From the Instructor’s Desk Memo June 27, 2025
In a press release from FHA on June 27, 2025, a significant number of policies were rescinded that were impacting the affordability and accessibility of homes for many Americans. Let’s take a deep dive into the changes and how it will impact your mortgage origination activities.
FHA is cutting red tape to more effectively deliver the current priorities of the administration to reduce direct and indirect costs of home ownership to American families. These policies have become a regulatory and financial burden.
The mortgage industry can implement these changes immediately.
Rescission of Supplement Consumer Information Form Requirement.
This rescission is currently only applicable to the FHA mortgage loan program. The Supplemental Consumer Information Form (SCIF) which is used to collect the consumer’s preference to a specific language. The form 1103 will continue to be used on Fannie Mae and Freddie Mac mortgage loans. The reasons provided for the elimination of the required use of the forms it that the benefits did not outweigh the additional burden to collect the information. We have experienced on the mortgage compliance side that these forms were not being filled out correctly, and the consumers often did not want to provide this information anyway.
Rescission of Full-Time Direct Endorsement Underwriter Requirements.
Removes the requirement that an FHA Direct Endorsement Underwriter must work full-time. Now it allows for a part-time work arrangement. However, it retains the requirement that the DE Underwriter may only work for one mortgage company. So, a DE Underwriter can’t work for two mortgage companies each part-time. So as a DE Underwriter if you need to work full-time, you will need to find a company that can employ you full-time. Additionally, the part-time work will not impact a DE Underwriter’s minimum work experience. If you are employed part-time that employment years will be used to fulfill your experience requirements.
Rescission of Federal Flood Risk Management Standards (FFRMS) for New Construction.
This initial ML was originally issued in January 2025; with the rescinding of this policy, it reverts back to the original requirements prior to ML 2024-20. Removes the requirement that all new construction projects must be built at least two feet above the FEMA determined Base Flood Elevation (BFE). What remains is that all homes must be above the 100-year flood elevation in compliance with the National Flood Insurance Program (NFIP) and ensure that the borrower obtains Flood Insurance. If the subject property can be removed from the flood plain with the process of a LOMA, LOMR or a FEMA NFIP Elevation Certificate they must be included in the mortgage loan file at time of endorsement.
Rescission of Outdated and Costly FHA Appraisal Protocols.
Removes the “Economic Life Section” and “Effective Age” sections of the appraisal. It also removes the underwriters’ requirement to use the appraiser’s opinion of the remaining economic life and effective age of the property. These sections required the appraiser to form an “opinion” and narrative on the actual age and the effective age impacting the economic life of the property. Additional requirements for the appraiser to “comment” on the current market trends, whether increasing or decreasing have been removed from the “Neighborhood” section of the appraisal. All these changes are to focus on the “facts” of the appraisal and not on the “opinion” or “comments” of the appraiser.
Removes some of the laborious photograph requirements, such as site’s grade and drainage, attic and crawl spaces, additional photos provided directly from the appraiser for all comparable sales, including all angles and street views, used in the appraisal. For properties that are in a condominium complex, and two-to-four family dwellings, this removes the requirement for photos of common areas, and amenities.
Rescission of Mandatory Pre-endorsement Inspection Requirements for Properties Located in a Presidentially-Declared Major Disaster Areas (PDMDAs).
Removes the burdensome requirements established by FHA in 2024 for additional inspections, escrows for repairs and completion of repairs prior to endorsement of the FHA loan. Many of the repairs were not necessary for the habitability of the property. The new inspection requirements are similar to that of conventional mortgage loans where the investor must ensure habitability of the property. The Mortgagee may use their own discretion on how to evaluate and assess the property condition and determine required repairs prior to endorsement, and if an escrow account is required for any repairs. The mortgagee will still be responsible for the property’s eligibility for FHA insurance.
The mortgage industry is experiencing many changes, and sometimes it is hard to keep up with everything. Selecting a mortgage education company that can help you learn and navigate through all these changes while completing your annual CE requirements is a “win-win”. Join Mortgage Education Institute for your NMLS CE in one of our live webinar or live classroom events in 2025. Real actionable takeaways for mortgage compliance and mortgage origination that you can implement immediately.
