The Federal Housing Administration has eliminated their own new rule aimed at consumers with even fairly minor “collections debt.”
The new rule, which would have gone into effect July 1, required potential borrowers to settle any disputed debts totaling $1,000 or more before the FHA would consider backing their mortgage.
The rule originated as part of ML 2012-03 back in April. It was effective for just one week until it was placed on hold by the FHA until July 1 as they fielded questions and concerns. (Any loans written between April 1 - April 8 to fit the guidelines will not be deemed in violation of HUD requirements.)
Though the FHA drafted the rule in an effort to reduce risk and protect its emergency fund, they faced immediate pushback with the announcement. Controversy surrounded the topic, as homebuilders and lenders loudly voiced concern that the new rule would dramatically hurt business, especially with first-time homebuyers.
News that the FHA has rescinded its tougher credit policy rule is a new bright spot for both lenders and for those looking to the FHA for home financing. Borrowers eager to see themselves in a new home no longer need to worry about resolving or paying off disputed credit before applying for a loan, as the rule has been revoked effective immediately.
But as reported on HousingWire.com, an FHA spokesperson said they are still taking comments on the original proposal.
All other guidance in ML 2012-3, which became effective April 1, 2012, remains in effect.
See the official language in the HUD Mortgagee Letter 2012-10.
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Government Agency Approval | FHA Non-Supervised Mortgage Approval #: 24751-0000-5 | VA Automatic Lender Approval #: 902324-00-00