Recission of a dozen regulatory policies is aimed at “slashing red tape that drives up costs and shuts families out of the market,” HUD Secretary Scott Turner said.
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The Trump administration lifted “a pile of regulations” from FHA lenders Friday afternoon, eliminating a dozen policies governing flood risk management, inspections in disaster areas, appraisals, underwriter qualification and data collection.
The move is aimed at “slashing red tape that drives up costs and shuts families out of the market,” Department of Housing and Urban Development (HUD) Secretary Scott Turner said in an announcement.
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The policy recissions, published in a series of Mortgagee Letters, are effective immediately and will be incorporated into a future version of the Federal Housing Administration’s Single Family Housing Policy Handbook for lenders.
Builders constructing new homes in special flood hazard areas or FEMA-designated “coastal high hazard areas” will no longer be required to build homes at least two feet above the base flood elevation for their homes to qualify for FHA financing.
The new elevation standard, announced in November by the Biden administration, “would have limited the land available for development and increased the cost of construction for FHA-insured single family properties, thereby contributing to the insufficient supply of New Construction housing and rising home prices,” HUD said in rescinding it.
Lenders signing off on FHA loans in Presidentially Declared Major Disaster Areas (PDMDAs) will no longer be required to obtain mandatory damage inspection reports that identify and quantify any dwelling damage.
Instead, they “must exercise reasonable due diligence to determine if additional inspections or repairs are necessary,” HUD said.
Requiring inspections by FHA-approved appraisers in disaster areas regardless of whether any damage had occurred, “sometimes resulted in a lengthy waiting period” for mortgage approvals, and led to “unnecessary inspections, delayed loan closings, and postponed issuance of FHA insurance,” HUD maintains.
In scaling back the several requirements for appraisers, HUD said FHA “has historically imposed more extensive property appraisal protocols and more stringent procedures than those required for other mortgage lending purposes.”
Appraisers will no longer be required to confirm that the remaining economic life of a property is longer than the mortgage term. Fewer photos of properties will be required — they won’t be required to take photos of attics or crawl spaces, for example.
When analyzing the housing market in which a property is located, appraisers will still be required to determine if property values are increasing, stable or declining, but won’t have to assess whether the current trend appears to be changing.
“Current appraisal standards no longer support the need for certain FHA-specific protocols, rendering them outdated and misaligned with broader industry norms,” HUD said. “In addition, FHA’s internal collateral valuation technology and data capabilities have significantly improved, further reducing the necessity of these duplicative and antiquated appraisal requirements.”
HUD is also lowering the experience requirements for “Direct Endorsement” underwriters who have the authority to sign off on loans without prior FHA review or approval, and allowing lenders to employ them on a part-time basis.
“FHA recognizes that the financial landscape for smaller lending institutions has evolved significantly over the past decade, presenting both opportunities and challenges in sustaining growth and meeting customer needs,” HUD said of the change.
In eliminating a requirement that lenders collect information about the borrower’s language preference and any homeownership education and housing counseling they may have received, HUD said only 1.2 percent of FHA borrowers completed the form “in a manner that provided any potential benefit to them.”
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