FHA Backtracks on Homebuyer Credit Dispute Requirements

""HUD"":http://portal.hud.gov/hudportal/HUD rescinded guidance Friday that would have obligated homeowners to resolve debts outstanding of $1,000 or more or enter into a repayment plan by closing time for a mortgage backed by the ""Federal Housing Administration"":http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/fhahistory (FHA).

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Guidance from February required that lenders with homeowners in dispute of credit accounts or collections in that amount resolve or pay down the debt in order to meet eligibility criteria for

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a FHA-insured loan.

That policy would have gone into effect by July 1. Brian Sullivan, a spokesperson with HUD, tells us that rescinding the guidance translated into a ""distinction"" from earlier.

Borrowers with disputed debt involving $1,000 or more ""won't have to work on a debt repayment plan,"" he says.

An earlier policy written by the federal agency still calls on lenders to forward the applications of homeowners with ongoing disputes to manual underwriters.

Sullivan says that policy remains in effect.

""If the credit report reveals that the borrower's disputing any credit account or public records, the mortgage application must be referred to a [manual underwriter] for review├â┬ó├óÔÇÜ┬¼├é┬ª to get a human to eyeball the application and more fully understand what's going on,"" he says.

He adds that the FHA intends ""to revisit this issue very soon."" The agency means to ""balance our need to manage risk while still preserving financing options to otherwise qualified borrowers,"" he says.