| ID | Status | Date | Public/Private | Industry | AHACPA Contact |
|---|---|---|---|---|---|
| #7714 | Closed | public | FHA Lender |
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A parent and multiple subsidiaries are each HUD Lenders. Chapter 7 states “When the lender is a parent or a subsidiary of a parent, the adjusted net worth computation must focus on the assets and equities of the individual FHA-approved entity.” For a subsidiary net worth calculation, it is clear that only the subsidiary’s own net worth and assets are used. For the parent’s net worth calculation, should consolidated amounts be used or only amounts on the parent’s own books? The Chapter 7 reference might be read to justify using only amounts on parent’s own books, but technically under GAAP the parent’s equity and assets are consolidated amounts. It makes a difference in this case as the parent and each subsidiary have unacceptable asset related party receivables, and the consolidated amount of related party receivables is larger than the specific receivables on the parent’s books. |
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From Mike Olsen: In reporting in LEAP for assets, liabilities, revenue, net worth and liquidity, when a lender is in a parent/subsidiary structure, the amounts reported should be those of the approved entity alone. Therefore, for a parent that is an approved lender, only the amounts on the parent’s own books should be used in reporting assets, revenue, and the Net worth schedule. Therefore, only the unacceptable assets of the parent’s own books would be listed as unacceptable assets on the net worth schedule. Here is some language out of the HUD Audit Guide Chapter 7: B. Reporting Requirements for Lenders in Parent-Subsidiary Structures HUD will accept the reports (IAR) on a consolidated basis, however, the computation of adjusted net worth must be at the FHA approved entity level. You will also notice that they require consolidating schedules in the footnotes, therefore, the amounts that should be reported in LEAP are the FHA approved entity amounts, not the consolidated amounts. This applies to both the parent and the subsidiary, depending on which is the FHA approved entity. In addition, the Major compliance report should be at the FHA approved entity level as well. If you would like to discuss this further, please email or call me. Thanks |