How many companies out there won't be able to do FHA loans if HUD moves toward a minimum $2.5 million net worth to do FHA loans? Some estimates peg the loss at 70% of all current lenders! HUD estimates that about 40% of all currently approved lenders have less than $1.0 million net worth. Maybe they'll grandfather small companies in... maybe not...
Would this be good for consumers, eliminating those firms from FHA origination that are on shakier financial ground? Or would the loss of competition hurt a consumers ability to shop? Both good questions that have been partially answered by history. There are numerous examples of industries that have allowed corporate consolidation to eliminate competition and thus raise prices (televison, radio, insurance, and investment banking all come to mind). On the other hand, allowing financial instituions free reign to operate without a firm financial foundation has led to one of the worst cirisis' in our nations history. Just take a look at the latest numbers from the implode-o-meter ( www.ml-implode.com )
I am concerned about this move by HUD. While more scrutiny might be warranted, I think this action goes a little too far. Lets be cautious with the way we handle reform. There are enough barriers for consumers to buy homes without eliminating up to 70% of the FHA lenders.
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