HUD Seeks Changes to Broker Approval Process (Updated)

The Department of Housing and Urban Development published a proposed rule today that increases capital requirements for lenders and dramatically alters the process by which brokers are approved to originate Federal Housing Administration insured loans.

Public comments are due by December 30, 2009, and can be submitted by mail or online.

The proposed rule raises lenders' (i.e., mortgagees) net worth requirements from $250,000 to $2.5 million, phased in over three years. Within one year of the final rule taking effect, the mortgagee's net worth would need to be at least $1 million - 20 percent of which must be in liquid assets consisting of cash or other sources acceptable to the HUD Secretary.

Under the proposed rule, responsibility for approving new correspondents (i.e., brokers) is handed over to lenders, who "should bear the greatest degree of responsibility and liability for the loan obtained by the borrower and insured by FHA," the rule states.

Lenders are equally responsible for ensuring all parties in the transaction comply with FHA's requirements regarding loan origination, processing, underwriting and servicing.

The rule implements various sections of the Helping Families Save Their Homes Act that preclude certain entities from originating FHA insured loans.

To view the proposed rule in its entirety, please click here (PDF).

Update Notice: Below is an FAQ published by FHA on the proposed rule.

Related Documents

FAQ Related to Proposed Rule