In a policy switch that could be important to hundreds of Ventura County loan applicants seeking low-down-payment home mortgages, the FHA has rescinded tough new credit restrictions that had been scheduled to take effect Sunday.
The policy change would have affected Ventura County borrowers who have one or more collections or disputed-bill accounts on their national credit bureau files in which the aggregate amounts were $1,000 or more and Ventura County loan applicants would have been required to resolve them before they could close on a loan.
Disputed bills are commonplace in many Ventura County loan applicants, but may not indicate serious credit risk. It is possible they are simply a disagreement between merchant and Ventura County customer over price, quality of the product or the terms of the credit arrangement.
Many complained that the policy favored the creditors and disproportionately harmed Ventura County FHA’s traditional core borrowers — low- to moderate-income families, first-time buyers and minority groups. Others commented that the policy would not help the FHA weed out serious credit risks since private Ventura County lenders already are doing so by imposing their own credit score and other restrictions on Ventura County applicants. Although FHA accepts scores as low as 580, many Ventura County lenders may require scores of 640 or higher. The average score for Ventura County FHA buyers was 713 in May.
FHA will continue to reevaluate its credit policies “to find a balanced yet flexible approach to promote access to affordable credit while protecting the mortgage insurance fund,” says Deputy Assistant Secretary Charles Coulter. The FHA plans to issue a new rule soon for Ventura County buyers that addresses collection accounts and disputes separately rather than lumping them into a single standard, agency sources said.
If you plan to apply for an FHA loan in Ventura County and you have collections or disputes in your file, the positive news is that you won’t be forced to pay off or resolve the accounts before closing on your Ventura County home, but you are likely to have your application referred for manual underwriting, and a loan officer will analyze the facts and circumstances of your collections or disputed accounts. With some exceptions, this will almost certainly slow down your approval.
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