The rule (Mortgagee Letter 2012-3) was announced by the agency in March and set to take effect on April 1. Affecting all potential home buyers who were showing an unpaid collection on their credit reports, this new stance was expected by housing analysts to have a negative impact on the housing market.
FHA was going to require buyers to pay off collections of over $1000 before a mortgage loan would be extended. The FHA attributed the change in policy to their ongoing effort of building a stronger portfolio.
The worry from mortgage experts was that this would be especially detrimental to young, first-time homebuyers. These borrowers most likely would not go through the tedious process of paying off old collection accounts, due to the expense and the frustrating difficulty in dealing with creditors.
According to an article on Builderonline.com “JPMorgan Chase analysts estimated the rule would cut demand for FHA loans by 10% to 20% in the next few months.”
The ruling has now been postponed to not take effect until July 1. This will give FHA time to seek additional input on this section and work to clarify guidance, as appropriate.
~~Susan McCullah is the Product Development Director for Data Facts, a 23 year old Memphis-based company that provides mortgage product and banking solutions to lenders nationwide. Check our our website for a complete explanation of our services.