Proposed Rule Change from the FHA

The Federal Housing Administration, more commonly known as the FHA, is proposing a new rule that could reshape the mortgage industry. The rule, Strengthening Risk Management through Responsible FHA-Approved Lenders, focuses on increased net worth requirements for mortgage lenders.  In short, with this change, the lender will assume more liability on originating FHA loans. 

To date there are about 13,800 registered lenders in the country originating FHA loans.  The new proposed rule increases the net worth requirements for these lenders.  As the rule stands, it would eliminate about 93% of currently approved mortgage lenders.  Although the rule has not yet been implemented, it is already changing the lending industry.  For instance, many brokers are now making the decision to either shut down or move to another company to originate FHA loans. 

So what can you do to protect yourself as a new home buyer?  Research your lender before committing to financing with them.  Consider asking your lender the following questions:

1. Are you owned by a bank? If they are, they typically will meet the new net worth requirements. 
2. Do you meet the new FHA net worth requirements?  The safest bet is to look for a well-known name for lending. With this ruling, safety comes in the size of the lender.

In the end, it is important to do your research.  Ask questions and be informed.  

Authored by Jeff Sickeler, Sales Manager for WFS Mortgage, LLC an Affiliate of Wells Fargo Home Mortgage