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FHA Implementing Higher Net Worth Requirement

New rule to be released during next few days

April 5, 2010

By MortgageDaily.com staff


New rules outlining higher net worth requirements for Federal Housing Administration lenders are just about to be released.

The new requirements were outlined in letter No. 10-070 today from the U.S. Department of Housing and Urban Development. The updates are an attempt to reduce and better manage counterparty risks to the FHA insurance funds.

All new FHA mortgagee applicants will be subjected to a minimum net worth requirement of $1 million beginning with the enactment of a final rule -- which HUD expects to publish in the next few days. The minimum was raised from $250,000, which had been in place since 1993.

The minimum net worth for FHA-approved small business lenders, however, will be $0.5 million.

Existing FHA lenders will have one year to comply with the more stringent requirements.

Three years after the rule is published, the minimum net worth requirement will be raised to $1 million plus 1 percent of loan volume in excess of $25 million.

Also in three years, multifamily lenders that service loans will need an additional 1 percent of volume above $25 million, while the rate drops to 0.50 percent for multifamily lenders that don't service mortgages.

"These changes support quality mortgage lenders while excluding organizations that are ill-equipped to handle the risk associated with market variations," FHA Commissioner David H. Stevens said in the statement. "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."

HUD also noted that while mortgage brokers will no longer receive independent FHA eligibility approval, they can continue originate under current FHA approval without sponsorship until Dec. 31. On Jan. 1, 2011, loans will have to be originated through an approved mortgagee.

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