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FHA Rescinds Controversial Credit Dispute Rule, Mabel Guzman on its ‘Black and White’ Nature

by Chicago Agent

After considerable controversy, the FHA has revoked its credit dispute rule.

The FHA has rescinded a highly-controversial credit dispute rule that put an untold number of mortgage applications at risk with the government lender.

Drafted in March to shore up its emergency fund, the rule forced potential homebuyers with FHA mortgages to settle any ongoing credit disputes in excess of $1,000; if any such outstanding debts were not settled, the homebuyer would risk losing the mortgage.

The rule ruffled the feathers of numerous real estate professionals (especially builders, who tailor to the first-time-buyer market that generally utilized FHA financing), and after delaying the rule and seeking industry comments, the FHA has now completely revoked it.

The big issue with the rule, said Mabel Guzman, an @properties agent and member of NAR’s Conventional Finance & Lending Committee, was its vagueness.

“The rule was a little too black and white,” she said. “They assumed that every credit line is attributed to this person.”

And when Guzman said “every credit line”, she meant it – more than once, she’s seen clients whose loans were stalled by the most left-field credit disputes imaginable. One client of particularly strong credit was delayed by a credit dispute of $80,000 on an American Express credit card – the client, though, had never used an American Express card, and the alleged dispute originated when he was three years old. Yet, at the same time, the client shared his name with someone who did have the dispute, and for that reason, the dispute was lumped into his loan.

The whole charade involving the rule, Guzman continued, is a clear indication of the tricky position the FHA is currently in. After decades of being a specialty lender, the FHA’s status has risen exponentially, as more and more borrowers have fled to its relatively lenient lending policies.

Such an increase, though, has placed additional scrutiny on the FHA’s business practices, and its attempted to shore up its finances the last few months. But as Guzman put it, the credit dispute rule, and the way it resurrected issues from decades past, went a little too far in that approach.

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