FHA Rule Proposes Reverse Mortgage Lenders Maintain $2.5m Net Worth

The Federal Housing Administration (FHA) proposed new regulations to reduce risks to its single family insurance fund by increasing the net worth requirements of approved lenders, strengthening lender approval criteria, and making lenders liable for the practices of their correspondent mortgage brokers. 

The proposed rule would permit FHA to effectively focus its resources on lenders that pose the greatest potential threat to its insurance funds and to ensure that lenders possess the resources appropriate for the financial services they deliver. 

“With FHA’s crucial role in today’s housing market, it is critically important that we are able to manage risk and to ensure that our reserves are adequate to cover future losses,” said FHA Commissioner David Stevens.  “We are taking a number of aggressive steps to ensure that we are able to continue to support the housing market in the short-term and provide access to home ownership to the underserved in the long term, while minimizing the risk to the American taxpayer.”

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The rule also aims to strengthen the financial capacity of FHA counterparties by requiring that mortgagees maintain a minimum of $1 million in net worth within the first year and at least $2.5 million of net worth within three years of the effective date of the rule.  The increase puts FHA’s net worth requirements in line with the recent increase by Fannie Mae for reverse mortgage lenders.

FHA-approved Mortgagees must assume liability for all the loans they originate and/or underwrite.  While loan correspondents (mortgage brokers) will continue to be able to originate FHA-insured loans through their relationships with approved mortgagees, they will no longer receive independent approval for origination eligibility.

FHA is soliciting comment for 30 days on its proposals and the comments received will be considered in the development of a final rule.

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  • Talking abut changing the face of the industry, this will have long-term far reaching impact for those who were not planning to meet the Fannie Mae requirements.

  • Talking abut changing the face of the industry, this will have long-term far reaching impact for those who were not planning to meet the Fannie Mae requirements.

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