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Freddie Mac To Increase Counterparty Net-Worth Requirements, by Mortgageorb.com

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Freddie Mac has announced it is increasing its net worth requirements for several counterparties, including seller/servicers.

Entities that already were approved as seller/servicers prior to Oct. 15 must maintain an acceptable net worth of $2 million. Starting June 30, 2012, those companies will have to maintain an acceptable net worth of $2.5 million, plus a dollar amount equal to 0.25% of their representation and warranty unpaid principal balance.

The $2.5 million net-worth requirement is already in effect for seller/servicers approved on or after Oct. 15. Those firms will also have until June 30, 2012, to add a dollar amount equal to 0.25% of their representation and warranty unpaid principal balance.

“We are making these changes to help ensure the stability of the mortgage market by working with counterparties that have the financial strength and operational capacity to handle the risks and contractual obligations associated with market variations,” Freddie Mac says in Bulletin 2010-23.

Document custodians for Freddie Mac seller/servicers will not be excluded from the wave of new requirements. Starting last Friday, entities that apply to be document custodians or that enter into new relationships with Freddie Mac seller/servicers must have an acceptable net worth of $1 million and an investment-grade rating by a nationally recognized statistical rating organization or an acceptable net worth of $500 million.

Prior to the change, document custodians doing business with Freddie Mac seller/servicers only needed to maintain an acceptable net-worth of $1 million. Custodians approved prior to Oct. 15 will have to comply with the new investment-grade rating requirement by June 30, 2011.

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