Real Estate Marketing & Beyond
Federal Housing Administration
Experts say that a new ruling by the Federal Housing Administration is likely to rule out thousands of potential buyers from securing a government-backed mortgage when it comes into force next Monday.
The FHA has announced that as of April 1st, it will no longer issue mortgage insurance for any borrower involved in an ongoing credit dispute worth $1,000 or greater, reports Housing Wire.
In order to qualify for an FHA-backed loan, borrowers will be required to settle any credit disputes in full, or else agree on a payment plan with their creditor and make a minimum of three payments before being considered. If a borrower decides to go for the payment plan route, this will need to be properly documented and then submitted to the FHA with their application. The payment plan will then be taken into account when the borrower’s debt-to-income ratio is calculated.
Disputed credit accounts that are more than two years old, and credit disputes linked to possible identity theft will not be included however.
Still, housing industry professionals are worried that thousands of potential buyers will be unable to secure a new mortgage once the rule comes into force.
Lisa Jackson, Vice President of Research at Burns Real Estate Consulting, told HousingWire that it remains uncertain as to how many buyers might be affected:
"We expect this revision will certainly kick some buyers out of the marketplace, and we’re in ongoing efforts to quantify how extreme the impact will be."
The number of buyers blocked from securing a mortgage could be very high, according to Jeremy Radack, a Houston-based real estate attorney. Radack told Housing Wire that FHA-backed loans could be reduced by as much as 33% to 50% this year.
The FHA claim that the new rule is necessary to protect their emergency fund, which has dropped below the minimum amount mandated by Congress.
An FHA Spokesperson made the following statement about the ruling:
"We found that many borrowers with mortgage payment delinquencies had prior credit deficiencies including unpaid collections and unresolved disputed accounts prior to the approval of their loan. This change was made to eliminate this layer of risk to FHA-insured loans and help protect our insurance fund."
Gotta side with FHA on this one. As previous articles here on RBN have detailed, FHA is virtually insolvent, and must take steps to curtail losses to this insurance fund. Of course the NAR probably does not like this, this has to be done (and more) to protect the fund. If FHA were to disappear, it would be very bad for the housing industry. We must protect FHA by only lending to borrowers who are a reasonable credit risk. The taxpayers are already picking up the tab for way too much FHA insurance, including fraudulent loans that never should have been made.