Bank Net Worth Requirement

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ID Status Date Public/Private Industry AHACPA Contact
#7358 Closed public FHA Lender
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“Chapter 7 of the audit guide section 7-3 for audit and reporting requirements has a chart for whether certain items are to be reported on a consolidated basis or bank basis. The question we have is the chart seems to contradict itself in the far right two columns when it comes to a bank being part of a consolidated entity. The one column indicates that Financial Data Templates, including net worth schedule are to be on a consolidated basis and the next column indicates that the Net Worth Schedule is to be on a bank level basis. Do you know how that apparent conflict is rectified?
Kathy Christensen

From Mike Olsen:
When reporting to HUD through LEAP, banks are allowed to issue consolidated financial statements and to report consolidated amounts in the LEAP submission. However, for the Net Worth Schedule, that must be prepared for the approved entity alone, not consolidated. HUD wants to know that the approved entity meets the Net Worth requirement. In addition, the Net Worth requirement is only for the approved entity. If the Net Worth is calculated on the consolidated entity, the computation would include other subsidiaries that are not FHA approved and would not report the correct Net Worth. As a result, your Net Worth Schedule will not agree to your consolidated financial statements, because it is prepared at the approved entity level.

Because most banks are part of a consolidated entity, HUD is allowing them to report their consolidated numbers in LEAP, rather than requiring them to report the approved entity only numbers. Thus, making it easier to complete the LEAP submission. However, HUD does require that the Net Worth Schedule is prepared at the approved entity level.

Hope this helps. If you would like to discuss this further, please email or call me.

Thanks
Mike

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