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Housing Wire: FHA to deny mortgage backing for credit disputes above $1,000
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Beginning April 1, potential borrowers with ongoing credit disputes to
taling more than $1,000 will not be able to get a mortgage insured by the Federal Housing Administration.
The rule marks a significant belt-tightening at the FHA whereas the adminstration earlier held no such requirement that disputed credit accounts needed to be paid off. Before this rule, a direct endorsement underwriter could determine if any of the borrower's outstanding debts should impact the approval of the FHA-backed mortgage.
After April 1, the borrower must either pay off the outstanding balance on these collections accounts or document a payment arrangement that the lender must then submit to the FHA before closing. The payment arrangement will be counted into the debt-to-income ratio for the new home loan.
Jeremy Radack, a real estate attorney who helps builders in Houston get buyers financed, expects between a 33% and a 50% reduction in FHA originations this year because so many borrowers in the 650 to 680 FICO score range have a past due collections account.
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