November 10, 2015
Secretary
Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549-1090
I appreciate this opportunity to comment on the Proposed Rule Change to Amend FINRA Rule 4210 to establish margin requirements for the TBA market. The Mortgage Bankers Association as well as a number of other trade organizations will be submitting comments. However, I want to give you the effect this proposed rule will have from the perspective of a small, affordable multifamily housing lender.
Prairie Mortgage Company (“PMC”) is a Federal Housing Administration approved lender for multifamily projects and a Ginnie Mae approved issuer of Ginnie Mae Securities under the Ginnie Mae I program. PMC is a small lender/issuer, has been in business for 25 years and focuses on low to moderate affordable multifamily housing projects in the City of Chicago. Affordable multifamily housing for moderate to low income households is generally defined as housing available for renters whose incomes are at or below 60% of area median income.
CONCERNS:
It will be too burdensome to require the borrower to post a 2% good faith deposit plus the margining deposit. Borrowers will find other means of financing their projects other than FHA insured loans, even though FHA insured loans provide the best financing terms in both interest rate and amortization period. FHA insured loans are fully amortizing and amortize over longer amortization periods than other conventional loan products. Securitizing the loan with a Ginnie Mae security allows us to access capital at the most favorable rates.
Since the borrower will not be able to post the required 2% good faith deposit, it will fall to the lender to post the 2% good faith deposit along with the margining deposit. This is a burden we will not be able to bear as a small lender. We will no longer be able to provide loans, we will need to sell our loans to larger lenders if this proposed rule is implemented.
Even setting aside the financial implications to the small lender, the burden of monitoring of daily changes, trying to obtain lines of credit, etc. takes time better spent focusing upon the loans we are making.
CURRENT MARKET PLACE MITIGATION POLICIES AND BUSINESS PRACTICES NEGATING THE NEED FOR THE PROPOSED RULE:
In the current rate lock environment we obtain a 1% good faith deposit from the borrower when we go to rate lock. Under the terms of the rate lock agreement with the Ginnie Mae investor (“Investor”), half of the good faith deposit is transferred to the Investor. The rate lock agreement further provides if the Ginnie Mae is not delivered within 30 days, an extension fee, usually equal to 0.125% of the dollar amount of the Ginnie Mae security to be delivered, is paid to the Investor. Usually there are three 30 day extensions available upon payment of the extension fee. However, if the Ginnie Mae security is not delivered within the extension period detailed in the rate lock agreement, the Investor may accept a later delivery but is not obligated to do so. In general, each Ginnie Mae is collateralized with a single multifamily loan. The rate lock agreement sets forth the exact terms of the Ginnie Mae security, interest rate, lockout period, prepayment period and prepayment penalties. The terms of the rate lock agreement stipulate the Investor is not obligated to purchase the Ginnie Mae security if it does not meet the exact terms of the security described in the rate lock agreement.
When we enter into a rate lock agreement the loan has been thoroughly underwritten and HUD has issued its firm commitment to insure the loan. The developer is highly motivated to ensure the loan closes within the specified time frames in the rate lock agreement. When the rate lock is entered into the borrower has already expended or incurred architect’s fees, surveys, building permits, market studies, appraisals, environmental reports, attorney fees, lender fees and the 1% good faith deposit. The only source of reimbursement for the hundreds of thousands of dollars expended or incurred is proceeds from the loan closing.
Thank you for the opportunity to express my opinion on the proposed rule change to amend FINRA Rule 4210 (Margin Requirements) To Establish Margin Requirements for the TBA Market.
Diane
Diane N. Marshall | President | Prairie Mortgage Company | 20 South Clark Street, Suite 1520 | Chicago, IL 60603