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A Federal Housing Administration final rule set to take effect May 20 will increase net worth requirements for approved lenders and eliminate the current FHA approval process for loan correspondents.

The final rule, published in Tuesday's Federal Register, is intended to improve FHA risk management. The FHA is also taking comments from the public until May 20.

The final rule is revised from the proposal. The rule raises the current minimum net worth requirement of $250,000 and sets initial minimums according to industry size standards set by the Small Business Administration. In summary:

• Beginning May 20, 2010, new FHA approval applicants exceeding the business size standards for their industry classification must have at least $1 million in net worth, 20 percent of thatin liquid assets.
• Beginning May 20, 2011, lenders and mortgagees approved as of the rule's effective date (this May 20) and which exceed business size standards must have at least $1 million in net worth, 20 percent of that in liquid assets.
• Existing small business-approved lenders and mortgagees that meet SBA size standards for their classification must have at least $500,000 in net worth, at least 20 percent in liquid assets.
• As of May 20, 2013, all FHA-approved lenders and mortgagees must have at least $1 million in net worth, plus an additional net worth of 1 percent of total volume exceeding $25 million in originated, FHA-guaranteed mortgages. The maximum net worth requirement is $2.5 million, with at least 20 percent in liquid assets.

In other provisions, the final rule eliminates FHA's current approval of loan correspondents, or mortgage brokers, as of this Dec. 31 and provides that approvals under the current process will end about June 20.

After Dec. 31, correspondents will have to be sponsored by an FHA-approved lender in order to participate as third-party originators for FHA; they can also submit applications for approval as FHA lenders. Either way, the final rule ensures that an approved lender will be directly liable for FHA-guaranteed loans it facilitates.

NAFCU plans to submit comments. For the final regulation, click on the link below.