FHA Proposes New Rules to Strengthen Risk Management

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

The changes, announced by FHA Commissioner David Stevens, include increasing the net worth requirements of FHA-approved lenders from the current level of $250,000 to a minimum of $1 million within the first year after the rules become effective and to at least $2.5 million within three years of rule implementation.  The changes would ensure that FHA lenders are sufficiently capitalized to meet potential needs so that FHA can mitigate losses from and risks to the insurance fund.

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

In announcing the proposed changes Commissioner Stevens 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. 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."

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