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FHA updates rules to inspections, warranties

The Federal Housing Administration (FHA) this week sent out a pair of mortgagee letters aiming to reduce regulatory strain on lenders.

The two letters — Mortgagee Letters 2019-04 and 2019-05 — revise current regulations on home inspections and warranties for single-family FHA loans.

Mortgage Letter 2019-04 deregulates the FHA’s previous inspector roster requirements by eliminating the roster altogether. Now, there will no longer be a requirement to use an FHA roster inspector, per U.S. Department of Housing and Urban Development (HUD) single-family housing policy. The International Residential Code — the comprehensive building code in use in 49 states and the District of Columbia — makes the roster redundant, the mortgagee letter said.

This change actually became effective last August, with the mortgagee letter re-communicating the update to lenders, brokers and underwriters.

Mortgagee Letter 2019-05 removes the requirement that borrowers purchase 10-year protection plans to qualify for certain mortgages on new single-family homes. According to the letter, the one-year Warranty of Completion of Construction executed by homebuyers and builders provides the FHA with sufficient assurances that the home was built according to plan and suitably protects the buyer.

Like the first letter, 2019-05 communicates guidance on a rule published last year; the changes are effective for all case numbers assigned on or after March 14, 2019.

In a LinkedIn post, FHA Commissioner and Assistant Secretary of Housing Brian Montgomery called the two eliminated requirements “unnecessary and outdated regulations that have been barriers for lenders.”


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