The U.S. Department of Housing and Urban Development (HUD) and the Federal Housing Administration (FHA) have announced two initiatives aimed at improving homeownership affordability and increasing transparency for mortgage servicers within the Single Family program.
The FHA is introducing more flexible underwriting policies for borrowers who rent out space in their homes, enabling them to qualify for affordable FHA-insured mortgage financing. Additionally, the agency has finalized its Single Family Defect Taxonomy for Title II mortgage program servicing loan reviews, which will provide greater clarity regarding the process and potential actions taken in cases of servicer errors or non-compliance.
Adrianne Todman, HUD Agency Head, emphasized the importance of these changes: “Supporting growth in affordable homeownership and collaborating with private partners such as mortgage servicers are both crucial components of HUD’s vital mission. The increased flexibilities announced today for FHA-insured mortgages will help more people gain and maintain homeownership."
Federal Housing Commissioner Julia Gordon highlighted that these actions stem from ongoing discussions with industry participants and consumer advocacy groups: “The actions we’re announcing today complement our work over the last four years to increase access to affordable homeownership and to increase transparency in our policy and operational processes.”
The revised underwriting guidance allows rental income from individuals renting space inside a borrower's home to be included as part of FHA qualification if there is a 12-month history of receiving this income. Furthermore, the FHA is expanding acceptable income verification documentation types.
The Servicing Defect Taxonomy builds on the Origination Defect Taxonomy implemented in 2017, offering a framework for consistent policy enforcement while allowing flexibility for unique loan scenarios. Remedies may include corrective actions by servicers or indemnification terms ranging from one year to five years rather than life-of-loan indemnification.
Sarah Edelman, Deputy Assistant Secretary for Single Family Housing, remarked on the significance of these changes: “Today we’ve made it easier for more borrowers to qualify for an FHA-insured mortgage, and for mortgage servicers to understand our mortgage servicing loan review process and error severity assessments.”
These updates reflect a comprehensive approach under the current administration aimed at enhancing various aspects of the FHA program.
