FHA Removes Credit Rule
In March of 2012, the Federal Housing Administration drafted a rule to help lower its risks to its emergency fund, which was to require borrowers to pay all collection accounts over $1,000.00 or have documented payment arrangements with them before a mortgage loan was approved. The rule went into effect April 1, 2012 but was delayed a week later to be revisited in July 2012 after industry comments were considered.
A combination of the inclining insurance premiums meant to support the FHA emergency fund that was close to needing a bailout and the new rule caused speculation that more business would be pushed to the GSE giants Fannie and Freddie. Industry experts did not support the new credit rule, especially lenders heavily reliant on first time homebuyer business and homebuilders. According to the vice president of John Burns Real Estate Consulting, Lisa Marquis Jackson, 25% of builders they surveyed the week FHA announced the new rule anticipated loosing or delays in up to 60% of their sales. The vice president of the firm went on to comment that the effect of the dispute rule would have a “notable impact on the housing market.”
Edward Mills, senior vice president of FBR Capital Markets commented about the difficulty in making choices to protect the insurance fund while still keeping mortgage credit available.
In a letter sent Friday by the FHA, the credit rule is revoked, though an FHA spokesperson advised they are still taking comments about the original proposal and will be issuing a new guidance very soon.