June 28, 2017

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FHA Updates Loan Rules On Credit, Collections, and Judgments

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A recent reader question asked, “I have an outstanding judgment in the amount of $8000. Can I still get a loan?”

FHA loan rules are clear on the issue of credit, stating that past credit performance and patterns are considered one of the best indicators of whether an FHA loan application should be approved. But recently, the FHA has issued clarifications and updates to lenders on the subject of judgments, collections and other activities that could be considered negative credit data.

According to FHA Mortgagee Letter 2013-24, Handling of Collections and Disputed Accounts, the FHA has amended its guidelines and policies for collections, disputed accounts, and judgments for most credit-qualifying FHA loan transactions. It applies to all affected FHA loans with case numbers assigned on or after October 15, 2013.

According to the mortgagee letter, “Collections and judgments may indicate a borrower

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