HUD Broker Guidelines | NC FHA Expert

New FHA Guidelines for Lenders

FHA is doing a Risk Management Assessment – and while it makes sense, in the announcement today, the last paragraph says it is aligning FHA to the FNMA and Freddie Mac model! Yickes! Not sure I would have added that!

Basically – it’s now more expensive to be a FHA Lender. Here’s the release:

WASHINGTON – The Federal Housing Administration (FHA) today announced new regulations to further reduce and better manage counterparty risks to its insurance funds as it continues to play a critical role in today’s housing market. 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,” said FHA Commissioner David H. Stevens. “That is particularly important now when a robust, competitive mortgage finance market is a crucial element in rebuilding the American economy. 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.”

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. FHA solicited public comments on this new regulation and considered those comments in the development of the final rule.

On September 18th 2009 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, makes good on that promise and will:

Strengthen the Capacity of FHA-Approved 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, effective immediately, all new lender applicants for FHA programs must now possess a minimum net worth of $1 million.

Provide Sufficient Time for Current FHA Lenders to Increase Net Worth – Effective one year following the enactment of this rule:

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.

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.

Approved lenders and applicants to FHA multifamily programs must have a minimum net worth of $1 million.

Multifamily lenders that also engage in mortgage servicing must have an additional 1% of total volume in excess of $25 million.

Multifamily lenders that do not perform mortgage servicing must have an additional 0.5% of total loan volume in excess of $25 million.

Streamline Lender Approval – FHA-approved lenders currently assume liability for all the loans they originate and/or underwrite. 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. These changes align FHA 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.

Together, these new regulations align with risk management practices within the conventional marketplace and permit FHA to mitigate losses and decrease risk to its insurance funds. These represent significant steps toward ensuring that FHA resources are entrusted to lenders strong and healthy enough to meet the needs of the market.

Mortgage Brokers and FHA

We’re kinda Nerdy at my house, and last night we watched a CSPAN discussion regarding the Future of Mortgage Lending in Washington, DC. John Courson (President of Mortgage Bankers of America) and the folks from the Center for Responsible Lending were on the panel.

One of the questions to the panel was, “Do we need to change the way we regulate agencies, including FHA?” Well – this is really not much of a debate, because new regulations from FHA’s new “Risk Manager” are already headed into action later this month. I’ve included some of the text below, and I toally disagree with the “assumption” I’ve bolded below:

Strengthen and Streamline Lender Approval – Lenders seeking approval to originate underwrite, or service an FHA loan must meet the eligibility criteria for a supervised or non-supervised mortgagee. FHA-approved Mortgagees must assume liability for all the loans they originate and/or underwrite. While loan correspondents (mortgage brokers) will continue to be able to originate FHA-insured loans through their relationships with approved mortgagees, they will no longer receive independent approval for origination eligibility. This will require the FHA-approved mortgagee to assume responsibility and liability for the FHA-insured loan underwritten and closed by the approved mortgagee. These changes align FHA with Fannie Mae and Freddie Mac and will potentially increase the number of loan correspondents (mortgage brokers) who are eligible to participate in the origination of FHA-insured loans while providing for more effective oversight of loan correspondents through the FHA approved mortgagees.

Strengthen the Capacity of FHA-Approved Mortgagees– Since 1993, FHA has required approved mortgagees have a net worth of at least $250,000. To strengthen the financial capacity of FHA counterparties to ensure they can meet their obligations, the proposed rule would require mortgagees maintain a minimum of $1 million in net worth within the first year and at least $2.5 million of net worth within three years of the effective date of the rule. 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.

Here’s my point… in today’s “Mortgage Brokers are BAD” environment, do you really think Wells Fargo (for instance) is going to continue to “supervise” mortgage brokers who are closing FHA loans? Ugghh, No. The number of “reputable” banks that are willing to supervise brokers will continue to SHRINK.

Someone said, “Yeah, it took 1,000 years for the Dinosaurs to become EXTINCT…” but that’s the long, slow march Brokers are on. Regulation is going to END Mortgage Brokers entirely – and only LARGE, Regional Mortgage Bankers, or LARGE Banks are going to be left!

That’s why Steve and I went to work for Corporate Investors Mortgage Group. We operate as a Mortgage Banker, and we are Regional – and we can meet the staggering 2.5 MILLION dollar reserve requirements. Call us, if you are a Mortgage Broker looking for a home! 919-649-5058