FHA Revokes Controversial Credit Dispute Rule
June 19, 2012
The Federal Housing Administration has decided to rescind a rule that would have made it tougher for borrowers with credit disputes on their records to qualify for an FHA-backed mortgage. The rule had been widely criticized by the lending and real estate industry as shutting out too many potential borrowers from qualifying for a mortgage.
The new rule originally took effect April 1 but then was postponed a week later until July 1 as the FHA further reviewed the policy change.
The guideline would have required borrowers who wanted to qualify for an FHA-insured mortgage to pay off any credit dispute in their history of more than $1,000 or set up a documented payment plan on any unpaid collection accounts.
"FHA killing off the rule is not a surprise when you take into account the resounding objection from the housing finance community and their concern that this would overly constrain credit," Edward Mills, senior vice president at FBR Capital Markets, told HousingWire. "This action shows how it can be incredibly difficult to make choices that move towards protecting the insurance fund over keeping mortgage credit available."
The FHA rule was expected to have the greatest impact on young, first-time borrowers. John Burns Real Estate Consulting found in a recent survey that about a quarter of builders said that the rule had the potential of delaying or losing up to 60 percent of their sales.
"The ripple effects of the FHA credit dispute rule would have had a notable impact on the housing market," Lisa Marquis Jackson, vice president of John Burns Real Estate Consulting, told HousingWire.
Source: “FHA Rescinds $1,000 Credit Dispute Rule,” HousingWire (June 16, 2012)
Updated: August 11, 2020