FAQ: FHA Operating Losses

September 17, 2021 BY MQMR Blogger



Has HUD recently updated the self-reporting requirements for a Material Event pertaining to operating losses?




Yes. HUD updated its Handbook with regard to an approved HUD Mortgagee’s reporting requirements for operating losses. The update is effective September 20, 2021. A Notice of Material Event must be submitted to FHA within 30 business days of the end of each fiscal quarter in which a Mortgagee experiences an operating loss of 20 percent or more of its net worth. Following the initial notification, the Mortgagee must submit financial statements every quarter until it demonstrates an operating profit for two consecutive quarters or submits its financial reports as part of its recertification, whichever period is longer (emphasis added to updated language).


Additionally, 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 also submit a Corrective Action Plan that outlines the steps to mitigate the deficiency and includes relevant information, such as contributions and efforts to obtain additional capital.