When a new Federal Housing Administration rule takes effect next Monday, April 1 experts say that FHA backed mortgages will no longer be an option for many potential borrowers. HousingWire is reporting that the federal agency will no longer issue mortgage insurance for borrowers who have ongoing credit disputes totalling $1000 or more.
Prior to this rule going into effect, the decision of how disputed credit issues were handled were left up to the individual underwriter. After April 1, a borrower who wants a FHA backed mortgage will need to either pay off the collection account(s) in full or agree to a payment arrangement with the creditor. In the case of a payment arrangement a minimum of three monthly payments must be made prior to consideration for the loan. The payment plan will also be accounted for in the borrower’s debt-to-income ratio. Disputed accounts that are more than two years old or that are linked to identity theft will not require some form of settlement from the borrower.
An FHA spokesperson explained the agency’s reasoning for this new rule. “When performing loan-level reviews of FHA loans, we found that many borrowers with mortgage payment delinquencies had prior credit deficiencies including unpaid collections and unresolved disputed accounts prior to the approval of their loan. This change was made to eliminate this layer of risk to FHA-insured loans and help protect our insurance fund.”
If you have questions about how this new rule may affect your ability to obtain a mortgage please call your lender. If you don’t know of any good lenders we would be happy to give you the names of lenders that we and our clients have worked with successfully in the past. Contact us