The Federal Housing Administration (FHA) announced it will issue a final rule in the next few days to reduce and manage counterparty risks to its insurance funds as it continues to play a critical role in today’s housing market. The new regulations will increase net worth requirements of FHA-approved lenders (including reverse mortgage lenders), strengthen lender approval criteria, and make lenders liable for the oversight of mortgage brokers.
“These changes support quality mortgage lenders while excluding organizations that are ill-equipped to handle the risk associated with market variations,” said FHA Commissioner David H. Stevens. “That is particularly important now when a robust, competitive mortgage finance market is a crucial element in rebuilding the American economy. Lenders bear the overall risk of FHA-endorsed loans, therefore it makes sense for them to approve their counterparties and have sufficient capital to operate.”
The final rule permits FHA to more 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. FHA solicited public comments and on this new regulation and considered those comments in the development of the final rule said the agency.
According to FHA, the final rule will raise net worth requirements of FHA approved lenders from $250,000 to a minimum of $ 1 million. FHA said it will provide current lenders one year following the enactment to increase net worth. Effective three years after the enactment of the provision:
- Approved lenders and applicants to FHA single-family programs must have a net worth of $1 million plus 1% of total loan volume in excess of $25 million.
- Approved lenders and applicants to FHA multifamily programs must have a minimum net worth of $1 million.
- Multifamily lenders that also engage in mortgage servicing must have an additional 1% of total volume in excess of $25 million.
- Multifamily lenders that do not perform mortgage servicing must have an additional 0.5% of total loan volume in excess of $25 million.
In addition, FHA is eliminating the approval of reverse mortgage correspondents as of January 1, 2011. Mortgage brokers will still have the ability to originate FHA insured loans through their relationships with approved lenders but will no longer receive independent FHA eligibility approval.
According to FHA, “these changes align FHA with Fannie Mae and Freddie Mac and have potential to increase the number of mortgage brokers eligible to originate FHA-insured loans while providing for more effective oversight of brokers by FHA-approved lenders. “
Mortgage brokers or other third-party originators, already approved by FHA, will be authorized to continue to originate FHA-insured loans through the end of the calendar year without sponsorship of an FHA-approved lender.