"The joke was on you April 1, if you applied for a Federal Housing Administration (FHA) home loan and had an outstanding credit dispute of $1,000 or more pop up.
Beginning April 1, the FHA began tossing home loan purchase applications in the circular file if the applicant had an ongoing credit dispute or collections action of $1,000 or more on his or her credit report.
To pass muster you must either pay off the outstanding balance of the disputed account or document a payment arrangement the lender must submit to the FHA before you close the deal.
You can't pay down a disputed amount to an amount below $1,000 to skirt the new rule.
The payments arranged for the accounts will be included in the calculations of your debt-to-income ratios.
You are exempt from the rule if the disputed amounts are less than $1,000 or more than two years old. Also exempt for the rule are disputes arising from identity theft, credit card theft or unauthorized use, provided you can produce proof you filed an identity theft or police report to dispute the fraudulent charges.
A similar existing rule applies to court-ordered judgments for debts you owe. You must pay them off or document a payment plan before closing.
Entry-level home builders told John Burns Real Estate Consulting the new rule would have disqualified 60 to 84 percent of buyers who were luckily already under contract at some new home communities.
Higher FHA loan costs
The rule comes prior to the FHA's hike in mortgage insurance premiums, due April 9.
Then, the FHA will increase its annual mortgage insurance premium by 0.10 percent. If the loan-to-value is 95 percent or less the rate will rise from 1.10 percent to 1.20 percent. If the loan-to-value is greater than 95 percent, the premium will rise from 1.15 percent to 1.25 percent. Upfront premiums will also increase by 0.75 percent from 1 percent to 1.75 percent.
The FHA has been hiking insurance premiums over the past 18 months, increasing a typical borrower's mortgage payment by $95 a month.
The new rules don't apply to certain special streamline refinance loans or reverse mortgages.
Last month, President Obama announced a lower-cost FHA streamlined refinancing program for certain homeowners with existing Federal Housing Administration (FHA) loans. Fees for the new FHA loan have been substantially reduced.
Effective June 11, 2012, for qualifying borrowers, the cost for the upfront mortgage insurance on FHA loans will be reduced to 0.01 percent of the loan amount, down from 1 percent, according to a White House fact sheet.
The annual mortgage insurance amount will be reduced from 1.15 percent to only 0.55 percent per year. Qualifying borrowers must be current on an existing FHA-insured mortgage signed on or before May 31, 2009.
FHA troubles
The FHA is making purchase mortgages more costly and tougher to get to raise $1 billion to help offset losses to its insurance fund. Congress mandated that the fund keep 2 percent of its portfolio in reserve. Last year, the level slipped to only a little more than 0.2 percent.
The fund is available on top of $29 billion the agency holds to pay expected claims. The FHA is also due another $1 billion from the National Mortgage Settlement.
FHA backs mortgages that cover as much as 96.5 percent of a home's value. The loans virtually replaced toxic subprime loans which were popular during boom times." [Read more]
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