Wednesday, April 14, 2010

Updated FHA Net Worth Requirements

Since 1993 FHA required mortgagees to maintain a net worth of only 250k. Talk about a low barrier to entry. As mortgage banking becomes more difficult and foreclosures rise it seems like FHA has finally decided it was time for action. They've laid out some ideas and plans over the last six months but now we have some firm requirements.

Aside from eliminating "broker" (correspondent) approval and putting the onus on the "sponsors" (lenders) in the TPO space, the new net worth requirements for lenders is rising from 250k to 2.5M over the next three years. This will force many small to mid-sized mortgage bankers to change their focus.

No longer can a firm be content with the status quo. Now is the time to be tight, efficient, and focused. FHA is giving lenders a three year period to strengthen their financials. It's quite simple, 12 months to build a 1M net worth, and 36 months to build up to 2.5M (1M + 1% of originated volume). Additionally 20% of a lenders net worth is to be held in a cash or cash equivalent account.

Are you planning on raising some last minute capital? If your net worth is below these levels you better start planning now, putting this one off would be unwise. With some strategic and calculated planning, these requirements shouldn't be an issue for any mortgage banker. FHA is being kind enough offering a 12-36 month implementation period - use the time wisely.

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