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The U.S. Department of Housing and Urban Development (HUD) is seeking public feedback on whether the Federal Housing Administration (FHA)’s property requirements for single-family homes should be updated to better reflect current market conditions and reduce barriers to homeownership.
In a request for information (RFI) published in the Federal Register, HUD said it is reviewing FHA’s Minimum Property Requirements, or MPRs, which establish the standards homes must meet to qualify for FHA-insured financing.
The agency said the effort is intended to help inform future policy changes aimed at supporting sustainable homeownership while maintaining safeguards for borrowers and the FHA’s Mutual Mortgage Insurance (MMI) Fund. Comments are due by June 29.
Safe, sound and secure
FHA has required homes securing FHA-insured mortgages to meet minimum standards since the program’s inception. The requirements are intended to ensure that properties are safe, sound and secure while protecting the financial stability of the MMI Fund.
Under current rules, FHA-approved lenders are responsible for determining whether a property meets FHA standards. When appraisals or inspections identify deficiencies that prevent a property from meeting FHA requirements, repairs generally must be completed before the loan becomes eligible for FHA insurance.
HUD said the last major overhaul of the MPR framework occurred more than 20 years ago. That update, implemented through Mortgagee Letter 2005-48, reduced the agency’s emphasis on requiring repairs for minor cosmetic issues and normal wear and tear.
According to HUD, many FHA appraisals still result in repair conditions or additional inspection requirements. While similar property standards exist for loans backed by the government-sponsored enterprises Fannie Mae and Freddie Mac, some industry stakeholders contend that FHA transactions experience higher rates of repair requirements and reinspections.
HUD said these requirements can add costs and delays that may not always provide corresponding benefits to home quality or safety. The agency also noted concerns that some sellers may be reluctant to accept offers from buyers using FHA financing, due to a perception that FHA loans are more likely to require repairs before closing.
Through the request for information, FHA is seeking feedback on whether current MPRs adequately protect borrowers and the mortgage insurance fund, which requirements may no longer be necessary, and whether additional flexibility for post-closing repairs should be considered.
The agency is also requesting input on whether FHA’s appraisal process and appraisers’ role in identifying property deficiencies remain consistent with modern appraisal practices, as well as ways to simplify and clarify the requirements for lenders, appraisers and borrowers.
Industry feedback
HUD’s RFI follows a letter sent last month from industry trade groups — including the Mortgage Bankers Association (MBA), Broker Action Coalition (BAC) and Community Home Lenders of America (CHLA) — to HUD Secretary Scott Turner that urged the FHA to address MPRs and other appraisal reforms.
“MBA has long urged FHA to modernize its MPRs and better align its standards with the property condition rating frameworks used by Fannie Mae and Freddie Mac (the GSEs),” a spokesperson told HousingWire. “This would reduce operational friction while maintaining appropriate safety and soundness protections.”
“We believe alignment between FHA and GSE property standards could help reduce appraisal-related delays, improve consistency across the market, and expand access to qualified appraisers. We will meet with our members to formulate our response by the June 29 deadline.”
Steve Irwin, president of the National Reverse Mortgage Lenders Association (NRMLA), also issued a statement about the RFI.
“NRMLA and its membership appreciate HUD’s publishing of the recent RFI on minimum property requirements. We’ve put our committee structure in motion to begin drafting NRMLA’s response. There is always an opportunity to revisit rules and regulations and modernize that guidance to current realities and technology advances,” Irwin said.
Coby Hakalir, vice president of mortgage banking and core services for consultancy firm T3 Sixty, issued a statement in which he called FHA “its own worst enemy” in this situation.
“Fannie and Freddie insure plenty of safe homes without flagging chipped paint surfaces or missing handrails for a mandatory repair-and-reinspects. FHA’s far higher repair rates aren’t buying borrowers meaningfully safer houses. What they’re buying is a reputation that makes sellers reject FHA offers,” Hakalir said.
“When a first-time buyer using the program designed for them gets passed over for a conventional offer, the property standard moved from protecting that buyer to locking them out. Modernizing MPRs to match the GSEs’ risk-based approach is long overdue, and HUD should be aggressive about it.”
Bill Packer, chief operating officer for Longbridge Financial, one of the nation’s leading reverse mortgage lenders, issued a statement in which he applauded HUD for “taking a thoughtful look” at the minimum property requirements.
“Modernization presents an opportunity to improve the borrower experience, and help reduce unnecessary costs and delays, and aim to ensure FHA financing remains accessible to more homeowners,” Packer said. “In particular, greater clarity around the distinction between safety and habitability issues that require repair versus cosmetic or minor deficiencies could greatly help streamline transactions without having to compromise borrower protections or collateral quality,” the statement read in part.
“… Overall, we view this review as a very positive step and commend HUD for seeking industry input. We believe that modernizing these requirements can ultimately help FHA better serve today’s borrowers while preserving the program’s longstanding commitment to safety, soundness, and consumer protection.”
Editor’s note: This story was updated with comments from Longbridge Financial.
If you’re answering a question about whether HUD should align its property condition standards with Fannie Mae and Freddie Mac, here is a strong response:
Yes, I believe HUD should consider aligning its property condition standards more closely with Fannie Mae and Freddie Mac. One of the biggest challenges facing first time homebuyers today is limited inventory, especially in affordable price ranges. FHA financing is often the loan program used by first time buyers because of its lower down payment requirements and more flexible credit guidelines. However, FHA property condition requirements can sometimes be stricter than those of the conventional agencies.
When a home does not meet FHA standards, buyers may be forced to either walk away from the property, negotiate repairs with the seller, or pursue a more expensive financing option. In competitive markets, sellers often prefer offers that have fewer repair requirements, which can put FHA buyers at a disadvantage.
Aligning HUD’s standards more closely with the GSEs could increase the number of homes eligible for FHA financing, expand housing opportunities for first time buyers, reduce transaction delays, and create a more level playing field when competing against conventional borrowers. It could also help revitalize older housing stock by making more properties accessible to buyers who are willing to make improvements after closing.
While health and safety concerns should always remain a priority, greater consistency between FHA and conventional property standards could simplify the lending process and improve access to homeownership for many first time buyers.
It would also be great if these changes go correspond to the new appraisal form that will be required by November of this year. Or sooner as the spring summer market is here