FHA Proposes New Rules to Strengthen Risk Management

The Federal Housing Administration (FHA) is moving tornreduce risks to its single-family insurance fund through new regulationsrnproposed today.

The changes, announced by FHA Commissioner DavidrnStevens, include increasing the net worth requirements of FHA-approved lenders fromrnthe current level of $250,000 to a minimum of $1 million within the first yearrnafter the rules become effective and to at least $2.5 million within threernyears of rule implementation.  Thernchanges would ensure that FHA lenders are sufficiently capitalized to meetrnpotential needs so that FHA can mitigate losses from and risks to the insurancernfund.

Under a second proposed change, lenders seekingrnapproval to originate, underwrite, or service FHA loans must meet therneligibility criteria for a supervised or non-supervised mortgagee, assumingrnliability for all the loans they originate and/or underwrite.  While mortgage brokers will still be able tornoriginate FHA-insured loans through relationships with approved mortgagees theyrnwill no longer receive independent approval for origination eligibility.  This will be the responsibility of the FHArnapproved lender through which the loan is written.  This change will bring FHA into line withrnregulations already in place for writing Fannie Mae and Freddie Macrnmortgages.  It is hoped that thisrnmodification will allow more mortgage brokers to write FHA loans while enablingrnFHA to provide greater effective oversight of those agents.

In announcing the proposed changes Commissioner Stevens said, “WithrnFHA's crucial role in today's housing market, it is critically important thatrnwe are able to manage risk and to ensure that our reserves are adequate torncover future losses. We are taking a number of aggressive steps to ensure thatrnwe are able to continue to support the housing market in the short-term andrnprovide access to home ownership to the underserved in the long term, whilernminimizing the risk to the American taxpayer.”

FHA is soliciting comment for 30 days on its proposals and the commentsrnreceived will be considered in the development of a final rule.

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