Trump Administration Streamlines Mortgage Rules To Make FHA Loans Easier

The U.S. Department of Housing and Urban Development is changing some rules around mortgages, aiming to make them easier for Americans to obtain.

HUD announced 14 changes to its Federal Housing Administration Single Family mortgage insurance program, all aimed at reducing some of the review requirements and approval processes.

The goal for these changes is to cut the requirements so consumers can apply more easily, and lenders don't face onerous rules.

“Every unnecessary regulation comes with a cost, and too often homebuyers pay the price,” HUD Secretary Scott Turner said in a June 23 statement. “If a policy does not protect taxpayers, improve affordability, or expand opportunity for Americans, we should rethink it."

This caps off about 150 changes that HUD has made to its Single Family program, aiming to cut regulations and streamline the process.

What mortgage rules are changing

The major changes in HUD's new rulemaking are aimed at all parts of the process including mortgage origination, servicing, and monitoring:

• Lenders won't need to obtain field reviews for some FHA-approved mortgages. HUD is also reducing some quality control requirements related to field reviews. HUD thinks this will save lenders $3.3 million annually, as they can cost up to $425 per review.
• Changes to the Limited 203(k) Rehabilitation Mortgage Insurance Program for home rehabilitation projects. HUD is increasing the number of contractor draw requests it allows, which would make it easier to parcel out payments during a project.
• Some changes to the FHA Mortgagee Approval and quality control rules. This includes exempting early payment defaults that arise from natural disasters from the quality control review sample. HUD compliance rules like this one discourage smaller lenders from participating.
• HUD also clarified some loss mitigation requirements for trial payment plans. These changes are aimed at making sure proactive borrowers don't face penalties, while still protecting the FHA Mutual Mortgage Insurance Fund.

At a conference Tuesday hosted by the Bipartisan Policy Center in downtown Washington, DC, Matt Jones, deputy assistant secretary for Single Family Housing at HUD, said he hoped the rules changes encouraged more atypical mortgage lenders.

"We want to make it as big of an opportunity to be an FHA lender, whether you're a large bank, community bank, credit union, nonbank," Jones said. "We want everyone to look at our program and feel like they can compete."

'Faster and simpler' FHA mortgages

Explains Realtor.com® senior economist Joel Berner, these rules will cut down some of the friction when it comes to home transactions using FHA loans.

For consumers, this means "making closing on a home faster and simpler for more FHA borrowers and reducing regulatory inhibitions on home restoration projects," Berner said. "Things could get better in the form of lower costs for lending being passed to borrowers, home transactions being sped up, and natural disasters leading to fewer defaults."

On the other hand, making appraisal field reviews optional always creates the risk of inaccurate appraisals. And the rules don't help with the longer closing timelines on FHA loans, as compared with conventional loans. The real bottlenecks there come from property condition inspections, minimum property requirements, and manual underwriting flows, Berner said.

"Small lenders can now more easily absorb the impact of a natural disaster without being labeled as a high-default lender if they happen to have high local exposure to a disaster-prone region," Berner said. "They were less able to spread the costs of appraisal field reviews than large lenders as well, so this helps their operating expenses proportionally more."