The Federal Housing Administration (FHA) would like to review its anti-flipping rule and reforms to automated valuation models (AVMs), according to Matt Jones, deputy assistant secretary for the FHA’s Office of Single-Family Housing.
“We think our AVM, our valuation technology, has improved significantly since that rule was put in place a couple decades ago,” Jones said. “We’d like to take a look at getting rid of that in its entirety. Obviously, that’s a rulemaking process, so it takes a fair runway to get there, but we think that’ll be very positive for housing supply if we can get there.”
Jones, who spoke Monday during the Mortgage Bankers Association (MBA)’s Secondary and Capital Markets conference in New York, said that the FHA is the only program that still enforces the anti-flipping rule, which prohibits buyers from using an FHA-insured loan to purchase a home that the seller has owned for 90 days or less. “We’d love to take a look at” the rule, he said.
According to Jones, these changes would help boost housing supply. The same goal was behind recent prohibitions for non-residents participating in the FHA program — a move that follows a fivefold increase in demand from these borrowers during the Biden administration, he added.
Another recent change occurred a few weeks ago when the FHA abandoned the International Energy Conservation Code, which would have added between $20,000 and $30,000 in construction costs per home, Jones said.
“When we’re talking about how can we help with housing supply, a lot of it starts with eliminating things that actively had harmed the ability to develop and build housing supply,” Jones said.
Overall, Jones stated that the FHA is generally on track with last year’s endorsement levels.
On the affordability side, he said the FHA has another round of rescissions coming to address the cost structure of originations, specifically under a recent executive order from President Donald Trump. Topics under review include appraisal standards, wet signature requirements, e-signatures and post-closing quality control (QC) evaluations.
Loss mitigation and delinquencies
According to Jones, the COVID-19 pandemic brought an urgent need to overhaul the agency’s loss-mitigation program, creating a “band-aid problem” that was never sunset: an increased use of rolling 90-day partial claims.
The FHA’s December Mutual Mortgage Insurance report showed that 41% of new partial claims were given to borrowers who had already received three or more partial claims. In total, 36,000 borrowers have been in and out of serious delinquency, which exacerbates housing supply problems and servicing costs, he added.
In October, the FHA implemented a rule stating that borrowers get one more opportunity for a home retention option. After that, they must be evaluated and prove they are capable of making the revised payments through a trial payment plan to qualify for another option.
“Because there is a lag between when they’re evaluated and when they ultimately would receive a home retention option, there’s that multi-month lag in the data where they’re reporting still as seriously delinquent; according to what we’ve seen, almost the entire amount of that increase in serious delinquency is attributable to that policy change,” Jones said.
“We are starting to see, though, and we think this is a positive indicator, the 30 (days) and 60 (days delinquency rates) are starting to improve.”
The policy change, according to Jones, saves taxpayers $2 billion by driving a change in borrower behavior.
