The FHA has decided to do away with a rule that would have created a closing delay of 3 months or more if an FHA borrower had debt totaling or exceeding $1,000. Now, the FHA â€œcredit-disputeâ€ rule has been withdrawn, according to an agency letter released Friday.
A HUD spokesperson said in an email that the decision to rescind the earlier proposal, which was first announced in February, was based on input received.
â€œWe plan to issue a new [Mortgagee Letter] shortly which will be more clear in our effort to manage risk on this issue without the unintended consequence of denying mortgage financing to otherwise qualified borrowers,â€ the spokesperson said.
According to the old guidance, which is the current rule, â€œ[i]f the credit report reveals that the borrower is disputing any credit accounts or public records, the mortgage application must be referred to a [direct endorsement] underwriter for review.â€ In other words, an FHA spokesperson explained it will â€œget a human eyeballâ€ to more fully understand what is going on.
The proposed policy that has been rescinded as of Friday would have required a borrower to either cure the collections debt before closing or resolve the debt through a repayment plan, which would have to be maintained for a minimum of three months before closing.
The proposal was originally introduced to lower credit default.
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