The Federal Housing Administration has made a last-minute attempt to soften new underwriting guidelines that penalized borrowers with ongoing credit disputes.
Under new requirements that went into effect April 1, the agency will allow loans for borrowers with disputed credit accounts or billings of less than $1,000 to be processed by FHA's TOTAL automated underwriting system. The clause affected debts that were at least two-years old.
As originally conceived, all borrowers with credit disputes had be processed manually — and approved by a FHA delegated underwriter.
On its face, the change should make the processing of loans faster for some borrowers.
However, borrowers with credit disputes equal or greater than $1,000 must pay them off or start a repayment plan if they want to be considered for a FHA single-family loan, according to Mortgagee Letter 2012-13.
Some lenders are concerned these tighter requirements might block many more borrowers from qualifying for a mortgage than FHA officials expect.
Last Friday, FHA issued a clarification that gives the borrower the option of explaining in writing why a collection occurred and why it has not been paid. The delegated underwriter can approve the loan application if the explanation "makes sense and it is consistent with the other credit information in the file," FHA says in March 30 email to FHA lenders.