FHA Announces Lender Policy Changes

With the decline in availability of consumer financing, over the past two years, FHA market share has increased by nearly 30 percent. Over the past 12 months an FHA priority has been to better manage counterparty risks to its insurance funds. Earlier this week FHA announced additional policy changes for lenders.

Since 1993, FHA has required approved lenders to have a net worth of at least $250,000. To ensure that FHA lenders are sufficiently capitalized to meet potential need, all new lender applicants for FHA programs must now possess a minimum net worth of $1 million. This is effective immediately.

Current FHA-approved lenders – with the exception of small businesses -must possess a minimum net worth of $1 million. Current FHA-approved small business lenders must possess a minimum net worth of $500,000. This is effective one year of enactment of the rule.

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. This is effective three years following enactment of this rule.

The changes also impact assumed liability for lenders. Currently, FHA-approved lenders assume liability for all the loans they originate and/or underwrite. The changes say that while mortgage brokers will continue to be able to originate FHA-insured loans through their relationships with approved lenders, they will no longer receive independent FHA eligibility approval. FHA indicates these changes align 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. Commencing January 1, 2011, however, the origination authority will end.

MHI members can contact Thayer Long at tlong@mfghome.org with any questions.

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