Meanwhile, Banks Face Higher FHA Net Worth Rules

The Federal Housing Administration is increasing its net worth requirements for approved lenders to $1 million and requiring banks to file audited financial statements for the first time ever. "With so many banks at risk of default, we want to make sure that our counterparty risk is being reviewed at FHA," said commissioner David Stevens. "Just the fact that they are supervised will no longer be enough." The agency released the tighter rules in response to a weakening capital position at the fund. (See story below.) FHA also is hiring its first credit risk officer and it is tightening its appraisal and refinancing requirements to curtail risk and conserve capital. On streamlined refinancings, FHA will require income verification and credit scores for the first time. The lender also will be required to demonstrate that the refinancing provides a "net tangible benefit" for the borrower. In addition, FHA will cap the maximum loan-to-value ratio on a streamlined refinancing at 125% and require an appraisal in all cases where the borrower wants to add closing costs to the loan amount.