MBA Proposes Higher FHA Broker
Net Worth Requirements

Are Bankers Trying to Put Small Lenders
and Brokers Out of Business?

Wednesday, 6/24/09 at 2:00 PM EST

National Mortgage News has reported that David Kittle, Chairman of the Mortgage Bankers Association of America, testified at a House Financial Services subcommittee hearing that net worth requirements for Federal Housing Administration lenders and brokers need to be raised.

"Specifically, we recommend that mortgage bankers should have a minimum corporate net worth of $500,000 and mortgage brokers should have a minimum corporate net worth of $150,000."

Mortgage Insurance companies are already restricting broker loans to higher scores and many lenders have either left the wholesale industry or placed their own restrictions on third-party loans. That is why brokers have been pushing for more lenient FHA approval requirements. It is time for brokers to be heard as the experts they can be.

Less competition more market share possibly?

Tell me what a higher Net Worth for FHA would actually do to benefit the consumer???

Those bare minimums seem very reasonable, no?  They do not seem too demanding to me.  Is $150,000 as a bare minimum for brokers that hard? 

Andrew Russell:

Is $150,000 as a bare minimum for brokers that hard? 

It will slow the number of new FHA qualified brokers.  Maybe if the dollar requirements went through a gradual increase, that could help those striving to be FHA approved.  I don't think the mortgage industry needs any changes that limit lending at this point.

Audited net worth requirements are much more complex than you may realize. My company got hit with a massive income tax bill this year. The sole reason was to meet FHA minimum net worth requirements. We carried as much capital as possible into the new year to enusure that we met net worth for FHA renewal. In the past we used end of fiscal year as a time to make capital improvements and purchases. The higher the net worth requirements, the more the Federal Government makes on Corporate income taxes and the less my company has to boost the local economy.

Andrew, $150k is not hard at all but at what expense? In my state we already have a $250k bond requirement and FHA requires a minimum $63k net worth. I could meet any net worth requirement but the IRS seems to be the big winner. I'm really starting to think that a lot of regulation is pointed at generating tax revenue. Honestly, what differnce is $63k vs $150k vs $750k net worth? What does it mean in the end? My company closes $100 million a year and have never had an issue about anything. Raising net worth requirments only benfits the tax man. It doesn't add any protection to the consumer in any way, shape or form.

Andrew Russell:

Is $150,000 as a bare minimum for brokers that hard? 

Yes, actually it is!  We're talking corporate net worth, not personal net worth of a broker/owner, so unless you own some real estate or a fleet of SUV's in your corporate name, you're talking about carrying $150k minimum bank balance at all times.  That money is just locked up, cannot be spent on anything except "maintaining net worth".  FHA is the only type of loan program that carries this requirement, not VA, not USDA, not Fannie, not Freddie. etc...and those are all "government programs".  Mortgage brokers negotiate loans for a fee.  we don't lend our own money.  Mortgage bankers lend in their own names and typcially, promptly sell those funded mortgages.  I think there is an argument that can be made for Mortgage bankers to maintain certain net worth requirements, but typcially their own creditors that provide warehouse funding already have steeper requirements than FHA.  Another poater asked, "How does this protect the consumer?"  Well it doesn't.  Not one bit.  Brokers do not make underwriting decisions, we have a "sponsoring lender" that does - all of whom have met the minimum net worth.

My CPA, Attorney, Insurance Agent, Dentist, and family physician, etc, do not have any "net worth requirements" with their respective licensing boards.  We are required to carry a larger bond than most home contractors/developers, which doesn't really make a whole lot of sense to me, but what do I know?  The whole idea of needing a certain net worth just to broker a loan....well, I think I've said enough.