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FHA Notice of Material Event — Net Worth and Operating Losses

Q: As a Mortgagee, am I required to notify FHA if my company's net worth decreases or I experience operating losses?

A:  Yes, in some instances. HUD Handbook 4000.1, sections I.A.7(g) and (h) outline the requirements when the Mortgagee must notify FHA. In general, the Mortgagee has an ongoing requirement to notify FHA of any changes to the information outlined in its application for FHA approval or in FHA's eligibility requirements.

Section I.A.7(g) Liquid Assets or Net Worth Deficiency: 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.

Section I.A.7(h) Operating Loss: If a Mortgagee experiences an operating loss of 20 percent or greater of its adjusted net worth, the Mortgagee must submit a Notice of Material Event to FHA within 30 business days of the loss. The 20 percent threshold applies to losses in any quarter during the fiscal year or losses that exceed 20 percent on the financial statements submitted at recertification. 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.


 
 
 

Abrams Garfinkel Margolis Bergson, LLP

For more information, contact
Neil Garfinkel at (212) 201-1173 or ngarfinkel@agmblaw.com
Michael Barone at (212) 201-1183 or mbarone@agmblaw.com
Marie O'Brien at (646) 666-8769 or mobrien@agmblaw.com

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