FHA delays collections rule
Lenders had feared that up to 20% of borrowers could be cut out of the market if the new rule barring loans to clients with more than $1,000 in collections accounts went into effect.
In the new world of tighter credit, mortgage lenders are looking for ways to add more guarantees that borrowers will not default on their loan.
One new rule, which had been scheduled to go into effect April 1, would deny Federal Housing Administration loans to anyone who had more than $1,000 in disputed or unpaid collection accounts.
After estimates that the change in policy could put up to 20% of FHA mortgage applicants out of the market, the FHA has delayed implementation of the rule for three months and will collect additional comment.
Post continues below
Previously, collection accounts on a credit report did not scuttle the loan. Instead, it knocked it into manual underwriting, and borrowers allowed to explain the collection. For example: Perhaps it was in error, but the borrower had not yet persuaded the collection company.
FHA loans are favored by first-time and less affluent homebuyers because they can buy a house or condo for as little as 3.5% down.
Although denying loans to people who have not paid their bills in the past seems logical, the practices of the credit-collection industry make it quite possible that people could have old or erroneous collections data in their records.
Syndicated columnist Kenneth R. Harney talked to Jeremy House, a loan officer in Arizona, who noted that many Americans have old medical collections accounts, valid or not, in their files. Harney wrote:
House cited the example of an applicant with a FICO score of 770 who recently discovered that two new medical collections had popped up on his credit reports. The applicant said he had no knowledge of the unpaid bills or the doctor, and believes them to be in error. But the appearance of the collection items knocked his FICO score down to 655. Under the new FHA policy, it could take months to dispute and resolve the issue.
Although the new policy has been delayed, at least until July 1, Harney's advice to consumers still stands: If you're thinking of buying a house, get a copy of your credit report well in advance so you have time to dispute any errors.
Many lost there jobs due to downsizing companies or just companies going out of business.
A correction of accounts should be corrected by agencies that show people how to manage there debts by joining Care One Credit or Consumer Credit Counsel Programs. This will allow a more organized program for those wanting to show improvement due to hardship issues.
Credit reports have always been a result of verification. But how long will this be the only option to get a better rate?
A reasonable statement and proof of your hardship should be considered, negative collection accounts should be managed and income verification/earnings should be the new approval determination to allow approvals.
Back up benefits should be a factor: Life insurance, Disability Insurance, etc as unemployment per state will not assist (some states only pay 66% of earnings. est) Also part of your mortage should have a savings account for emergency to cover each mortage holder in case of an emergency.
Short Sales and Foreclosures that took place after our countries down fall (recession) hardship is an issue that need new loan regulations that help those that loss.
So many of you people leaving comments have no clue whos fault this was .. sheesh .. You should do a little investigative work and find out whats really going on... we have not seen the end to this by a long shot ...you should all brush up on your survival skills and start thinking about taking care of your your families . The basic things you need to live with is what is going to be important and 2nd, is what your going to use for money. Wise up people... use the mind that was giving to you... You'll soon see.
Fedup948 wrote - Why not give the homeowner the price of the foreclosure. This would not hurt the taxpayer and I think the Banks and Fannie Mae and Freddie Mac have enough "monies" to cover the principal reduction.
How in the world is that fair to those people that chose to live within their means and buy what they could afford. This is rewarding folks that made poor choices and broke promises. Can you tell the class where the banks, Fannie and Freddie get their money?
Think about How Strong America would be right Now if everyone conducted their affairs and had the SAME philosophy as Dave10???? BRAVO Dave BRAVO. My situation mirrors yours. And i've been preaching the same my whole life.
If you think you should get it now, no down payment with lousy credit or insufficient income, get out of town, handouter.
You parasites have already cost us enough.
God you people are worthless.
Why not give the homeowner the price of the foreclosure. This would not hurt the taxpayer and I think the Banks and Fannie Mae and Freddie Mac have enough "monies" to cover the principal reduction.
You are ersatz life forms, without merit, worth, value, honor or integrity.
Your febrile attempts to shame me, are worthless..
I would step over your worthless body, on my way to work..
You handouters still haven't received the message, we have had enough.
You can work, earn and pay your own way or starve and we are approaching the, "don't care which" place.
About Teresa Mears
Teresa Mears is a veteran journalist who has been interested in houses since her father took her to tax auctions to carry the cash at age 10. A former editor of The Miami Herald's Home & Design section, she lives in South Florida where, in addition to writing about real estate, she publishes Miami on the Cheap to help her neighbors adjust to the loss of 60% of their property value.