Below is a list of questions most frequently asked by our FHA audit clients. The answers provided are basic and may need more discussion based on your particular situation. Please give us a call for a free 30 minutes phone consultation
Effective May 20, 2011, each lender or mortgagee with FHA approval as of May 20, 2010, that meets the size standards for a small business (revenue under $7 million), must possess a net worth of at least $500,000, of which 20% must be in liquid assets consisting of cash or its equivalent (marketable securities, certificate of deposit with less than 3 months to maturity)
Lenders with more than $7 million in revenues will be required to have a minimum of $1.000,000 in net worth with a minimum of 20% in liquid assets. See below for additional requirements effective for 2013.
The adjusted networth is the audited networth of the Company, less any unassetable assets per the HUD guidelines. The calculations of adjusted networth must be prepared by a CPA as part of the audit.
Lenders must maintain liquid assets of 20% of its adjusted net worth.
For example: If your Company's adjusted net worth is $1,500,000 your minimum liquidity requirement is $300,000 or 20%.
Cash and cash equivalents constitute liquid assets. Cash includes checking accounts, savings accounts, and certificates of deposit. Cash equivalents are readily marketable investments, e.g. securities readily convertible into cash.
If the computation of adjusted net worth and liquidity shows inadequate adjusted net worth or liquid assets at the date of the financial statements it is considered a material finding and a corrective action plan is required.
For an ongoing business, a full set of financial statements is required: Balance Sheet; Income Statements; Cash Flow Statements; Statements of Equity; Footnotes; and an auditors report containing an unqualified (clean) opinion, as well as an auditor report on internal control and compliance.
Because not all mortgage companies are alike and in order to provide you with the best price for your audit we would need certain information about your company for a price quote. See FAQ below.
In order to give you a precise fee for your audit we would need: Preliminary Balance Sheet & Profit and Loss Statements as of the period being audited. As well as a short questionaire.
An audit can take anywhare from 2 to 6 weeks depending on the complexity of the Company and our schedule. However, because the audit has to be submitted electronically you would want to leave ample time (2 weeks) for the submission process to be completed.
Once our firm has been retained by the signing of an engagement letter and an initial retainer fee, we will provide you with a secure client portal where you will be able to upload the list of items needed to start the audit. You would then be assigned an auditor that will be in charge of your audit. At that point you can follow the process of your audit as outlined in our Audit Process Flow Chart.
For 2013 (three years beyond the unannounced effective date) and beyond, ALL lenders shall have a minimum net worth of $1 million, plus 1% of total loan originations in excess of $25 million up to a maximum of $2.5 million. The liquidity requirement will remain at 20% of required net worth.
Multifamily lenders must meet the $1 million net worth requirement. For lenders that also engage in servicing of multifamily mortgages, an additional 1% of the total loans originated, purchased or serviced in excess of $25 million will be required. If servicing is not performed, an additional net worth of .5% in excess of $25 million will be required. The maximum net worth for both types of multifamily lenders remains at $25 million. Liquidity is 20% of net worth. If a lender originates both single family and multifamily mortgages, then the lender will be required to use the 1% of mortgage volume in excess of $25 million.
