partners to better manage their businesses and achieve their goals," he said. "By making it easier for customers to obtain financing secured by MSRs, more lenders can have certainty in their business."