FHA delays loan rule on borrower credit disputes

FHA delays loan rule on borrower credit disputes

WASHINGTON – April 24, 2012 – After being told that a new rule could shut too many borrowers out of the market, the Federal Housing Administration (FHA) said it would postpone implementation. The now-delayed rule raised the bar on qualifying for an FHA mortgage if borrowers had a credit dispute in their file.

The rule took effect April 1, and FHA announced a few days later that it would ease the restrictions a bit. But after the first week, FHA announced that it would postpone the rule altogether until July 1.

Any mortgages written while the rule was in effect during that first week in April will not see the new rule applied.

The new guidelines required borrowers qualifying for an FHA-insured mortgage to pay off any credit dispute of more than $1,000 in their history or set up a documented payment plan on any unpaid collection accounts.

The FHA received several complaints from lenders that said the new rule would shut out too many buyers. For example, JPMorgan Chase analysts had estimated the rule could curtail demand by up to 20 percent for FHA loans.

The new rule is expected to have the greatest impact on young, first-time borrowers, according to Jeremy Radack, a real estate attorney who assists Texas builders in a Builder Magazine interview. When the FHA rule temporarily took effect in the first week of April, Radack says they saw a decrease in sales up to 35 percent.

The delay in the new rule taking effect, according to FHA, will give lenders more time to adjust to the new requirements as well as the opportunity to solicit “additional input on this section and work to clarify guidance, as appropriate.”

Source: “FHA Postpones Rule Change for Borrowers in Debt Disputes,” Inman News (April 20, 2012) and “FHA Delays New Rule on Debt Accounts,” San Francisco Chronicle (April 12, 2012)

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