Underwriting and policy changes are common occurrences in mortgage lending. Fannie Mae, Freddie Mac, and FHA/VA usually dictate what the rest of the industry does, and their changes directly impact borrowers from Orange County, California to Dade County, Florida, and everywhere in between.
An interesting event occurred this week, though, when HUD, the department under which the FHA falls, reversed a previous decision to make a change in its collections policy.
Specifically, the FHA's collections policy states that the FHA will not insure FHA mortgages for borrowers whose credit reports show outstanding collections is excess of $1,000 until either (1) The borrower pays the bills current, or (2) Establishes a satisfactory payment plan. The collections rule affects borrowers with credit scores of below 700 in particular, as they're more likely to have overhanging accounts.
The changes from HUD, though, have created specific "outs" for borrowers with collections.
For example, the FHA will consider a borrower's circumstance via a written explanation when considering disputed collections accounts. If one of the disputed accounts in question stems from a medical bill, death, divorce, or loss of employment -- collectively known as "life events" -- and the borrower can document the situation, the FHA mortgage may still be approvable.
A revision is expected to be formalized by Juy 1, and HUD is open for comments. Until then, the existing collection policy remains in place.
The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.
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2015 Conforming, FHA, & VA Loan Limits
Mortgage loan limits for every U.S. county, as published by Fannie Mae & Freddie Mac, the Federal Housing Administration (FHA), and the Department of Veterans Affairs (VA)