Federal Housing Administration
(FHA)-approved lenders could be required to hold increased net worth, meet stronger approval criteria and be held responsible for the actions of the mortgage brokers they do business with, if a recently proposed FHA rule is enacted.
The rule is designed to reduce risks to the single-family insurance fund, which finances the FHA guarantees of mortgages in case of default. The FHA reported to Congress recently the insurance fund dipped below
the Congressional-mandated 2% capital reserve threshold. While FHA officials believes the administration won't need a bailout
, the FHA is looking for ways to improve the fund’s footing.
The proposal is the latest is a series of changes, including the hiring of a chief risk officer and other risk management initiatives. It would require FHA-approved mortgagees maintain a minimum $1m in net worth in its first year and at least $2.5m by the third year of the rule’s effective date, up from the current level of $250,000.
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, FHA said.
“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.”
The rule would no longer require third-party mortgage brokers to maintain independent FHA approval, instead FHA-approved mortgagees would assume responsibility and liability for the FHA-insured loans they underwritten and close. FHA said the change would make its guidelines consistent with those of the government-sponsored enterprises (GSEs). FHA added the rule would pave the way for more brokers to work in the space, while also providing increased oversight.
The rule proposal comes as FHA loan limits will stay at their elevated level in 2010
. In a mortgagee letter issued last week, FHA confirmed the move and outlined guidelines for lenders, including affirmation that low-cost market floors and high-cost market ceilings will remain unchanged next year. The limits for conforming jumbo loans eligible for purchase by the government-sponsored enterprises (GSEs) was set at $417,000 for single-family homes by the Economic Stimulus Act of 2008 (ESA) and the Housing and Economic Recovery Act of 2008 (HERA), but were set to expire at the end of 2009. Now, the limits won't expire until the end of 2010.
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