The Federal Housing Administration's proposal to increase the net worth requirement for FHA lenders to $2.5 million is too high, according to the chief executive of the nation's largest mortgage cooperatives. Lenders One chief executive Scott Stern said raising the FHA net worth requirement from $250,000 to $1 million is workable. But FHA wants to raise it to $2.5 million within three years. "These are very high net worth levels" that will force a lot of traditional lenders to stop offering FHA products, he said. He noted that FHA's proposal comes at a time when Fannie Mae is raising its credit score requirement to 620 and Congress is threatening to impose risk retention requirements on lenders that sell or securitize mortgages. "Risk retention could decimate the mortgage industry and force a lot of lenders to go out of business," he said in an interview. Requiring a lender to retain an interest in every loan is not necessary on FHA, Fannie and Freddie loans, he added. The Lender One CEO stressed that the safety and soundness of FHA, Fannie and Freddie is paramount. But it is already difficult for consumers to get loans and rejection rates are very high. "It is getting very tight," he said.
