FHA proposes tighter rules for lenders

AP News
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Posted: Nov 30, 2009 4:35 PM

The Federal Housing Administration proposed on Monday stricter rules for lenders to reduce its risk and assure it can cover future losses.

The FHA has insured nearly a quarter of all new loans made this year, and about 80 percent of that business is from first-time homebuyers. But delinquencies on these mortgages are rising.

As of the end of September, about 18 percent of FHA borrowers were at least one payment behind or in foreclosure, compared with 14 percent for all loans, according to the Mortgage Bankers Association.

The FHA proposes to require lenders to have a net worth of at least $1 million in the first year and $2.5 million within three years. That's up from the original requirement of $250,000.

The government agency also wants to tighten approval requirements for lenders who want to originate, underwrite or service FHA loans and make them liable for those loans, including ones originated by mortgage brokers.

The FHA will solicit comment for 30 days on the proposals, which it said are an effort to head off further losses.

The agency is tightening its regulations as its finances continue to worsen. FHA said in mid-November that its reserves fell to $3.6 billion, compared with $685 billion in outstanding insured loans for the fiscal year ended Sept. 30. That's a ratio of 0.53 percent and far below the 2 percent threshold required by Congress.