The Federal Housing Administration (FHA) is cutting more than a dozen sub-regulatory policies under its single-family mortgage insurance program, the U.S. Department of Housing and Urban Development (HUD) announced in a press release.
The sweeping policy retractions were outlined in a series of mortgagee letters issued by HUD, which oversees the FHA. Changes include recissions of previous federal flood risk management standards and inspection requirements for properties located in major disaster areas, as well as the elimination of a requirement for lenders to collect information on a borrower’s language preference.
“These rescissions are bold, necessary and long overdue,” HUD Secretary Scott Turner said in a press release. He added that HUD and the FHA are “slashing red tape that drives up costs and shuts families out of the market.”
One mortgagee letter rescinds the requirement for lenders to provide the Fannie Mae-Freddie Mac Form 1103, known as the Supplemental Consumer Information Form. The purpose of that form is to “collect information on homeownership education and housing counseling and/or language preference to help lenders better understand the needs of borrowers during the homebuying process.”
The HUD letter claims that while the form was “intended to align FHA with industry standards, the implementation requirements and resulting impact do not justify the additional burden imposed on the Mortgagees of collecting and retaining information that they would not otherwise be required to collect and retain.”
Another letter rescinds a 2024 policy stipulating that the lowest floor in a residential building within a 100-year floodplain zone be built at least two feet above the base flood elevation determined by the Federal Emergency Management Agency. A 100-year flood zone means an area designated as having a 1% statistical chance of flooding each year.
A similar HUD directive removes the previous requirement that a damage inspection report should be conducted prior to FHA endorsement of properties located in presidentially declared disaster areas.
Other changes include the elimination of a full-time employment status requirement for Direct Endorsement (DE) underwriters, allowing lenders to employ part-time workers for this purpose. The DE program allows lenders to underwrite and close a loan without prior FHA review or approval.
