The U.S. Department of Housing and Urban Development (HUD) and U.S. Department of Agriculture (USDA) have rescinded a 2024 rule that tied eligibility for FHA- and USDA-backed mortgages on new construction to stricter energy efficiency standards, marking a significant shift with direct implications for mortgage originators and housing supply.
The 2024 rule required newly constructed homes financed through FHA or USDA programs to meet the 2021 International Energy Conservation Code (IECC), a stricter set of building standards not widely adopted across the country. Industry groups warned the requirement would raise construction costs and limit the number of homes eligible for government-backed financing, particularly in entry-level and rural markets.
In a joint determination announced today, the agencies eliminated the requirement that new homes meet the 2021 International Energy Conservation Code (IECC) to qualify for federally backed financing.
For lenders, the change means deals that may have been ineligible under the stricter standards can now move forward without additional construction or certification hurdles.
Rule Rollback Removes Eligibility Barrier
The now-rescinded rule had made newly built homes ineligible for FHA or USDA financing unless they complied with updated energy codes — standards that have been adopted in only a few states, according to HUD.
HUD Secretary Scott Turner said the rollback is intended to lower costs and expand access to homeownership, noting the prior mandate “added tens of thousands of dollars to the cost of a new home.”
The move follows a federal court ruling that blocked the stricter standards amid concerns they would limit housing supply and financing access.
Under the new determination, FHA and USDA programs will revert to the energy standards in place before the 2024 rule, broadening the pool of eligible new-construction properties and allowing more deals to move forward.
MBA: Affordability And Access At Stake
In a statement following the announcement, Bob Broeksmit, president and CEO of the Mortgage Bankers Association, said the industry views the rollback as a meaningful step toward improving affordability and access.
“MBA welcomes today’s announcement from HUD Secretary Scott Turner and Secretary of Agriculture Brooke Rollins rescinding a burdensome and costly regulation that would have significantly increased the price of new home construction and limited access to FHA and USDA financing,” Broeksmit said.
“We appreciate the agencies’ responsiveness to the concerns raised by our members about the real-world impact of this policy. This action reduces regulatory red tape that hinders new housing production and limits affordability — particularly for first-time and rural homebuyers.”
Broeksmit added that supply remains central to affordability challenges.
“MBA has consistently emphasized that increasing housing supply is essential to improving affordability, and policies that unnecessarily raise construction costs work against that goal,” he said.
“We will continue to work with both agencies to advance policies that support sustainable homeownership, expand housing supply for owning and renting, and ensure that creditworthy borrowers across the country have access to affordable mortgage financing.”
What It Means
For mortgage professionals, the policy reversal removes a key friction point in new construction lending:
- Expanded eligibility: More newly built homes can now qualify for FHA and USDA financing without meeting 2021 IECC standards.
- Improved borrower access: Lower construction costs may translate to more attainable price points for entry-level buyers.
- Pipeline implications: Builders previously sidelined by compliance costs may reenter FHA/USDA channels, potentially increasing loan volume.
The shift underscores an ongoing policy tension between energy efficiency goals and housing affordability — one that continues to shape the regulatory landscape for lenders and builders alike.
