FHA, FHFA Release Regulatory Announcements
The Federal Housing Administration (FHA) is seeking feedback not a requirements update it proposes for insuring mortgages on single family homes with Accessory Dwelling Units (ADUs).
The proposal released last week would enable mortgage borrowers to use rental income from the property’s ADU to qualify for FHA-insured financing. This would include 203(k) renovation loans.
Current rule allow for the purchase, rehabilitation, or refinance of these properties, but does not currently allow for the inclusion of rental income from the ADU in the borrower’s qualifying income.
“FHA is at the forefront of the Administration’s efforts to increase housing supply and affordability,” said Federal Housing Commissioner Julia Gordon. “At a time when housing supply is constrained and ADUs are gaining popularity nationwide, an updated policy has the potential to expand opportunities for low- and moderate-income homeowners to benefit from the wealth building potential of ADUs while supporting the affordable housing needs of their communities.”
ADUs are small units of housing built inside, attached to, or on the same property as a primary residence.
The full set of proposals are contained in a draft Mortgagee Letter posted for public feedback on FHA’s Single Family Housing Drafting Table web page. FHA is accepting feedback on its draft policy through April 27, 2023.
The draft letter proposes:
Policy on underwriting rental income from an ADU and for the analysis and reporting of ADU market rent in FHA appraisals.
Policy that adds ADUs to the types of improvements eligible for the FHA Standard 203(k) Renovation Mortgage Insurance Program and for including ADU rental income when performing financial assessments for HECM.
The proposal states that rental income can be considered effective income if the property is or will be a single-unit dwelling with an ADU, a two to four-unit dwelling, or an acceptable one to four-unit investment property. No income from commercial space may be included in rental income calculations.
FHA said it is especially interested in feedback on the sufficiency of its proposed policy provisions to ensure that borrowers can meet their mortgage obligations for 203(k) mortgages used to finance the new construction or renovation of an ADU if construction or renovation of the ADU takes longer than anticipated.
Also last week, the Federal Housing Finance Agency (FHFA) published a final rule to amend the Enterprise Duty to Serve Underserved Markets regulation.
The final rule allows Fannie Mae and Freddie Mac’s activities in all colonia census tracts to be eligible for Duty to Serve credit.
“The implementation of this rule strengthens our commitment to promoting affordable, equitable, and sustainable housing in underserved and rural communities,” said FHFA Director Sandra L. Thompson. “FHFA will continue to ensure that Enterprise Duty to Serve activities meet the needs of people living in colonias.”
The final rule:
Adds a new definition for “colonia census tract” to mean a census tract containing a colonia, which will serve as a census tract-based proxy for a colonia.
Amends the definition of “high-needs rural region” by substituting “colonia census tract” for “colonia.”
Amends the definition of “rural area” to include all colonia census tracts, regardless of their location.
FHFA published a notice of proposed rulemaking in September 2022. The final rule will go into effect on July 1, 2023.
