SUPPLEMENTARY INFORMATION:

I. Background

Section 203 of the National Housing Act (12 U.S.C. 1709(a)) authorizes the Secretary to insure single family mortgages upon such terms as the Secretary may prescribe. Since the Single Family Mortgage Insurance Program's inception, the Federal Housing Administration (FHA) has required, as a condition of eligibility, that all residential properties securing insured mortgages satisfy certain Minimum Property Requirements (MPRs). These MPRs are designed to ensure that FHA-insured mortgages are collateralized by properties that are safe, sound, and secure, thereby protecting borrowers and the fiscal integrity of the Mutual Mortgage Insurance Fund (MMIF). FHA's MPRs are detailed throughout FHA's Single Family Policy Handbook 4000.1.

Separately, section 526 of the National Housing Act (12 U.S.C. 1735f-4) requires the Secretary to establish minimum property standards for newly constructed residential housing other than manufactured housing. Unlike the administratively developed MPRs, FHA's Minimum Property Standards (MPS) are expressly mandated by statute and apply to new construction. They are intended to ensure that newly constructed homes securing FHA-insured mortgages are safe, sound, and secure, and that they comply with applicable minimum energy efficiency requirements. FHA's MPS are codified at 24 CFR part 200, subpart S. The Single Family Policy Handbook 4000.1 provides additional guidance regarding these requirements. FHA's MPS are not the subject of this RFI.

The FHA-approved Mortgagee is responsible for determining whether the property securing the FHA-insured mortgage satisfies FHA's MPRs. When an appraisal report or inspection by a qualified entity identifies conditions that prevent the property from meeting FHA's property acceptability criteria, the Mortgagee must ensure that the necessary repairs are completed before the mortgage is eligible for FHA insurance. Through this process, ( printed page 32079) Mortgagees serve as the primary mechanism by which FHA's property standards are applied at the loan level, ensuring that properties securing FHA-insured mortgages meet the agency's baseline requirements for safety, soundness, and security.

FHA's MPRs have adapted to changes in the housing industry numerous times over the years but the last major update to the MPRs and the associated repair requirements was over 20 years ago. In that reform, first published in Mortgagee Letter 2005-48, FHA shifted away from the historical repair emphasis on minor cosmetic property deficiencies and normal wear and tear. However, FHA recognizes the benefit of modernizing and streamlining MPRs to better align the program with current industry practices. FHA recognizes that a considerable number of FHA appraisals require a condition for property repair or inspection. While the Government Sponsored Enterprises (GSEs) also maintain property safety, soundness and structural integrity requirements,^[1] some stakeholders indicate the resulting repair and reinspection rates are significantly lower than those of FHA. While repairs or additional inspections may be prudent in some cases, they create real costs that may not always yield a commensurate benefit in terms of home quality and/or safety. Moreover, this perception of excessive costs may result in the reluctance by some property sellers to accept offers from borrowers seeking FHA-insured financing.

President Trump's housing agenda has emphasized the removal of regulatory barriers that elevate the cost of housing, restrict access to mortgage credit, and undermine the American Dream of quality, affordable homeownership. Accordingly, FHA is contemplating a reassessment of its MPR policies to support a modern approach to collateral risk management practices. FHA is seeking input on this topic to ensure that all stakeholder perspectives are considered.

II. Purpose of this Request for Information

The purpose of this RFI is to solicit information on both specific MPRs and general approaches to modernizing MPRs in ways that balance the benefits of these requirements with the burdens that they may impose.

III. Specific Information Requested

FHA welcomes all comments relevant to MPRs but is particularly interested in receiving feedback on the specific questions below.

1. What are the advantages and/or disadvantages of MPRs compared with the property safety and soundness requirements of other governmental and non-governmental financing programs/options?

2. Do the current MPRs adequately protect borrowers utilizing FHA programs to purchase or refinance a home? Do the current MPRs adequately protect FHA's Mutual Mortgage Insurance Fund (MMIF) through reduced collateral risk?

3. What specific MPRs are no longer applicable or necessary to ensure properties are habitable, safe and sound for FHA borrowers?

4. Are there opportunities to expand post-closing repair flexibility while still protecting borrowers and the MMI Fund?

5. Are there important factors FHA should consider generally when modernizing policies to balance the safeguarding function of MPRs relative to any additional burdens that MPRs may impose?

6. Are the MPRs communicated clearly enough in FHA policies for borrowers, Mortgagees, and appraisers to understand the requirements? For example, is there a clear distinction between safety and habitability concerns that necessitate pre-closing repairs versus cosmetic repairs?

7. How could FHA streamline and/or simplify MPR policies for Mortgagees and appraisers to better interpret and apply MPR policies consistently?

8. Is the FHA Appraiser's scope of work to identify MPR deficiencies aligned with modern appraisal practice or are there other more appropriate approaches?

9. Please provide any general suggestions for improvement or comments on modernizing FHA's approach to MPRs.

91 FR 32078