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Question: Does an approved mortgage lender need to report a loss in the Company’s net worth to Fannie Mae and/or HUD?

Answer:

Yes, Fannie Mae and HUD require approved licensees to report the failure to maintain minimum financial requirements, such as net worth, minimum capital and minimum liquidity.

Fannie Mae previously issued a Seller/Servicer Eligibility Reminder advising approved Seller/Servicers of these requirements, which are detailed in Selling Guide A4-1-01. If a Seller/Servicer experiences a material decline in lender adjusted net worth, a decline in profitability, or a default under various obligations, Fannie Mae may declare a breach of the Lender Contract. Typically, a decline is material if Lender Adjusted Net Worth declines by more than 25% over a quarterly reporting period or by more than 40% over two consecutive quarterly reporting periods. A decline in profitability is four or more consecutive quarterly losses accompanied by a decline in Lender Adjusted Net Worth of 30% or more during the same period. Fannie Mae advised seller/servicers to be especially mindful of the requirements measured by percentage decline, as they commonly are breached in adverse market environments. Seller/Servicers should notify Fannie Mae of any anticipated breaches to eligibility requirements as soon as possible by emailing their assigned account team.

Additionally, HUD’s Handbook 4000.1(A)(7)(g) and (h) specify if at any time a Mortgagee’s adjusted net worth or liquidity falls below the required minimum, the Mortgagee must submit a Notice of Material Event to FHA within 30 business days of the deficiency. The Mortgagee must submit a Corrective Action Plan that outlines the steps taken to mitigate the deficiency and includes relevant information, such as contributions and efforts made to obtain additional capital.

HUD also requires reporting of operating losses of 20% or greater of a licensee’s net worth. To report the loss, a licensee must file a Notice of Material Event within 30 business days of the end of each fiscal quarter in which a Mortgagee experiences the loss. Following the initial notification, the Mortgagee must submit financial statements every quarter until it shows an operating profit for two consecutive quarters, or until it submits its financial reports as part of its recertification, whichever period is longer.