The Federal Housing Administration (FHA) has announced new regulations to further reduce and better manage counterparty risks to its insurance funds. The FHA will issue regulations to increase the net-worth requirements of FHA-approved 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,’ says FHA Commissioner David H. Stevens.
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, the insurer says. The FHA solicited public comments on this new regulation and considered those comments in the development of the final rule.
Last September, Stevens announced a set of credit policy changes that enhanced FHA's risk management function, including the hiring of a chief risk officer for the first time in the agency's 75-year history. In addition, Stevens announced his intent to propose new regulations to further strengthen FHA's risk management.
The final rule, to be published in the next few days, will boost to $1 million the minimum net-worth requirement for all new lender applicants for FHA programs. Since 1993, the FHA has required approved lenders to have a net worth of at least $250,000.
The rule also gives current lenders time to increase their net worth, the FHA adds. Effective one year following the enactment of this rule, current FHA-approved lenders – with the exception of small businesses – must possess a net worth of $1 million. Small-business lenders will have to possess a minimum net worth of $500,000.
Effective three years following the enactment of this 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. Also effective three years following the enactment, approved FHA multifamily lenders will be required to have a minimum net worth of $1 million. Multifamily lenders engaged in servicing will have to have an additional 1% of total volume in excess of $25 million, while lenders not engaged in servicing will have to an additional 0.5% of total loan volume in excess of $25 million.
Under the FHA's new lender approval process, mortgage brokers will no longer receive independent FHA eligibility approval.
These changes align FHA with Fannie Mae and Freddie Mac and have the 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, the FHA says. 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 Jan. 1, 2011, however, the origination authority will end.
SOURCE: Federal Housing Administration