Mortgagees approved to originate and close loans that are insured by the Federal Housing Administration face stiffer net worth requirements under changes planned by the U.S. Department of Housing and Urban Development. But mortgage brokers fared well under the changes — with liability on loans they originate being shifted to approved mortgagees.
Among the announced changes was a requirement that supervised mortgagees annually submit audited financial statements to ensure they are adequately capitalized. HUD noted that the majority of mortgagees are already required to submit audited financials to regulators, investors and Fannie Mae and Freddie Mac.
The change, which is effective on Jan. 1, 2010, is the result of the enactment of the Helping Families Save Their Homes Act of 2009, according to HUD Mortgagee Letter 2009-31.
FHA plans to propose raising the net worth requirement for mortgagees to $1 million from $250,000 — where it has stood since 1993. The increase, which could occur again, becomes effective within one year of the proposed rule’s enactment.
The Mortgage Bankers Association weighed in on the net worth requirement.
“For several years, MBA has been advocating for higher net worth requirements for FHA lenders,” MBA Chairman David G. Kittle said in a statement. “It is important that lenders and brokers be made to have sufficient financial backing so they can be held accountable in the event of problem loans.”
FHA originators and lenders are required to meet the eligibility criteria for a supervised or non-supervised mortgagee and assume liability for their loans. While loan correspondents, also known as mortgage brokers, can continue to originate FHA-insured loans through relationships with approved mortgagees, they will no longer receive independent FHA approval for origination eligibility — placing the burden of liability on the approved mortgagee.
“As the FHA’s stable of lenders grows, these lenders must have ‘skin in the game,'” HUD said. “These credit changes will do that by ensuring they have long-term interest in the performance of the loans they originate.”
The move is also expected to boost the number of eligible FHA mortgage brokers while providing for more effective oversight through the approved mortgagee.
The mortgagee letter noted that lenders are ineligible for FHA approval if any of their principals, executives or production employees has been indicted or convicted of an offense tied to real estate or mortgage lending. Eligible lenders can’t have any unresolved issues with HUD and must conform to generally accepted practices of “prudent” mortgagees.
Mortgagees that don’t meet the new requirements will not receive a renewal, and applications already submitted by unqualified new applicants will be returned.
In an apparent response to the fiasco with Taylor, Bean and Whitaker Mortgage Corp., HUD said mortgagees must notify FHA when they lender are subject to any sanction or any other administrative action.
