InfoBytes, Special Alert, November 30, 2009
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Proposed FHA Rule Would Eliminate Loan Correspondent Approval Requirement; Increase Mortgagee Net Worth Requirement
Today, the U.S. Department of Housing and Urban Development (HUD) published in the Federal Register a proposed rule that would, among other things, eliminate the Federal Housing Administration (FHA) approval requirement for loan correspondents and increase the net worth required for approved mortgagees from $250,000 to (ultimately) $2.5 million.
Elimination of Loan Correspondent Approval Requirement
Currently, FHA approves (i) mortgagees, which are permitted to perform lender origination and/or servicing functions and own FHA-insured loans, and (ii) loan correspondents, which are permitted to perform any origination function except underwriting and may not service or own FHA-insured loans. Under the proposed rule, FHA will only require approval for mortgagees—loan correspondents will no longer require FHA approval to participate in FHA programs. The proposed rule would not alter the approval process or status of investing mortgagees or governmental institutions.
The proposed rule would require sponsoring FHA-approved mortgagees to be responsible for any loan correspondent with which they work on FHA-insured loans, and to assume liability for all FHA-insured loans underwritten by and closed in their names. The sponsoring mortgagees will be responsible for ensuring that their loan correspondents meet “applicable requirements,” which include the enhanced eligibility requirements set forth in The Helping Families Save Their Homes Act.
Although loan correspondents involved in FHA-insured loans would no longer be required to obtain FHA approval, HUD would collect such entities’ legal name and tax identification number in FHA Connection. Only approved mortgagees would be permitted to request FHA case numbers.
Increased Net Worth Requirement for Approved Mortgagees
The proposed rule would simplify and increase the net worth requirement for FHA-approved mortgagees from $250,000 to $2.5 million over a 3-year period. It would also extend the net worth requirement to investing mortgagees.
The table below describes the timeline for implementation of the new net worth requirements:
1 Year After Effective Date of Final Rule Net Worth Requirement: $1 million minimum net worth (at least 20 percent of which must be liquid assets)
3 Years After Effective Date of Final Rule Net Worth Requirement: $2.5 million minimum net worth (at least 20 percent of which must be liquid assets)
Comments on the proposed rule are due by December 30, 2009. A copy of the proposed rule is available at http://www.buckleysandler.com/LC_Net_Worth_FR_113009.pdf.
Please call Joe Kolar (202-349-8020), Clint Rockwell (424-203-1002), or Melissa Klimkiewicz (202-349-8098) with any questions.