November 9, 2015
To whom it may concern,
I would like to take this opportunity to comment on the proposed changes to FINRA Rule 4210(Margin Requirements).
In my opinion, the proposed rule change requiring GNMA multifamily seller/servicers to post a 2% good faith deposit to mitigate the risk of a traded security not being delivered is unwarranted.
Davis-Penn has is a small mortgage banking firm which has issued over 2 billion in mortgage backed securities over the last 20 years. During this time period, we have not delivered on only one out of 275 transactions.
Our investors currently require us to make a good faith deposit of 0.5% when we enter into a forward commitment contract. That deposit is refunded by the investor when the GNMA security is issued. Each GNMA security issued is backed by one multifamily mortgage loan which is insured by HUD. That loan is specified in the forward commitment contract. And unlike single family loans, there is no requirement under HUD rules for Davis-Penn to repurchase after a GNMA security is issued.
My understanding is that Davis-Penn’s experience as a GNMA issuer of HUD insured multifamily mortgages is typical of almost all HUD MAP multifamily lenders.
Therefore, we do not see the need for multifamily GNMA issuers to be subject to the proposed 2% margin account requirement.
If such a requirement is implemented, our required capital would increase by over 25%. The smaller HUD Map lenders such as Davis-Penn provide financing for Project Based Section 8 and Low Income Tax Credit apartment projects. These loans are generally smaller in size and are not valued as highly by our larger competitors.
As a result, the Project Based Section 8 and low income tax credit apartment projects will pay higher interest rates for their mortgage loans if this new margin requirement is implemented by FINRA.
Many of these projects have the financial resources to put up the current 0.5% good faith deposit, but would be unable to put up a 2.0% deposit.
This would result in fewer loans being made under these two affordable HUD housing programs.
It would also therefore have a negative impact on the lives of seniors and families who have limited financial resources to pay for their basic housing needs.
Thank you for considering my comments.
Please do not hesitate to contact me if you have any comments or questions.
Richard A Carlson
Chief Financial Officer
Davis-Penn Mortgage Co.
12650 N. Featherwood, Suite 120
Houston, Texas 77034