WASHINGTON — A little-noticed mortgage-rule change that took effect April 1 could create hassles for significant numbers of homebuyers who plan to use low down-payment FHA financing this spring.
The change affects anyone with one or more “collection” accounts buried in national credit-bureau files. These include medical, student loan, retail and other debts reported as unpaid — correctly or incorrectly — by creditors and sent to collection agencies.
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In a reversal of its previous policy, the Federal Housing Administration says it will no longer approve applications where the borrowers have outstanding collections or disputed accounts with an aggregate of $1,000 or more of unpaid bills.
Previously the agency took a more lenient approach, allowing lenders to review borrowers’ overall credit situation and approve applications despite the presence of such accounts.
Under its new rule, when collection items total $1,000 or more, the accounts will need to be paid off over several months or be paid in full at or before the closing.
In cases where the collections or disputed debts are attributable to identity theft, credit-card theft or unauthorized use of the applicant’s credit — or when collection accounts total less than $1,000 and are at least 2 years old — the new rule may be waived.
The policy shift, which the agency says is part of its ongoing efforts to reduce loan defaults and insurance claims, has upset some mortgage lenders who specialize in FHA business
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