Development files for Super Mario World show that the developers were considering several different hair colorations for Larry that all had white, green and orange as their main colors. I have created mockups of what his official art could have looked like if these were chosen.

why they made these changes when their actual colors were completely different in the artworks? Like, why they decided to give iggy and Ludwig white hair or make Morton green? Is there a reason?

These mockups are awesome. Nice job!

Honestly, this design works, even if the white is a bit too pronounced; I can definitely see why they considered it at some point. One possible reason they decided against it might've been to make him more distinct from Iggy's design (similar vibe + green-coded hair).