The Federal Housing Administration (FHA) has proposed new regulations to further reduce risks to its single-family insurance fund as it continues to play a critical role in today's housing market. FHA proposes to increase the net worth requirements of FHA-approved lenders, strengthen lender approval criteria, and make lenders liable for the practices of their correspondent mortgage brokers. The proposed rule will permit 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 is soliciting comment for 30 days on its proposals and the comments received will be considered in the development of a final rule.
"With FHA's crucial role in today's housing market, it is critically important that we are able to manage risk and to ensure that our reserves are adequate to cover future losses," said FHA Commissioner David Stevens. "We are taking a number of aggressive steps to ensure that we are able to continue to support the housing market in the short-term and provide access to home ownership to the underserved in the long term, while minimizing the risk to the American taxpayer."
On Sept.r 18, Stevens announced a set of credit policy changes that will enhance 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 proposed rule published today makes good on that promise and would:
► 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.
Click here to view the entire Proposed Rule.
For more information, visit www.hud.gov.