This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

FHA Reconsiders New Rule on Lending to Those With Debt

NEW YORK ( MainStreet) -- The Federal Housing Administration has delayed, and will likely revamp a rule that says consumers with more than $1,000 in "collections debt" cannot get a federally backed mortgage. The FHA has put the rule on ice until July and is weighing changes to it as well, the agency reports.

Scores of potential homeowners may be hanging on to a decision that they hope breaks in their favor.
A minor debt load had previously disqualified many potential homeowners from getting a federally backed loan.

After all, the FHA is the largest insurer of mortgages, not just in the U.S., but in the world. Since its inception in 1934, the FHA has insured 34 million home mortgages, and currently has 4.8 million insured mortgages in-house, the agency reports.

Many of those insured mortgages benefit new homeowners, a slice of the American consumer base that often has steep debt in the form of college and graduate school loans. Employment is down for younger Americans - a recent Pew Research survey says the unemployment rate for Americans age 16-24 is 16.3%, and 10.3% for Americans age 25-34.

The FHA is aware of those statistics, and wants to give debt-ridden homeowners a square deal, but not so much that it guarantees mortgages for risky homeowners at the drop of a hat.

Here's the back story.

According to a notice released by the agency Friday, a rule that stops mortgage borrowers with a disputed collection of more than $1,000 from getting an FHA-backed loan will be placed on the back burner for further review.

Under an earlier FHA rule, borrowers who even had good credit could be rejected for an FHA-backed loan if they owed $1,000 to a creditor.

That rule had some exceptions:
  • Disputed debts that were linked to identity theft or credit card theft were exempt from the FHA rule.
  • If borrowers had worked a payment plan deal with a creditor, and could show three straight months of payments, they were exempt from the rule.
  • Any disputed payment more than two years old would not factor in to an FHA guaranteed mortgage.
  • Now the delayed action will reportedly allow FHA mortgage borrowers who suffer "life event" financial hardships like divorce, illness or unemployment, to be exempted from the $1,000 rule as well.

    There is no hard and fast data that shows how many potential homeowners owe more than $1,000 in disputed debt. But JPMorgan Chase (JPM), in a research note released by Housing Wire on Thursday, said the FHA rule as it was originally proposed could curb demand for FHA-backed mortgages by 20%.
    1 of 2

    Check Out Our Best Services for Investors

    Action Alerts PLUS

    Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

    Product Features:
    • $2.5+ million portfolio
    • Large-cap and dividend focus
    • Intraday trade alerts from Cramer
    Quant Ratings

    Access the tool that DOMINATES the Russell 2000 and the S&P 500.

    Product Features:
    • Buy, hold, or sell recommendations for over 4,300 stocks
    • Unlimited research reports on your favorite stocks
    • A custom stock screener
    Stocks Under $10

    David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

    Product Features:
    • Model portfolio
    • Stocks trading below $10
    • Intraday trade alerts
    14-Days Free
    Only $9.95
    14-Days Free
    Dividend Stock Advisor

    David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

    Product Features:
    • Diversified model portfolio of dividend stocks
    • Updates with exact steps to take - BUY, HOLD, SELL
    Trifecta Stocks

    Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

    Product Features:
    • Model Portfolio
    • Intra Day Trade alerts
    • Access to Quant Ratings
    Real Money

    More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

    Product Features:
    • Access to Jim Cramer's daily blog
    • Intraday commentary and news
    • Real-time trading forums
    Only $49.95
    14-Days Free
    14-Days Free
    FB $117.75 0.27%
    GOOG $693.43 0.15%
    TSLA $232.98 0.28%
    YHOO $35.91 -0.28%
    AAPL $95.03 -0.16%


    Chart of I:DJI
    DOW 17,686.19 -64.72 -0.36%
    S&P 500 2,049.62 -13.75 -0.67%
    NASDAQ 4,732.8370 -30.3870 -0.64%

    Free Reports

    Top Rated Stocks Top Rated Funds Top Rated ETFs