As discussed last week in our email, HUD announced a significant change in the calculation of net worth. This change classified any real estate as an unacceptable asset. However, there is an exception. Real estate owned and used as the home office of the lender IS NOT considered unacceptable. The actual language from the HUD Audit Guide is included below.
k. Any asset that is real property, including all land and any buildings attached to it; other than the home office registered with HUD in accordance with Handbook 4000.1, Section I.A.3.c.iii.
Today, FHA notified lenders of this change. The notice stated:
"The purpose of this notice is to inform you of certain changes in lender eligibility requirements that may impact your participation in FHA programs. On June 25, 2021, the Office of Inspector General published Handbook 2000.04, REV-2, Change 22, Consolidated Audit Guide for Audits of HUD Programs, HUD – FHA Approved Mortgagees Audit Guidance (Audit Guide). The revised Audit Guide includes changes to Chapter 7, section 7-5.F.1.j – 7-5.F.1.l. Specifically, the changes clarify the definition of certain unacceptable assets.
The financial documentation submitted with your most recent annual recertification package indicates that real estate property was included in the Adjusted Net Worth calculation. Per the revised OIG Audit Guide real estate property is no longer considered an acceptable asset. When the real estate assets are removed from the calculation, your institution’s adjusted net worth falls under the minimum requirement. Therefore, your institution may not meet the eligibility requirements to retain FHA-lender approval.
Please submit a Notice of Material Event in the Lender Electronic Assessment Portal (LEAP) no later than August 31, 2021, outlining the institution’s corrective action plan to meet FHA net worth requirements by December 31, 2021."
Unfortunately, these notices are somewhat confusing. The language above appears to exclude all real estate assets. According to the HUD Audit Guide, real estate assets used for the home office are NOT required to be counted as unacceptable. Therefore, if a lender's real estate is related to the home office, it is not unacceptable, and there is no need for a Notice of Material Event related to this change.
If lenders do have real estate that is considered unacceptable under this new definition, they should evaluate their net worth compliance as of this date, and if necessary, file the required Notice of Material event outlined by FHA above.
We have also inquired as to applicability of this requirement on real estate used for branch offices. Until further clarification, lenders should consider those assets as unacceptable.
If lenders do have real estate that is considered unacceptable under this new definition, they should evaluate their net worth compliance as of this date, and if necessary, file the required Notice of Material event outlined by FHA above.
We have also inquired as to applicability of this requirement on real estate used for branch offices. Until further clarification, lenders should consider those assets as unacceptable.
Registration is now open for AHACPA's Fall CPE Courses. Register Online or Print Registration form and send to us. Course fees are per person per session:
- 4 CPE credit session: $149/$129 member
- 8 CPE credit session: $395/$345 member
- 16 CPE credit session: $650/$600 member - register before 11/13 for $50 discount
HUD 101 Webinar - 4 CPE credits per session (more info)
Part 1 - Sep 13, Oct 6, Nov 9
Part 2 - Sep 28, Oct 21, Nov 12
Multifamily Update Webinar - 4 CPE credits per session (more info)
Part 1 - Sep 14, Oct 4, Nov 5
Part 2 - Sep 27, Oct 13, Nov 15
FHA Lender Update Webinar - 4 CPE credits per session (more info)
Part 1 - Sep 29, Nov 8
Part 2 - Oct 12, Nov 16
Other Multifamily Webinars (more info)
- Tenant Files Webinar - 4 CPE credits per session: Part 1 - Aug 30; Part 2 - Sep 10
- Section 8 Profitability Webinar - 4 CPE credits per session: Part 1 - Oct 11; Part 2 - Nov 3
- Single Audit for HUD Webinar - 4 CPE credits: Nov 2
- Section 232 Projects Webinar - 4 CPE credits: Dec 1
multifamily conference & lender update: live in las vegas
