FHA is headed in the correct direction. This is a positive step in helping first time home buyers who may have a blemish on their credit report. This will help borrowers who have had a life event and may not be able to pay off the life event.
The Federal Housing Administration will allow borrowers to provide a written explanation of some disputed collections accounts in order to qualify for a government-backed mortgage, according to a rule clarification sent to lenders.
Under a new rule that took effect April 1, the FHA will disqualify borrowers from a home loan until any outstanding collections accounts of more than $1,000 are resolved or a payment plan is set up.
Because borrowers with a sub-700 credit score can often have such overhanging accounts, lenders feared the rule would shut out far too many homebuyers.
But according to the alert, a borrower can be exempted from the rule if the disputed collections account stems from a "life event," such as a medical bill, death, divorce or loss of employment.
"The borrower may provide a written explanation and documentation as it applies to all types of disputed and collections accounts if it makes sense, and is consistent with other credit information in the file," according to the alert.
The FHA originally installed the rule to protect its mutual mortgage insurance fund from insolvency. Its capital ratio dropped to roughly 0.2% last year and may have needed an unprecedented bailout without recent settlements with originators and increases to its insurance premiums.
John is a local Realtor with Petersen Partners, a Cobb County Real Estate company associated with Prudential Georgia Realty, the number two Real Estate Team in Prudential with over $23 million in transactions in 2011. I work with all buyers and sellers and across all price points.
I have lived in the Smyrna area since 1990 and have seen the growth of the area and also the challenges and successes that that growth has come with. Cobb County is really a great area to live in and the taxes are lower then the surrounding counties.
If you have any questions about your home, want to purchase or sell a home, feel free to contact me directly at 678.478.2424 or email@example.com