FHA Loan Changes Aim To Reduce Costs and Simplify Lending
The U.S. Department of Housing and Urban Development (HUD) has announced a series of major FHA mortgage policy changes intended to lower costs and streamline the FHA loan process. These changes were introduced through multiple mortgagee letters and apply to the agency’s single-family mortgage insurance program.
According to HUD Secretary Scott Turner, the goal of these updates is to eliminate outdated or overly burdensome rules that can limit access to homeownership and raise costs for both borrowers and lenders.
Below is a summary of the most impactful updates to FHA loan requirements.
1. Removal of Supplemental Consumer Information Form (Form 1103)
The FHA has officially rescinded the requirement for lenders to provide Form 1103, also known as the Supplemental Consumer Information Form. This form was used to gather information about a borrower’s language preference, homeownership education, and housing counseling history.
HUD determined that the form’s intended benefits did not justify the added workload for mortgage lenders. As a result, this information is no longer required to be collected or retained during the FHA loan process.
2. Rollback of Flood Zone Building Standards
In a significant change for properties in high-risk areas, HUD has also rescinded a 2024 policy that required the lowest floor of any home built in a 100-year floodplain to be elevated two feet above the FEMA-defined base flood elevation.
This change is intended to reduce construction and compliance costs, especially in areas with tight housing supply or high development expenses. FHA loans for homes in flood zones will still be subject to other FEMA and insurance-related guidelines.
3. Inspection Requirement Removed for Disaster Areas
Another HUD update eliminates the requirement for a damage inspection report before FHA endorsement for properties located in presidentially declared disaster areas. This policy shift may reduce delays in the loan process while maintaining appropriate risk assessment during underwriting.
4. Part-Time DE Underwriters Now Allowed
Previously, Direct Endorsement (DE) underwriters were required to work full-time. The FHA has now removed this requirement, giving mortgage lenders the flexibility to use part-time DE underwriters to help underwrite and close FHA-insured loans.
This change benefits lenders of all sizes, especially smaller firms that may not need full-time underwriting staff. It also expands the talent pool for FHA loan processing.
What These HUD FHA Updates Mean for You
These HUD FHA updates in 2025 are part of a larger effort to reduce regulatory red tape, improve lender efficiency, and make homeownership more accessible. By removing certain documentation and employment requirements, the FHA is aiming to create a more flexible and cost-effective lending environment.
For mortgage professionals, these changes can reduce overhead and speed up loan approval times. For borrowers, it may mean a more streamlined and less complicated FHA loan process.
Final Thoughts
As the FHA continues to revise its approach to mortgage policy, staying informed is key. These recent updates reflect a shift toward simplicity and efficiency in FHA lending.
If you have questions about how these policy changes might affect your eligibility, loan processing, or lending strategy, we are here to help. Reach out today to learn more about your FHA loan options.
Source: Scotsman Guide
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