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New FHA collections rule

HousingWire...April 5. 2012



"A new rule prohibiting homebuyers from getting a Federal Housing Administration mortgage if they owe more than $1,000 in outstanding collections accounts could cut demand by up to 20%, according to banking analysts.

The rule went into effect April 1. If a borrower enters into a payment plan on these accounts, then an exemption could be granted. Also, the FHA clarified the rule this week, stating if a borrower documents the collections account stems from a "life event" such as a medical bill, divorce or loss of employment, he or she could still qualify for the loan."

"FHA's recent clarification on the rule represents only a modest softening, in our view," said JPMorgan Chase analysts in a note Thursday. "We believe borrowers having outstanding collections in one arena also likely have outstanding collections in other areas."

"Chase analysts estimate this rule should negatively impact roughly 10% to 20% of demand for the FHA universe over the next two to three months."

Full Article

  • April 05 2012 - US
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Answers (17)

Rule Number 1, do not payoff an old collection(s) in preparation for an FHA mortgage, do not do anything until you go over the credit with your loan originator.

Rule Number 2, do not break rule number 1.
  • April 05 2012
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Since those Rules came from you ( Clay Branch, "Georgia Loans" )
I'm gonna write them down in my book as Golden Rule #1 & # 2

Sounds like sold advice
  • April 05 2012
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Rule #3; never listen to anything a "JPMorgan Chase analyst" says. 

"We believe borrowers having outstanding collections in one arena also likely have outstanding collections in other areas."

[insult deleted my Zillow moderator.  Please refer to Good Neighbor Policy for details.]
  • April 05 2012
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[insult deleted by Zillow moderator.  Please refer to Good Neighbor Policy for details.]


Will it have an impact on demand as suggested?..
  • April 05 2012
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No doubt it will have impact on demand, but I don't agree with the statement I highlighted. In my experience, the uninsured and under-insured with medical debt that has gone to collection, have otherwise stellar credit and default on the medical debt as a means to survive. The clarification on the new rule is welcomed and will make a difference to many who are creditworthy despite medical collections. 
  • April 05 2012
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It is $1,000 per borrower so if borrower had balance of $999 or less and co borrower had $999 or less, the collection accts would not be required to be paid off. Typically both are on the collection acct but not as likely on medical accts, autos, utilities, etc.
Every little bit helps............
  • April 05 2012
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better watch out for the DC red light cams. Those tickets will pop up on your credit faster than greased cat **** on a linoleum floor.
  • April 05 2012
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Do we think "negatively impact roughly 10% to 20% of demand for the FHA universe over the next two to three months"? is a realistic assessment/possibility?
  • April 06 2012
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Just for entertainment

Jamie Dimon, CEO of JP Morgan Chase, sent a 38 page letter to shareholders explaining his personal take on earnings, the mortgage crisis, his opinion on the real estate economy and explains why mortgages stalled their profits ......Letter to Shareholders......
  • April 06 2012
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LOL..

What was the Insult?...Insult of who?...JPMorgan Chase?

Ridiculousio
  • April 06 2012
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Now I remember the Insult...

In my previous Post I had typed "Sounds like sold advice"
So I did the correct it thing (solid) and said "What a moron"...about myself

Thank you Zillow for not allowing me to insult myself..appreciated

Looks like Mr. Brown & I insulted ....each other
Hilarious! I think he said What a Moron about Chase analysts lol
  • April 06 2012
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The whole insult deleted thing was Moronic..

Is that an insult?
  • April 07 2012
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Well that was fast

HousingWire...April 9, 2012

"The Federal Housing Administration rescinded and will delay a rule that as of April 1 prohibited borrowers with more than $1,000 in disputed collections accounts from getting a federally backed mortgage, according to a notice sent late Friday.

FHA postponed the rule until July, and will take public comment from lenders, builders and others in the industry until then to clarify guidance."

"FHA delays controversial collections rule for mortgage coverage eligibility

  • April 09 2012
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comment period? "yeah, we want to loan money to people that don't pay their bills".

Might make for some interesting reading.
  • April 10 2012
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Tug, I am going through some old files this morning and came across a lender's flyer for 2008. Since you linked the 38 page book above, i thought you may find this interesting ( or not ). The following is a mortgage program outline and I would call a solicitation to mortgage brokers since this came from the subject's wholesale division:

Underwriting Guidelines:

Maximum of FIVE 30 day mortgage lates in the last 12 months
Debt to Income Max - 50%
Payoff any collections over $2,000 that are 24 months aged or less
Chapter 7/FC - 12 months seasoning
Credit Score - 500
Max Loan Amount - 75% ( up to $250K)  70% ( up to $500K )
Income Documentation - Full Doc or 12 Months Bank Statements
( Bank statements used in lieu of W-2 and pay stubs or taxes for SE. The income was calculated by adding all deposits, then divided by 12 to get the monthly income).

Tug, this is just 1 program from the past but what do you think about it? Do you think it mattered if a loan meeting these parameters was originated by a mortgage broker or internally by the lender's own retail LO? Assuming a 30% default rate on all loans submitted under this program, do you think it is correct to place the blame of those defaults on the mortgage broker?    
 
  • April 15 2012
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Go for the Throat Clay lol

Well..............Yes....No...Depends...Maybe...If

I'm not an Expert or a Mortgage Pro, I wasn't sitting in the offices meeting the people, don't know but several of the people who got the loans or gave them....your view was probably much better than mine, your experience/knowledge/understanding is far greater than mine & for some odd reason I tend to give your opinion weight....
Think you've earned that in this Forum

I'm just the Moron from Oregon;) I read thru this stuff & the 38-43-60 pages of this or that, ask questions, wonder about/question the Morality of doing this or that, who's befitting really, why is it done this way blah blah blah

Why...Because I'd like to know more so I could confidently answer your Question if asked

How's that for a Disclaimer?
I will gladly share this one persons (The Moron from Oregon) opinion/thoughts...but gonna thunk on it for a minute or three & have a Cup of Coffee so I can take a shot at expressing it in a semi-coherent way

Big Question
Little Mind...Needs Time

BTW...Thanks for the Discussion and the Question
  • April 15 2012
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Still stalling...know a simple Yes or No is probably expected and or appropriate but can't seem to commit ;)

To this.."do you think it is correct to place the blame of those defaults on the mortgage broker?"....

No...not all the blame for all the defaults...but maybe some?
(See how much progress I'm making?)..I will expand and I don't mean just from the Potato Chips..some of the expansion will be my response


Anyway here's a question in Home Buying I think the Mortgage Pros are better able to help with
Can a 19 year old buy a house?

  • April 15 2012
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