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FHA, VA and HECM mortgage news. HUD and G i n n i e news also. Originations, servicing and FHA approval.

HUD Rule Increases Mortgagee Requirements

Net worth requirement increasing

Nov. 30, 2009

By staff

Under a new rule from the U.S. Department of Housing and Urban Development, mortgagees will be required to have a net worth of more than $2 million.

The rule was proposed today by the Federal Housing Administration, a news release from HUD indicated. In addition to increasing mortgagee net worth requirements, the rule strengthens lender approval criteria.

The required minimum net worth is being increased from $250,000 to $1 million during the first year the rule takes effect. Within three years, the minimum net worth will be raised to $2.5 million.

"These changes are consistent with industry standards and will ensure that FHA lenders are sufficiently capitalized to meet potential needs, thereby permitting FHA to mitigate losses and decrease risks to its insurance fund," the statement said.

In addition, lenders will become liable for the practices of their correspondent mortgage brokers -- who will no longer be supervised by HUD. The housing agency expects the rule to "ensure that lenders possess the resources appropriate for the financial services they deliver."

HUD discussed the stiffer restrictions in Mortgagee Letter 2009-31 issued during September.

The proposed rule is expected to direct government resources to lenders that pose the greatest potential threat to the FHA insurance fund. It is also expected to align FHA approval procedures with those of Fannie Mae and Freddie Mac.

But the rule is also intended to streamline approval for lenders seeking to become FHA mortgagees.

"Through this proposed rule,
HUD continues its efforts to streamline, modernize, and strengthen the mortgage insurance functions and responsibilities of FHA, as authorized by provisions contained in the National Housing Act, as amended by the FHA Modernization Act of 2008, and further supported by the Helping Families Save Their Homes Act of 2009," HUD said in today's Federal Register.

Comments on the new rule will be accepted for 30 days.

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