FHA won't deny loans over collections
Agency abandons plan to reject loans from borrowers who had more than $1,000 in disputed debt-collection accounts.
The Federal Housing Administration has reversed course and decided not to deny mortgages to borrowers who have more than $1,000 in disputed collections accounts.
The rule, which originally had been scheduled to go into effect April 1, was rescinded Friday by the Department of Housing and Urban Development.
Implementation of the new policy had been delayed for three months after opposition from homebuilders and lenders, who said such a rule would further curtail purchases by first-time homebuyers and shut out the low-income borrowers the FHA was designed to serve.
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The purpose of the rule was to cut the risk to the FHA from borrowers who defaulted on their loans. It required the borrowers to either pay off the outstanding balance or show they had made payment arrangements. This didn't leave an option for borrowers who were in collection for debts they didn't owe.
Although denying credit to people who don't pay their bills seems like a good idea, the real world
of debt collection is plagued with errors. That means that borrowers who have always paid their bills on time could end up with more than $1,000 in erroneous collections on their accounts, which would end up as disputes. The rule applied only to collections that were less than two years old and did not apply to debts related to medical bills, death, divorce or unemployment.
The FHA can still decide to deny credit to customers with accounts in collections or with disputed collections account, but the decision is now back to being made by humans who know the borrowers' circumstances rather than being automatic.
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I know couples and single friends that are walking away from their homes everyday. Many should not have been in those homes in the first place because many were having financial issues from day one.
If you know that you could not afford the home that you lived in, you should leave and not make the bank have to throw you out. Yes, these banks have issues but the borrowers should have read their loan documents.
I'm not going to sign my life away without knowing what I'm signing - I did that when I joined the military - I have learned since then.
"who said such a rule would further curtail purchases by first-time homebuyers and shut out the low-income borrowers the FHA was designed to serve."
Oh yeah, let's engage in the same behavior that got us into this mess to a large extent to begin with...namely approving mortgages for people who had no business buying a house in the first place.
"That means that borrowers who have always paid their bills on time could end up with more than $1,000 in erroneous collections on their accounts, which would....
Wow, I guess there's just no way to check on that is there? And apparently since there's not, we'll just loan to everybody again because it's apparently better to approve lots of mortgages again to people who can't afford them than it is to end up denying a few that might have to do a little work on their own to clear up their own credit record.
Damn, our government really is stupid beyond belief sometimes.
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.
