HUD Issues New Net Worth Requirements for FHA Mortgagees
April 22, 2010
On April 20, the U.S. Department of Housing and Urban Development (HUD) issued a final rule that will increase the net worth required for approved mortgagees and eliminate the Federal Housing Administration (FHA) approval requirement for loan correspondents. For existing approved FHA mortgagees, the net worth requirements first change on May 20, 2011:
- For companies that exceed the size to be classified as a small business, the minimum net worth requirement will move to $1 million, and no less than 20 percent of the net worth must be in liquid assets consisting of cash or its equivalent acceptable to HUD.
- For companies that meet the size to be classified as a small business, the minimum net worth requirement will move to $500,000, with no less than 20 percent of the net worth must be in liquid assets consisting of cash or its equivalent acceptable to HUD. Companies applying for approval as FHA mortgagees must meet these requirements effective June 21, 2010. Effective May 20, 2013 all mortgagees must have a minimum net worth of $1 million plus additional net worth of one percent of the total volume of FHA single family mortgages originated, underwritten, purchased or serviced during the prior fiscal year in excess of $25 million, with a maximum net worth requirement of $2.5 million. Again, no less than 20 percent of the net worth must be in liquid assets consisting of cash or its equivalent acceptable to HUD.
- both the principal and the authorized agent must be Direct Endorsement approved mortgagees;
- loans may close in either party’s name;
- loans must be originated by the principal;
- loans must be underwritten by the authorized agent.
The final rule also eliminates the FHA approval of Loan Correspondents and, effective January 1, 2011, their origination authority. In addition, the final rule relieves mortgagees of the responsibility to obtain prior FHA approval of the brokers that they would like to sponsor; however, mortgagees will assume responsibility for their sponsored brokers satisfying origination and processing requirements. The elimination of the FHA approval process for loan correspondents also means changes to the principal-authorized agent relationship, including: