Regulatory Capital and Liquidity Requirements

9 Months Ended

Sep. 30, 2018

Regulatory Capital and Liquidity Requirements

Regulatory Capital and Liquidity Requirements

Note 22—Regulatory Capital and Liquidity Requirements

The Company, through PLS and PennyMac, is required to maintain specified levels of equity and liquid assets to remain a seller/servicer in good standing with the Agencies. Such equity and liquid asset requirements generally are tied to the size of the Company’s loan servicing portfolio or loan origination volume.

The Company is subject to financial eligibility requirements for sellers/servicers eligible to sell or service mortgage loans with Fannie Mae and Freddie Mac. The eligibility requirements include tangible net worth of $2.5 million plus 25 basis points of the Company’s total 1-4 unit mortgage loan servicing portfolio, excluding mortgage loans subserviced for others and a liquidity requirement equal to 3.5 basis points of the aggregate UPB serviced for the Agencies plus 200 basis points of total nonperforming Agency servicing UPB in excess of 6.0%.

The Company is also subject to financial eligibility requirements for Ginnie Mae single-family issuers. The eligibility requirements include net worth of $2.5 million plus 35 basis points of PLS' outstanding Ginnie Mae single-family obligations and a liquidity requirement equal to the greater of $1.0 million or 10 basis points of PLS' outstanding Ginnie Mae single-family securities.

The Agencies’ capital and liquidity requirements, the calculations of which are specified by each Agency, are summarized below:



	September 30, 2018						December 31, 2017
Agency–company subject to requirement	Actual (1)			Requirement (1)			Actual (1)			Requirement (1)
	(dollars in thousands)
Capital
Fannie Mae & Freddie Mac – PLS	$	1,749,912		$	495,694		$	1,561,977		$	429,671
Ginnie Mae – PLS	$	1,520,550		$	698,354		$	1,307,580		$	674,133
Ginnie Mae – PennyMac	$	1,755,669		$	768,190		$	1,511,201		$	741,574
HUD – PLS	$	1,520,550		$	2,500		$	1,307,580		$	2,500
Liquidity
Fannie Mae & Freddie Mac – PLS	$	243,827		$	68,224		$	196,415		$	58,754
Ginnie Mae – PLS	$	243,827		$	181,852		$	196,415		$	153,431
Tangible net worth / Total assets ratio
Fannie Mae & Freddie Mac – PLS		22	%		6	%		21	%		6	%

(1)

Calculated in compliance with the respective Agency’s requirements.

Noncompliance with an Agency’s requirements can result in such Agency taking various remedial actions up to and including terminating PennyMac’s ability to sell loans to and service loans on behalf of the respective Agency.

- Definition

The entire disclosure for a mortgage banking entity related to capital requirements imposed by secondary market investors or state imposed regulatory mandates. The disclosure may include: (1) a description of the minimum net worth requirements related to (a) secondary market investors and (b) state-imposed regulatory mandates; (2) actual or possible material effects of noncompliance; (3) whether the entity is in compliance with the regulatory capital requirements, including (a) the entity's required and actual net worth amounts, (b) factors that may significantly affect adequacy of net worth such as potentially volatile components of capital, qualitative factors, or regulatory mandates; and (4) possible affects of noncompliance on amounts and disclosures in the notes to the financial statements. Servicers with net worth requirements from multiple sources may disclose (1) significant servicing covenants with secondary market investors with commonly defined servicing requirements (2) any other secondary market investor where violation of the requirement would have a significant adverse effect and (3) the most restrictive third party agreement, if not included above. The disclosure may also include additional information that might be disclosed in situations where substantial doubt about the entity's ability to continue as a going concern for a reasonable period of time.

+ References + Details