Connect with us

Hi, what are you looking for?

The American GeniusThe American Genius

Housing News

New FHA rule could hold back willing home buyers

Starting April 1, 2012 a new qualification rule could dramatically change the volume of buyers that qualify for FHA-backed loans, especially impacting first time buyers.

Federal Housing Administration shakeup

Beginning April 1, 2012, any borrower with ongoing disputes with creditors over any debt above $1,000 may no longer qualify for FHA-insured loans, regardless of credit scores. Prior to April, lenders could decide whether debt disputes merited denial, but now the decision is not in their hands as they must justify the approval to the FHA along with documentation.

The FHA is attempting to reduce its overall risk and increase capital as their reserve funds have fallen below what is legally mandated. For the same reasons, the agency has already announced insurance premiums it charges will increase in April as well.

Why the tightening of the belt?

Besides depleted reserves, the agency says that the new requirements are a protection measure for borrowers. Tiffany Thomas Smith, deputy press secretary for the U.S. Department of Housing and Urban Development, FHA’s parent agency told CNN, “It’s a way of protecting consumers from getting into loans they ultimately can’t afford.”

The new rule mandates that prior to closing any FHA loan, borrowers must pay off any debt adding up to over $1,000, prove they are making payments on the disputed amounts or explain the dispute, along with documentation.

Advertisement. Scroll to continue reading.

The FHA notes exceptions to the rule are any case involving theft of identity or fraud, and disputed accounts over 24 months old. Again, the FHA is not just taking a borrower or lender’s word, there must be documentation like police reports of fraud.

The long term impact

FHA loans are one of the few means a borrower (particularly a first time buyer) has to secure a low down payment with the average FHA loan requiring a 3.5 percent down payment. Some suggest this new rule could slow the recovery of the real estate market.

While most of the focus has been on foreclosures and the recent $25 billion mortgage settlement aimed to curb foreclosures, and much attention has been paid to underwater homeowners, but few headlines center around willing home buyers and as the first time buyer market is shrinking, this new FHA rule could definitely present a challenge to these buyers, even those with superior credit scores.

Advertisement. Scroll to continue reading.

Tara Steele is the News Director at The American Genius, covering entrepreneur, real estate, technology news and everything in between. If you'd like to reach Tara with a question, comment, press release or hot news tip, simply click the link below.



  1. Greg Cook

    April 2, 2012 at 2:59 pm

    Tara, I’m a lender and would like to see every applicant get a loan but a credit score less than 640 doesn’t get there by accident.
    FHA and Lenders know that the likelihood of default more than doubles when there is a low down payment and low credit score.
    If the borrower can prove the derogatory credit is due to identity theft, then the new guidelines don’t apply.
    There are thousands, maybe millions of potential home buyers with good credit, now maybe now they’ll have more opportunity to buy their first home.

Leave a Reply

Your email address will not be published. Required fields are marked *


American Genius
news neatly in your inbox

Subscribe to our mailing list for news sent straight to your email inbox.




Real Estate Technology

(TECH NEWS) It turns out that Internet of Things, like smart bulbs in homes, are not secure and give up your info - here...

Real Estate Marketing

(MARKETING) Your fancy, self-animating website might be making people violently ill, even if it is insanely beautiful. Sorry...

Real Estate Marketing

(MARKETING) Conduit is a CRM that does more than CRM, it analyzes your networking data to help you see how to improve your relationships.

Real Estate Corporate

(REAL ESTATE) Zillow has long been a data powerhouse, but a lawsuit about a $150M listing offers a look into listings claims.

The American Genius is a strong news voice in the entrepreneur and tech world, offering meaningful, concise insight into emerging technologies, the digital economy, best practices, and a shifting business culture. We refuse to publish fluff, and our readers rely on us for inspiring action. Copyright © 2005-2022, The American Genius, LLC.