Written By: Stacey Sprain, Op-Ed Writer
For the first time since 1993, HUD has announced that it’s upping net worth requirements for FHA-approved Mortgagees as part of the risk management initiative; a move to assure that Mortgagees have sufficient capital to withstand today’s market risks.
Yesterday’s net worth requirement was a mere $250,000. The new requirement, effective in one year, for supervised and non-supervised Mortgagees is a net worth of no less than $1,000,000 of which at least 20 percent must be considered as liquid assets or cash equivalent. Within three years, that net worth requirement jumps up to $2.5 million of which at least 20 percent must be considered as liquid.
But that’s not the only change. In addition, the final rule also eliminates the current review and approval process set forth by HUD for Loan Correspondents. The entire Loan Correspondent category is being removed. Instead, HUD will hold approved Mortgagees accountable for sponsoring non-FHA approved originating entities that cannot meet the new net worth requirements. I found this section of the Federal Register quite interesting- and I quote: “In proposing to limit FHA’s approval to the mortgagee charged with underwriting, servicing, or owning a loan, HUD advised that it is the mortgage lender with the greatest control over the mortgage loan that should be subject to FHA’s rigorous lender approval and oversight processes, and bear the greatest degree of responsibility and liability for the mortgage loan obtained by the mortgage borrower and insured by FHA.”
For loan correspondents who are currently approved with FHA, their originating authority continues until year end at which time, they will not need to file their typical annual renewal. Instead, they must seek out and follow approval processes set forth by approved Mortgagees in order to obtain sponsorship which will allow them to continue originating FHA-insured loans. For current broker shops who were hoping to obtain correspondent approval yet this year, it means shifting the plan from obtaining approval from HUD to obtaining approval from FHA-approved Mortgagees who will agree to sponsor them.
What does it mean to all of you working in originations and sales on the street? It means you’d best know your employer’s current status with HUD. If you are employed by a Supervised or Non-Supervised Mortgagee, you likely have nothing to worry about as long as the company that pays you has some capital behind them or at least a well-established plan of how they intend to raise their net worth over the next one to three years time. If you are employed by one of the big boys, and you know who I’m referring to, Bank of America, Chase, GMAC, CitiMortgage… for you nothing changes. You needn’t even be the least bit concerned. If you are currently working for a Supervised or Non-Supervised Loan Correspondent, you are eligible to continue originating just as you have been until year end. At that time, it will be up to your employer to secure or renew FHA sponsor relationships through the larger approved Mortgagees who have the capital to meet the new minimum net worth requirements.
The good news is that if you are employed by none of the above, the doors are opening and you may have opportunity to finally utilize FHA-insured programs to meet the needs of your market area. Since HUD is eliminating the lender approval requirements for correspondents, and shoving all of the risk to the bigger players, they will likely see the opportunities to increase their market share and they will likely start approving smaller broker shops for sponsorship, subject of course to their own minimum requirements. Keep in mind, HUD is stepping back from the correspondent review and approval role, but that isn’t completely eliminating it. It will now fall to the FHA-approved Mortgagees to create their own minimum requirements for review and approval of non-approved entities. They will take some time to review their overall risk and will eventually come out with standard minimum sponsorship requirements.
About The Author
Stacey Sprain - As an op-ed writer, Ms. Stacey Sprain is currently a NAMP® Certified Ambassador Loan Processor (NAMP®-CALP). With over 15+ years of mortgage banking experience, Stacey is also a Quality Control Manager for a major mortgage lending institution.