The FHA rule regarding collection accounts has been clarified as of April 4, 2012. Under the newest letter from FHA buyers are now given the opportunity to explain disputed accounts reflected on their credit report. Under FHA guidelines that took place as of April 1, 2012 borrowers that had disputed collection accounts in excess of $1000 were unable to get FHA financing without either paying the accounts were showing that a payment plan with payments having been made for three months was in effect. As of April 4, 2012 these rules have been eased to the extent that buyers will be given the opportunity to show that the collection account is a result of some “life event” such as loss of employment, divorce, illness, etc.
In these cases the buyer may still be eligible for FHA financing upon showing appropriate documentation regarding the collection account and the “life event”. Underwriters are then instructed to evaluate the application including the collection accounts and see if it makes sense with the borrower’s overall credit picture.