The U.S. Department of Housing and Urban Development (HUD) has recently issued several Mortgagee Letters (MLs) to streamline FHA policies, aiming to reduce burdens, increase flexibility, and modernize processes. These changes reflect an ongoing effort to align HUD policy with broader administration goals to foster long-term economic stability and improve accessibility in the housing market.
Here's a breakdown of the key updates:
- Rescission of the Supplemental Consumer Information Form (SCIF) Requirement (ML 2025-15)
- Major Change: FHA has eliminated the Handbook 4000.1 requirement to collect information via the Fannie Mae/Freddie Mac Form 1103, Supplemental Consumer Information Form (SCIF). This form previously collected details such as the Borrower’s language preference and homeownership education or housing counseling received. The definition of Uniform Residential Loan Application (URLA) has also been reverted to exclude the SCIF.
- Anticipated Impacts:
- This requirement was deemed to impose an additional burden on Mortgagees for collecting and retaining information they wouldn't otherwise need.
- In Fiscal Year 2024, only 1.2% of FHA Borrowers completed the form in a way that provided potential benefit.
- The rescission is part of an effort to reverse policies that adversely affected the housing market, reduce regulatory and financial burdens, and address disparities in lending practices.
- It aims to reduce unnecessary regulatory burden and foster long-term economic stability for all Americans.
- Rescission of Full-Time Direct Endorsement Underwriter Requirements (ML 2025-16)
- Major Change: FHA has eliminated the full-time employment requirement for Direct Endorsement (DE) underwriter eligibility, now allowing part-time employment with an FHA-approved Mortgagee. The experience requirements for DE underwriters have also been revised to accommodate part-time employment. However, DE underwriters must still be permanent employees of a single Mortgagee, and underwriting functions cannot be contracted out.
- Anticipated Impacts:
- This update recognizes the evolving financial landscape for smaller lending institutions.
- It aims to reduce operational barriers, provide greater flexibility, and encourage participation in FHA programs.
- This change is expected to contribute to reducing costs and unnecessary regulatory burdens, thereby fostering long-term economic stability.
- Rescission of Outdated and Costly FHA Appraisal Protocols (ML 2025-18)
- Major Change: Several outdated and costly FHA appraisal requirements have been eliminated. This includes removing the underwriter's requirement to use the Appraiser’s opinion of remaining economic life, revising photograph requirements to align with industry standards, and removing redundant requirements for additional comparable sales and listings in changing markets. The specific "Additional Appraisal Requirements for 223(e) Mortgages" have also been removed.
- Anticipated Impacts:
- FHA appraisals were historically more complex, time-consuming, and costly than conventional ones due to extensive protocols.
- Many requirements were outdated and misaligned with broader industry norms, and FHA's internal collateral valuation technology has improved, reducing the need for duplicative requirements.
- These changes are a significant step towards modernizing FHA appraisal policy, improving program accessibility, and enhancing clarity around the Appraiser’s role. They align with efforts to reduce costs and unnecessary regulatory burdens.
- Rescission of Mandatory Pre-endorsement Inspection Requirements for Properties in Presidentially-Declared Major Disaster Areas (PDMDAs) (ML 2025-19)
- Major Change: FHA has eliminated the mandatory pre-endorsement PDMDA inspection requirements. Instead, Mortgagees are now given the discretion and responsibility to exercise reasonable due diligence to determine if additional inspections or repairs are necessary for properties with pending Mortgages or endorsements in PDMDAs. Mortgagees must document the information used for their determination.
- Anticipated Impacts:
- Previously, these mandatory inspections, often by FHA Roster Appraisers, applied regardless of actual damage, leading to unnecessary inspections, delayed loan closings, and postponed FHA insurance issuance.
- Mortgagees are already responsible for "Surchargeable Damage," which incentivizes them to monitor disaster-related property risks proactively.
- This change promotes efficiency in the origination process by deferring to the Mortgagee’s risk management practices while continuing to protect the FHA Mutual Mortgage Insurance (MMI) fund.
- It supports efforts to lower the cost of housing by eliminating unnecessary burdens.
These updates are effective immediately and will be incorporated into a forthcoming update of the HUD Handbook 4000.1, FHA Single Family Housing Policy Handbook.
