Recently the U.S. Department of Housing and Urban Development (HUD) rescinded various FHA mortgage loan requirements in a series of five Mortgagee Letters.
Supplemental Consumer Information Form
As previously reported, HUD announced in Mortgage Letter 2023-13 that lenders must use the Supplemental Consumer Information Form (SCIF) of Fannie Mae and Freddie Mac in connection with FHA insured mortgage loans with application dates on or after August 28, 2023. The SCIF allows the mortgage applicant to indicate their language preference, and to indicate any homeownership education or housing counseling that they have received.
In Mortgagee Letter 2025-15, HUD announced in connection with all FHA Title II single-family forward mortgage loans that it is rescinding the requirement to provide the SCIF.
In the Mortgagee Letter, HUD states:
While incorporating this form into FHA’s loan application documents 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. In Fiscal Year 2024, only 1.2 % of FHA Borrowers completed this form in a manner that provided any potential benefit to them.
On January 20, 2025, the President issued Executive Orders aimed at reversing policies that have adversely affected key sectors, including the housing market. As part of this ongoing effort, FHA is focused on eliminating policies that have increased regulatory and financial burdens, and deepened disparities in lending practices. Given the low impact and limited benefits of the SCIF, along with the additional burden and costs it creates for Mortgagees, FHA has decided to rescind this policy.
The requirement to complete the SCIF was adopted at HUD’s discretion and was not required by statute. Removing this requirement is another step forward in aligning HUD policy with the Administration’s broader goal to reduce unnecessary regulatory burden and foster long-term economic stability for all Americans.
The provisions of the Mortgagee Letter are effective immediately.
Full-Time Direct Endorsement Underwriter Requirements
In Mortgagee Letter 2025-16, HUD announced in connection with all FHA Title II single-family forward mortgage loans and Home Equity Conversion Mortgage (HECM) loans the rescission of the requirement that FHA direct endorsement underwriters be employed on a full-time basis, thus allowing the employment of such underwriters on a part-time basis.
In the Mortgagee Letter, HUD states:
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.
In response to and aligning with President Donald Trump’s executive actions aimed at eliminating policies that have adversely affected key business sectors, including the housing market, FHA is updating its Direct Endorsement (DE) underwriter eligibility requirements to reduce operational barriers, provide greater flexibility, and encourage participation in FHA programs. This update eliminates the full-time employment eligibility requirement for DE underwriters, permitting Mortgagees to employ them on a part-time basis. Experience requirements for DE underwriters have also been revised to accommodate part-time employment. All other aspects of FHA’s policies remain unchanged.
HUD makes clear in the Mortgagee Letter that FHA mortgagees must continue to ensure their DE underwriters are permanent employees of a single mortgagee, even if only working on a part-time basis, and that underwriting functions are not contracted out.
The provisions of the Mortgagee Letter are effective immediately.
Federal Flood Risk Management Standard for New Construction Eligibility
In Mortgagee Letter 2025-17, HUD announced in connection with all FHA Title II single-family forward mortgage loans and HECM loans the rescission of the Federal Flood Risk Management Standard (FFRMS) for new construction eligibility that was announced in Mortgagee Letter 2024-20.
In the Mortgagee Letter, HUD states:
In compliance with President Trump’s Executive Order, Delivering Emergency Price Relief for American Families and Defeating the Cost-of-Living Crisis, which includes pursuing appropriate actions to lower the cost of housing and expand the housing supply, on February 21, 2025, HUD promptly issued a one-year temporary partial waiver of this burdensome flood elevation standard. Without this regulatory waiver and the associated Handbook 4000.1, the new standard 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.
This [Mortgagee Letter] is necessary for the duration of the waiver to restore the previously established policy and provide clarity on the current applicable standards for New Construction property eligibility and documentation requirements.
The provisions of the Mortgagee Letter are effective immediately for the duration of any waiver period applicable to these requirements.
Appraisal Protocols
In Mortgagee Letter 2025-18, HUD announced in connection with all FHA Title II single-family forward mortgage loans and HECM loans the rescission of “outdated and costly FHA appraisal requirements.”
In the Mortgagee Letter, HUD states:
FHA has historically imposed more extensive property appraisal protocols and more stringent procedures than those required for other mortgage lending purposes. As a result, FHA appraisals are often perceived as significantly more complex and time-consuming and are more costly compared to conventional appraisal assignments.
Many of these requirements have remained in place despite significant evolution in industry practices and advancements in collateral risk management. Current appraisal standards no longer support the need for certain FHA-specific protocols, rendering them outdated and misaligned with broader industry norms. 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.
In alignment with the Administration’s efforts to reduce costs and remove unnecessary regulatory burdens, [HUD] is rescinding several outdated FHA Single Family appraisal requirements. These changes represent a significant step in modernizing FHA appraisal policy, improving program accessibility, and enhancing clarity around the Appraiser’s role.
Specifically, the Mortgagee Letter removes:
- Economic Life/Section 223(e) (II.A.3.a.ii(I)) and renumbers subsequent sections to remove requirements for the underwriter to use the Appraiser’s opinion of remaining economic life;
- Photograph requirements that exceed industry standards in Photograph, Exhibits, and Map Requirements (II.D.4.a);
- The remaining economic life reporting requirement in Effective Age (II.D.4.c.iii(D));
- The “redundant requirement” for additional comparable sales and listings in FHA Appraisal Requirements for Market Conditions and Changing Markets – Required Analysis and Reporting (II.D.4.c.iii(F)(3)); and
- Additional Appraisal Requirements for 223(e) Mortgages (II.D.8). (The citations are to HUD Handbook 4000.1)
The Handbook 4000.1 provisions modified by the Mortgagee Letter are set forth in an attachment to the Mortgagee Letter and are redlined to show the changes made.
The provisions of the Mortgagee Letter are effective immediately.
Mandatory Pre-endorsement Inspection Requirements for Properties Located in Presidentially-Declared Major Disaster Areas
In Mortgagee Letter 2025-19, HUD announced in connection with all FHA Title II single-family forward mortgage loans that it is rescinding the requirements for mandatory pre-endorsement inspection applicable to properties located in Presidentially-Declared Major Disaster Areas (PDMDAs).
In the Mortgagee Letter, HUD states:
FHA previously required damage inspection reports prior to endorsement for all Properties located in PDMDAs. FHA also required the inspection to be completed by an FHA Roster Appraiser, which sometimes resulted in a lengthy waiting period. These requirements applied regardless of whether any damage occurred and have led to unnecessary inspections, delayed loan closings, and postponed issuance of FHA insurance. In attempts to temporarily remedy these issues, FHA has issued multiple waivers of PDMDA inspection requirements.
As detailed in Handbook 4000.1 sections III and IV, the Mortgagee is responsible for the cost of Surchargeable Damage, which includes, but is not limited to, damage to a Property caused by fire, flood, earthquake, tornado, hurricane, or Mortgagee Neglect, where the Property has suffered additional damage because of the Mortgagee’s failure to take action. As such, Mortgagees have a vested interest in proactively monitoring all disaster-related property risks that may impact eligibility for FHA insurance and potential claims.
HUD advises that it is now deferring to the mortgagee’s “discretion to determine the property condition and scope of inspections and repairs following a disaster event based on its own risk management practices and tolerances.”
The provisions of the Mortgagee Letter are effective immediately.
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