FHA lockout period just 1 year for some
Sept. 4, 2013 – Some borrowers who have gone through foreclosure or other actions that would normally bar them from a Federal Housing Administration-backed loan for three years won’t have to wait that long under a recent rule change.
FHA, part of the Department of Housing and Urban Development, can guarantee loans for borrowers affected by a rule-defined “economic event” as early as one year after reestablishing “satisfactory credit,” according to HUD Mortgagee Letter 2013-26 (“Back to Work – Extenuating Circumstances”).
An economic event could include a bankruptcy, foreclosure, deed-in-lieu, short sale, delinquency or indications of derogatory credit. To be eligible for a mortgage under this program, the borrower must first document that the delinquencies and/or indications of derogatory credit are the result of a defined economic event, complete satisfactory housing counseling and satisfy other requirements.
NAFCU has raised concerns with Congress and the FHA over the FHA’s brief, three-year lockout period for borrowers having already undergone a foreclosure. (The lockout period at Fannie Mae and Freddie Mac is seven years.) It has also urged greater congressional oversight of FHA.
HUD Mortgagee Letter 2013-26
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