The Department of Housing and Urban Development has announced 14 changes to the Federal Housing Administration program, claiming eliminating these "red tape" requirements would reduce costs.
"Every unnecessary regulation comes with a cost, and too often homebuyers pay the price," HUD Secretary Scott Turner said in a press release. "If a policy does not protect taxpayers, improve affordability, or expand opportunity for Americans, we should rethink it."
The one thing that many believe could help affordability, a reduction in the mortgage insurance premium, is not a part of this package.
HUD's announcement comes on the heels of both houses of Congress passing the 21st Century ROAD to Housing Act. But on Wednesday morning, President Trump, who has made housing affordability a key policy point,
Some of the biggest FHA changes
- Appraisal field reviews made optional: Previously required on a 10% sample of appraisals; HUD estimates this saves $425 per review, or $3.3 million annually
- 90-day flip restriction eliminated: Sales contracts can now be written immediately after a purchase, rather than waiting until day 91
- Limited FHA 203(k) program draws increased: Maximum contractor draws raised to four from two, allowing contractors to get paid faster on smaller rehab jobs
- 203(k) draw requirements clarified:
For both Standard and Limited programs , to strengthen risk controls and align with industry standards - Early payment default exemption made permanent: EPDs caused by natural disasters are now permanently excluded from required QC review samples
- "Important Notice to Homebuyers" disclosure waiver made permanent:
Previously a temporary waiver issued last November - Loss mitigation requirements clarified:
Specifically around trial payment plans for distressed borrowers
How industry groups view the alterations
While trade groups were pleased with the FHA's changes, some immediately noted the lack of an MIP cut among them. The Community Home Lenders of America has been seeking a further reduction in the MIP, beyond
"While incremental actions like yesterday's FHA announcement are constructive and welcome, a premium cut would have a far bigger impact in moving the needle, particularly in increasing homeownership," the CHLA said.
The Mortgage Bankers Association said in a statement it "continues to be supportive of HUD's efforts to streamline programs, cut red tape, and make homeownership and renting more affordable."
Why the Appraisal Institute is wary about one change
The Appraisal Institute is in line with MBA and CHLA on the effort to reduce costs and streamline program requirements. However, they took issue with the move to make appraisal field reviews optional, asserting they are an independent assessment of valuation accuracy and compliance, the AI's Director of Government Affairs Scott DiBiasio, said in a statement. A field review is a QC mechanism, in which an experienced appraiser looks at the valuation before it gets to the secondary market.
"Automated tools and data analytics can be valuable resources, but they cannot fully replicate the professional judgment of a qualified appraiser reviewing another appraiser's work," DiBiasio said. "As FHA considers changes to its quality control framework, we encourage the agency to ensure that efficiency gains do not come at the expense of valuation credibility, accountability, and public confidence in the mortgage finance system."
"While technology can help identify anomalies, it cannot replace the analysis and judgment that come from a professional review," DiBiasio warned. "We support efforts to improve efficiency, but eliminating long-standing appraisal review requirements raises important questions about oversight, accountability, and the integrity of collateral valuation."
Brokers praise 90-flip elimination, FHA rehab program updates
For the National Association of Mortgage Brokers, elimination of the 90-day flip restrictions is "huge," said Kimber White, the organization's president. Under the current FHA rules, a sales contract couldn't even be written until the 91st day after a sale.
This will help small investors get financing, White said.
A change to the Limited FHA 203(k) program increases the maximum number of draws to four per contractor from two. This change will allow for the contractor to get paid in a timely fashion and for borrowers, not having to put any money out of pocket until the draw could be taken, White said.
White noted because of this restriction, many contractors previously did not want to work on property repairs being financed through the Limited program.
More needs to be done, NAMB says
When it comes to changing the MIP, NAMB is proposing a tiered structure designed to reduce the payment until it is eliminated as the borrower builds up equity.
Right now,
But White added, the amount of risk being assumed is different between the PMI for the conforming market and FHA; the government program takes on 100% of the risk and this is why NAMB is proposing the tiered reduction.
"It is more advantageous for people to go into Fannie and Freddie than FHA, because of the insurance factors, especially a good credit buyer," White said. If HUD makes those changes to the MIP structure, it would bring more buyers into FHA, especially first-time home purchasers.
Other changes need to happen such as
"Is there more to be done with FHA? Yes, a lot more," he said.
