HUD Publishes FAQ Regarding Proposed Rules for FHA Net Worth Requirements

image Only a few days after publishing proposed rules to help reduce risks to the Federal Housing Administration’s single family insurance fund, HUD has published a Frequently Asked Question document addressing the possible changes.

The proposed rule would increase net worth requirements of approved reverse mortgage lenders from $250,000 to $2.5 million within three years of the effective date of the rule and makes lenders liable for the practices of their correspondent mortgage brokers.

The FAQ addresses the possible changes to lenders net worth as well as the status of reverse mortgage brokers and their FHA approval.

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Do mortgage brokers who are FHA approved nonsupervised loan correspondents have to renewal their approval?

Yes.

HUD issued a press release 09-177 on September 18, 2009, that included an announcement that the Department is going to pursue rule making to stop approving mortgage brokers and other types of loan correspondents.

HUD then issued a press release 09-216 on November 30, 2009, that announced the publication of a proposed rule to stop approving brokers and other types of loan correspondents.

Until that process is completed and the change takes effect, all existing FHA approved mortgage brokers will need to maintain their FHA approval (including its annual renewal) in order to continue to originate FHA loans.

Is HUD eliminating audited financial statements for FHA loan correspondents?

FHA is working on such a change, but it has not taken effect at this time.

There has been no change in the FHA’s current requirement that a mortgage broker must submit a CPA audit of their financial records to become a FHA nonsupervised loan correspondent. In addition, there has not been any change to the current annual renewal requirements for nonsupervised loan correspondents.

FAQ Regarding Proposed Rule

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    • One thing is for sure, the standard of acceptance will differ by lender even if there is a required standard criteria. However, it seems many correspondents will be more closely supervised.

      The changes will be interesting to observe. Hopefully, this change will result in better monitoring of correspondents but this change is not consistent with what is occurring in Congress. Whether the number of correspondents will be more or less on any particular than the current system would have resulted in, no one can answer.

  • Mr. Veale

    I had another question regarding our previous postings on the other thread. Regarding the nonrecourse/ IRS related 1099-C situation.

    If the heir walks away as opposed to selling the home, does the IRS still have the ability to consider the cancelled debt as taxable income for the heir

    • Mr. Judge,

      You are correct; this is the wrong thread for such a discussion.

      Income tax planning is based not just on tax law but also on the facts and circumstances of the taxpayers involved. Planning can be complicated unless the home is absolutely the only asset of the borrower. The best advice I can provide is for the parties to seek the advice of a knowledgeable, competent, and experienced tax advisor familiar with such matters.

  • The bigger the lender the more likely they will go 100% retail. The liability they assume is too much to risk. If you look around at the big lenders you will see an aggressive pursuit towards retail.

    It's time to start looking for a community bank or credit union to to work with and convince them to be their exclusive broker.

  • The bigger the lender the more likely they will go 100% retail. The liability they assume is too much to risk. If you look around at the big lenders you will see an aggressive pursuit towards retail. rnrnIt’s time to start looking for a community bank or credit union to to work with and convince them to be their exclusive broker.

  • Mr. Judge,rnrnYou are correct; this is the wrong thread for such a discussion.rnrnIncome tax planning is based not just on tax law but also on the facts and circumstances of the taxpayers involved. Planning can be complicated unless the home is absolutely the only asset of the borrower. The best advice I can provide is for the parties to seek the advice of a knowledgeable, competent, and experienced tax advisor familiar with such matters.

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