Last week, the Department of Housing and Urban Development issued Mortgagee Letter 2012-10 which rescinded the guidance that was published March 1 in ML 2012-03. I wrote about those updates as part of a larger post dealing with the MIP changes that were front-and-center at the time.
The guidelines, which many complained (rightfully so, in my opinion) would add undue stress to FHA’s targeted demographics and further strain the housing market, were scheduled to go into effect on July 1. They would have required borrowers with disputed credit accounts in excess of $1,500 to resolve all of the disputes before a loan could be eligible for FHA insurance. Further, the guidelines would have required all collection accounts to be paid off if the aggregate balance of the accounts exceeded $1,000. As you’ve likely seen in your origination business, a healthy number of applicants for FHA-insured mortgages show some older, unresolved collections exceeding that $1,000 amount.
This is welcome news to those of us who work with borrowers using the FHA product. Yes, the volume of FHA-insured purchase and credit-qualifying refinance loans has dropped since the recent MIP changes took effect, but HUD still captures a large market share, and artificially limiting homeownership opportunities for creditworthy borrowers with older blemishes on their bureaus is just bad policy. It’s refreshing that HUD came to that realization before July 1and took these actions, although we do expect them to “provide further clarification” on disputes and collection accounts again in the future.
The full mortgagee letter detailing the credit guidance rescission (but leaving other guidance intact) can be found here.