The Federal Housing Administration should align its minimum property requirements with those used by Fannie Mae and Freddie Mac, which would streamline the FHA financing process and make it less expensive for lenders to produce – and consumers to obtain – an FHA loan, the American Bankers Association and 10 associations said in a joint letter.
The Department of Housing and Urban Development recently began a review of single-family minimum property requirements for FHA mortgages as part of President Trump’s March executive order on promoting access to mortgage credit. In their letter to HUD, the associations said FHA requirements are one of the most significant impediments to the utilization of FHA financing by prospective homebuyers.
“The standards impose an additional set of requirements that do not reduce the lenders’ collateral risk or, in most cases, improve the overall soundness of the property,” they said.
The associations recommended FHA instead align with Fannie’s and Freddie’s policy of requiring appraisers and property data collectors to determine the property condition holistically in accordance with a standardized condition rating, on a scale that categorizes the property condition from C1-C6.
“Adopting the [Fannie and Freddie] rating system would still protect FHA borrowers from purchasing substandard housing and would have the benefit of standardizing key elements of the appraisal process, making the FHA program easier and more attractive for lenders, and less costly for consumers,” they said.
